B.C Mitra, J.:— This appeal is directed against a judgment and order dated July 31, 1970. By that order, the trial court granted the respondent's prayer for rectification of the share register of the appellant by entering therein the name of the respondent as the registered holder of certain shares mentioned in annexure ‘A’ to the petition.
2. The respondent purchased a lot of 2,256 fully paid-up equity shares in the capital of the appellant, the value of each share being Rs. 50. Thereafter, the respondent applied for registration of the shares in his name. Upon application by the respondent for registration of the transfer of the shares, the appellant wrote to one of the transferors, enquiring about the genuineness of the transfer of the shares in favour of the respondent, and also whether full consideration for the transfer was paid. One of the transferors by his letter dated July 5, 1969, informed the appellant that he had sold the shares to the respondent on payment of full consideration, and also that he had no objection to registration of the shares in the name of the respondent. A similar letter was written by another transferor. By 3 letters dated June 2, 1969, June 18, 1969, and July 5, 1969, the appellant informed the respondent that, as the transfer of the shares seemed to be questionable, the mutation applied for could not be allowed in the facts and circumstances of the case. On his refusal to register the transfer of the shares, the respondent made an application for rectification of the share register under section 155 of the Companies Act, 1956 (hereinafter referred to as “the Act”). On this application the trial court made the order appealed against.
3. The only question involved in this appeal is whether the appellant's refusal to register the transfer in favour of the respondent was lawful. For the purpose of ascertaining the extent and scope of the powers of the appellant in the matter of registration of transfer of shares, it is necessary to refer to article 29 of the articles of association of the appellant. This article is as follows:
“29. (1) The board may, subject to the right to appeal conferred by section 111, decline to register:
(a) The transfer of a share, not being fully paid up share to a person whom they do not approve; or
(b) Any transfer of shares, on which the company has a lien.
(2) The board may also decline to recognise any instrument of transfer unless:
(a) A fee of Rs. 2 is paid to the company in respect thereof;
(b) The instrument of transfer is a ccompained by the certificate of shares to which it is related and such other evidence as the board may reasonably require to show the right of the transferor to make the transfer;
(c) The instrument of transfer is in respect of only one class of shares.”
4. The appellant's power to decline registration of the transfer must be derived from one or other of the clauses mentioned above. It is not in dispute in this case that the shares are fully paid up, nor is it in dispute that the company has no lien on the shares which the respondent had acquired. It is necessary to refer to the provisions in a few sections of the Act. Section 108(1) of the Act provides that a company shall not register a transfer of shares or debentures, unless a proper instrument of transfer, duly stamped and executed by or on behalf of the transferor, and by or on behalf of the transferee and specifying therein the name, address and occupation of the transferee, has been delivered to the company along with the letter of allotment of the shares or debentures. The next important section to be referred to is section 111. By an amendment made in 1965 the words “or otherwise” were added in sub-section (2) of that section. I set out below sub-sections (1) and (2) of section 111 of the Act:
“(1) Nothing in sections 108, 109 and 110 shall prejudice any power of the company under its articles to refuse to register the transfer of, or the transmission by operation of law of the right to, any shares or interest of a member in, or debentures of, the company.
(2) If a company refuses, whether in pursuance of any power under its articles or otherwise, to register any such transfer or transmission of right, it shall, within 2 months from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferee and the transferor or to the person giving intimation of such transmission, as the case may be.”
5. Mr. S. Mookerjee appearing for the appellant raised two points in support of this appeal. The first point urged by him was that, although the articles did not confer upon the company the power to refuse registration of fully paid-up shares, such power could be exercised by virtue of amendment to sub-section (2) of section 111 of the Act by addition of the words “or otherwise”. The second point urged by him was that the respondent was intent upon ruining the company, and for that reason he was a very undesirable person so far as the company was concerned, and therefore the directors had rightly refused to register the shares in his name.
6. In support of the first point mentioned above, counsel for the appellant submitted that by virtue of the amendment, the Indian law with regard to registration of shares has become altogether different from the corresponding provision in the English law. He argued that the words “or otherwise” in sub-section (2), introduced by the amendment in 1965, clearly indicated that the legislature contemplated giving to the company a power to refuse registration de hors the provisions in the articles of the company. In support of this contention reliance was placed on the report of the Companies Act Amendment Committee in which it is stated at page 48 that provision should be made in sub-section (2) of section 111 for cases where a company refuses to register a transfer, even though its articles do not empower it to do so. He argued that the power of the directors to refuse registration should be inferred quite independently of the provisions in the articles of the company. In support of this contention reliance was also placed on a decision of the Supreme Court in Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhmjhunwala [1961] 31 Comp. Cas. 387. Reliance was placed on this decision for the proposition that refusal by the directors to register shares must be on reasonable grounds and that such refusal should not be based on capricious or oppressive grounds and should not be mala fide. In that case, however, the articles conferred upon the directors the absolute discretion, without giving any reasons, to refuse to transfer any shares whether such shares were fully paid or not. It was held that normally the court would presume, where the directors had refused to register transfer of shares when they were invested with absolute discretion to refuse registration, that the exercise of the power was bona fide. It seems to us that this decision is of no assistance to the appellant, as the articles in that case clearly provided for an absolute discretion to refuse registration. There is no such provision in the articles of the company in this case. Reliance was next placed on a decision of this court in Dhelakhat Tea Co. Ltd., In re2, for the proposition that in an application for rectification of share register, if serious questions of fact were involved, there should not be a summary trial of such disputed questions, and that the parties should be relegated to a suit. But, in this case, there is no such disputed questions of fact, and as I see it the only question is one of interpretation of section 111(2) of the Act. Reliance was next placed on another decision of the Supreme Court in Bajaj Auto Ltd. v. N.K Firodia [1971] 41 Comp. Cas. 1 S.C.. In that case also the articles of the company provided that the directors might at their absolute discretion decline to register a transfer of shares. It was held that the discretion did not mean a bare affirmation or negation of a proposal but that it implied just and proper consideration of the proposal by the board. It seems to me that this decision is also of no/assistance to the appellant. Reliance was next placed on a Bench decision of the Delhi High Court in Jalpaiguri Cinema Co. Ltd. v. Pramatha Nath Mukherjee [1971] 41 Comp. Cas. 678 Delhi.. In construing the words “or otherwise”, which were introduced by the Amending Act of 1965 to sub-section (2) of section 111 of the Companies Act, it was held that those words could not have the effect of enlarging the power to refuse registration of transfer of shares as given by sub-section (1) and that sub-section (2) could not be construed so as to confer power on a company, a power to refuse registration of transfer, even though such power is not conferred by the articles of the company.
7. It seems to us that the first contention of the counsel for the appellant is without any merit. The law, on the question of a right to transfer shares, is well settled, and an application for registration of transfer of shares cannot be refused, unless the articles empower the board of directors to do so. A member of a company has an unfettered right to transfer the shares to another person, unless this right is taken away by the articles; and a transferee under a valid transfer has an absolute right to be registered unless the company has a power to refuse to register (see Palmer's Company Law, 21st edition, pages 331, 333). I cannot accept Mr. Mookerjee's contention that by addition of the words “or otherwise” to section 111(2) of the Act, an additional or new power was created and conferred upon the company. To hold that, even though the articles of a company do not provide for an absolute discretion to register a transfer, yet such a power can be exercised by the board of the company, would have the effect of introducing unlimited confusion. A purchaser who acquires the shares of a company by relying upon the provisions in the articles may find himself without any remedy if the board is recognised to have the power to refuse registration, although the articles did not give it such power. The first contention of counsel for the appellant fails and is accordingly rejected.
8. On the second ground urged by counsel for the appellant, it was said that by reason of a family dispute the elder brother was determined to bring about the ruin of the company and it was for that purpose that the respondent was made to acquire the shares of the company, and, thereafter, apply for registration. A reference was made by counsel for the appellant to certain previous proceedings, namely, an application for winding up of the company by the respondent in 1966, which was settled by payment of a large sum of money to induce the respondent to sell his shares. A second application was again made in the same year for winding up of the company on just and equitable grounds. This application was again inspired by the elder brother but was dismissed by P.B Mukharji J. (as he then was), on the ground that the application was mala fide. This was followed by a suit in the Sealdah Court by Sudhindra, the elder brother along with one Neelkamal, the respondent. In this suit the validity of the annual general meeting of the company held on October 7, 1966, was challenged. The suit was decreed as, according to the respondent. Binoyendra Sen, secretary of the company, gave false evidence contrary to the records. An appeal has been preferred against the judgment of the Sealdah Court and the appeal is now pending. Thereafter, the elder brother Sudhindra, it was contended, filed an application for winding up of the company for non-payment of an alleged claim. According to the appellant this claim was not genuine but the winding up petition was compromised in order to avoid litigation. Relying on these facts, counsel for the appellant contended that the respondent was an extremely undesirable person as far as the company was concerned, and, therefore, the company had rightly refused to register the shares which he had acquired.
9. In our view, the second contention raised on behalf of the appellant must also fail. A purchaser of shares in a company has uncontrolled right to have the shares registered in his name in the company's share register, unless the articles of the company give an absolute discretion to the directors of the company to refuse registration and such power has been exercised bona fide. Even in exercising the power to refuse registration, the ground on which this exercise of power can be upheld is the interest of the company and the interest of the shareholders as a whole. Merely because a person has in the past attempted to wind up the company and that more than one attempt was made for such winding up, it cannot be said that the directors of the company acted lawfully in refusing to register the shares in the name of the respondent.
10. Before concluding I should refer to a decision, H.L Bolton (Engineering) Co. Ltd. v. T.J Graham & Sons Ltd., on which reliance was placed by counsel for the appellant in support of the proposition that the company's decision in regard to refusal to register the shares should be assumed or taken for granted, even though the directors of the company had not passed a formal resolution to that effect. In that case a company gave notice to tenants occupying land belonging to it to quit.
11. The directors met informally, but did not hold any meeting of the board nor pass any resolution. The company's business was normally left to the directors individually and the board of directors only met about once a year. On the question whether the company could validly oppose an application by tenants for a new tenancy, it was held that the company was entitled to oppose the application as the intention of the directors who had not met formally at a meeting was the intention of the company. This question is not relevant, so far as this appeal is concerned, as the trial court proceeded on the footing that the board of directors had, in fact, refused to register the shares. This court in dealing with this appeal also accepted the appellant's contention that there was a refusal by the board of directors of the company to register the shares held by the respondent.
12. In our view, the court below was entirely right in making the order for rectification of the share register of the company. No grounds have been made out for interfering with the order made by the trial court. This appeal is accordingly dismissed with costs. Certified for two counsel.
Ajay K. Basu, J.:— I agree.
13. Appeal dismissed.