1984 (7) TMI 405 - HC - Companies Law

Summary

Issues Involved:
1. Applicability of Article 39 of the Articles of Association.
2. Compliance with Article 41 of the Articles of Association and Section 108 of the Companies Act.
3. Exercise of discretion by the directors under Article 40 of the Articles of Association.
4. Bona fides of the directors' decision to reject the transfer of shares.
5. Jurisdiction of the court under Section 155(2) of the Companies Act.

Detailed Analysis:

1. Applicability of Article 39 of the Articles of Association:
The petitioner argued that Article 39 applied to the case, asserting that the directors failed to find a purchaser for the shares within three months after receiving notice, thus obligating the company to register the shares in the petitioner's name. However, the court found that the notice (Ext. A-4/B-3) was received by the company only on September 24, 1982, not February 14, 1982, as claimed by the petitioner. Consequently, the three-month period had not expired by the time the petitioner applied for the transfer on November 19, 1982. The court held that Article 39 did not apply as the conditions stipulated therein were not met.

2. Compliance with Article 41 of the Articles of Association and Section 108 of the Companies Act:
The court emphasized that compliance with Article 41 and Section 108 is mandatory. The petitioner failed to submit the share certificates and the required fee of Rs. 2 along with the transfer application. The court ruled that this non-compliance was fatal to the petitioner's case, making the transfer application invalid. The belated attempt to rectify this by filing the share certificates and fee in court was deemed unacceptable and outside the court's jurisdiction.

3. Exercise of discretion by the directors under Article 40 of the Articles of Association:
Article 40 grants the directors absolute and uncontrolled discretion to reject any transfer of shares. The court noted that this discretion is presumed to be exercised bona fide unless proven otherwise. The petitioner did not provide evidence to show that the directors acted oppressively, capriciously, or mala fide. Therefore, the court upheld the directors' decision to reject the transfer application.

4. Bona fides of the directors' decision to reject the transfer of shares:
The court reiterated that the burden of proving mala fides lies with the petitioner. The petitioner failed to demonstrate that the directors acted in bad faith or for any collateral purpose. The court found no evidence of oppressive, capricious, or corrupt behavior by the directors, thus upholding the presumption of bona fide exercise of discretion.

5. Jurisdiction of the court under Section 155(2) of the Companies Act:
The court clarified that its jurisdiction under Section 155(2) is not summary but comprehensive. However, it cannot override the directors' discretion unless mala fides are proven. Given the petitioner's failure to comply with mandatory requirements and the lack of evidence of bad faith, the court held that the petition was not maintainable and dismissed it.

Conclusion:
The court dismissed the petition with costs, holding that the petitioner failed to comply with the mandatory requirements of Article 41 and Section 108, did not prove mala fides on the part of the directors, and misinterpreted the applicability of Article 39. The directors' decision to reject the transfer was upheld as valid, legal, and proper.