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Issues Involved:
1. Whether the refusal of the directors to register the transfer of shares was arbitrary and lacking in good faith. 2. Whether the discretion of the directors to refuse registration of a transfer of shares extends to shares purchased at a court auction. 3. Whether the application of the Respondent for registration was premature. Issue-wise Detailed Analysis: 1. Arbitrary Refusal and Good Faith: The primary issue was whether the directors' refusal to register the transfer of shares to Shri Deshpande was arbitrary and lacking in good faith. The Company argued that under Article 9 of its Articles of Association, the directors had "absolute and uncontrolled discretion" to refuse registration if it was not in the interest of the Company. The Company claimed that the refusal was based on valid concerns about the interests of the Company, particularly noting that Shri Deshpande was the lawyer of R.S. Sapate, a person with a history of obstructive behavior towards the Company. The Court emphasized that the discretion must be exercised "reasonably and bona fide" for the Company's benefit, not arbitrarily. It was noted that the onus to prove mala fides was on the shareholder, not the directors. The trial court's decision was found to be flawed because it placed the burden of proof incorrectly on the directors. The Court concluded that the directors' decision was made in good faith, considering the obstructive history of Sapate and his association with the Respondent. 2. Discretion to Refuse Registration of Court Auction Purchases: The second issue was whether the directors' discretion to refuse registration applied to shares purchased at a court auction. The Respondent argued that a court auction purchase should be treated as a transmission rather than a transfer, and thus not subject to the directors' discretion. However, the Court found that the Articles of Association, specifically Articles 18, 19, and 20, applied equally to both transfers and transmissions of shares. The Court held that a purchaser at a court auction does not automatically become a member of the company. The purchaser must comply with the requirements of Articles 18 and 19, which include executing an instrument of transfer. The Court supported the view that the directors retained their discretion to refuse registration even in the case of court auction purchases, as the share purchased remains subject to the same restrictions as before the sale. 3. Prematurity of the Application: The Company also contended that the application for registration was premature. However, this ground was not strongly urged by the Company's counsel and did not significantly impact the Court's decision. The Court focused more on the substantive issues of good faith and the scope of the directors' discretion. Conclusion: The appeal was allowed, reversing the order of the District Judge. The Court held that the directors acted within their rights and in good faith when they refused to register the transfer of the share to Shri Deshpande. The application for registration was dismissed, and the Respondent was ordered to pay the costs of the Appellant throughout.
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