1927 (2) TMI 7 - HC - Companies Law

Summary

Issues Involved:
1. Rectification of the company's register under section 38 of the Indian Companies Act.
2. Paramount lien on shares as per articles 21, 23, and 30 of the articles of association.
3. Refusal to register a transfer under article 34.
4. Bona fide actions of the directors in refusing the transfer.
5. Notice of the mortgage agreement to the company.
6. Discretion of the court in hearing the petition under section 38.
7. Bona fide and improper motives of the directors.

Detailed Analysis:

1. Rectification of the Company's Register:
The petitioners sought rectification of the company's register under section 38 of the Indian Companies Act to register the names of petitioners Nos. 2, 3, 4, and 5 as holders of 854, 1, 1, and 1 shares, respectively, which had been transferred to them. The petition was opposed by the company, relying on articles 21, 23, 30, and 31 of the articles of association, which the Board claimed allowed them to refuse registration due to a paramount lien on the shares for moneys due to the company from the registered holders.

2. Paramount Lien on Shares:
The company argued that under articles 21, 23, and 30, it had a paramount lien on the shares for debts due from the shareholders. However, the court found that these articles must be read together and that the company could not claim priority over advances made by a third party after notice of the deposit with the bank, as established in Bradford Banking Company v. Briggs. The court held that the company had notice of the mortgage agreement with Sir Shapurji Broacha, and thus, the company's lien could not take precedence over the mortgagee's rights.

3. Refusal to Register a Transfer:
The company also relied on article 34, which allows the board to refuse to register a transfer without giving any reason if they disapprove of the proposed transferee. However, the court found that the refusal to register the transfers was not bona fide and was made with an ulterior motive to prevent Mr. Dinshaw from enforcing his rights as a mortgagee.

4. Bona Fide Actions of the Directors:
The court examined whether the directors acted bona fide in refusing the transfer. The directors' refusal was based on the mistaken belief that registering the transfer would waive the company's lien under article 30. The court found that the directors' actions were arbitrary and capricious, not in the interest of the company and its shareholders, but aimed at defeating the mortgagee's legitimate claims.

5. Notice of the Mortgage Agreement:
The court determined that the company had notice of the mortgage agreement with Sir Shapurji Broacha, as the directors and shareholders were the same individuals who executed the mortgage. The court held that it was the duty of the company's agents to inform the company of the mortgage before making new advances.

6. Discretion of the Court in Hearing the Petition:
The court exercised its discretion under section 38 of the Indian Companies Act to hear the petition rather than leaving the parties to a separate suit. The court found that a petition under section 38 would be a speedier and cheaper process than an ordinary suit.

7. Bona Fide and Improper Motives of the Directors:
The court found that the directors acted from improper motives and arbitrarily and capriciously. The refusal to register the transfers was aimed at protecting the interests of the Peerbhoy family and delaying the mortgagee's claims. The court held that the petitioners had discharged the onus of proving that the directors' actions were not bona fide.

Conclusion:
The court upheld the decision of the learned trial judge, ordering the rectification of the company's register to include the names of the petitioners as shareholders. The appeal was dismissed with costs, and the registration of the shares was to be effected within four days. The court found that the company's claim of a paramount lien was not valid, and the directors' refusal to register the transfers was not bona fide.