1961 (4) TMI 23 - SC - Companies Law

Whether the Central Government exercising appellate powers under section 111 of the Companies Act, 1956, before its amendment by Act 65 of 1960 is a tribunal exercising judicial functions and is subject to the appellate jurisdiction of this court under article 136 of the Constitution? Whether the Central Government acted in excess of its jurisdiction or otherwise acted illegally in directing the company to register the transfer of shares in favour of Shyam Sunder;and Savitadevi? Held that - All the documents which were produced before the Deputy Secretary are not printed in the record before us and we were told at the bar that there were several other documents which the Deputy Secretary took into consideration. In the absence of anything to show that the Central Government exercised it restricted power in hearing an appeal under section 111(3) and passed the orders under appeal in the light of the restrictions imposed by article 47B of the articles of association and in the interest of the company, we are unable to decide whether the Central Government did not transgress the limits of their power. We are however of the view that there has been no proper trial of the appeals, no reasons having been given in support of the orders by the Deputy Secretary who heard the appeals. In the circumstances, we quash the orders passed by the Central Government and direct that the appeals be reheard and disposed of according to law.

Issues Involved:
1. Whether the Central Government exercising appellate powers under section 111 of the Companies Act, 1956, is a tribunal exercising judicial functions and is subject to the appellate jurisdiction of the Supreme Court under article 136 of the Constitution.
2. Whether the Central Government acted in excess of its jurisdiction or otherwise acted illegally in directing the company to register the transfer of shares in favor of the transferees.

Detailed Analysis:

Issue 1: Tribunal Status and Appellate Jurisdiction

The primary question was whether the Central Government, when exercising appellate powers under section 111 of the Companies Act, 1956, acts as a tribunal exercising judicial functions and is thus subject to the appellate jurisdiction of the Supreme Court under article 136 of the Constitution. Article 136 of the Constitution states: "Notwithstanding anything in this Chapter, the Supreme Court may, in its discretion, grant special leave to appeal from any judgment, decree, determination, sentence or order in any cause or matter passed or made by any court or tribunal in the territory of India."

The court noted that the Central Government is not a court, which was common ground. However, the Attorney-General argued that the Central Government exercises administrative authority and is not required to act judicially. The court disagreed, citing the case of Shivji Nathubhai v. Union of India, where it was held that the Central Government exercising the power of review under the Mineral Concession Rules was subject to the appellate jurisdiction of the Supreme Court because the power to review was judicial and not administrative.

Section 111 of the Companies Act, 1956, was examined, and it was concluded that the Central Government, when hearing appeals, must act judicially. The court emphasized that the power to order registration of transfers must be exercised subject to limitations similar to those imposed upon the exercise of power by the court under section 155. The Central Government must decide whether the directors acted oppressively, capriciously, or corruptly, or in some way mala fide. Therefore, the Central Government acts as a tribunal and not as an executive body when deciding such appeals.

The court concluded that the Central Government's proceedings have all the trappings of a judicial tribunal, and thus, its decisions are subject to the appellate jurisdiction of the Supreme Court under article 136.

Issue 2: Legality of the Central Government's Direction to Register Shares

The second issue was whether the Central Government acted in excess of its jurisdiction or otherwise acted illegally in directing the company to register the transfer of shares in favor of the transferees. The company's directors had absolute discretion under Article 47B of the company's articles of association to refuse to register any transfer of shares without giving any reason. This discretion is presumed to be exercised bona fide and for the benefit of the company.

The transferees argued that the refusal to register the transfer was "without any reason, arbitrary and untenable." The company countered that the refusal was bona fide and not arbitrary. The Central Government, through the Deputy Secretary, directed the company to register the transfers but gave no reasons for its decision.

The court noted that the Central Government must act judicially and provide reasons for its decisions. The absence of reasons in the Deputy Secretary's orders made it impossible to determine whether the Central Government had exercised its power within the limits of its jurisdiction and in accordance with the law.

The court highlighted that the directors' discretion to refuse registration must be exercised bona fide and not arbitrarily. The transferees had to prove that the directors acted oppressively, capriciously, or corruptly, or in some way mala fide. The Central Government should have considered whether the directors had acted within their rights under Article 47B and whether their refusal was in the interest of the company.

Given the lack of reasons in the Deputy Secretary's orders, the court could not ascertain whether the Central Government had acted within its jurisdiction. Therefore, the court quashed the orders passed by the Central Government and directed that the appeals be reheard and disposed of according to law.

Conclusion:
The Supreme Court held that the Central Government, when exercising appellate powers under section 111 of the Companies Act, 1956, acts as a tribunal exercising judicial functions and is subject to the appellate jurisdiction of the Supreme Court under article 136 of the Constitution. The court also found that the Central Government acted without providing reasons for its decision, making it impossible to determine whether it had acted within its jurisdiction. Consequently, the orders passed by the Central Government were quashed, and the appeals were directed to be reheard and disposed of according to law. Costs of these appeals were to be costs in the appeals before the Central Government.

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