1966 (5) TMI 37 - SC - Companies Law

Whether the power under article 11 to refuse registration of the transfer is a discretionary power? Held that - Cannot accept the contention that the petition was liable to be dismissed because the State of Orissa had asked for registration in the name of the Secretary, Finance Department. No such objection was taken by the company, although it had taken numerous other objections. Moreover, by letter dated December I, 1953, Shri S.K. Mandal, the attorney for the State of Orissa, had definitely called upon the company to record the name of the State as the owner of the shares in the share register. In spite of this letter, the company refused to make the necessary registration. The Maharaja of Mayurbhanj has ceased to be the owner of the shares. The State of Orissa is now their owner, and has the legal right to be a member of the company and is entitled to say that the company should recognise its membership and make an entry on the register of the fact of its becoming a member and its predecessor-in-title having ceased to be a member. The name of the State of Orissa has, without sufficient reason, been omitted from the register and there is default in not entering on the register the fact of the Maharaja having ceased to be a member. The court s jurisdiction under section 38 is, therefore, attracted. The High Court rightly ordered the rectification in the exercise of its summary powers , under section 38. The jurisdiction created by section 38 is very beneficial and should be liberally exercised. We see no reason why the court should deny the applicant relief under section 38. The directors of the appellant company on the most frivolous of objections have prevented the State of Orissa from becoming a member for the last 16 years. It is a matter of regret that justice has been obstructed so long. There is no merit in this appeal.

Issues:
- Interpretation of company's articles regarding registration of share transfers
- Validity of State of Orissa's claim to shares by operation of law
- Allegations of mala fide refusal to register share transfer by the board of directors
- Applicability of court's jurisdiction under section 38 of the Indian Companies Act, 1913
- Legal ownership of shares and rectification of share register

Interpretation of Company's Articles:
The judgment dealt with the interpretation of the company's articles concerning the registration of share transfers. The court analyzed the provisions of the articles, specifically focusing on Article 11 and its applicability to the situation at hand. It was highlighted that Article 11 did not confer the board of directors the power to refuse recognition of a devolution of title by operation of law. The court emphasized that the board's discretion to refuse registration must be exercised reasonably and in good faith.

Validity of State of Orissa's Claim:
The State of Orissa claimed ownership of shares by operation of law due to constitutional changes and the cession of sovereignty by the Maharaja of Mayurbhanj. The judgment detailed the historical background leading to the State's acquisition of the shares. It was established that the shares vested in the State of Orissa as a result of successive constitutional changes and the integration of the State's territories. The court affirmed the State's legal ownership of the shares.

Allegations of Mala Fide Refusal:
The judgment addressed the issue of the board of directors' alleged mala fide refusal to register the share transfer to the State of Orissa. The court found that the directors' actions were capricious and not based on valid reasons. Despite the State's compliance with all legal formalities, the directors delayed registration on frivolous pretexts. The court emphasized that the directors' discretionary power to refuse registration should be exercised reasonably and in good faith, highlighting the importance of acting in the company's best interests.

Applicability of Court's Jurisdiction:
The court examined the applicability of its jurisdiction under section 38 of the Indian Companies Act, 1913, concerning the rectification of the share register. It was determined that the court's jurisdiction was properly invoked in this case due to the company's failure to recognize the State of Orissa as the legal owner of the shares. The court emphasized the beneficial nature of the jurisdiction under section 38 and stressed the importance of liberal exercise of such powers to ensure justice.

Rectification of Share Register:
Ultimately, the court concluded that the State of Orissa was entitled to have its name entered in the share register as the legal owner of the shares. The judgment highlighted the company's default in recognizing the State's ownership and the need for rectification of the share register. The court dismissed the company's appeal, emphasizing that justice had been obstructed for too long and ordering the company to carry out the rectification as directed by the lower courts.

This comprehensive analysis of the judgment provides a detailed overview of the key issues addressed and the court's findings and conclusions in each aspect of the case.

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