1971 (2) TMI 64 - HC - Companies Law

Transfer to Shares Power to refusal registration and appeal against refusal, Power to refuse and appeal against refusal

Issues Involved:
1. Refusal to register the transfer of shares by the Board of Directors.
2. Alleged lien on the shares by the appellant company.
3. Power of the Board of Directors under the Articles of Association.
4. Allegations of mala fide actions by the Board of Directors.
5. Applicability of Section 111 of the Companies Act, 1956.
6. Judicial review of the Company Law Board's decision.

Detailed Analysis:

1. Refusal to Register the Transfer of Shares by the Board of Directors:
The appellant company, Jalpaiguri Cinema Co. Ltd., refused to register the transfer of shares valued at Rs. 1,90,000 to the respondents, who belong to the Mukherjee family. The Board of Directors passed a resolution on March 23, 1967, stating that the transferees were not desirable persons and that the transfer was intended to control the company and interrupt its smooth running.

2. Alleged Lien on the Shares by the Appellant Company:
The appellant argued that it had a lien on the shares in question, which justified the refusal to register the transfer. However, the resolution dated March 23, 1967, did not mention any lien. No documents were produced before the Company Law Board to substantiate the claim of a lien. The learned single judge observed that the company could not raise the contention about a lien due to the lack of evidence and the concession made by the appellant company.

3. Power of the Board of Directors under the Articles of Association:
Article 42 of the Articles of Association of the company specifies two circumstances under which the directors may decline to register the transfer of shares: (1) where the company has a lien on the shares, and (2) where the shares are not fully paid up, and the transferee is not approved by the directors. Since the shares in question were fully paid up, the second condition did not apply. The court found no evidence of a lien, thus negating the first condition.

4. Allegations of Mala Fide Actions by the Board of Directors:
The appellant contended that the Company Law Board did not investigate the allegation that the Board of Directors acted mala fide in refusing to register the transfer. The court held that since the refusal was not justified by the Articles of Association, there was no need to examine whether the resolution was passed mala fide or bona fide.

5. Applicability of Section 111 of the Companies Act, 1956:
Section 111(1) allows a company to refuse to register the transfer of shares if such power is provided by the Articles of Association. Section 111(2) prescribes the procedure for refusal and penalties for non-compliance. The court emphasized that the power to refuse must be explicitly warranted by the Articles of Association. The refusal in this case was not warranted, thus invalidating the Board's action.

6. Judicial Review of the Company Law Board's Decision:
The Company Law Board directed the appellant company to register the shares in the names of the respective transferees. The learned single judge dismissed the appellant's petition, affirming that the Board of Directors had no power to refuse the registration under the Articles of Association. The court found no merit in the appeal, as the refusal was not justified by the Articles of Association and there was no evidence of a lien.

Conclusion:
The appeal was dismissed, with the court holding that the Board of Directors acted beyond their powers as specified in the Articles of Association. The registration of the transfer would not affect any alleged lien of the company over the shares. The court also clarified that the Company Law Board's decision was valid and provided sufficient reasons, thus requiring no further judicial intervention.

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