1972 (1) TMI 70 - HC - Companies Law

Summary

Issues Involved:
1. Lawfulness of the appellant's refusal to register the transfer of shares.
2. Interpretation of Section 111(2) of the Companies Act, 1956.
3. Allegations of the respondent being an undesirable person for the company.

Detailed Analysis:

1. Lawfulness of the Appellant's Refusal to Register the Transfer of Shares:
The core issue in this appeal is whether the appellant's refusal to register the transfer of shares in favor of the respondent was lawful. The respondent had purchased 2,256 fully paid-up equity shares and applied for their registration. The appellant, however, refused the registration, questioning the genuineness of the transfer and the payment of full consideration. Despite confirmations from the transferors, the appellant declined the registration, prompting the respondent to seek rectification under Section 155 of the Companies Act, 1956.

The appellant's refusal must derive from the clauses in Article 29 of its Articles of Association, which allows the board to decline registration under specific conditions. However, it was undisputed that the shares were fully paid up and the company had no lien on them. Therefore, the refusal did not align with the conditions stipulated in Article 29, making the appellant's refusal unlawful.

2. Interpretation of Section 111(2) of the Companies Act, 1956:
The appellant argued that the amendment to Section 111(2) of the Companies Act, 1956, which added the words "or otherwise," conferred upon the company a power to refuse registration of shares independently of its articles. The appellant relied on the report of the Companies Act Amendment Committee and various judicial decisions to support this contention.

However, the court found no merit in this argument. The law is well-settled that an application for registration of transfer of shares cannot be refused unless the articles empower the board to do so. The court emphasized that a member has an unfettered right to transfer shares unless restricted by the articles, and a transferee has an absolute right to be registered unless the company has a power to refuse. The addition of the words "or otherwise" in Section 111(2) did not create a new power for the company to refuse registration outside the provisions of its articles. The court cited Palmer's Company Law and various judicial precedents to support this interpretation.

3. Allegations of the Respondent Being an Undesirable Person for the Company:
The appellant contended that the respondent was an undesirable person due to his past attempts to wind up the company, which were allegedly inspired by a family dispute. The appellant cited previous proceedings, including winding-up petitions and a suit challenging the validity of an annual general meeting, to argue that the respondent's actions were detrimental to the company.

The court rejected this contention, stating that a purchaser of shares has an uncontrolled right to have the shares registered in his name unless the articles give the directors absolute discretion to refuse registration, which must be exercised bona fide. The court noted that past attempts to wind up the company did not justify the refusal to register the shares. The court also referred to the decision in H.L. Bolton (Engineering) Co. Ltd. v. T. J. Graham & Sons Ltd., which was deemed irrelevant to the present case as the trial court and the appellate court both accepted that the board of directors had refused to register the shares.

Conclusion:
The court concluded that the trial court was right in ordering the rectification of the share register. The appellant's refusal to register the shares was found to be unlawful, and no valid grounds were made out for interfering with the trial court's order. The appeal was dismissed with costs, and the judgment was certified for two counsel.