1977 (8) TMI 115 - HC - Companies Law

Company Membership of, Shares warrants and entries in register of members, Transfer of Shares Power to refuse registration and appeal against refusal, Powers of Court to rectify register of members

Issues Involved:
1. Jurisdiction of the court under Section 155 of the Companies Act, 1956.
2. Validity of the refusal by the directors to register the transfer of shares.
3. Compliance with Section 12(2) of the Banking Regulation Act, 1949.
4. Conformity with the policy of the Reserve Bank of India.

Detailed Analysis:

1. Jurisdiction of the Court under Section 155 of the Companies Act, 1956
The court addressed whether the remedy provided under Section 111 of the Companies Act, 1956, limits or interferes with the jurisdiction of the court under Section 155. The court held that the power of the court under Section 155 is untrammeled by Section 111. It is open to the transferee to seek relief either by an appeal to the Central Government under Section 111 or by petitioning the court under Section 155. The transferee chose the latter procedure and was well within his rights to do so, as supported by precedents like Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala and Vidyasagar Cotton Mills v. Mt. Naztnunnessa Begum.

2. Validity of the Refusal by the Directors to Register the Transfer of Shares
The directors of the company refused to register the transfer of shares, citing reasons such as the transfer being an attempt to corner shares, circumventing Section 12(2) of the Banking Regulation Act, and contravening the policy of the Reserve Bank of India. The court examined the discretionary power of the directors under regulation 42 of the articles of association, which allows the directors to refuse registration if they have personal objections to the transferee. However, the court found that the reasons cited by the directors were not personal objections to the transferee but were instead related to the nature of the transfer itself. The court concluded that the directors acted in excess of their power under regulation 42, making their refusal to register the transfer ultra vires and of no effect.

3. Compliance with Section 12(2) of the Banking Regulation Act, 1949
Section 12(2) of the Banking Regulation Act, 1949, limits the voting rights of a person holding shares in a banking company to one percent of the total voting rights. The court clarified that this provision is intended only as a limit on voting rights and does not impose any restriction on the right to hold or transfer shares. Therefore, the directors' refusal to register the transfer on this ground was deemed invalid.

4. Conformity with the Policy of the Reserve Bank of India
The directors also cited a circular from the Reserve Bank of India as a reason for refusing the transfer. The court noted that the circular did not prohibit the transfer of shares or the registration of the transfer. Moreover, the circular did not confer any additional power on the directors beyond what was provided in the articles of association. Therefore, this ground for refusal was also found to be invalid.

Conclusion:
The court dismissed all fifteen appeals, holding that the directors' refusal to register the transfer of shares was invalid as it was based on reasons not permitted under regulation 42 of the articles of association. The court directed the company to give effect to the transfer by registering the transferees as members of the company. There was no order as to costs.

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