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TMI Blog1949 (12) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... f wrote to the company alleging that the directors' refusal to register the transfers was arbitrary, unjust and opposed to law and gave them notice that unless they recognised the transfers in his favour and registered them he would seek redress in a court of law. To this the company replied that the directors had acted in good faith and had refused to register the transfer after due deliberation and the transfers could not be given effect to. Thereupon the plaintiff filed the present suit in the court of the Subordinate Judge of Coimbatore for a mandatory injunction directing the company to register the transfers in his favour of the shares mentioned in Schedule A to the plaint and to enter his name in the register of shareholders of the company in respect of the said shares in the place of the names of defendants 2 to 12. In his plaint he alleged that there was no lawful excuse or justification for the refusal of the company to register the transfers in his favour. They had been duly executed and stamped and the form of transfer prescribed by the articles of association had been followed and all material particulars had been furnished. The plaintiff stated that nothing was due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectors did not approve of the proposed transfers in the case of a person who was already a member of the company. He decreed the suit and the first defendant is the appellant before us. The material article is Article 37, and it runs as follows: "The directors may decline to register any transfer of shares in respect of which any member solely or jointly with others is indebted to the company in any manner whatsoever or if the directors shall not approve of the proposed transferee, and they shall not be obliged to give any reason for not approving the transferee." Admittedly the company did not specify either in their letter to the plaintiff or in their written statement the ground of their rejection of the plaintiff's application for registry of the shares. Mr. Pattabhiraman, learned counsel for the company, contended that the company was not bound to specify the ground, and he relied on the language of the article and certain decisions of the English Courts. In our opinion the company was bound to specify which of the two grounds mentioned in the article was the ground on which, the directors declined to register the transfer. This they were bound to do, but what they we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f was entitled to know on which ground they had exercised the power to decline registry and Ibis right did not conflict with the general rule of company law that prima facie the directors are assumed to act bona fide and if anybody alleges the contrary the onus is on him to prove it. In the later case in Berry and Stewart's case ( supra ) , the distinction made by Tomlin, J., was accepted by Crossman, J. In that case the relevant article provided that the directors shall not be bound to specify the grounds upon which the registration of any transfer is declined under that article. He therefore held that the directors were excused from naming the specific ground under which they had acted. The article with which we had to deal in this case does not say that the directors shall not be obliged to give the ground for declining to register. What they are not obliged is to give reasons for not approving the transferee. We therefore think that it was the duty of the directors to have informed the plaintiff the ground on which they decided to decline to register the transfer. Of course, if the ground was that they did not approve of him, they certainly are not obliged to give reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sapproval of the plaintiff, it follows that the action of the directors was not bona fide, and in any event -was arbitrary and illegal. On this aspect of the case we consider the fact that a few months before the date of his application to register the shares in suit certain other shares were registered by the company in his name to be of great importance and significance. We agree with the learned trial Judge that the prior recognition of the transfer of shares in favour of the plaintiff prima facie precludes the possibility of a disapproval of the plaintiff on personal grounds. It was not suggested that anything had happened which justified the directors or at any rate influenced the directors to cease to treat the plaintiff as a person who could be approved. Mr. Pattabhiraman urged that this might mean that the directors would be compelled to state the reasons which they were not obliged to under the article. We do not think that the provisions of the article need be infringed. It was open to the directors to say that something did occur without signifying what, which made them change their opinion of the plaintiff personally. In the absence of any such suggestion it must be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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