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TMI Blog1971 (2) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... dents) belong to the Mukherjee family. They purchased shares of the company from different shareholders. Out of those shares, we are in the present appeal concerned with the shares of the value of Rs. 1,90,000. When the respondents approached the appellant company for registration of the transfer of the shares in question, the board of directors declined to register the transfer of the said shares in favour of the respondents as per the resolution dated March 23, 1967. The material part of that resolution reads as under : "Besides what has been stated above in respect of each of the transfer deeds it further appears that the transferees belong to the same family. The transferee, Shri Monoranjan Mukherjee, is the brother's son of Shri Pramatha Nath Mukherjee. Sri Pronab Kumar Mukherjee is the son of Sri Pramatha Nath Mukherjee. Sri Moni Mohan Mukherjee, Sri Durga Pada Mukherjee, Sri Tara Pada Mukherjee and Sri Pramatha Nath Mukherjee are brothers. The company has never paid dividends since its inception and its property is in the possession of mortgagees. Thus, it is evident that the transferees did not purchase the shares for the purpose of investment but with a view to control t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refuse to register a transfer to a transferee of whom they do not approve". A bare perusal of the above goes to show that the directors can decline to register transfer of shares in either of the two events: (1) where the transfer relates to shares upon which the company has a lien, or (2) the transfer relates to shares which are not fully paid up and as such the second of the above contingencies does not arise. Mr. Sen, on behalf of the appellant-company, however, urges that it has a lien on the shares in question and as such the directors were well within their power in declining to register the transfer of the shares. As against that, the stand taken on behalf of the respondents is that there is no lien of the appellant-company on the shares in question and that the claim for the alleged lien is the result of an after-thought. In this connection we find that in the impugned resolution dated March 23, 1967, of the board of directors there was no mention of any lien of the appellant-company over the shares in question. Documents were also not produced before the Company Law Board to prove the existence of any lien. Reference was made to two documents before the Board and it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or other interests of any member in a company shall be movable property, transferable in the manner provided by the articles of the company. Sub-sections (1) and (2) of section 111 read as under : "(1)Nothing in sections 108, 109 and 110 shall prejudice any power of the company under its articles to refuse to register the transfer of, or the transmission by operation of law of the right to, any shares or interest of a member in, or debentures of, the company. (2)If a company refuses, whether in pursuance of any power under its articles or otherwise, to register any such transfer or transmission of right, it shall, within two months from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferee and the transferor or to the person giving intimation of such transmission,; the case may be. If default is made in complying with this sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty rupees for every day during which the default continues". Sections 108 and 110 referred to in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned to register the transfer on a ground not allowed by the articles of association, the occasion of going into the question whether the resolution of the board was passed mala fide or bona fide did not arise. The two cases, Harinagar Sugar Mills Ltd. v. Shyam Sundar Jhunjhunwala [1962] 2 SCR 339 ; [1961] 31 Comp. Cas. 387 (SC) and Bajaj Auto Ltd. v. N.K. Firodia [1971] 41 Comp. Cas. 1; AIR 1971 SC 321 (SC), referred to on behalf of the appellant company, are of no material help to the appellant. In both these cases the articles of association gave the directors absolute and uncontrolled discretion to decline to register transfer of shares. In that context it was held that there should be just and proper consideration of the proposal on the facts and circumstances of the case. It was futher observed that the reasons of the directors would have to be tested from three points of view. First, whether the directors acted in the interest of the company ; secondly, whether they acted on a wrong principle ; and, thirdly, whether they acted with an oblique motive or for a collateral purpose. The discretion of the directors, according to their Lordships, would be nullified if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 111. In case it fails to do so, its decision would be set aside and the case remanded for rehearing. In the present case the order of the Company Law Board suffers from no such infirmity as reasons in support of the decision have been given. Reference has been made on behalf of the appellant to section 41 of the Companies Act which defines members of the company, regulation 28 in Schedule I to the Act which deals with persons becoming entitled to shares by reason of death or insolvency of the holder, section 247 which provides for investigation of ownership of company, and section 2(30) of the Act which defines officers of the company. None of these provisions, in our opinion, has any bearing on the present case wherein the short question is whether the board of directors can refuse registration of transfer in case such refusal is not warranted by the articles of association. The observations about the changing patterns of the functions, liabilities and duties of the company directors given in The New Frontiers of Company Law by Mr. S.C. Sen, to which also reference was made, do not advance the case of the appellant any further, because those observations are of a general na ..... 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