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TMI Blog1981 (4) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, the extension was granted on June 8, 1977, so as to include the 900 shares (annex. A). On receipt of the extended certificate the petitioner No. 1 wrote to the company on August 5, 1977, requesting it to pay the outstanding dividends as well as to record her name in the register of members in place of her husband; but the latter by letter dated August 19, 1977, informed her that the letter would be placed in the next meeting of the board of directors. By letter dated January 25, 1978, the managing director informed that the matter could not be discussed in the meeting of the board of directors on September 10, 1977, as many of the senior directors were not present, and petitioner No. 1 was requested to send a certified copy of the succession certificate in respect of the 900 shares; and the same was accordingly sent. Petitioner No. 1 meanwhile wrote to the Registrar of Joint Stock Companies complaining about the non-receipt of dividends and non-transfer of shares; and from a copy of the Registrar's letter dated May 2, 1978, she learnt that the board decided not to transfer the 900 equity shares to her. The Registrar also forwarded a copy of the company's letter dated February 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unpaid; and if the amount remains unpaid for three years, the member or members releasing the share shall be entitled to recover the same by legal proceedings. 37. In the case of the death of a member the survivors or survivor, where the deceased was a joint holder, and the heirs or executors and administrators of the deceased, where he was a sole or only surviving holder, shall be the only person recognised by the company as having any title to his shares, but nothing herein contained shall release the estate of a deceased joint holder from any liability in respect of any share jointly held by him. 38. Any person becoming entitled to a share in consequence of the death or insolvency of any member may, upon producing such evidence of title as the directors shall require, with the consent of the directors, be registered himself as holder of the share, or subject to the provisions as to transfers herein contained, transfer the same to some other person. 39. A person entitled to a share by transmission shall be entitled to receive, and may give a discharge for any dividends or other moneys payable in respect of the share, but he shall not be entitled in respect of it to receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 shares, which she is not entitled to, and the board while resolving not to transfer took all the facts and circumstances into consideration, particularly the interest of the company and of the minors, and this court should not order rectification of the register of members, as prayed. The precise question requiring judicial determination is whether on a proper interpretation of the relevant provisions of the Act and the articles and taking into consideration the facts and circumstances of the case, the board of directors was justified in withholding consent to record the transmission to petitioner No. 1 on the basis of her application authenticated by the extended succession certificate. The articles put restrictions on transfer, but the instant case is one of transmission and not of transfer "Transmission" means passing on or devolution by operation of law while "transfer" means conveyance by act of a member , i.e ., a voluntary act of the parties. Section 111 of the Act provides that nothing in sections 108, 109 and 110 shall prejudice any power of the company to refuse to register the transfer of, or the transmission by the operation of law of the right to, any share or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se it disagrees with the conclusion they reached as to the advisability of refusing the transfer : [ Re Bell Brothers : Ex parte Hodgson [1891] 65 LT 245 (Ch D), Re Bede Steam Shipping Company Ltd. [1917] 1 Ch 123 (CA)]. It will, however, do so if the directors have acted on a wrong principle. The basic principle underlying the right to transfer or transmission, as was pointed out in Re Copal Varnish Co. Ltd [1917] 2 Ch 349 (Ch D), is that "a shareholder, whether in a public or in a private company, has a property in his share which he has a right to dispose of, subject only to any express restriction which may be found in the articles of association of the company". In case of transmission also the directors have to abide by the provisions of the articles which form part of the agreement with the deceased shareholder. The right of ownership over the shares held by the deceased, Dhrubajyoti Barua, if devolved on the petitioners, the board of directors has to consider the legal rights of the petitioners who are now applying to have the register rectified. The above principle is as applicable to a private company which by definition puts restrictions on transfer of shares as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner. The above principles were reiterated in Bajaj Auto Ltd. v. N. K. Firodia [1971] 41 Comp. Cas. 1 ; AIR 1971 SC 321, where it was ruled that the directors' discretion in regard to declining registration of transfer of shares, does not mean a bare affirmation or negation of a . proposal, but implies its just and proper consideration in the facts and circumstances of the case. In the exercise of that discretion the directors will act for the paramount interest of the company and for the general interest of the shareholders, because the directors are in a fiduciary position both towards the company and towards every shareholder. The directors are, therefore, required to act bona fide and not arbitrarily and not for any collateral motive. It was further ruled that if the articles permit the directors to decline to register a transfer of shares without stating the reasons, the court would not draw unfavourable inferences against the directors because they did not give reasons. In other words, the court will assume that the directors acted reasonably and bona fide and those alleging to the contrary would have to prove and establish the same by evidence. Where, however, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Barua heavily relies on the decision of the Madras High Court in M.G. Amirthalingam v. Gudiyatham Textiles P. Ltd. [1972] 42 Comp. Cas. 350 (Mad.), where the petitioner's father, Govinda Raja Mudaliar, died on September 6, 1964, leaving a will bequeathing his shares to the petitioner, who obtaining a succession certificate wanted the company to transmit the shares, but the directors declined. The reason given was that in the opinion of the directors, in view of the activities of the petitioner, the transmission would be against the interests of the company. The petitioner was also informed that the company was agreeable to purchase the shares in question at the prevailing value. The facts of the case showed that when the petitioner's father died, the respondent-company was functioning as the managing agent of Rajeswari Mills Ltd. The agreement under which the said managing agency was created was to expire on 15th August, 1965. The petitioner was appointed as the director-in-charge of the day-to-day management of the Rajeswari Mills after the death of his father. In that capacity, he called for a meeting of that company on November 11, 1964, and a resolution was passed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot empower the directors to refuse rectification. Before the High Court, the company asserted that the registration was refused because the Maharaja of Mayurbhunj was under an obligation to execute an agreement conferring valuable rights on the company and the State of Orissa had failed to honour that obligation. Rejecting the assertion it was held that the directors could not use their power to decline to register the transfer under article 11 for the purpose of forcing the State of Orissa to enter into the proposed agreement. The above principles are to be applied to the facts of the present case. The board's resolution said : "The matter was fully discussed and the board considered the question of share transfer from all angles, i.e. , long-term interests of the company, circumstances leading to the tragic death of Dhrubajyoti Barua and the interest of the two minor children, Shri Rukmashyam Barua and Smt. Rukmini Barua. It was unanimously resolved that no action should be taken for the transfer of the share of late Dhrubajyoti Barua to Smt. Bina Barua". In their reply to the Lawyer's notice (annex. M), the company, in effect, informed about the board's resolution. Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to transfer the share of late Dhrubajyoti Barua in favour of petitioner No. 1 and further resolved that the dividends pertaining to the share be kept in the unpaid dividend account of the company and that these reasonings were sufficient for not registering her name and there was no improper motive and/or corrupt and arbitrary conduct on the part of the directors for refusing to register her name. It is further stated that the resolution of the company was bona fide and/or was taken in the interest of the company for the greater interest of the minor children, and that after deducting the taxes at source a sum of Rs. 3,854.95, being the dividend on the 900 shares, had already been deposited towards the unpaid dividend account under section 205A of the Act, in the name of Dhrubajyoti Barua and in accordance with those rules another instalment was remitted for deposit in the said account. In her affidavit-in-reply, petitioner No. 1 states that she was denied entry into the family house of her late husband, and she denies the allegation made in para. 6 of the affidavit-in-opposition and asserts that her relationship with her husband was extremely cordial and loving and she had no di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the late Dhrubajyoti Barua died, as depicted by the respondents and denied by petitioner No. 1 leave no doubt that petitioner No. 1 may no longer be acceptable as a member of her deceased husband's family. On the other hand, petitioner No. 1's view-point has also to be considered, she having lost her husband. It should be appreciated that a private limited company is not synonymous with a family business. All those allegations would not disentitle her to inherit the shares from her deceased husband. Those factors ipso facto cannot be said to affect the interests of the company. In the extended succession certificate the entire 900 shares of late Dhrubajyoti Barua are included and according to its tenor petitioner No. 1 is empowered to receive interest or dividends, to negotiate or transfer and both to receive interest or dividends and negotiate or transfer securities or any of them. This ipso facto does not envisage any interest being inherited by petitioners Nos. 2 and 3. In her application (annex. C), the petitioner No. 1 said : "now in view of the succession certificate you are bound to provide me the dividends including arrear dividends and other entitlements. The sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not execute any transfer deed in her favour. Oh the death of the mother, the daughter obtained a succession certificate for the shares and later on claimed rectification of the share register. Held, that the Succession Act read with the Companies Act did not compel the company to act on the succession certificate as obtained in this case. The statute again does not state that the company is bound to act on the succession certificate though the properties did not belong to the estate of the deceased. In the instant case, when there are more than one heir and the succession certificate enables one alone to have all the shares, if all the shares are so registered, it will be violative of article 37 and will be detrimental to the interests of the other heirs, including the two minor heirs, who are petitioners before this court, but no application for registration of their names appears to have been made to the company. Under the circumstances, it cannot be said that the directors acted arbitrarily, capriciously or mala fide in refusing to register the transmission as prayed for by petitioner No. 1 on the strength of the succession certificate. Had petitioner No. 1 applied for r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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