9911796707
TMI Blog1974 (7) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... ese in this appeal. 2. The facts relevant for the purpose of the present appeal are briefly as follows : On October 16, 1958, the second respondent, Ballavdas, purchased a lot of shares in Jatia group of companies at a public auction held by the Certificate Officer, 24 Parganas, for a sum of ₹ 3,500. In February, 1959, the said Ballavdas applied to the appellant-company, Jatia Cotton Mills Ltd., for registration of his name as the purchaser of the said shares in the auction sale. Ballavdas did not obtain the share scrips which were purchased by him in the auction sale. The company refused to register the name of Ballavdas in respect of the said shares. Ballavdas also claimed all dividends payable to him by the company in respect of the shares but the company did not pay the same. On November 20, 1961, Ballavdas made an application to this court for rectification of the share register of the appellant-company by deleting the name of K. L. Jatia, since deceased, who was the registered holder of the said shares and by inclusion of the name of Ballavdas. In the said application the company and also the heirs and legal representatives of K. L. Jatia were made parties. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test the suit, In the written statement filed by the appellant it denied the sale of the aforesaid shares by Ballavdas in favour of the plaintiff. It was stated that the company had no liability to register the said shares in the name of the plaintiff and to issue duplicate share certificate. It took the plea that it was not concerned with the question as to whether the first respondent had acquired valid title to the said shares by his purchase from the second respondent, but it was only concerned with the proper proof of the purchase of the said shares by the first respondent and with the due compliance with the statutory requirement for getting the name of the first respondent registered in the books of the company. 5. The learned judge in the trial court held that the appellant had wrongfully and illegally and without justifiable cause refused to transfer the said shares in the name of the plaintiff. He further held that the plaintiff was entitled to all arrears of dividends due in respect of the said shares which the company is holding as a trustee for the plaintiff who is the lawful owner of the shares. He, accordingly, decreed the suit in favour of the plaintiff. 6. Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to Clause 40 of the articles of association which gives the board of directors the power to refuse to register any transfer of shares under certain circumstances. 7. Mr. P. K, Das, learned counsel appearing on behalf of the first respondent, contended that Section 108 of the Companies Act has no application in the present case at all. He further contended that in the present case the company from the very beginning of the purchase of the said shares by Ballavdas in the public auction refused to pay the dividend and to register the name of the said Ballavdas and to issue duplicate share scrip in his favour. He contended that the company was aware from the very beginning that the original share scrip was not available. He, therefore, submitted that the directors failed to exercise their discretion and they have acted arbitrarily or capriciously. He pointed out that in the decision, Babulal Choukhani v. Western India Theatres Ltd. [1958] 28 Comp Cas 565 (Cal), cited by Mr. Dutt, it was held that the test of discretion is not satisfied if the act or the decision of the directors declining to register is oppressive, capricious, corrupt and mala fide or not in the interest of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in the register of members. It was contended that unless all the requirements of Section 108 were duly complied with the company was not bound to, and it could not, under the law, recognise such a transfer by incorporating the name of the first respondent in the register of members. Counsel for the appellant relied upon the decision in Smt. Hemlata Saha v. Stadmed Private Ltd. [1964] 34 Comp Cas 875 (Cal). In that case certain shares which were held by one Gour Gopal Saha were recorded jointly in the names of the heirs and legal representatives of the said Gour Gopal after his death. One of the heirs and legal representatives of the said Gour Gopal subsequently asked the company to send the share scrips in respect of a certain number of shares to her. To this the company replied that the shares which belonged to the aforesaid Gour Gopal Saha had been, after his death, recorded jointly in the names of his heirs and legal representatives. It was under these circumstances that it was held that an allotment in severalty of the shares can only be done in an action for partition unless the parties agree to amicable partition and that the company cannot take upon itself the obligation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeded upon wholly different considerations and that decision can have no manner of application to the facts of the present case. Mr. Dutt also relied upon the decision in Kasiviswanathan Chettiar v. Indo-Burma Petroleum Co. Ltd.[1936] 6 Comp Cas 42 (Rang). In that case, under the articles of a company, it had a right and a duty to recognise only the executors or administrators of the deceased member. Where a member died leaving behind him his heir who under Hindu law claimed to represent the deceased by right of survivorship the company could rightly ask the claimant to produce a probate or a succession certificate. We do not think that there is anything in that decision which can be used as an authority for the proposition that in an appropriate case the court has no power to direct rectification of the register of members of the company, as has been done in the present case. Learned counsel on behalf of the appellant also relied upon certain observations in Maheshwari Khetan Sugar Mills (P.) Ltd. v. Ishwari Khetan Sugar Mills. In our opinion, the observations made in that case, instead of supporting the appellant rather go against the contention advanced on behalf of the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e directors must be reflected in a resolution of the board's meeting. In the present case, according to him, there was no proper use of discretion by the directors as there was no resolution passed at a meeting of the board of directors. In the case before the Supreme Court, the directors of the company had under the articles of association absolute and uncontrolled discretion to decline to register any transfer of shares. In considering whether this discretion was used by the directors properly, the Supreme Court observed as follows1: Discretion does not mean a bare affirmation or negation of a proposal. Discretion implies just and proper consideration of the proposal 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. If the articles permit the directors to decline to register transfer of shares without, stating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration paid by the first respondent, to Ballavdas was inadequate. He further submitted that the consideration could not be said to be inadequate because the first respondent purchased the said shares from Ballavdas with the knowledge that in all probability he would have to go in for litigation in view of the attitude taken by the companies regarding the purchase of the shares by Ballavdas. The learned judge in the trial court accepted the evidence regarding the purchase of the shares in question by the first respondent and he was satisfied that in the facts and circumstances of the case the shares were acquired by the first respondent for valuable consideration. Nothing has been placed before us on behalf of the appellant to persuade us to take a view different from the view taken by the learned trial judge on this aspect of the case. It must, therefore, be held that the first respondent acquired the disputed shares in the appellant-company from the second respondent, Ballavdas, for valuable consideration. 13. Lastly, it was contended on behalf of the appellant that the appellant-company had not denied the right or ownership of the first respondent in respect of the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X
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