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The High Court rejected these petitions holding that in summary proceedings under section 38, controversial questions of law and fact could not be tried and that the proper remedy of the transferees, if so advised, was to file suits for relief in the civil court. RLC |
Requests were again made by the transferees to the company by letters dated February 29, 1956 to register the transfers made by Banarasi Prasad in 1953. FAC |
The directors of the company in their meeting of March 15, 1956 reiterated their earlier resolution not to register the shares trans ferred in the names of the transferees. FAC |
Against this 343 action of the company, appeals were preferred to the Central Government under section 111 el.(3) of the Indian , which had since been brought into operation on April 1, 1956. FAC |
K. R. P. Ayyangar, Joint Secretary, Ministry of Finance, who heard the appeals declined to order registration of transfers, because in his view, the questions raised in the appeals could, as suggested by the High Court of Bombay, be decided only in a civil suit. FAC |
Thereafter, Banarasi Prasad transferred a block of 100 shares to his son Shyam Sunder and another block of 100 shares to his daughter in law Savitadevi, and the transferees requested the company by letters dated November 21, 1956, to register the transfers. FAC |
In the meeting dated January 12, 1957, the directors of the company resolved not to register the transfers and informed the transferees accordingly. FAC |
Against this resolution, separate appeals were preferred by Shyam Sunder and Savitadevi under section 111 el.(3) of the Indian to the Central Government. FAC |
It was submitted in para 4 of the petitions of appeal that the refusal to register the transfer of shares was without "any reason, arbitrary and untenable". ARG |
The company filed representations submitting that the refusal was bona fide and was not "without any reason, arbitrary and untenable" as alleged. ARG |
Shyam Sunder and Savitadevi filed rejoinders to the representations submitting that they had never alleged that refusal to transfer the shares "was capricious or mala fide" and that all they had alleged was that the "refusal was without any reason, arbitrary and untenable". FAC |
By separate orders dated May 29, 1957, the Deputy Secretary to the Government of India, Ministry of Finance set aside the resolution passed by the board of directors in exercise of the powers conferred by sub sections(5) and (6) of section Ill of the Indian , and directed that the company do register the transfers. FAC |
In so directing, the Deputy Secretary gave no reasons. FAC |
Against the orders passed by the Deputy Secretary, with special leave under article 136 of the Constitution, these two appeals are preferred by the company. FAC |
Two questions fall to be determined in these appeals, (1) whether the Central Government exercising appellate powers under section 111 of the before its amendment by Act 65 of 1960 is a tribunal exercising judicial functions and is subject to the appellate jurisdiction of this court under article 136 of the Constitutio... |
Article 136 of the Constitution, by the first clause provides: "Notwithstanding anything in this Chapter, the Supreme Court may, in its discretion, grant special leave to appeal from any judgment, decree, determination, sentence or order in any cause or matter passed or made by any court or tribunal in the territory of... |
The Central Government exercising powers under section Ill of the is not a court; that is common ground. Ratio |
The Attorney General intervening on behalf of the Union of India submits that the Central Government merely exercises administrative authority in dealing with an appeal under section 111 of the Indian and is not required to act judicially. ARG |
He submits that the authority of the directors of the company which is in terms absolute, and is not required to be exercised judicially, when exercised by the Central Government under section 111 does not become judicial, and subject to appeal to this court. ARG |
But the mere fact that the directors of the company are invested with absolute discretion to refuse to register the shares will not make the jurisdiction of the appellate authority administrative. Ratio |
In a recent case decided by this court Shivji Nathu bhai vs The, Union of India (1), it was held that the Central Government exercising power of review under r. 54 of the Mineral Concession Rules, 1949 against an (1) ; 345 administrative order of the State Government granting a mining lease was subject to the appellate... |
In that case, the action of the State Government granting the mining lease was undoubtedly an administrative act, but r. 54 of the Mineral Concession Rules, 1949 granted a right of review at the instance of an aggrieved party to the Central Government, and authorised it to cancel the order of the State Government or to... |
The exercise of this power was held by this court to be quasi judicial. PRE |
Before it was amended by section 27 of Act 65 of 1960, section III of the Indian Companies Act, 1956 omitting parts not material provided: (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 o... |
(2) If, in pursuance of any such power, a company refuses to register any such transfer or transmission of right, it shall, within two months from the date on which the instrument or transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the tra... |
(3) The transferor or transferee, or the person who gave intimation of the transmission by operation of law, as the case may be, may, where the company is a public company or a private company which is a subsidiary of a public company, appeal to the Central Government against any refusal of the company to register the ... |
(2) either to register the transfer or transmission or to send notice of its refusal to register the same. STA |
(4). . . . . . . . . (5) The Central Government shall, after causing reasonable notice to be given to the company and 346 also to the transferor and the transferee or as the case may require, to the person giving intimation of the transmission by operation of law and the previous owner, if any, and giving them a reason... |
(6) The Central Government may, in its order aforesaid give such incidental and consequential directions as to the payments of costs or otherwise as it thinks fit. STA |
(7) All proceedings in appeals under sub section STA |
(3) or in relation thereto shall be confidential and no suit, pro secution or other legal proceeding shall lie in respect of any allegation made in such proceedings, whether orally or otherwise. STA |
(8) In the case of a private company which is not a subsidiary of a public company, where the right to any shares or interest of a member in, or debentures of, the company, is transmitted by a sale thereof held by a court or other public authority, the provisions of sub sections (3) to (7) shall apply as if the company... |
(5) pass an order directing the company to register the transmission of the right unless any member or members of the company specified in the order acquire the right aforesaid within such time as may be allowed for the purpose by the order, on payment to the purchaser of the price paid by him therefor or such other su... |
Against the refusal by a company to register the transfer or transmission of a right to the shares, an appeal lies to the Central Government. STA |
The Government, after giving notice of the appeal and hearing the parties concerned may order that the shares be registered if it thinks that course is in the circumstances proper. STA |
The Central Government may 347 by the proviso to sub section STA |
(8) in lieu of an order under sub section (5), directing a private company to register,, transmission of shares sold by a court or public authority, order that any member or members of the company specified in the order do acquire the right on payment to the purchaser of the price paid by him, or such other sum as the ... |
In exercise of the powers under section 642, rules called "The Companies (Appeals to the Central Government) Rules, 1957" have been framed by the Central Government. STA |
By cl. (3) of the rules, the form of the petition of appeal is prescribed. STA |
Clause (4) provides that the memorandum of appeal shall be accompanied by an affidavit and documentary evidence if any in support of the statements made therein including a copy of the letter written by the appellant to the company for the purpose of registration of the shares. STA |
Clause (5) pres cribes the mode of service of notice of appeal to the company and el.(6) authorises the Central Government before considering the appeal to require the appellant or the company to produce within a specified period such further documentary or other evidence as it considers necessary. STA |
Clause (7) enables the parties to make representations if any in writing accompanied by affidavits and documentary evidence. STA |
Clause (8) authorises the Central Government after considering the representations made and after making such further enquiries as it considers necessary to pass such orders as it thinks fit under sub section(5) of section 111 of the Act. STA |
By the appendix to the rules, the form in which notice is to be given to the company is prescribed. STA |
Paragraph 2 of the form states that the company shall be called upon to make its representations in writing against, the appeal and be informed that if no representation is received, the appeal will be determined according to law. Ratio |
There was no provision similar to section Ill of the Indian , in the Act of 1913, nor is our attention invited to any provision in the English on which our Act is largely based, to a similar provision. Ratio |
Prior to 1956, if transfer of 348 shares was not registered by the directors of a company, action under the of 1913 could only be taken under section 38 of the Indian Companies Act, 1913 by petition for rectification of the share register. Ratio |
As we will presently point out, the power to refuse to register a transfer granted by the Articles of Association, if challenged in a petition for rectification of register was to be presumed to have been exercised reasonably, bona fide and for the benefit of the company, and unless otherwise provided by the Articles, ... |
The power had to be exercised for the benefit of the company and bona fide, but a heavy onus lay upon those challenging the resolution of the directors to displace the presumption of bona fide exercise of the power. Ratio |
The discretion to refuse to register transfers was not liable to be controlled unless the directors "acted oppressively, capriciously or corruptly, or in some way mala fide" (Re Bell Brothers Ltd. ex parte Hodgson) (1). Ratio |
Power to refuse to register transfer of shares, without assigning any reasons, or in their absolute and uncontrolled discretion, is often found in the Articles of Association, and exercising jurisdiction under section 38 of the Indian Companies Act, 1913, the court may not draw unfavourable inferences from the refusal ... |
The power given to the court under section 38 is now confirmed with slight modification by section 155 of the Indian . Ratio |
Under that section, the court may rectify the register of shareholders if the name of any person is without sufficient cause entered in or omitted from the register of members of a company, or default is made, or unnecessary delay has taken place in entering on the register the fact of any person having ceased to be a ... |
The court is in exercising this jurisdiction competent to decide any question relating to the title of the person claiming to have his name registered and generally to decide all questions which may be necessary or expedient to decide for the rectification. Ratio |
A person aggrieved by the refusal to (1) 349 register transfer of shares has, since the enactment of the , therefore two remedies for seeking relief under the , (1) to apply to the court for rectification of the register under section 155, and (2) to appeal against the resolution refusing to register the transfers unde... |
It is common ground that in the exercise of the power under section 155, the court has to act judicially: to adjudicate upon the right exercised by the directors in the light of the powers conferred upon them by the Articles of Association. Ratio |
The respondents however submit and they are supported by the Union of India that the authority of the Central Government under section Ill is nevertheless purely administrative. ARG |
But in an appeal under section 111 el.(3) there is a lis or dispute between the contesting parties relating to their civil rights, and the Central Government is invested with the power to determine that dispute according to law, i.e., it has to consider and decide the proposal and the objections in the light of the evi... |
The extent of the power which may be exercised by the Central Government is not delimited by express enactment, but the power is not on that account unrestricted. Ratio |
The power in appeal to order registration of transfers has to be exercised subject to the limitations similar to those imposed upon the exercise of the power of the court in a petition for that relief under section 155: the restrictions which inhere the exercise of the power of the court also apply to the exercise of t... |
The decision has manifestly to stand those objective tests, and has not merely to be founded on the subjective satisfaction of the authority deciding the question. Ratio |
The authority cannot proceed to decide the question posed for its determination on grounds of expediency: the statute empowers the Central Government to decide the disputes arising out of the claims made by the transferor or transferee which claim is opposed by the company, 45 350 and by rendering a decision upon the r... |
Prima facie, the exercise of such authority would be judicial. Ratio |
It is immaterial that the statute which confers the power upon the Central Government does not expressly set out the extent of the power: but the very nature of the jurisdiction requires that it is to be exercised subject to the limitations which apply to the court under section 155. Ratio |
The proviso to sub section(8) of section III clearly indicates that in circumstances specified therein reasonable compensation may be awarded in lieu of the shares. Ratio |
This compensation which is to be reasonable has to be ascertained by the Central Government; and reasonable compensation cannot be ascertained except by the application of some objective standards of what is just having regard to all the circumstances of the case. Ratio |
In The Province of Bombay vs Kusaldas section Advani(1), this court considered the distinction between decisions quasi judicial and administrative or ministerial for the purpose of ascertaining whether they are subject to the jurisdiction to issue a writ of certiorari. PRE |
Fazl Ali, J. at p. 642 observed: "The word "decision" in common parlance is more or less a neutral expression and it can be used with reference to purely executive acts as well as judicial orders. PRE |
The mere fact that an executive authority has to decide something does not make the decision judicial. PRE |
It is the manner in which the decision has to be arrived at which makes the difference, and the real test is: Is there any duty to decide judicially?" The court also approved of the following test suggested in The King vs London County Council (2) by Scrutton L.J.: "It is not necessary that it should be a court in the ... |
" In The Bharat Bank Ltd., Delhi vs Employees of the Bharat Bank Ltd., Delhi (1), the question whether an adjudication by an industrial tribunal functioning under the Industrial Disputes Act was subject to the jurisdiction of this court under article 136 of the Constitution fell to be determined:, Mahajan J. in that ca... |
Tribunals which do not derive authority from the sovereign power cannot fall within the ambit of article 136. PRE |
The condition precedent for bringing a tribunal within the ambit of article 136 is that it should be constituted by the State. PRE |
Again a tribunal would be outside the ambit of article 136 if it is not invested with any part of the judicial functions of the State but discharges purely administrative or executive duties. PRE |
Tribunals however which are found invested with certain functions of a Court of Justice and have some of its trappings also would fall within the ambit of article 136 and would be subject to the appellate control of this Court whenever it is found necessary to exercise that control in the interests of justice. PRE |
" It was also observed by Fazl Ali J. at p. 463 that a body which is required to act judicially and which exercises judicial power of the State does not cease to be one exercising judicial or quasi judicial functions merely because it is not expressly required to be guided by any recognised substantive law in deciding ... |
The authority of the Central Government entertaining an appeal under section 111(3) being an alternative remedy to an aggrieved party to a petition under section 155 the investiture of authority is in the exercise of the judicial power of the State. Ratio |
Clause (7) of section III (1) ; 352 declares the proceedings in appeal to be confidential, but that does not dispense with a judicial approach to the evidence. Ratio |
Under section 54 of the Indian Income tax Act, (which is analogous) all particulars contained in any statement made, return furnished or accounts or documents produced under the provisions of the Act or in any evidence given, or affidavit or deposition made, in the course of any proceedings under the Act are to be trea... |
As the dispute between the parties relates to the civil rights and the Act provides for a right of appeal and makes detailed provisions about hearing and disposal according to law, it is impossible to avoid the inference that a duty is imposed upon the Central Government in deciding the appeal to act judicially. Ratio |
The Attorney General contended that even if the Central Government was required by the provisions of the Act and the rules to act judicially, the Central Government still not being a tribunal, this court has no power to entertain an appeal against its order or decision. ARG |
But the proceedings before the Central Government have all the trappings of a judicial tribunal. Ratio |
Pleadings have to be filed, evidence in support of the case of each party has to be furnished and the disputes have to be decided according to law after con sidering the representations made by the parties. Ratio |
If it be granted that the Central Government exercises judicial power of the State to adjudicate upon rights of the parties in civil matters when there is a lis between the contesting parties, the conclusion is inevitable that it acts as a tribunal and not as an executive body. Ratio |
We therefore over rule the preliminary objection raised on behalf of the Union of India and by the respondents as to the maintainability of the appeals. Ratio |
The Memorandum and Articles of Association of a company when registered bind the company and the members of the company to the same extent as if they respectively had been signed by the company and each member, and contained covenants on its and 353 his part to observe all the provisions of the Memorandum and of the Ar... |
Clause 47B of the Articles of Association which invests the director with discretion to refuse to register shares is therefore an incident of the contract binding upon the transferor, and registration of transfer or transmission cannot therefore be insisted upon as a matter of right. Ratio |
The conditions subject to which a party can maintain a petition for an order for rectification of the register of shareholders have been settled by a long course of decisions. STA |
Two of those may be noticed. Ratio |
In In re Gresham Life Assurance Society Ex parte Penney (1), the deed of settlement of a life insurance company provided that any shareholder shall be at liberty to transfer his shares to any other person who was already a shareholder, or who should be approved by the board of directors, and that no person not being al... |
One J. R. De Paiva who was the holder of ten shares of the company sold them to W. J. Penney and lodged the transfer with the shares for registration at the company 's office. PRE |
The directors in exercise of the powers conferred upon them by the deed of settlement refused to register the shares. PRE |
In a joint summons taken out by Paiva and Penney under section 35 of the Companies Act, 1862, the Master of the Rolls directed the transfer to be registered, the directors of the company having failed to submit any reasonable ground or objection to the purchaser. PRE |
In the view of the Master of the Rolls, it was for the court to judge whether the objection was reasonable and that objection must be disclosed to the court. PRE |
Against this order, the company approached the Court of Appeal. PRE |
James L. J. in dealing with the contention raised by the appellant observed that the directors were in a fiduciary position both towards the company and towards every shareholder and that it was easy to conceive of cases in which the court may interfere with any violation of the fiduciary duty so (1) (1872) Law Rep. 8 ... |
354 reposed in the directors. PRE |
It was observed by James L. J.: "But in order to interfere upon that ground it must be made out that the directors have been acting from some improper motive, or arbitrarily and capriciously. PRE |
That must be alleged and proved, and the person who has a right to allege and prove it is the shareholder who seeks to be removed from the list of shareholders and to substitute another person for himself . this Court would have jurisdiction to deal with it as a corrupt breach of trust; but if there is no such corrupt ... |
If the directors had been minded, and the Court was satisfied that they were minded, whether they expressed it or not, positively to prevent a shareholder from parting with his shares, unless upon complying with some condition which they chose to impose, the Court would probably, in exercise of its duty as between the ... |
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