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1962 DIGILAW 309 (SC)

Amalgamated Electricity Co. , Ltd. v. Naval Sorabjee Bhathena

1962-08-27

B.P.SINHA, J.C.SHAH, J.R.MUDHOLKAR, K.SUBBA RAO, N.RAJAGOPALA AYYANGAR, S.J.IMAM

body1962
ORDER : Shah, J. 1. Naval Sorabjee Bathena and his wife Dinbai respondents in this appeal purchased on January 28, 1958, 20 shares of the Amalgamated Electricity Company Ltd., hereinafter called the Company-from one D.K. Kamdin and forwarded the shares to the Company on January 29, 1958 for registration of transfer. By letter dated February 19, 1958 the Company informed the respondents that they could not register the shares in respondents' names. The respondents appealed under Section 3(3) and (4) of the Indian Companies Act, 1 of 1956 to the Central Government against the order of the Company refusing to register the shares. The principal ground set out in the memorandum in support of the appeal was that the Company had in the first instance effected registration of the transfer and had completed it by endorsing the share-certificates in the joint names of the respondents and also by giving Transfer Number and Share Holders' Ledger Folio number on January 31, 1958 and the transfer had accordingly become final and conclusive, and it was not open to the Company to score out the names and make alterations in the Register of Members. 2. The Company by letter dated April 26, 1958 filed its written statement challenging the averments made in the memorandum of appeal by the respondents. The Company submitted that between January 21, 1937 and December 12, 1957, there being no restriction on the transfer of fully paid up shares under clause 63 of the Articles of Association then in force, the directors were bound to approve and sanction transfers of fully paid up shares, and the practice followed in the office of the Company on receipt of share certificates with transfer, forms, was to make the necessary entries in the Register of Members and also the requisite endorsement on the share-certificates and to submit the same to the Committee of Directors "for sanction and for signatures in token of authentication": On December 26, 1957 the Articles of Association were modified by the Company and clause 58, the Board of Directors could in their "absolute and uncontrolled discretion decline to register or acknowledge any transfer of shares". But the office of the appellant "lost sight of this change in the articles" and followed the practice which was previously in vogue and entered the transfer in question in the register of members and made endorsements on the certificate but when the transfers were placed before the Committee of Directors for approval and for authentication of endorsement, the Committee declined to register the transfer in question and the appellants were informed accordingly. The Company also contended that the first respondent who was a consumer of electrical energy of the Company had between 1932 and 1935, several disputes with the company which did not materialise into any benefit to him. About two or three years ago he again became a consumer of the company at Belgaum and he stated fighting with the company and litigation between him and the company is at; present pending before the Supreme Court. It was also submitted by the company that it was apprehended that the first respondent had purchased the shares with "ulterior motive and to unnecessarily create troubles in the general meetings of the company", and that "with a view to safeguard the interest of the company, the transfer was refused. 3. By order dated August 27, 1958, the Deputy Secretary Ministry of Commerce and Industry, exercising authority on behalf of the Central Government, allowed the appeal and directed the company to register the shares in the names of the respondents. Against the order passed by the Central Government the company has appealed to this Court with special leave. 4. Article 58 of the Company's Articles of Association, as framed on December 26, 1957, authorised the Board of Directors of the company subject to the provisions of Section 3 of the Act and any statutory modifications thereof for the time being in force, at their own discretion, to decline to register or acknowledge; any transfer of shares, and in particular to decline in any case in which the Company has a lien upon the shares or any of them, or whilst any moneys in respect of the shares desired to be transferred or any of them remain unpaid. But by Section Ill of the Companies Act, 1 of 1956, an order refusing to register a transfer of shares is subject to an appeal to the Central Government at the instance of the transferor or transferee. But by Section Ill of the Companies Act, 1 of 1956, an order refusing to register a transfer of shares is subject to an appeal to the Central Government at the instance of the transferor or transferee. In such an appeal the Central Government may after causing reasonable notice to the company and also to the tranferor and the transferee and after giving them a reasonable opportunity to make their representations, if any, in writing, by order, direct either that the transfer shall be registered by the company or that it need not be registered by it. 5. The authority conferred upon the company by the Article 5 a of Association is, subject to review by the central Government. This Court in Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala, AIR 1961 SC 1669 examined the nature of the jurisdiction exercised by the Central Government and the limits within which the jurisdiction: nay be so exercised. This Court pointed out (at p. 1676) that "the proceedings before the Central Government have all the trappings of a judicial tribunal. 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 considering the representation m ids by the parties. This Court therefore held that the power exercised by the Central Government are judicial, and the Central Government is a tribunal within the meaning of Article 136 of the Constitution. It was also observed that "the power to entertain the appeal is not unrestricted; being an alternative to the right to approach the civil court, it must be subject to the same limitations which are implict in the exercise, of the power by the Civil court under Section 155 (of the Indian Companies Act, 1 of 1956). The Central Government may, therefore, exercise the power to order that the transfer which the directors have in their discretion refused, be registered if it is satisfied that the exercise of the discretion is arbitrary or capricious and that it is in the interest of the company that the transfer should be registered." 6. The Central Government may, therefore, exercise the power to order that the transfer which the directors have in their discretion refused, be registered if it is satisfied that the exercise of the discretion is arbitrary or capricious and that it is in the interest of the company that the transfer should be registered." 6. Some entries were admittedly posted in the books of account and even an endorsement was made on the share certificates; it is true that neither the entries in the books nor the endorsements on the share certificates were authenticated by a competent authority to sanction or approve the transfer. The case of the Company was that account of inadvertence of the staff the earlier practice which prevailed in the company was followed but that there was no decision of the Board of Directors to sanction the transfer, no intimation of the posting of entries or endorsement on the share certificates was given to the respondents, and when the application of the respondents was brought to the notice of the Directors they declined to register the transfer. They proceeded to submit the reasons which persuaded them to refuse to register the transfers in favour of the respondents. 7. In the view of the Central Government the Company had "very little to say in defence of its action" in refusing to register the transfer and that it merely relied upon Article 58 of the Articles adopted on December 26, 1957 which vested absolute and uncontrolled discretion to decline to register or acknowledge any transfer of shares, that there were in the past several disputes between the company and the first respondent, who is an electrical contractor, and those disputes ended in favour of the first respondent, that in 1955, the first respondent believed that the company was collecting unauthorised charges from the consumers at Belgaum and he filed a suit to recover the excess payment and that suit at the time of the hearing of the appeal was pending and that the disputes and the litigation should not prevent the respondents becoming members of the company. It was further observed that the "company had first accepted and registered the transfer but annulled it at some later date and that position was admitted by the company in the written statement. The explanation of the company that this was a mistake of the office was hardly convincing. It was further observed that the "company had first accepted and registered the transfer but annulled it at some later date and that position was admitted by the company in the written statement. The explanation of the company that this was a mistake of the office was hardly convincing. The refusal in the view of the Central Government was capricious and mala fide and could not be supported". 8. The Company in its written statement submitted substantially two grounds for refusing to register the transfers in favour of the respondent (1) that there were several disputes between the company and the first respondent and that one of such disputes had resulted in court proceedings which had reached this Court. It is common ground that these disputes related to the right of the company to recover certain charges from the consumers, and (2) that it was apprehended that the first respondent: it had purchased the shares with "ulterior motives to create trouble in the general meetings of the Company". No particulars were furnished in support of the submission that the purchase was mala fide or with a view to "create trouble in the company's general meetings". Even though it was asserted that the refusal was with a view to safeguard the interest of the company, in the view of the Central Government, having regard to these grounds, the decision of the Board of Directors was arbitrary and mala, fide. 9. This is an appeal with special leave under Article 136 of the Constitution, and normally the finding of the court or a tribunal against which an appeal is filed is not exposed to review on matters of appreciation of evidence. The very reasons submitted by the Company in its written statement are capable of an inference that the action of the company was "arbitrary and mala fide", and that inference has been raised by the authority competent in that behalf. The authority hearing the appeal has not overstepped the limits of its jurisdiction and has properly addressed itself to the only question which has to be decided by it under Section III of the Indian Companies Act, 1956. No ground is made out before us which would justify us in reopening the finding and in reappraising the evidence, on what is essentially a question of fact. 10. The appeal, therefore, is dismissed with costs. No ground is made out before us which would justify us in reopening the finding and in reappraising the evidence, on what is essentially a question of fact. 10. The appeal, therefore, is dismissed with costs. The respondents had originally employed Advocates to appear for them, but before the hearing of the appeal the Advocates were discharged. The company will, therefore, pay costs of the appeal to the respondents, but not the cost of and incidental to the hearing before the Court.