B. J. DIVAN, J. ( 1 ) THIS appeal has been filed against the judgment and order of our learned Brother S. H. Sheth J. in Company Petition No. 19 of 1978. By his judgment and order our learned Brother allowed the petition and directed the present appellant to rectify its register of shareholders by entering therein the name of the second respondent in this appeal as a member of the appellant company in respect of shares held by respondent No. 2 and listed in paragraph 3 of the petition. The appellant company was to file the notice of rectification with the Registrar of Companies within thirty days from the date of the order in Form No. 21 in Appendix I to the Companies Act 1956 The appellant company was directed to pay costs of the petition to the respondents herein. Thereafter the present appeal was filed and pending the appeal the operation of the order of the learned Judge regarding rectification of the register of shareholders was not required to be stayed because Mr. Hava for the respondents stated that his clients would not press for implementation of rectification of the register of shareholders. ( 2 ) FACTS giving rise to this litigation are that respondent No. 1 herein is a shareholder of the appellant company Master Silk Mills Private Limited hereinafter referred to as the Master Mills. Respondent No. 1 was the registered holder of 260 equity shares 136 first preference shares and 36 second preference shares of the Master Mills. On February 15 1976 the first respondent entered into an agreement with respondent No. 2 herein New Mahalaxmi Silk Mills Private Limited hereinafter referred to as New Mahalaxmi Mills The first respondent is the chairman of the New Mahalaxmi Mills. The agreement was to transfer all the shares of Master Mills held by the first respondent. On 10th March 1976 the first respondent wrote three letters to the Board of Directors of the Master Mills. In one letter he mentioned his desire to transfer 260 equity shares of Master Mills to any prospective buyer who was a shareholder of Master Mills. He further stated that he was prepared to do so at the latest break-up value of Rs. 737. 00per share. In one letter he mentioned his desire to transfer 260 equity shares of Master Mills to any prospective buyer who was a shareholder of Master Mills. He further stated that he was prepared to do so at the latest break-up value of Rs. 737. 00per share. He requested the Board of Directors of the respondent company to circulate his offer to the existing shareholders and let him know whether any one was willing to buy those shares at the value of Rs. 737. 00 per share. He also stated in his letter that he would wait for four calendar months from the date of the said letter for receiving the reply to his letter. By his second letter of the same date he stated that he was desirous of transferring 138 first preference shares of the face value of Rs. 500. 00 each to any existing shareholder and requested the Board of Directors to circulate his offer to the existing shareholders. The break-up of each share was Rs. 312-50 Paise and he laid down similar condition about four months notice and waiting for a period of four months for reply to his offer. By the third letter he expressed his desire of transferring 36 second preference shares of the face value of Rs. 500. 00 each at the break-up value of Rs. 281-25 Paise. The Board of Directors were asked to circulate all these three offers regarding equity shares first preference shares and the second preference shares to the existing shareholders and ascertain their wishes. On 29th March 1976 Master Mills wrote to their auditors to determine he fair market value of the shares held by respondent No. 1 because the Directors felt that the prices quoted by the first respondent were far in excess of fair value. On 12 March 1976 respondent No. 1 wrote to the Auditors that so far as the break-up value of the shares held by him was concerned it had been worked out on the basis of balance-sheets of Master Mills for the year ending 31st December 1974 and that he had been taxed on the basis of such break-up value under the Wealth Tax Act. He further stated that the break up value being written down value was very much on the lower side of the market value. He further stated that the break up value being written down value was very much on the lower side of the market value. On May 13 1976 respondent No. 1 wrote to the Auditors a letter in which he stated that pursuant to Art. 73 of the Articles of Association of the Master Mills transfer of shares could be effected at a price which the Auditors of the company would testify to be the fair market price as between a willing seller and a willing purchaser or at a price which could be agreed upon between the vendor and the Board. Respondent No. 1 further stated that he had a willing purchaser for his shares at the price stated in the transfer notices dated 10th March 1976 He therefore requested the Auditors to take note of that fact while fixing fair value of his shares. On July 9 1976 the Managing Director of Master Mills sent a circular letter to all shareholders of the company in which he stated that a share-holder of that company had offered 260 equity shares 136 first preference shares and 36 second preference shares for sale at the fair values of these shares as fixed by the Auditor which were also mentioned in that circular letter. With these details the Managing Director invited the existing shareholders to purchase the shares offered by respondent No. 1 if any one of them was interested in those shares. On August 7 1976 the Managing Director of Master Mills wrote to respondent No. 1 that the company had circulated his offer for sale of shares to the existing shareholders but that no offer was received from any existing share-holder to purchase the shares. He therefore stated in that letter that respondent No. 1 was entitled to transfer his shares to ally purchaser subject to the provisions of the Articles of Association of Master Mills. ( 3 ) ON August 21 1976 on behalf of respondent No. 1 three letters were written to the Managing Director of Master Mills. By the first letter he intimated to Master Mills that he was transferring to New Mahalaxmi Mills all his equity shares at the fair price fixed by the Auditors of Master Mills. ( 3 ) ON August 21 1976 on behalf of respondent No. 1 three letters were written to the Managing Director of Master Mills. By the first letter he intimated to Master Mills that he was transferring to New Mahalaxmi Mills all his equity shares at the fair price fixed by the Auditors of Master Mills. By the second letter he intimated that he was transferring to new Mahalaxmi Mills all his first preference shares at the fair price fixed by the Auditors and similarly by the third letter he intimated to Master Mills that he was transferring to New Mahalaxmi Mills all his second preference shares at the fair price fixed by the Auditors of the company. Along with the three letters respondent No. 1 sent three transfer deeds duly stamped and executed by him as transferor and by New Mahalaxmi Mills as transferees. On December 23 1976 Master Mills wrote to respondent No. 1 that the Board of Directors of Master Mills at a meeting held on that very day had unanimously decided to refuse registration of the said transfer. The transfer deeds and the relevant share certificates were therefore returned to respondent No. 1. By this letter Master Mills did not disclose any reasons why the registration of the transfer of shares was refused. Against this decision of the Board of Directors an appeal was preferred by respondent No. 1 to the Central Government purporting to be an appeal under sec. 101 of the Companies Act 1956 The appeal was preferred on 9th August 1977. On December 20 1977 the Under Secretary to the Company Law Board informed the Attorneys of respondent No. 1 that the Central Government had no inherent powers under sec. 111 (5) of the Companies Act and that the Central Government did not have any jurisdiction to entertain the appeal filed by respondent No. 1. It was also intimated in that letter that respondent No. 1 if he so thought fit might apply to the Court under sec. 155 of the Companies Act for the necessary relief. ( 4 ) THEREAFTER respondent No. 1 and New Mahalaxmi Mills filed Company Petition No. 19 of 1978. It was heard on April 3 1978 and sought relief under sec. 155 of the Companies Act. Various contentions were urged before our learned Brother but out of those several contentions ultimately at the stage of appeal Mr. ( 4 ) THEREAFTER respondent No. 1 and New Mahalaxmi Mills filed Company Petition No. 19 of 1978. It was heard on April 3 1978 and sought relief under sec. 155 of the Companies Act. Various contentions were urged before our learned Brother but out of those several contentions ultimately at the stage of appeal Mr. Nanavati on behalf of the appellant Master Mills has confined his argument only to two main arguments. His contention is that under Article 76 of the Articles of Association of Master Mills any transfer by a member to an outsider is subject to the approval of the Board of Directors and since this Board of Directors did not approve of the transferee namely New Mahalaxmi Mills rectification of the register could not be granted. He urged in this connection that unlike a public limited company a private limited company is more in the nature of a partnership concern where there should be mutual confidence amongst the shareholders and in the instant case New Mahalaxmi Mills was a rival company engaged in more or less similar line of business as that of the petitioner company and therefore the Board of Directors had justifiable reasons In refusing to register the transfer of snares from respondent No. 1 to New Mahalaxmi Mills. In this connection Mr. Nanavati for the appellant urged that a private company is in the nature of a partnership of persons with mutual confidence in each other and the Articles of Private Companies place positive restrictions on absolute transfer of shares and in the instant case the Articles permit unrestricted transfer from member to member or to an outsider if approved by the Directors or to lineal descendants or relatives of existing members. According to him the principle laid down by the Supreme Court in Bajaj Auto Ltd. v. N. K. Firodia A. I. R. 1971 S. C. 321 for guidance of Courts exercising powers under sec. 155 of the Companies Act do not apply to the case of a private limited company because a private limited company functions in the context of different provisions of law altogether. 155 of the Companies Act do not apply to the case of a private limited company because a private limited company functions in the context of different provisions of law altogether. He further contends that even if the procedure laid down in the Articles has been followed by the intending transferor and the intending transferee ipso facto no right is created empowering the intending transferor to transfer the shares to a non-member unless the proposed transfer is approved by the Board of Directors. He contended in this connection that even if sec. 155 of the Companies Act is couched in a wider language jurisdictional fetter should be put on those powers in the case of a private company if the private company points out compliance with the Articles as a matter of principle the Court should not interfere with the exercise of discretion of the Board of Directors if they function within the four corners of the provisions of the Articles of Association. He further contended that the question of testing the bona fides of the Directors in disapproving the proposed transfer has to be circumscribed by the object with which the company was registered as a private company instead of as a public company and he contended that the reasons given by the Directors for rejecting the transfer are germane to the interest of the company as distinguished from the interest of the transferor and cannot be described as mala fide. ( 5 ) BEFORE dealing with the legal position it may be pointed out that the total number of equity shares issued by Master Mills is 1920 and in the instant case we are concerned with a dispute regarding transfer of 260 equity shares held by respondent No. 1. It has been found by our learned Brother S. H. Sheth J. on the materials before him that though Master Mills and New Mahalaxmi Mills are both manufacturers of art silk the position regarding their manufacturing activities is not on the same lines. Master Mills purchase art silk yarn and manufactures art silk cloth. This constitutes more than ninety per cent of its business. It also carries on an insignificant extent business of production of art silk cloth. Master Mills purchase art silk yarn and manufactures art silk cloth. This constitutes more than ninety per cent of its business. It also carries on an insignificant extent business of production of art silk cloth. So far as New Mahalaxmi Mill is concerned the manufacture of art silk cloth consists of eight per cent of its business while ninety-two per cent of its business consists of processing art silk cloth. It is thus clear that what constitutes the major part of the business of on company constitutes an insignificantly small part of the business of the other company. Moreover Mr. Bhabha pointed out from the affidavits in the case that whereas Master Mills is carrying on its activities at Bhavnagar New Mahalaxmi Mills carries on its activities in Bombay. Secondly even as regards weaving of art silk cloth or manufacture of art silk cloth by New Mahalaxmi Mills it is more like a job work where yarn is supplied by customers is woven by New Mahalaxmi Mills and cloth thus prepared is given back to the customers at appropriate adjustment of rates. Thus the principal activity of New Mahalaxmi Mills is that of processing cloth or processing yarn into cloth for its customers whereas Master Mills of Bhavnagar is essentially a manufacturing concern with the processing of art silk cloth only and insignificant manufacturing activity. Under these circumstances the very basis of Mr. Nanavatis argument that New Mahalaxmi Mills is a rival concern is not tenable. In this connection we may point out that under sec. 155 (4) of the Companies Act an appeal lies against a decision of the trial Court under sec. 155 under the following circumstances:"from any order passed by the High Court on the application or on any issue raised therein and tried separately an appeal shall lie on the grounds mentioned in sec. 100 of the Code of Civil Procedure 1908 (V of 1908) (a) if the order be passed by District Court to the High Court; (c) if the order be passed by a single Judge of a High Court consisting of three or more Judges to a Bench of that High Court". We will proceed in this case on the footing that the Code of Civil Procedure 1908 prior to its amendment in 1976 will apply in the instant case. We will proceed in this case on the footing that the Code of Civil Procedure 1908 prior to its amendment in 1976 will apply in the instant case. As pointed out by Andhra Pradesh High Court in Abdul Karim Babu Khan v. Sirpur Paper Mills Ltd. (1969) 39 Company Cases 33 a finding of fact arrived at by a Company Judge is conclusive and cannot be challenged in appeal under section 155 (4) of the Companies Act except on the grounds mentioned in sec. 100 Civil Procedure Code 1908 viz. where a decision is contrary to law or where the decision has failed to determine some material issue of law or where there is a substantial error or defect in procedure provided by the Code or any law in force. It is clear that the finding that New Mahalaxmi Mills is not a rival company and that there was no competition in business between Master Mills and New Mahalaxmi Mills is a finding of fact and that finding of fact can only be disturbed on a point of law not otherwise. No appeal lies regarding that particular finding of fact. ( 6 ) MR. Bhabha for the respondents drew our attention to the affidavits filed in this case and pointed out to us that the case set out in the affidavit filed on behalf of the respondent namely that there has not been a single instance of competition in the past has not been controverted in the subsequent affidavit filed on behalf of Master Mills 6 the Managing Director or by the Principal Officer Thakar of Master Mills. In our opinion the finding of fact that there was no rivalry between Master Mills and New Mahalaxmi Mills cannot be disturbed but Mr. Nanavati is right when he contends that it is not a finding of fact given by a Court of law that would matter but what would matter is the opinion of the Board of Directors of Master Mills regarding the possibility of rivalry between the two concerns. Nanavati is right when he contends that it is not a finding of fact given by a Court of law that would matter but what would matter is the opinion of the Board of Directors of Master Mills regarding the possibility of rivalry between the two concerns. In our opinion the real crux of the matter is as to what transpired at the meeting of the Board of Directors held on December 23 1976 English translation of the extract from the Minutes of the meeting held on December 23 1976 is Annexure I to the affidavit of B. K. Thakar Principal Officer of Master Mills and according to that extract of the Minutes the Managing Director of Master Mills informed the Board of Directors that if those shares were transferred to New Mahalaxmi Mills the same company would have a holding of 14 per cent of share capital in Master Mills. At present under the provisions of sec. 43-A of the Companies Act if a body corporate held 25 per cent of shares of a private company the said company is to be deemed to be a public company but if there is any change in the provisions of the Companies Act and the percentage is reduced below 14 there would be difficulties for Master Mills. Moreover New Mahalaxmi Mills is having the same business as Master Mills and thus it could be considered as a rival company. The Minutes proceed:"the Managing Director also appealed to the Directors to decide the matter keeping in view the past of the directors of the said company vis-a-vis our company. Thereafter there was some discussion amongst the directors and Shri Trikamlal B. Shah proposed the following resolution:resolved THAT taking into consideration the circumstances as a whole it is not in the interest of the company to transfer the shares as per transfer deeds submitted by Shri Dharamdas Hargovandas as stated by the Managing Director and therefore his application for transfer of shares is hereby rejected. Dharamdas Hargovandas is the first respondent in the present appeal. Dharamdas Hargovandas is the first respondent in the present appeal. ( 7 ) ON June 24 1978 Ramniklal B. Shah Managing Director of Master Mills also swore an affidavit and in paragraph 4 of that affidavit it has been stated:"i say and submit that the only consideration which weighed with the Board of Directors at the time of considering the impugned transfer of shares of Petitioner No. 1 in favour of Petitioner No. 2 was the desirability of permitting a corporate body to become the shareholder of the respondent company which is a private limited company. Since the total membership of the respondent company is of 48 members permitting any corporate body to become the member of the respondent company even if it is a private limited company would attract the provisions of sec. 43a. It was also considered that if petitioner No. 2 Company became the member of the respondent company it would immediately be a member holding more than 14% of the shares of the respondent company and in view of Art. 71 of the Articles of Association of the respondent company. the petitioner No. 2 company would be entitled to purchase directly from other members of the respondent company shares to any extent and get them transferred to its name without any restriction whatsoever. In that event the respondent company will be left to the mercy of petitioner No. 1 company for continuing its character as a private limited company. In paragraph 6 it is once again reiterated:"in these circumstances the Board of Directors thought it desirable in the interest of the respondent company that no corporate body should be permitted to become a member of the respondent company and only with that consideration petitioner No. 2 was not approved by the proposed transferee to become a member of the respondent company". It is thus clear that the only consideration which weighed with the Board of Directors of Master Mills in not approving New Mahalaxmi Mills was the consideration that a corporate body should not be permitted to become a member of Master Mills. That and that was the only factor Which. weighed with the Board of Directors of rejecting the application for registration of transfer. The question will have now to be examined whether this was a relevant and germane factor for the consideration of the Directors while considering the question of approval of the transfer. That and that was the only factor Which. weighed with the Board of Directors of rejecting the application for registration of transfer. The question will have now to be examined whether this was a relevant and germane factor for the consideration of the Directors while considering the question of approval of the transfer. ( 8 ) ARTICLES 71 to 76 of the Articles of Association of Master Mills are relevant for this purpose. Article 71 deals with transfer of shares by a member to any other member and is not strictly speaking relevant for our purposes. Article 72 deals with transfer of shares by one member to his wife and other relations and again it is not strictly germane to our purpose except explaining the scheme of these Articles. Under Articles 73 74 and 75 procedure is laid down when a member intends to transfer shares to an outsider that is neither to a member under Article 71 nor to a member of his family under Article 72. Transfers under Articles 71 and 72 are not required to be approved by the Board of Directors. Under Article 76 in the event of the whole of the said shares not being sold under the Articles the vendor may at any time within three calendar months after the expiration of the said 21 days transfer the shares not sold to any person at the price so fixed as aforesaid and the concluding words of Article 76 are But the directors may in their absolute discretion and without assigning any reasons decline to register any such transfer of shares if the purchaser be a person of whom they do not approve. In Article 59 of the Articles it has been provided: The directors may at any time in their absolute discretion without assigning any reasons decline to register any proposed transfer of shares. The directors shall so decline to effect registration of transfer if the provisions of Article 3 thereof would be contravened thereby. Mr. Nanavati argued that the Directors have a discretion under Article 76 if they do not approve of the purchaser. Mr. Nanavati has drawn our attention to the passages from Palmers Company Law Twenty-Second Edition pages 393-396 and Articles 40-12 and 40-15 on these pages. He has also drawn our attention to Gore-Browne on Companies 43 Edition para 16. 2 and 16. 3. Mr. Nanavati has drawn our attention to the passages from Palmers Company Law Twenty-Second Edition pages 393-396 and Articles 40-12 and 40-15 on these pages. He has also drawn our attention to Gore-Browne on Companies 43 Edition para 16. 2 and 16. 3. Ultimately these passages in the standard text books by Palmer and Gore-Browne are based on two decisions of the Courts in England. The first of these decisions is of the Court of Appeal in England in In re. Bede Steam Shipping Company Limited. (1917) 1 Ch. D. 123 It must be pointed out that it was a case of a public company as distinguished from a private company and the Head Note of the case says:"a power for directors to refuse to register transfers of shares if sin their opinion it is contrary to the interests of the company that the proposed transferee should be a member thereof only justifies a refusal to register upon grounds personal to the proposed transferee. It does not justify refusal to register transfers of single shares or shares in small numbers because the directors do not think it desirable to increase the number of shareholders or because they think that the transfer is not bona fide but that the transferee is the mere nominee of the transferor and the transfer is made to increase the number of shareholders who will support him in a policy which the directors disapprove". Lord Cozens-Hardy M. R. observed at page 133 of the report:" In the case of Ex parte Penney (R. R. 8 Ch. 466) that great Judge Mellish L. J. says The directors have no right to say We will force a particular shareholder to continue a shareholder and we will not allow him to transfer his shares at all. That would be an abuse of their power. In the same way it would be an abuse of this power to object on any ground not applying personally to the transferee to say for instance that a particular shareholder should not transfer his shares till he had given security for the calls. That lays down a principle which seems to me to be perfectly sound and a principle which has been followed so far as I am aware for at least forty years and I should be very sorry in any way to infringe upon it. That lays down a principle which seems to me to be perfectly sound and a principle which has been followed so far as I am aware for at least forty years and I should be very sorry in any way to infringe upon it. The point which is taken by Mellish L J. is this: You may look and see personally who the transferee is. There may be personal objections to him; it may be because he is a quarrelsome person it may be because he is an uncertain person or it may be that he is acting in the interests of a rival company or something of that kind. All those things are fairly included in the word personal but to seek to say. We will not accept any transfer of a single share from a particular shareholder who holds a large number is it seems to me an abuse of the power which was conferred by the clause in the Articles". Similarly Warrington L. J. has observed at page 136:"the directors refused on that view to register this transfer; they thereby deprived the transferee of his right to be a member of the Company; they deprived their fellow-shareholder of the right to sell his share and to retain the purchase-money which as I understand he had actually received from the transferee. Was that justified by the Articles ? The Article gives them one ground and one ground only for refusing to register the transfer of a fully-paid share namely that in their opinion it is contrary to the interests of the company that the proposed transferee should be a member. I agree that if they had simply expressed their opinion and we knew nothing more about it it would not be for us to examine or inquire into the ground on which they had formed that opinion; but in the present case we know on the facts that they formed no such opinion at all but the opinion they really formed was that it was contrary to the interests of the company that Mr. R. S. Eldar should be allowed to transfer his shares singly or in small lots. R. S. Eldar should be allowed to transfer his shares singly or in small lots. What the directors have done is in fact an attempt to give themselves the power or to assert that they possess the power to refuse to allow a transfer of shares in order that they may carry out some line of policy or assert some principle for the carrying out of which or the assertion of which the Articles do not provide". The next case from England in this connection is the decision in In re. Smith and Fawcett Limited (1942) 1 Ch. D. 304. This was the case of a private company. Article 10 of the Articles of Association of the private company provided: The directors may at any time in their absolute and uncontrolled discretion refuse to register any transfer of shares and cl. 19 of Table A shall be modified accordingly. The issued capital of the company consisted of 8002 ordinary shares of which the two directors of the company J. F. and N. S. held 4001 each. J. F. died and his son as his executor applied to have the testators shares registered in his name. N. S. refused to consent to the registration but offered to register 2001 shares and to bay 2000 at a fixed price. The executor applied to the court by way of motion that the register of members of the company might be rectified by inserting his name as the holder of the 4001 shares. The Court of Appeal held that Article 10 gave the directors the widest powers to refuse to register a transfer and that while such powers were not of a fiduciary nature and must be exercised in the interests of the company there was nothing to show that they had been otherwise exercised. In Lord Green M. R. observed at page 307:"it is perfectly clear from that observation that the court was not laying down a general rule to be applied to all forms of Article but was coming to a decision on the particular Article before it the nature of which was such as to confine the directors to the consideration of one particular matter. There is nothing in my opinion in principle or in authority to make it impossible to draft such a wide and comprehensive power to directors to refuse to transfer as to enable them to take into account any matter which they conceive to be in the interests of the company and thereby to admit or not to admit a particular person and to allow or not to allow a particular transfer for reasons not personal to the transferee but bearing on the general interests of the company as a whole such matters for instance as whether by their passing a particular transfer the transferee would obtain too great a weight in the councils of the company or might even per. haps obtain control. The question therefore simply is whether on the true construction of the particular Article the directors are limited by anything except their bona fide view as to the interests of the company". It must be pointed out that the interests of the company even when the Article confers absolute discretion on the directors is the guiding principle for the exercise of discretion of the directors in deciding to refuse or not to refuse a proposed transfer. Moreover since the company before us is a Civet Limited Company and in the nature of a corporate partnership or what is classed as a close corporation in the U. S. A it is but natural that the directors should approve of the purchaser to transfer shares in his favour who on such transfer will become a member of the company and it is for that purpose that Art. 76 provides that the directors may in their absolute discretion and without assigning any reasons decline to register any such transfer of shares if the purchaser be a person of whom they do not approve. But such approval by the very nature of things must be personal to the particular transferee in whose favour the transfer is proposed. It cannot be an absolute ban as seems to be the case in the instant case of not approving any transfer in favour of any corporate body. All corporate bodies cannot be bad and it is not open to the Board of Directors to say that they would not approve of any transfer in favour of any corporate body. It cannot be an absolute ban as seems to be the case in the instant case of not approving any transfer in favour of any corporate body. All corporate bodies cannot be bad and it is not open to the Board of Directors to say that they would not approve of any transfer in favour of any corporate body. Sec. 43a of the Companies Act was not going to be followed in the instant case because that section provides for a private limited company to be treated as a public limited company only if not less than 25 per cent of the paid-up share capital is held by one person or more bodies corporate. If that is the position a private limited company shall on the very day on which the aforesaid percentage is held by bodies corporate become by virtue of the section a public company. It is true that at one stage there was a proposal that this percentage of 25 should be reduced to 10. The Report of the Companies Act Amendment Committee proposed that the percentage should be reduced from 25 to 10. However the Joint Committee of Parliament ruled otherwise and it observed: The Committee also consider it unnecessary to require a private company which has become a public company to pass a resolution for the change of its name. The view of the Committee was that reduction of the percentage of shareholding form twenty-five to ten is likely to hamper the formation and growth of private limited companies in the small-scale sector especially in the rural areas and therefore the provisions of sec. 43a (1) should not be disturbed. (Vide Ramaiyas Guide to The Companies Act Eighth Edition page 128.) Whatever the position might have been prior to 1974 at least in December 1976 when the Board of Directors held their meeting on 23rd December 1976 there was no ground for apprehending that the requirement of 25 per cent of shares referred to in sec. 43a (1) was going to be reduced below 14 and therefore there was no possibility on the part of the Board of Directors that by virtue of the deeming provision of sec. 43a (1) of the Companies Act this private company would be treated as a public company with all the concomitants of the requirements of the company law regarding a public company. 43a (1) of the Companies Act this private company would be treated as a public company with all the concomitants of the requirements of the company law regarding a public company. As the Managing Director in his affidavit dated June 24 1978 has pointed out the only consideration which weighed with the Board of Directors was that no corporate body should be permitted to become a member of the respondent company and as set out in paragraph 4 of the affidavit of the Managing Director it was because of a possibility of the percentage in sec. 43a being reduced below 14 that they had arrived at this conclusion. There was nothing personal against New Mahalaxmi Mills as transferees that weighed with them and the approval in this case was rejected not because they had found anything wrong personally with New Mahalaxmi Mills but what they found wrong was that it was a corporate body and they did not want any corporate body to become a shareholder of Master Mills. That consideration which was the only consideration which weighed with the Board of Directors was not germane to the exercise of the power under Art 76 of the Articles of Association of Master Mills. Approval of the transferee means approval of the transferee personally as distinguished from laying down a rule that no corporate body would be allowed to join the company Master Mills as a shareholder. Under these circumstances the Board of Directors have exceeded their powers conferred upon them by Art. 76. Though the words purport to convey absolute discretion it must be in the interest of the company and secondly the words approval of the transferee mean approval of a particular transferee as distinguished from laying down a broad line of policy so to say that they would not approve of any such transfer in favour of a corporate body. Though the words purport to convey absolute discretion it must be in the interest of the company and secondly the words approval of the transferee mean approval of a particular transferee as distinguished from laying down a broad line of policy so to say that they would not approve of any such transfer in favour of a corporate body. ( 9 ) IN this connection we may point out that after the matter was argued before our learned Brother S. H. Sheth J. about the policy decision taken about non-approval of transfers in favour of corporate bodies our learned Brother has observed: The second reason which has been advanced on behalf of the respondent company (Master Mills) is that it is the policy of the respondent company not to admit any other private limited company to its membership He has further observed: Reference to the policy decision and reference to past decision are not borne out by any evidence. Mr. K. S. Nanavati has therefore very rightly told me that he did not press these two grounds in support of the impugned decision or resolution. However though he did not press it in support of the impugned resolution It cannot be gainsaid that the impugned resolution was passed under circumstances which indicated one and only one state of affairs namely non-application of mind. ( 10 ) THUS our learned Brother Sheth J. also came to the conclusion that the impugned resolution was passed by the Directors in circumstances which indicated only one state of affairs that prevailed with the Directors namely that it was a policy of the respondent company not to admit any other private limited company or other body to its membership. Now this sort of blanket decision does not mean that there was non-approval of the particular individual transferee and the Articles required that the Directors can refuse to register transfer in the name of the purchaser if the purchaser was a person of whom they do not approve. ( 11 ) IN Bajaj Auto Limiteds case (supra) the Supreme Court considered the decisions in An re. Smith and Fawcett Ltd. and in In re. Bede Steam Shipping Co. Ltd. and also took into consideration several other decisions bearing on the subject and came to the conclusion. ( 11 ) IN Bajaj Auto Limiteds case (supra) the Supreme Court considered the decisions in An re. Smith and Fawcett Ltd. and in In re. Bede Steam Shipping Co. Ltd. and also took into consideration several other decisions bearing on the subject and came to the conclusion. "where the directors under the Articles of a company have uncontrolled and absolute discretion in regard to declining registration of transfer of shares 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":. In paragraph 34 at page 330 of the report Ray J. as he then was has summed up the position as follows: The discretion of the Directors is to be tested as the opinion of fair and sensible men in the interest of the company. It was also pointed out in paragraph 22 at p. 327. ". . . . WHERE the Directors have uncontrolled and absolute discretion in regard to declining registration of transfer of shares the Court will consider if the reasons are legitimate or the Directors have acted on a wrong principle or from corrupt motive. If the Court found that the Directors gave reasons which were legitimate the Court would not over-rule that decision merely on the ground that the Court should not have come to the same conclusion". In paragraph 25 they have referred to a decision of the Allahabad High Court in Muir Mills Co. Ltd. of Cawnpore v. T. A. Condon (1900) I. L. R. 22 All. 410 and there also the question was the absolute power of the Directors to refuse registration of transfer of shares on personal objections to the transferee. The Muir Mills in that case disallowed the transfers on the ground that the transferees were subordinates of Mcrobert the Managing Director of Cawnpore Mills. There was personal animosity between Johnson the Managing Director of the Muir Mills and Mcrobert. The Muir Mills in that case disallowed the transfers on the ground that the transferees were subordinates of Mcrobert the Managing Director of Cawnpore Mills. There was personal animosity between Johnson the Managing Director of the Muir Mills and Mcrobert. The Directors of the Muir Mills came to a conclusion that Mcrobert should not add to his voting power and harass the management. This was found to be an abuse of the fiduciary discretionary power of the Directors when they wanted to safeguard the Directors personal interest against Mcrobert. ( 12 ) IT is true that the case of Bajaj Auto Ltd. v. N. K Firodia was a case of a public company whereas the company before us is a private limited company but the general principles under sec. 155 are the same and sec. 155 itself makes no distinction between a public company and a private company. All that we have to bear in mind is that when we are considering exercise of discretion by the Directors of a private company some more lee-way should be given to them in view of the fact that a private limited company is a corporate firm or a partnership or more or less of that nature. So far as private limited companies are concerned Palmer has pointed out in paragraph 40-12 at page 393 in Palmers Company Law Twenty-second Edition:"a private company is normally what the Americans call a close corporation this means that its members are connected by bonds of kinship friendship or similar close ties and that the intrusion of a stranger as shareholder would be felt to be undesirable unless his admission is accepted by those for the time being interested in the company". Even bearing this principle of a close corporation in mind we have to see to it that the right of a shareholder to transfer his shares is not unduly restricted or is not fettered by the exercise of discretion by the Board of Directors of the private company for reasons which are not germane to the exercise of that power. The power is to be exercised against a transferee in the light of Article 72. The power is to be exercised against a transferee in the light of Article 72. If the Directors do not approve of the purchaser these words thereupon the question of approval put a limitation on the power of the Directors while exercising power under Article 76 and the limitation is that there must be something personal to the purchaser which prompts the Directors not to approve of that particular purchaser. Therefore what the Directors were required to consider was whether New Mahalaxmi Mills was a purchaser of whom they disapproved on some personal grounds that is grounds personal to the transferee. However we find from the affidavit of the Managing Director that the only consideration which weighed with the Directors was the question of a possible infringement of sec. 43-A if that section of the companies Act came to be amended and the possibility of the company being deemed to be a public company under the provisions of sec. 43-A in that eventuality. The total number of issued shares being 1920 the limit of 25 per cent would be reached if one or more bodies corporate were to hold more than 483 shares. However the question before the Directors was of 260 equity shares only and there is nothing on the record to show whether any other shares of Master Mills were held at the relevant date by any other body corporate. We are informed by Mr. Nanavati at the Bar that eight shares of Master Mills are held by Bank of Baroda a corporate body. Even if those shares were to be taken into consideration the total would be 268 shares being held by bodies corporate and therefore they would be far short of 480 shares which is the critical figure for the purpose of sec. 43-A. ( 13 ) UNDER these circumstances we hold that the Directors took into consideration a factor which was not at all germane to the requirement of Article 76 and therefore they have mis-applied their mind and failed to apply their mind to the relevant factor which is required to be considered under Article 76 namely whether there was anything personally wrong with New Mahalaxmi Mills which prompted the Directors of Master Mills not to approve of New Mahalaxmi Mills as transferee. ( 14 ) UNDER these circumstances our conclusion is that the refusal to register the transfer on the part of the Directors was not in proper exercise of the powers conferred upon them by Article 76 of the Articles of Association. Our conclusion is therefore identical with that of our learned Brother Sheth J. and that the line of reasoning which has appealed to Sheth J. has also appealed to us. This appeal therefore fails and is dismissed with costs. In view of the orders in the main appeal no further orders are necessary on the Civil Application. .