# 2 s.c.R. SUPREME COUHT HE.PORTS 33\l M/S. HARINAGAR SUGAR MILLS LTD v. SHYAM SUNDAR JHUNJHUNW ALA AND OTHERS

- **Citation:** [1962] 2 S.C.R. 339
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Case number:** Civil Appeals Nos. 33 and 34 of 1959
- **Bench:** S. K. Das, J. L. Kapur, M. Hidayatullah, J. c. SHAH, T. L. Venkatarama Aiyar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/2-s-c-r-supreme-couht-he-ports-33-l-m-s-harinagar-sugar-mills-ltd-v-shyam-2257
- **Pages:** 33

## Headnote

Appeal-Company rufusing to register transfer of sharesAppeal to Central Government-Decision in appeal-Whether judicial-Central Government, if acts as a tribunal-Special leave, if
lies against decision-Powers of Central Government in appealW hether giving of reasons for decision essential--Companies Act,
r956, (r of r956) ss. III and r55-Constitution of India, Art. r36.
One B who held a large number of shares in the appellant
company, transferred two blocks of 100 shares each to his son
and daughter-in-law. The transferees applied to the company
to register the transfers. Purporting to act under art. 47B of
the Articles of Association of the company the directors of the
company resolved not to register the transfers.
Against this
resolution the transferees preferred appeals to the Central
GoverPment under s. 111(3) of the Companies Act, 1956. The
Central Government, without giving any reasons for its decision, set aside the resolution of the directors and directed the
company to register the transfers. The company obtained
special leave to appeal against the decision of the Central
Government under Art. 136 of the Constitution and appealed to
the Supreme Court on the gro11nd that the Central Government
acted in excess of its jurisdiction or otherwise acted illegally in
directing the company to register the transfers. The respondents
raised a preliminary objection that the Central Government
exercising appellate powers under s. III of the Act (before its
amendment in i960) was not a tribunal exercising judicial functions and was not subject to the appellate jurisdiction oj the
Supreme Court under Art. 136.
Held, that the appeal was competent to the Supreme Court
by special leave against the decision of the Central Government
under s. ru(3) of the Companies Act, 1956. The Central Government, when exercising po\vers under s. 111 was a tribunal v.1ithin the meaning of Art. 136 and was required to act judicially.
A person aggrieved by the refusal to register transfer of shares
had two remedies under the Act, viz., (r) to apply to the court
for rectification of the register under s. 155 or (2) to prefer an
appeal under s. rrr. The power of the Court under s. 155,
which has necessarily to be exercised judicially, and the power
of the Central Government under s. III have to be exercised
subject to the same restrictions. In both cases it has to be
r96r
340
SUPREME COURT REPORTS
[1962]
1961
decided whether the directors have acted oppressively, caprici-
.
ously, corruptly or malafide. Th.e decision has manifestly to
flannaga> Sugar stand those objective tests and has not merely to be founded on
M•lls Ltd.
the subjective satisfaction of the authority. Jn an appeal under
v.
s. ur(3) there is a lis or dispute between the contesting parties
Shyam Sundar relating to their civil rights, and the Central. Government has
Jhunjhunwala
to determine the dispute according to law in the light of the
evidence and not on grounds of policy or expediency. There
was thus a duty imposed on the Central Government to act
judicially. The proviso to sub-s. (8) of s. ru which provided
for the award of reasonable compensation in lieu of the shares
in certain circumstances also fortifies that view.
Shivji Nathubhai v. The Union of India, [1960] 2 S.C.R. 775,
Re Bell Brothers Ltd. Ex Parle Hodgson, (1891) 65 L.T. 245, The
Province of Bombay v. Kusaldas S. Advani, [1950) S.C.R. 621, The
King v. London County Council, [1931) 2 K.B. 215 and The
Bharat Bank Ltd., Delhi v. Employees of the Bharat Bank Ltd.,
Delhi, [1950] S.C.R. 459, referred to.
In an appeal under s. lII(3) of the Act the Central Government has to determine whether the exercise of the discretion by
the directors. refusing to register the transfer is ma/a fide, arbitrary or capricious and whether it is in the interest of the company. The decision of the Central Government is subject to
appeal to the Supreme Court under Art. i36; the Supreme
Court cannot effectively exercise its power if the Central
Gove

## Text

_Characters 0–39,992 of 73,955. This is a partial read: ask again with offset=39992 for what follows._

2 s.c.R. SUPREME COUHT HE.PORTS
33\l
M/S. HARINAGAR SUGAR MILLS LTD.
v.
SHYAM SUNDAR JHUNJHUNW ALA
AND OTHERS
(S. K. DAS, J. L. KAPUR, M. HIDAYATULLAH, J. c.
SHAH and T. L. VENKATARAMA AIYAR, JJ.)
Appeal-Company rufusing to register transfer of sharesAppeal to Central Government-Decision in appeal-Whether judicial-Central Government, if acts as a tribunal-Special leave, if
lies against decision-Powers of Central Government in appealW hether giving of reasons for decision essential--Companies Act,
r956, (r of r956) ss. III and r55-Constitution of India, Art. r36.
One B who held a large number of shares in the appellant
company, transferred two blocks of 100 shares each to his son
and daughter-in-law. The transferees applied to the company
to register the transfers. Purporting to act under art. 47B of
the Articles of Association of the company the directors of the
company resolved not to register the transfers.
Against this
resolution the transferees preferred appeals to the Central
GoverPment under s. 111(3) of the Companies Act, 1956. The
Central Government, without giving any reasons for its decision, set aside the resolution of the directors and directed the
company to register the transfers. The company obtained
special leave to appeal against the decision of the Central
Government under Art. 136 of the Constitution and appealed to
the Supreme Court on the gro11nd that the Central Government
acted in excess of its jurisdiction or otherwise acted illegally in
directing the company to register the transfers. The respondents
raised a preliminary objection that the Central Government
exercising appellate powers under s. III of the Act (before its
amendment in i960) was not a tribunal exercising judicial functions and was not subject to the appellate jurisdiction oj the
Supreme Court under Art. 136.
Held, that the appeal was competent to the Supreme Court
by special leave against the decision of the Central Government
under s. ru(3) of the Companies Act, 1956. The Central Government, when exercising po\vers under s. 111 was a tribunal v.1ithin the meaning of Art. 136 and was required to act judicially.
A person aggrieved by the refusal to register transfer of shares
had two remedies under the Act, viz., (r) to apply to the court
for rectification of the register under s. 155 or (2) to prefer an
appeal under s. rrr. The power of the Court under s. 155,
which has necessarily to be exercised judicially, and the power
of the Central Government under s. III have to be exercised
subject to the same restrictions. In both cases it has to be
r96r
340
SUPREME COURT REPORTS
[1962]
1961
decided whether the directors have acted oppressively, caprici-
.
ously, corruptly or malafide. Th.e decision has manifestly to
flannaga> Sugar stand those objective tests and has not merely to be founded on
M•lls Ltd.
the subjective satisfaction of the authority. Jn an appeal under
v.
s. ur(3) there is a lis or dispute between the contesting parties
Shyam Sundar relating to their civil rights, and the Central. Government has
Jhunjhunwala
to determine the dispute according to law in the light of the
evidence and not on grounds of policy or expediency. There
was thus a duty imposed on the Central Government to act
judicially. The proviso to sub-s. (8) of s. ru which provided
for the award of reasonable compensation in lieu of the shares
in certain circumstances also fortifies that view.
Shivji Nathubhai v. The Union of India, [1960] 2 S.C.R. 775,
Re Bell Brothers Ltd. Ex Parle Hodgson, (1891) 65 L.T. 245, The
Province of Bombay v. Kusaldas S. Advani, [1950) S.C.R. 621, The
King v. London County Council, [1931) 2 K.B. 215 and The
Bharat Bank Ltd., Delhi v. Employees of the Bharat Bank Ltd.,
Delhi, [1950] S.C.R. 459, referred to.
In an appeal under s. lII(3) of the Act the Central Government has to determine whether the exercise of the discretion by
the directors. refusing to register the transfer is ma/a fide, arbitrary or capricious and whether it is in the interest of the company. The decision of the Central Government is subject to
appeal to the Supreme Court under Art. i36; the Supreme
Court cannot effectively exercise its power if the Central
Government gives no reasons in support of its order.
The mere
fact that the proceedings before the Central Government are to
be treated as confidential does not dispense with a judicial
approach, nor does it obviate the disclosure of sufficient grounds
and evidence in support of the order. In tbe present case no
reasons have been given in support of the orders and the
appeals have to be remanded to the Central Government for
rehearing.
·
'
In re Gresham Life Assurance Society, Ex Parle Penney, (1872)
Law Rep. 8 Ch. 446 and In re Smith and Fawcett, Ltd., L. R.
(1942) l Ch. D. 30.\, referred to.
Per HidayatuUah, j.-'--The app:eal to the Supreme.Court
under Art. i36 was competent. The Act and the Rules showed
that the function of the Central Government under s. u(3) was
curial and not executive; there \vas provision for filing a memorandum of appeal setting out the grounds, lorthe company making representations against the' appeal,· for tendering evidence
and award of costs>., There \Vas provision for a hearing arid a
decision on evidence. The Central Government acted as a
tribunal within the meaning of Art. 136.
·
Hu.ddart, Parker & Co. Proprietary Ltd. v. Moorehead, (1908)
8 C.L.R. 330, Shell ComP4ny.of Australia v. Federal Commissioner
of Taxation, [1931] A.C. 275, Rex v. Electricity Commissioners,
[1924] r K.B. 171, RoyarAquarium and Summer and Winter Garden
2 S.C.R. SUPREME COURT REPORTS
341
Society v. Parkinson, (1892) r Q.B. 43r, Shivji Nathubai v. The
z96z
Union of India, [1960] 2 S.C.R. 775 and Province of Bombay v.
Kushaldas S. Advani, [r950] S.C.R. 62r, referred to.
Harinagar Sugar
But special leave should not ordinarily be granted in such
Mills Ltd.
cases. The directors were not required to give reasons for their
v.
decision and there was a presumption that they had acted proShyam Sundar
perly and in the interest of the company. In the appeal under
Jhunjhunwala
s. III of the Act all allegations and counter allegations were
confidential and the Central Government could not make them
public in its decision. An appeal against such a decision could
rarely be effective. In the present case the appeal under s. rn(3)
was confined to the ground that the refusal to register was without giving any reasons; there was no question of confidential
allegations and there was no evidence to consider. The Articles
of Association gave the directors absolute discretion to refuse to
register the transfers without giving any reasons and there was
a presumption that the directors had acted honestly. There
was thus no reason for the Central Government to reverse the
decision of the directors.
In re Gresham Life Assurance Society; Ex parte Penney,
(r872) Law Rep. 8 Ch. 446, In re Hannan's King (Browning) Gold
Mining Company Limited, (r897) I4 T.L.R. 3r4 and Moses v.
Parkar Ex parte Moses, [1896) A.C. 245, referred to.
CIVIL
APPELLATE
JURISDICTION:
Civil Appeals
Nos. 33 and 34 of 1959.
Appeal by special leave from the order dated
May 29, 1957, of the Central Government Ministry of
Finance, New Delhi in Appeal Cases Nos. 24 and 33
of 1957.
A. V. Viswanatha Sastri and Ganpat Rai, for the
appellants.
B. P. Maheshwari, for the respondents.
M. C. Setalvad, Attorney-General for India, B. R. L.
Iyengar and T. M. Sen, for Union of India.
1961. April 25. The Judgment of S. K. Das, Kapur,
Shah and Venkatarama Ayyar, JJ., was delivered by
Shah, J. Hidayatullah, J. delivered a separate Judgment.
SHAH, J.-M/s. Harinagar Sugar Mills Ltd. is a
public limited company incorporated under the Indian
Companies Act, 1913 (7 of 1913).
Article 47B of the
Articles of Association of the company invests the
44
Shah ].
342
SUPREME COURT REPORTS
[1962)
'96'
directors of the company with absolute discretion to
H arinagar Sugar ;e~use to regist~r any. transfer of shares. That Article
Mills Ltd.
1s m the followmg terms:
v.
"The directors may in their absolute discretion
Shyam Sundar
and without giving any reason refuse to register
Jhunjhunwala
any transfer of any shares whether such shares be
Shah 1.
fully paid or not. If the directors refuse to register
the transfer of any shares, they shall within two
months, after the date on which the transfer was
lodged with the company, send to the transferees
and the transferor notice of the refusal."
One Banarasi Prasad Jhunjhunwala is the holder
of a block of 9500 fully paid-up shares of the company. In January, 1953, he executed transfers in
respect of 2500 out of those shares in favour of his
son Shyam Sunder and in respect of 2100 shares in
favour of his daughter-in-law Savitadevi and lodged
the transfers with the company for registration of the
shares in the names of the transferees. The directors
of the company by resolution dated August 1, 1953, in
purported exercise of the powers under Article 4 7B of
the Articles of Association, declined to register the
shares in the names of the transferees. Petitions were
then filed by Banarasi Prasad and the transferees in
the High Court of Judicature at Bombay for orders
under s. 38 of the Indian Companies Act, 1913 for
rectification of the register of the company maintaining that the refusal by the board of directors to
register the transfer of the shares was "mala fide, arbitrary and capricious" and that the directors had
acted with improper and ulterior motives. The High
Court rejected these petitions holding that in summary
proceedings under s. 38, controversial questions of!aw
and fact could not be tried and that the proper
remedy of the tranferees, if so advised, was to file
suits for relief in the civil court. Request.s 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. The directors of the
company in their meeting of March 15, 1956 reiterated
their earlier resolution not to register the shares transferred in the names of the transferees. Against this
,,
•
2 S.C.R. SUPREME COURT REPORTS
343
action of the company, appeals were preferred to the
'96'
Central Government under s. 111 cl. (3) of the Indian Harin;;;;; Sugar
Companies Act, 1956, which had since been brought
Mills Ltd.
into operation on April 1, 1956. K. R. P. Ayyangar,
v.
Joint Secretary, Ministry of Finance, who heard the
Shyam Sundar
appeals declined to order registration of transfers,
Jhunjhunwala
beoause 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. 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. In the meeting dated
January 12, 1957, the directors of the company resolved not to register the transfers and informed the
transferees accordingly. Against this resolution, separate appeals were preferred by Shyam Sunder and
Sa vitadevi under s. 111 cl. (3) of the Indian Companies
Act, 1956 to the Central Government. 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". The company filed
representations submitting that the refusal was bona
fide and was not "without any reason, arbitrary and
untenable" as alleged. Shyam Sunder and Savitadevi
filed rejoinders to the representations submitting that
they had never alleged that refusal to transfer the
shares "was capricious or ma.la fide" and that all they
had alleged was that the "refusal was without any
reason, arbitrary and untenable". 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-ss. (5) and (6)
of s. 111 of the Indian Companies Act, 1956, and
directed that the company do register the transfers.
In so directing, the Deputy Secretary gave no reasons.
Against the orders passed by the Deputy Secretary,
with special leave under Art. 136 of the Constitution,
these two appeals are preferred by the company.
Shah ].
344
SUPREME COURT REPORTS
[1962]
r96r
Two questions fall to be determined in these apH
. -- 5
peals, (1) whether the Central Government exercising
arsnagar
ugar
11
d
111 f h C
.
A
Mills Ltd.
appe ate powers un er s.
o t e
ompames
ct,
v.
1956 before its amendment by Act 65 of 1960 is a triShyam Su•dar bunal exercising judicial functions and is subject to
Jhunjhunwala the appellate jurisdiction of this court under Art. 136
Shah J.
of the Constitution, and (2) whether the Central
Government acted in excess of its jurisdiction or otherwise acted illegally in directing the company to
register the transfer of shares in favour of Shyam
Sunder and Savitadevi.
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 India".
The Central Government exercising powers under
s. 111 of the Companies Act is not a court; that is
common ground. The Attorney-General intervening
on behalf of the Union of India submits that the
Central Government merely exercises administrat.ive
authority in dealing with an appeal under s. 111 of
the Indian Companies Act, 1956 and is not required
to act judicially. 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 Cenral Government under
under s. 111 does not become judicial, and subject to
appeal to this court. 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.
In a recent case decided by this court Shivji N athubhai v. 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
(I) [1960] 2 S.C.R. 775·
if•'.' t.•
\e-;
2 S.C.R. SUPREME COURT REPORTS
345
administrative order of the State Government grant1 ~6 1
ing a mining lease was subject to the appellate juris- H
.
-
5
d. ·
f h"
t b
h
.
a.inagar
ugar
wtwn o t is cour , ecause t e power to review was
Mills Ltd.
judicial and not administrative. In that case, the
v.
action of the State Government granting the mining
Shyam sundar
lease was undoubtedly an administrative act, but r. 54 J hunjhunwala
of the Mineral Concession Rules, 1949 granted a right
of review at the instance of an aggrieved party to the
Central Government, and autliorised it to cancel the
order of the State Government or to revise it in such
manner as it deemed just and proper. The exercise of
this power was held by this court to be quasi-judicial.
Before it was amended by s. 27 of Act 65 of 1960,
s. Ill of the Indian Companies Act, 1956-omitting
parts not material-provided:
(I) Nothing in sections 108, 109 and IIO shall prejudice any power of the company under its articles to
refuse to register the transfer of, or the transmission
by operation of law of the right to, any shares or
interest of a member in, or debentures of, the company.
(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
transferee and . the transferor or to the person giving
intimation of such transmission, as the case may be.
(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 transfer or transmission, or against any
failure on its part within the period referred to in subs. (2) either to register the transfer or transmission or
to send notice of its refusal to register the same.
(4) ................................ ···•··················· .......... .
(5) The Central Government shall, after causing
reasonable notice to be given to the company and
Shah J.
346
SUPREME COURT REPORTS
(1962]
r96r
alsO' to the transferor and the transferee or as the case
H
. -
5
may require, to the person giving intimation of the
annagar
ugar t
. ·
·b
·
f )
d h
'
Mills Ltd.
ransm1ssion
y operation o
aw an t e previous
v.
owner, if any, and giving them a reasonable opportuShyam Sun<lar nity to make their representations, if any, in writing
Jhunjhunwala by order, direct either that the transfer or transmisShah].
sion shall be registered by the company or that it need
not be registered by it: and in the former case, the
company shall give effect to the decision forthwith.
(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.
(7) All proceedings in appeals under sub-s. (3) or in
relation thereto shall be confidential and no suit, prosecution or other legal proceeding shall lie in respect
of any allegation made in such proceedings, whether
orally or otherwise.
(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-ss. (3) to (7) shall apply as if the company were a
public company:
Provided that the Central Government may, in lieu
of an order under sub-s. (5) pass an order directing
the company to register the transmission of the right
unless any member or members of the company speci.
lied 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 sum as the Central
Government may determine to be a reasonable compensation for the right in all the circumstances of the
case.
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. The Government, after giving notice of the appeal and hearing
the parties concerned may order that the shares be
registered if it thinks that that course is in the circumstances proper. The Central Government may
2 S.C.R. SUPREME COURT REPORTS
347
by the proviso to sub-s. (8) in lieu of an order under
1961
sub-s. (5), directing a private company to register H
. -
5
. .
f h
Id b
bl'
h
arinagar
ugar
transm1ss10n o s ares so
y a court or pu IC aut oMills Ltd.
rity, order that any member or members of the comv.
pany specified in the order do acquire the right on
Shyam Sundar
payment to the purchaser of the price paid by him, or Jhunjhunwala
such other sum as the Central Government determine
to be reasonable compensation. In exercise of the
powers under s. 642, rules called "The Companies
(Appeals to the Central Government) Rules, 1957"
have been framed by the Central Government. By
cl. (3) of the rules, the form of the petition of appeal
is prescribed. 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. Clause (5) prescribes the mode of service of notice of appeal to the
company and cl. (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. Clause (7) enables the parties to make representations if any in writing accompanied by affidavits and documentary evidence.
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-s. (5)
of s. 111 of the Act. By the appendix to the rules,
the form in which notice is to be given to the company is prescribed. 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.
There was no provision similar to s. 111 of the
Indian Companies Act, 1956, in the Act of 1913, nor
is our attention invited to any provision in the English Companies Act on which our Act is largely based,
to a similar provision. Prior to 1956, if transfer of
Shah ].
348
SUPREME COURT REPORTS
[1962)
r96r
shares was not registered by the directors of a comHarinaga-; Sugar pany, action under the Companies Act of 1913 could
Mills Ltd.
only be taken under s. 38 of the Indian Companies
v.
Act, 1913 by petition for rectification of the share
Shyam Sundar register.
As we will presently point out, the power
Jhunjhunwala to refuse to register a transfer granted by the Articles
Shah J.
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 directors were not obliged to disclose
reasons on which they acted. 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. 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)(').
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 s. 38 of
the Indian Companies Act, 1913, the court may not
draw unfavourable inferences from the refusal to disclose reasons in support of their resolution. The
power given to the court under s. 38 is now confirmed
with slight modification by s. 155 of the Indian Companies Act, 1956. 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 member. 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. A person aggrieved by the refusal to
(1) (1891) 65 L.T. 245.
2 S.C.R. SUPREME COURT REPORTS
349
register transfer of shares has, since the enactment of
x96x
the Companies Act, 1956, therefore two remedies for ff
.
-
s
k.
1. f
d
h C
.
A
(l)
l t
arinagar
ugar
see mg re w un er t e ompames
ct,
to app Y o
Mills Ltd.
the court for rectification of the register under s. 155,
v.
and (2) to appeal against the resolution refusing to
Shyam sundar
register the transfers under s. 111. It is common Jhunjhunwala
ground that in the exercise of the power under s. 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 Asso.
uiation.
The respondents however submit-and they
are supported by the Union of India-that the
authority of the Central Government under s. 111
is nevertheless purely administrative. But in an
appeal under s. 111 cl. (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 evidence, and not on
grounds of policy or expediency. 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. 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 s. 155: the restrictions
which inhere the exercise of the power of the court
also apply to the exercise of the appellate power by
the Central Government, i.e., the Central Government
hits to decide whether in exercising their power, the
directors are acting oppressively, capriciously or corruptly, or in some way mala fidl,.
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. The authority
uannot 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
Shah J.
350
8UPREME COURT REPORTS
[1962]
1961
and by rendering a decision upon the respective con-
. -
tentions, the rights of the contesting part.ies are
Harinag.,, Suga' d"
ti
er
d
p ·
f
·
h
·
f
h
Mills Ltd.
1rec y auecte .
nma ame, t e exercise o sue
v.
·authority would be judicial. It is immaterial that the
Shyam sunda' statute which confers the power upon the Central
J hunjhunwala Government does not expressly set out the extent of
Shah j.
the power: but the very nature of the jurisdiction
requires that it is to be exf>rcised subject to ihe limita.
tions which apply to the court under s. 155. The
proviso to sub-s. (8) of s. 111 clearly indicates that in
circumstances specified therein reasonable compensation may be awarded in lieu of the shares. 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.
In The Province of Bombay v. Kusaldas S. Advani('),
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.
Faz!
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. The mere fact that an executive authority
has to decide something does not make the decision
judicial. 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 Kiny v. London County Council(') by
Scrutton L.J .:
"It. is not necessary that it should be a court in the
sense in which this court is a court; it is enough if it
is exercising, after hearing evidence, judicial functions
in the sense that it has to decide on evidence between
a proposal and an opposition; and it is not necessary
to be strictly a court; if it is a tribunal which has to
{I) [I950] s.c R. 621.
{2J [193iJ 2 K.lJ. 215, 233,
_. 2 S.C.R. SUPREME COURT REPORTS
351
decide rights after hearing evidence and opposition, it
is amenable to the writ of certiorari."
.
I
Th
B
k L d
h.
E
l
Harinagar 5,. •• ,
n
e Bharat
an
t ., Del i v.
mp oyees of the
Miils Ltd ,
Bharat Bank Ltd., Delhi (1), the question whether an
v.
·
adjudication by an industrial tribunal functioning
Shyam s,.ndar
under the Industrial Disputes Act was subject to the
Jh,.njhunwala
jurisdiction of this court under Art. 136 of the Constitution fell to be determined: Mahajan J. in that
case observed:
"There can be no doubt that varieties of administrative tribunals and domestic tribunals are known
to exist in this country as well as in other countries
of the world but the real question to decide in each
case is as to the extent of judicial power of the State
exercised by them. Tribunals which do not derive
authority from the sovereign power cannot fall within
the ambit of Art. 136. The condition precedent for
bringing a tribunal within the ambit of Art. 136 is
that it should be constituted by the State. Again a_
tribunal would be outside the ambit of Art. 136 if it
is not invested with any part of the judicial functions
of the State but discharges purely administrative or
executive duties. 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 Art. 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."
It was also observed by Faz! 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
disputes which come before it.
The authority of the Central Government entertaining an appeal under s. 111(3) being an alternative
remedy to an aggreived party to a petition under
s. 155 the investiture of authority is in the exercise of
the judicial power of the State. Clause (7) of s. 111
(1) (1950) S.C.R. 459.
Shah .f.
352
SUPREME COURT REPORTS
[1962)
r96r
declares the proceedings in appeal to be confidential,
. -
but that does not dispense with a judicial approach
Ha~inagar Sugar
.
U
.
Mills Ltd.
to the evidence.
nder s. 54 of the Indian lncomev.
tax Act, (which is analogous) all particulars contained
Sh,.am Sund"' in any statement made, return furnished or accounts
Jhunjhunwala or documents produced under the provisions of the
Shah ].
Act or in any evidence given, or affidavit or deposition made, in the course of any proceedings under the
Act are to be treated as confidential; but that does
not make the decision of the taxing authorities merely
executive.
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.
The Attornev-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.
But 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 representations made by the parties. If
it be granted that the Cent-ral Government exercises
judicial power of the State to adjudicate upon rights
of the parties in civil matters when there is a !is
between the contesting parties, the conclusion is
inevitable that it acts as a tribunal and not as an
executive body.
vVe 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.
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
--
2 S.C.R. SUPREME COURT REPORTS
353
his part to observe all the provisions oft.he Memoran-
'96'
dum an~ o~ the A.rtic!es.
Clause ~ 7B of tl~e Ar.ti oles Hadnaga' Suga'
of Assoc1at10n which rnvcsts the director with d1screMills Ltd.
tion to refuse to register shares is therefore an inciv.
dent of the contract binding upon the transferor, and Shyam sunda'
registration of transfer or transmission cannot thereJ huuJhuuwala
fore be insisted upon as a matter of right. 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. Two of those may be noticed.
In In re Gresham Life Assurance Society Ex parte
Penney('), 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 already a shareholder or the executor of a
shareholder, should be entitled to become the transferee of any share unless approved by the board.
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.
The directors in
exercise of the powers conferred upon them by
the deed of settlement refused to register the shares.
In a joint summons taken out by Paiva and Penney
under s. 35 of the Companies Act, 1862, the ]\faster 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. In
the view of the Mast<:r of the Rolls, it was for the
court to judge whether the objection was reasonable
and that objection must be disclosed to the court.
Against this order, the company approached the Court
of Appeal. 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 coneeive of cases in which the court may
interfere with any violation of the fiduciary duty so
(1) (1872) Law Rep. 8 Ch. 446.
Shah ].
354
SUPREME COURT REPORTS
[1962]
196r
reposed in the directors. It was observ<>d by James
H
. -
L.J.:
arinagar Sugar
.
.
.
Mills Ltd.
"But m order to mterfere upon that ground 1t
v.
must be made out that the directors have been
Shyam Suuda,
acting from some improper motive, or arbitrarily
J huujhuuwala
and capriciously. That must be alleged and proved,
Shah ].
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 or arbitrary conduct
as between the directors and the person who is
seeking to transfer his shares, it does not appear to
me that this court has any jurisdiction whatever to
sit as a Court of Appeal from the deliberate decision
of the board of directors, to whom, by the constitution of the company, the question of determining
(.he eligibility or non-eligibility of new members is
committed. 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 cestui que trust
and the trustees, interfere to redress the mischief,
either by compelling the transfer or giving damages,
or in some mode or other to redress the mischief
which the shareholder would have had a just right
to complain of."
It was also observed by James L.J.:
"I am of opinion that we cannot sit as a Court of
Appeal from the conclusion which the directors have
arrived at if we are satisfied that the directors have
done that which alone they could be compelled by
mandamus to do, to take the matter into their
consideration".
Mellish L.J. observed:
"But it is further contended that in order to
secure the existing shareholder against being deprived of the right to sell his shares, the directors are
2 S.C.R. SUPREME COURT REPORTS
355
bound to give their reason why they reject the
196 r
transferee, and if they reject him without giving a
. -
reason that is a ground from which the Court oughtH•·~~[i"'L ~ugar
to infer that they were acting arbitrarily. I cannot
' ~.
1
•
agree with that. It appears to me that it is very
Shyam Sundar
important that directors should be able to exercise
Jhunjhunwala
the power in a perfectly uncontrollable manner for
the benefit of the shareholders; but it is impossible
that they could fairly and properly exercise it if
they were compelled to give the reason why they
rejected a particular individual.. .. ! am therefore of
opinion that in order to preserve to the company
the right which is given by the articles a shareholder is not to be put upon the register if the board
of directors do not assent to him, and it is absolutely necessary that they should not be bound to
give their reasons although I perfectly agree that if
it can be shown affirmatively that they are exercising
their power capriciously and wantonly, that may be
a ground for the Court interfering".
A similar view was also expressed in In re Smith
and Fawcett Ltd. (1) where the Court of Appeal held
that where the directors of the company had uncontrolled and absolute discretion to refuse to register any
transfer of shares, while such powers are of a fiduciary
nature and must be exercised in the interest of the
company, the petition for registration of transfer
should be dismissed unless there is something to show
that they had been otherwise exercised.
Rectification of the register under s. 155 can therefore be granted only if the transferor establishes that
the directors had, in refusing to register the shares in
the names of a transferee, acted. oppressively, capriciously or corruptly, or in some way mala fide and not
in the interest of the company. Such a plea has, in a
petition for rectification, to be expressly raised and
affirmatively proved by evidence. Normally, the court
would presume that where the directors have refused
to register the transfer of shares when they have been
invested with absolute discretion to refuse registration,
that the exercise of the power was bona fide.
When
(•) L.R. [1942] I Ch. D. 304.
Shah j.
356
SUPREME COURT REPORTS
[1962]
r96r
the new Companies Act was enacted, it was well
settled that the discretionary power conferred by the
Ha.ina•ar S"ga'
t' 1
f
• .
f
.
Jd b
Milts Ltd.
ar JC es o assomat10n to re use. to register wou
e
v.
presumed to be properly exercised and it was for the
Shyam Sundar aggrieved transferor to show affirmatively that it had
.fhuujhunwala been exercised mala fide and not in the interest of the
Shah ].
company.
Before the Committee appointed by tho Government
of India under the Chairmanship of Mr. C.H. Bhabha
representation was made by several bodies that this
power which was intended to be exercised for the
benefit of the company was being misused and the
Committee with a view to afford some reasonable
safeguards against such misuse of the power recommended that a right of appeal should be provided
against refusal to registe rtransfer of shares.