COIMBATORE KAMALA MILLS LTD Vs. T SUNDARAM

JUDGEMENT

(1.) The facts which led up to the suit out of which this appeal arises are not in dispute. Defendant 1 is a public limited company incorporated under the provisions of the Indian Companies Act. The plaintiff purchased from defendants 2 to 12, who were shareholders of the company, a total number of 172 shares and applied to the company to register the transfer of the shares in his name in the books of the company. On 9th January 1945, the company wrote to the plaintiff that the Board of Directors of the company had refused to register the shares purchased by the plaintiff in his name at a meeting held on 5th January 1945. The share certificates and the transfer deeds were therefore returned to the plaintiff On 19th January 1945 the plaintiff wrote to the company alleging that the Directors' refusal to register the transfers was arbitrary, unjust and opposed to law and gave them notice that unless they recognised the transits in his favour and registered them he would seek redress in a Court of law. To this the company replied that the Directors had acted in good faith and had refused to register the transfer after due deliberation and the transfer could not be given effect to. Thereupon the plaintiff filed the present suit in the Court of the Subordinate Judge of Coimbatore for a mandatory injunction directing the company to register the transfers in his favour of the shares mentioned in Schedule A to the plaint and to enter his name in the register of shareholders of the company in respect of the said shares in the place of the names of defendants 2 to 12. In his plaint he alleged that there was no lawful excuse or justification for the refusal of the company to register the transfers in his favour. They had been duly executed and stamped and the form of transfer prescribed by the articles of association had been followed and all material particulars had been furnished. The plaintiff stated that nothing was due to the company by the transferors or himself solely or jointly and that the company could have no personal objection to the transfers by reason of his status, education and business experience and also because he was already a shareholder of the company and they had registered the transfer of about 40 shares in his favour before the purchase of the shares in question. The plaintiff further stated that the action of the directors was not bona fide because the partners of the Managing Agency firm of defendant 1 company wanted the plaintiff to sell to them the shares purchased by him to enable them to secure an increasing control over the affairs of defendant 1 company, but he would not accede to their request, and mortified at this and with a view to coerce the plaintiff to sell the shares to them the directors of the Company were influenced to refuse the registry of the transfers sought by the plaintiff. The company in the written statement filed on its behalf pleaded in defence that under Article 37 of the Articles of Association of the company the directors were given powers to refuse registry of any transfer without assigning reasons therefor and that the directors had acted bona fide and in the best interests of the company. The company also denied that the action of the Directors was not bona fide. The learned Subordinate Judge who tried the suit held that the Directors must be deemed to have acted arbitrarily in refusing to register the transfer in favour of the plaintiff and that their action was not bona fide and could not be upheld. He came to this conclusion mainly on two grounds, (1) that five or six months before the date of his application for the transfer of registry in respect of the suit shares the company had no objection to the recognition of the transfer of certain other shares in his favour, and there was no suggestion that anything had taken place subsequent to the date of recognition of the prior transfers which made undesirable that the plaintiff should be a member of the company and (2) the conduct of the directors was due to a mala fide motive because the refusal was the result of the unwillingness on the part of the plaintiff to sell the shares which he had purchased to the Managing Director. The learned Judge incidentally was also inclined to hold that there could be no valid refusal on the ground that the Directors did not approve of the proposed transfers in the case of a person who was already a member of the company. He decreed the suit and defendant 1 is the appellant before us.

(2.) The material article is Article 37, and it runs as follows:

(3.) But we agree with the learned counsel for the appellant that because the directors did not specify she ground on which they had declined to register the transfer no adverse inference should be drawn against them. If they refrained from stating the ground, it was open to the plaintiff to have administered interrogatories to the company. The plaintiff did not follow this course evidently because it was assumed by both sides that the directors had declined on the ground that they did not approve of the plaintiff. We also agree with the learned counsel for the appellant that because the directors have tot chosen to assign any reasons for their action the Court should not draw unfavourable inferences against them. As Chitty J. observed In re Bell Bros. Ltd., Ex-parte Hodgson, (1892) 65 L. T. 245 at p. 248 :