HARINAGAR SUGAR MILLS LIMITED Vs. SHYAM SUNDER JHUNJHUNWALA

JUDGEMENT

(1.) M/s. Harinagar Sugar Mills, Ltd. is a public limited company incorporated under the Indian Companies Act 7 of 1913. Article 47B of the Articles of Association of the company invests the directors of the company with absolute discretion to refuse to register any transfer of shares. That Article is in the following terms:

(2.) 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 Art. 47B 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 law and fact could not be tried and that the proper remedy of the transferees, if so advised, was to file suits for relief in the civil Court. Requests were again made by the transferees to the company by letters dated February 29, 1956 to register the transfers made by Banarasi Prasad in 1953. 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 action of the company, appeals were preferred to the Central Government under S. 111, cl. (3) of the Indian Companies Act, 1956, which had since been brought into operation on April 1, 1956. K. R. P. Ayyangar, Joint Secretary, Ministry of Finance, who heard the appeals declined to order registration of transfers, because in his view, the questions raised in the appeals could, as suggested by the High Court of Bombay, be decided only in a civil suit. 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 Savitadevi 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 mala 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.

(3.) Two questions fall to be determined in these appeals. (1) whether the Central Government exercising appellate powers under S. 111 of the Companies Act, 1956, before it's amendment by Act 65 of 1960 is a tribunal exercising judicial functions and is subject to the appellate jurisdiction of this Court under Art.136 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.