Share transfer refusal under company articles: court cannot compel reasons or interfere absent proof of mala fide or arbitrariness.

Under section 155 of the Companies Act, 1956, the company court cannot compel disclosure of reasons for refusing registration of a share transfer because section 111(5A) gave that power expressly to the Central Government on appeal, and no similar authority was conferred on the court. Where the articles of association give the board absolute discretion to refuse registration without assigning reasons, judicial interference is justified only on positive proof of mala fide, arbitrariness, caprice, oppression or action contrary to the company's interests. Mere allegations, or selective acceptance of other transfers, are insufficient to establish abuse of power.

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Issues: (i) Whether the company court could compel disclosure of the reasons for refusal to register transfer of shares in proceedings under section 155 of the Companies Act, 1956. (ii) Whether the refusal to register the transfer of shares, made under the articles of association, was arbitrary, capricious, mala fide or otherwise liable to be interfered with.

Issue (i): Whether the company court could compel disclosure of the reasons for refusal to register transfer of shares in proceedings under section 155 of the Companies Act, 1956.

Analysis: Section 111(5A) of the Companies Act, 1956 expressly empowered the Central Government, in an appeal against refusal of registration, to require disclosure of reasons for refusal and to draw an adverse presumption on non-disclosure. No similar enabling provision existed in section 155. The absence of such an amendment indicated that the power was deliberately not conferred on the company court. The court declined to add such a power by interpretation.

Conclusion: The company court had no power under section 155 to compel disclosure of reasons for refusal to register the transfer of shares.

Issue (ii): Whether the refusal to register the transfer of shares, made under the articles of association, was arbitrary, capricious, mala fide or otherwise liable to be interfered with.

Analysis: The articles conferred an absolute discretion on the board to refuse registration without assigning reasons. In such a case, the court will not interfere unless the refusal is shown by positive evidence to be mala fide, arbitrary, capricious, oppressive or contrary to the interests of the company. The appellants failed to prove any such vitiating factor. Mere allegations, or the circumstance that transfers were refused to them while some other transfers were accepted, did not establish abuse of power.

Conclusion: The refusal to register the transfer of shares was valid and did not warrant judicial interference.

Final Conclusion: The challenge to the refusal of registration failed, and the common order dismissing the rectification applications was affirmed.

Ratio Decidendi: Where the articles confer absolute discretion on directors to refuse registration of share transfers without stating reasons, the court will not compel disclosure or interfere unless the refusal is proved by positive evidence to be mala fide, arbitrary, capricious or contrary to the company's interests; in the absence of an express statutory power, no such disclosure mechanism can be read into section 155.

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