1947 (2) TMI 15 - HC - Companies Law

Court Invalidates Director's Refusal to Register Share Transfer

The court held that the respondent company's directors' refusal to register the transfer of shares purchased at a court auction was invalid as they had ... Transfer to shares – Power to refuse and appeal against refusal Issues Involved:1. Whether the petitioner is entitled to have its name substituted for that of Chaudhri Zaffarullah Khan in the register of members in respect of eighty shares.2. The discretion of the directors to refuse the registration of shares transferred by a court order.3. The validity of the directors' refusal to register the transfer after initially accepting it.Issue-Wise Detailed Analysis:1. Entitlement of Petitioner to Register Shares:The petitioner, Narankari Motor Company, purchased eighty shares of Wahid Bus and Mailsi Transport Company Limited at a court auction. The court had sanctioned the sale, and the Subordinate Judge executed the necessary transfer documents. The petitioner sought registration of these shares in its name. The respondent company initially permitted the transfer but later refused to register the petitioner as a shareholder.2. Directors' Discretion to Refuse Registration:The respondent company argued that as a private limited company, its directors had 'absolute and uncontrolled discretion' under Article 20 of the Articles of Association to refuse any proposed transfer of shares, including those transferred by court order. The counsel for the respondent cited Manilal Brijlal v. Gordhan Spinning, Weaving and Manufacturing Co. Ltd., which held that a purchaser at a court sale is subject to the same rules as a private purchaser and does not have an automatic right to be registered as a shareholder.3. Validity of Directors' Refusal:The petitioner countered this by citing Mohideen Pichai v. Tinnevelly Mills Co., where the Madras High Court distinguished between transfer and transmission of shares, stating that the directors' discretion to refuse registration did not apply to court-ordered transfers. The court noted that Articles 18 to 25 of the respondent company's Articles of Association dealt separately with transfers and transmissions, implying that the directors' discretion under Article 20 should be confined to voluntary transfers.Analysis of Directors' Actions:The court scrutinized the actions of the respondent company's directors. Initially, the directors resolved to transfer the shares to the petitioner as per the court's order but later sought a remedy to prevent the petitioner from becoming a shareholder. The respondent company communicated acceptance of the transfer to the petitioner and requested the necessary documentation. However, they later reconsidered and refused the transfer, citing legal advice that the Subordinate Judge had no power to issue the transfer order.Court's Conclusion:The court concluded that the directors had initially accepted the transfer and communicated this acceptance to the petitioner. Their subsequent refusal was deemed too late and invalid. The court held that the directors could not ignore the sale and retain Zaffarullah Khan's name in the register, as this would contravene the Civil Procedure Code and render the court's orders nugatory. The court also dismissed concerns about potential collusive and fraudulent decrees, noting that no such allegations were made in this case.Final Judgment:The petition was allowed, and the respondent company was ordered to enter the petitioner's name as the holder of the eighty shares previously held by Chaudhri Zaffarullah Khan. The respondent was also directed to pay the petitioner's costs.