TaxTMI 
TaxTMI 
1961 (4) TMI 23
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.... and the transferor notice of the refusal." One Banarasi Prasad Jhunjhunwala is the holder of a block of 9,500 fully paid-up shares of the company. In January, 1953, he executed transfers in respect of 2,500 out of those shares in favour of his son, Shyam Sunder, and in respect of 2,100 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 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 section 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 section 38, controversial ques....
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....hat 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 article 136 of the Constitution, these two appeals are preferred by the company. Two questions fall to be determined in these appeals, (1) whether the Central Government exercising appellate powers under section 111 of the Companies Act, 1956, before its amendment by Act 65 of 1960 is a tribunal exercising judicial functions and is subject to the appellate jurisdiction of this court under article 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. 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 section 111 of ....
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.... 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, of against any failure on its part, within the period referred to in sub-section (2), either to register the transfer or trans mission or to send notice of its refusal to register the same. . . (5) The Central Government shall, after causing reasonable notice to be given to the company and also to the transferor and the transferee or, as the case may require, to the person giving intimation of the transmission by operation of law and the previous owner, if any, and giving them a reasonable opportunity to make their representations, if any, in writing, by order, direct either that the transfer or transmission 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 Centr....
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....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 clause 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 subsection (5) of section 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 section 111 of the Companie....
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....r transfer of shares has, since the enactment of the Companies Act, 1956, therefore, two remedies for seeking relief under the Companies Act, (1) to apply to the court for rectification of the register under section 155 and (2) to appeal against the resolution refusing to register the transfers under section 111. It is common ground that in the exercise of the power under section 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 association. The respondents however submit-and they are supported by the Union of India-that the authority of the Central Government under section 111 is nevertheless purely administrative. But that in an appeal under section 111, clause (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 deli....
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....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 King v. London County Council [1931] 2 K.B. 215, 233 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 decide rights after hearing evidence and opposition, it is amenable to the writ of certiorari." In Bharat Bank Ltd. v. Employees of Bharat Bank Ltd. [1950] S.C.R. 459, the the question whether an adjudication by an industrial tribunal functioning under the Industrial Disputes Act was subject to the jurisdiction of this court under article 136 of the Constitution fell to be determined. Mahajan J. in that case observed: "There can be no dou....
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....inference that a duty is imposed upon the Central Government in deciding the appeal to act judicially. The Attorney-General contended that even if the Central Government was required by the provisions of the Act and 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 Central Government exercises judicial power of the State to adjudicate upon rights of the parties in civil matters when there is a lis between the contesting parties, the conclusion is inevitable that it acts as a tribunal and not as an executive body. We, therefore, overrule 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....
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.... that the directors have been acting from some improper motive, or arbitrarily and capriciously. That must be alleged and proved, 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 could 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 the 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 mischie....
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....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 the new Companies Act was enacted, it was well settled that the discretionary power conferred by the articles of association to refuse to register would be presumed to be properly exercised and it was for the aggrieved transferor to show affirmatively that it had been" exercised mala fide and not in the interest of the company. Before the Committee appointed by the 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 register transfer of shares. The Legislature, ....
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....was capricious or mala fide" and all that they "had stated was that the refusal was without any reason, arbitrary or untenable." The Deputy Secretary who decided the appeals chose to give no reasons in support of his orders. There is nothing on the record to show that he was satisfied that the action of the directors in refusing to register the shares "was arbitrary and untenable" as alleged. If the Central Government acts as a tribunal exercising judicial powers and the exercise of that power is subject to the jurisdiction of this court under article 136 of the Constitution, we fail to see how the power of this court can be effectively exercised if reasons are not given by the Central Government in support of its order. In the petition under section 38 of the Indian Companies Act, 1913, the Bombay High Court declined to order rectification on a summary proceeding and relegated the parties to a suit and a similar order was passed by the Joint Secretary, Ministry of Finance. These proceedings were brought to the notice of the Deputy Secretary who heard the appeals. Whether in spite of the opinion recorded by the High Court and by the Joint Secretary, Ministry of Finance, in respect ....
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.... 111(3) of the Companies Act, 1956, which had come into force from April 1, 1956. These appeals were heard by Mr. K.R.P. Aiyengar, Joint Secretary, Ministry of Finance, who dismissed them holding that only a suit was the appropriate remedy. Banarsidas Prasad then made a fresh transfer of 100 shares each to his son and daughter-in-law, and requests for registration of these shares were made. The appellant company again declined to register the shares, but gave no reasons. Under clause 47B of the articles of association of the appellant company, it is provided : "The directors may in their absolute discretion and without giving any reason refuse to register any transfer of any shares whether such shares be 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 transferee and the transferor notice of the refusal." The appellant company was prima facie within its rights when it did not state any reasons for declining to register the shares in question. Appeals were again taken to the Central Government under section 111(3). It was alleged that the ....
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....ish Dictionary (Vol. II, pp. 1090, 1091), the meaning given is: "an assembly of judges or other persons legally appointed and acting as a tribunal to hear and determine any cause, civil, ecclesiastical, military or naval." All tribunals are not courts, though all courts are tribunals. The word "courts" is used to designate those tribunals which are set up in an organised State for the administration of justice. By administration of justice is meant the exercise of judicial power of the State to maintain and uphold rights and to punish "wrongs". Whenever there is an infringement of a right or an injury, the courts are there to restore the vinculum juris,' which is disturbed. Judicial power, according to Griffith C.J. in Huddart, Parker & Co. Proprietary Ltd. v. Moorehead [1908] 8 C.L.R. 330, 357, means : "the power which every sovereign authority must of necessity have to decide controversies between its subjects, or between itself and its subjects, whether the rights relate to life, liberty or property. The exercise of this power does not begin until some tribunal which has power to give a binding and authoritative decision (whether subject to appeal or not) is called upon to ta....
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....dition and is not of the essence. Many tribunals, in recent years, have acquitted themselves so well and with such detachment as to make this test insufficient. Lord Sankey L.C. in Shell Company of Australia v. Federal Commissioner of Taxation [1931] A.C. 275, 296, observed : "The authorities are clear to show that there are tribunals with many of the trappings of a court, which, nevertheless, are not courts in the strict sense of exercising judicial power. In that connection it may be useful to enumerate some negative propositions on the subject: 1. A tribunal is not necessarily a court in this strict sense because it gives a final decision. 2. Nor because it hears witnesses on oath. 3. Nor because two or more contending parties appear before it between whom it has to decide. 4. Nor because it gives decisions which affect the rights of subjects. 5. Nor because there is an appeal to a court. 6. Nor because it is a body to which a matter is feferred by another. See King v. Electricity Commissioners [1924] 1 K.B. 171." In my opinion, a court in the strict sense is a tribunal which is a part of the ordinary hierarchy of courts of civil judicature maintained by the State under its co....
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....tances apparent that as soon as rule 52 gives a right to an aggrieved party to apply for review a lis is created between him and the party in whose favour the grant has been made. Unless therefore there is anything in the statute to the contrary it will be the duty of the authority to act judicially and its decision would be a quasi-judicial act." This observation only establishes that the decision is a quasi-judicial one, but it does not say that the Central Government can be regarded as a tribunal. In my opinion, these are very different matters, and now that the question has been raised, it should be decided. The function that the Central Government performs under the Act and the rules is to hear an appeal against the action of the directors. For that purpose, a memorandum of appeal setting out the grounds has to be filed, and the company, on notice, is required to make representations, if any, and so also the other side, and both sides are allowed to tender evidence to support their representations. The Central Government by its order then directs that the shares be registered or need not be registered. The Central Government is also empowered to include in its orders, direct....
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....7B gives to the directors a right to refuse to register shares in their absolute discretion, without giving reasons. In Gresham Life Assurance Society In re: Ex parte Penney [1872] 8 Ch. App. 446, James L.J. observed : "No doubt the directors are in a fiduciary position both towards the company and towards every shareholder in it. It is very easy to conceive cases such as those cases to which we have been referred, in which this court would interfere with any violation of the fiduciary duty so reposed in the directors. But in order to interfere upon that ground it must be made out that the directors have been acting from some improper motive, or arbitrarily and capriciously. That must be alleged and proved, 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 . . . But if it is said that wherever any shareholder has proposed to transfer his shares to some new member, the court has a right to say to the directors, 'We will presume that your motives are arbitrary and capricious, or that your conduct is corrupt, unless you choose to tell us what your reasons were, an....
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....isclosure of these allegations and the veil of secrecy drawn by law is not rent, then it appears to me that a further appeal can hardly be efficacious; In this view, in my opinion, this court should not grant special leave in such cases. The situation which arises is not very different from what arose before the Judicial Committee in Moses v. Parker: Ex parte Moses [1896] A.C. 245. The headnote adequately gives the facts, and may be quoted : "By Tasmania Act No. 10 of 1858, section 5, disputes concerning lands yet ungranted by the Crown are referred to the Supreme Court, whose decision is to be final; and by section 8 the court is directed to be guided by equity and good conscience only, and by the best evidence procurable, even if not required or admissible in ordinary cases, and not to be bound by strict rules of law or equity or by any legal forms: Held, that the Crown's prerogative to grant special leave to appeal is inapplicable to a decision so authorised. " In dealing with the case, Lord Hob house observed at page 248 : "The Supreme Court has rightly observed that Her Majesty's prerogative is not taken away by the Act of 1858, but intimates a doubt whether it ever came i....
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....overnment acting as a tribunal be within article 136, in my opinion-and I say it with great respect-special leave to appeal should not be granted in such cases, unless this court is able to rend the veil of secrecy cast by the law without rending the law itself. The argument is that the allegations are confidential only so far as the public are concerned but not confidential where courts are concerned. The question is not that, but one of practice of this court, This court should intervene only when practicable, and that can only arise if the parties agree not to treat the allegations as confidential. That, however, does not end the present-appeals. Special leave has been granted, and I have held that the appeals are competent, even though such cases often may not be fit for appeal. In this case, there is no claim that any allegation was confidential. In fact, the appellants before the Central Government made it clear that they did not charge the directors with "capricious or mala fide conduct" but only with arbitrary refusal, without stating any reasons. The appellant company in its representation set out the history of previous refusals and the decisions of the High Court of Bom....