TaxTMI 
TaxTMI 
1994 (2) TMI 231
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....d. ('the company') of the face value of Rs. 100 each. Shri Prabhudas V. Mehta died on 26-8-1974, without leaving any will. The appellants are the only legal heirs and representatives of Shri Prabhudas Mehta and they filed a company petition for rectification of the register of members of the company by deleting the name of Shri Prabhudas V. Mehta and substituting in his place the names of the appellants in respect of those 100 shares in the company bearing Distinctive Nos. 9101 to 9200. Prior to his death the deceased, Shri Prabhudas V. Mehta, was holding these shares and was working as an employee of the company. It appears that there were certain disputes between Shri Prabhudas V. Mehta and the directors of the company who made efforts to purchase the said shares. The negotia-tions in this regard could not be completed in view of the sudden death of Shri Prabhudas V. Mehta. It is also alleged that the appellants entered into negotiations for sale of shares which were carried on for several years. Extensive correspondence ensued between the appellants and the company. However, as no positive reply was forthcoming for the transmission of shares, the appellants sent a letter to the ....
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....ure so as to comply with the prerequisites of transmission of shares. On 21-11-1984, the appellants forwarded a true copy of the heirship certificate and requested the company to do the needful. A reminder also was sent on 29-12-1984. Spice there was no reply from the company, Company Petition No. 39 of 1985 was filed in the Bombay High Court praying for rectification of the register of members. The company filed an affidavit opposing the grant of the relief prayed for, stating that the directors of the company have decided to refuse to register the appellants as members of the company in exercise of the powers conferred under the articles of association of the company. The appellants filed a rejoinder. On 17-4-1985, the company filed an addi- tional affidavit purporting to enclose therewith a resolution of the company dated 9-4-1985, by which the Board of Directors declined to register the shares of the appellants as the owners thereof and to admit them as members. On 17-4-1985, the learned Single Judge of the High Court dismissed the petition on the ground that alternative remedy was available under section 111 of the Act. Questioning the same the appel- lants preferred an appeal....
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....lst considering the question whether discretion has been exercised bona fide or not but this cannot imply, in our opinion, loss of power in the Board of Directors. If that was to be the consequence, then, in our opinion, it was obligatory for the Legislature to have provided the same specifically by enacting a specific deeming provision to that effect and not leaving it for argument or a fiction to be implied by a reading of the provisions." Having, thus, disposed of the first issue, the Division Bench adverted to the second question, namely, whether the action of the directors was mala fide. The Division Bench also considered the question whether the directors have acted in the interest of the company. Having examined the materials on record and the ratio laid down in several cases, the Division Bench ultimately held that "It is not possible on the material shown to us to characterise the decision as capricious or perverse or mala fide and that it is a commercial decision taken honestly by businessmen in the interest of the company and its shareholders". The Division Bench concluded that subject to the rights of the petitioners to adopt such appropriate proceedings as may be avai....
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....uspend registration as they would have had, if the deceased or insolvent member had transferred the shares before his death or insolvency. Section 111 gives the power to refuse registration and also provides for an appeal against such refusal. Section 111(1) lays down that nothing in sections 108,109 and 110 of the Act shall prejudice any power of the company under its articles to refuse to register the transfer of, or the transmission by operation of law of the right to, any shares or interest of a member in, or debentures of, the company. Sub-section (2) is to the effect that if the company refuses, whether in pursuance of any power under its articles or otherwise, to register any such transfer or transmission of rights, it shall within two months from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferee and the transferor. The latter part of this sub-section reads as under: "If default is made in complying with this sub-section, the company and every officer of the company, who is in default, shall be punishable with fine which may extend to fifty rupe....
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....ister a transfer to inform the persons who are aggrieved within two months of such a refusal, the Act of 1948 quite clearly indicates that a reasonable time, other things being equal, within which directors must make up their minds either to accept the transfer or to refuse it must be the two months within which they have to make an answer. Therefore, it does seem to me that waiting for four months without any decision at all was an unreasonable delay. One has, however, to go one step further than that; one has to say that unreasonable delay has destroyed the right so that when, in December 1967, the new board purported to refuse, they were no longer in a position to exercise that discretion which, if they had acted promptly, undoubtedly would have been theirs, to consider and, if they thought fit in the interests of the company, to refuse registration of the transfers." (p. 622) These observations make it clear that the Court did not confirm the opinion of Pennycuick L. J. that on the expiry of the period of two months, the power would be lost. In this case, the scope of section 78 of the English Companies Act was being considered and the said provision reads as follows (at page ....
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....o see any irregularity or lack of bona fide action, as contended, in bringing about those amendments. However, we notice that before the learned Single Judge as well as before the Division Bench of the High Court, the main question urged was that of limitation of two months and for the aforesaid reasons, we are of the view that the High Court has rightly held that the right to refuse is not lost. 9. At this stage, we may refer to the factual background in the instant case. Initially, the company petition was dismissed by the company judge on 17- 4-1985 on the preliminary ground. Against that the appellants went in appeal and in that appeal the order of dismissal of the company petition was set aside and a remand was ordered for disposal on merits and that the Court also permitted the filing of further affidavits and they were in fact filed before the matter came up for rehearing before the company judge on remand. It must further be remembered that the appellants moved the High Court even before the expiry of the period of two months and from the dates mentioned above it can be seen that the appellants complied with the requirements, namely, sending the heirship certificate, etc.,....