Judgment

RAY, J.:- These appeals are by special leave against the order dated 14th March, 1970 made by the Company Law Board, Department of Company Affairs, Ministry of Industrial Development, Internal Trade and Company Affairs, New Delhi under Section 111 (3) of the Companies Act, 1956 directing the appellant company to register transfer of 3643 shares forming the subject matter of these appeals.

2. The respondents in these appeals are Jaya Hind Industries Ltd., N K. Firodia and other persons who will be referred to as the Firodia group. The appellant will be referred to as the Bajaj group.

3. The Firodia group lodged in different lots 3643 shares of the appellan1 for being transferred to different names Jaya Hind Industries Private Ltd. applied for transfer of 1500 shares in their names. Firodia applied for transfer of 30 shares in his name. The other transfers were in the names of associates, nominees and friends of the Firodia group. The Board of the appellant refused to register transfer of the said shares at the Board meetings held on 23 May 1968 in respect of 2532 shares and on 24 June, 1968 in respect of 1111 shares. The appellant communicated the said refusal to transfer the shares in the month of June, 1968.

4. Thereafter, in the month of August, 1968, 338 appeals were filed before the Company Law Board in respect of refusal of the appellant to transfer 3643 shares. The Company Law Board by its letter dated 16th January, 1969 asked the appellant to disclose the reasons for refusal to register transfer of shares. The appellant company gave three reasons for refusal to register transfer of the said 3643 shares. First, that Jaya Hind Industries Private Ltd., was a beneficiary to the extent of 1/4th share in the Managing Agency remuneration receivable by Jamnalal Sons Private Ltd., from Bajaj Auto Ltd., and yet N. K Firodia chose to write to the Company Law Board against the extension of the Managing Agency of Jamnalal Sons Private, Ltd. The company further said that N. K. Firodia, according to the appellant company was their representatives and when N. K. Firodia acted in such a treacherous fashion and against the interest of the company and behind the back of the Board of Directors it became evident that Firodia s design was to create mischief. Secondly, the transfer of shares received from Jaya Hind Industries Private Ltd., was part of the design to acquire interest in the company which was likely to result in a threat to the smooth functioning of the management of the company, and to vote down the passing of a special resolution required for the management of the company, and, therefore, transfer should not be permitted. Thirdly, the purchase of shares by Jaya Hind Industries Private Ltd., was not with a view to bona fide investment but was with a male fide purpose and evil design. It was said that the issued share capital of the company was 1,04,250 shares of Rs. 100 each. Firodia group was holding 21,500 shares. Transferring further shares to the names of Firodia group would obstruct the business of the appellant company in the passing of special resolution which was required in the day to day business of the company. It was also said that from the investment point of view with a dividend of Rs. 10 per share on a paid up share of Rs. 100 the purchase price paid by Firodia Group was artificial and could only be with a view to try to take control and/or obstruct the business and smooth working of the company and to injure the existing management. The appellant company concluded by saying that the Board of Directors came to the conclusion that it was in the interest of the company to refuse the said transfers.

5. In order to appreciate whether the Directors used the discretion in proper exercise of their fiduciary power and the reasons were hone fide and legitimate in the interest of the company as a whole, it is necessary to refer to certain features of the case.

6. In the year 1947 a joint venture business was entered int