P. B. MUKHARJI, J.

( 1 ) THIS appeal questions the refusal by the Board of Directors of the Defendant Western India Theatres Ltd. to register certain shares transferred by defendant Shantaram Raghurao Hemmad in favour of the plaintiff Babulal Choukhani. Two essential points arise for determination in this appeal. The first point relates to the construction of the Articles of Association restricting the right of transfer and limiting such transfer by certain conditions mentioned in the Articles. The second point raises the question of proper exercise of such power by the Directors under those Articles and how far and to what extent the Director's decision in this respect is reviewable by the Courts.

( 2 ) THE plaintiff's case briefly is that he obtained shares of the face Value of Rs. 5,00,000/- in the defendant company bearing Nos. 30057 to 35056 together with blank transfer deed duly executed and completed and transferred by the defendant Hemmad. The transfer was made on or about the 27th April 1950 and is said to be for the consideration of debts owed by defendant Hemmad to plaintiff Choukhani. It is the plaintiff's case in the plaint that Hemmad executed the relevant transfer deed in favour of the plaintiff in respect of the said shares and also completed the same. The plaintiff thereupon applied to the defendant company for registration of those shares in his name, but at meetings held on the 5th June 1950 and 30th June 1950 the Board of Directors of the defendant company refused to register such transfer of shares in the name of the plaintiff. The plaintiff challenges such refusal as wrongful and not bona fide. He pleads that there is no valid reason for such refusal. In paragraph 16 of the plaint the plaintiff states that the Directors of the defendant company did not exercise their powers bona fide under the Articles of Association of the defendant company in refusing to register the shares. He then proceeds to set out in different sub-paragraphs, namely, (d) to (1) the different facts and circumstances on which he states that the defendant company in refusing to register his name did not act bona fide,

( 3 ) THE defendant company by its written statement stated that the decision of the Board of Directors to refuse to register the transfer was arrived at bona fide and after due consideration. It also pleads that the said transfer deed was not duly stamped as required by law. It denied all charges of bad faith.

( 4 ) THE defendant Hemmad neither entered appearance, nor filed any written statement.

( 5 ) THREE issues were raised before the learned trial Judge. The first issue was :"was the Transfer Deed duly completed as alleged in paragraph 11 of the plaint? If not, has the defendant company waived the conditions? Is the defendant' estopped from stating that the Deed was not duly executed? The second issue was :"did the Directors of the defendant company act mala fide in refusing to accept or register the transfer of the shares in favour of the plaintiff as alleged in the plaint? The third issue was a general one : "to what reliefs, if any, is the plaintiff entitled?"

( 6 ) THE learned Judge after hearing the evidence dismissed the suit with costs.

( 7 ) THE right to transfer shares is regulated by the Company's Articles. The Companies Act lays down that the shares of any member in a company shall be moveable property, transferable in the manner provided by the articles of the company. The relevant article of the defendant company in this case is Article 52 which reads as follows :--"the Directors may at their absolute and uncontrolled discretion decline to register or acknowledge any transfer of shares and shall not be bound to give any reason for such refusal and in particular may so decline in respect of shares upon which the Company has a lien or whilst any member executing the transfer is either alone or jointly with any other person or persons indebted to the Company on any account whatsoever or whilst any mon

Click Here to Read the rest of this document