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GAUHATI HIGH COURT
K.N.Saikia, J.
Beena Barua and Ors. -Appellant
Versus
Dalowjan Tea Company (P) Ltd.and Ors. -Respondent
Company Petition No. 1 of 1979
Decided On : 21-04-1981
COMPANY - RECTIFICATION OF REGISTER OF MEMBERS - TRANSMISSION OF SHARES - DISCRETION OF DIRECTORS TO REFUSE REGISTRATION - PRINCIPLES GOVERNING EXERCISE OF DISCRETION - INTEREST OF COMPANY AND SHAREHOLDERS - MALAFIDE OR ARBITRARY EXERCISE OF DISCRETION - SUCCESSION CERTIFICATE - EFFECT - REGISTRATION OF NAMES OF HEIRS - POWER OF DIRECTORS.
Fact of the Case:
The petitioner, Bina Barua, filed a petition under Section 155 of the Indian Companies Act, 1956, seeking rectification of the Register of Members of the Dalowjan Tea Company (Private) Ltd. (the Company). Her husband, Dhrubajyoti Barua, who owned 900 equity shares in the Company, died intestate on 5.9.73. The petitioner obtained a Succession Certificate on 26.7.74, which was later extended on 8.6.77 to include the 900 shares. The petitioner wrote to the Company requesting it to pay the outstanding dividends and to record her name in the Register of Members in place of her husband. However, the Company informed her that the Board of Directors had resolved not to transfer the shares to her. The petitioner served a lawyer's notice on the Company, which responded by stating that the Board's decision was taken in the long-term interest of the Company and its members, and in the interest of the minor children of the deceased.
Finding of the Court:
The Court held that the Board of Directors had the discretion to refuse to register the transfer or transmission of shares, but this discretion had to be exercised reasonably, bona fide, and in the interest of the Company, not arbitrarily. The Court further held that the Succession Certificate obtained by the petitioner did not entitle her to have all the 900 shares registered in her name alone, as there were other heirs of the deceased, including the two minor children who were petitioners before the Court. The Court also held that the directors had no intention to deprive the minor heirs of their legitimate shares and would register their names, if required.
Issues: 1. Whether the Board of Directors had the discretion to refuse to register the transfer or transmission of shares? 2. Whether the Succession Certificate obtained by the petitioner entitled her to have all the 900 shares registered in her name alone? 3. Whether the directors acted arbitrarily, capriciously, or malafide in refusing to register the transmission as prayed by the petitioner?
Ratio Decidendi: 1. The Court held that the Board of Directors had the discretion to refuse to register the transfer or transmission of shares, but this discretion had to be exercised reasonably, bona fide, and in the interest of the Company, not arbitrarily. The Court relied on the principles laid down in various Supreme Court judgments, including Harinagar Sugar Mills vs. Shyam Sunder Jhunjhunwala, Bajaj Auto Ltd. vs. N. K. Firodia, and Indian Chemical products Ltd. v. State of Orissa. 2. The Court held that the Succession Certificate obtained by the petitioner did not entitle her to have all the 900 shares registered in her name alone, as there were other heirs of the deceased, including the two minor children who were petitioners before the Court. The Court relied on Article 37 of the Company's Articles of Association, which provided that the heirs or executors and administrators of the deceased, where he was a sole or only surviving holder, shall be the only person recognised by the Company as having any title to his shares. 3. The Court held that the directors had no intention to deprive the minor heirs of their legitimate shares and would register their names, if required. The Court found that the directors had acted in the interest of the Company and the minor children, and that their decision was not arbitrary, capricious, or malafide.
Final Decision: The Court rejected the petition for rectification of the Register of Members, but left it open for the directors to register the names of the heirs of Late Dhrubajyoti Barua, including petitioner No. 1, in his place, to the extent inherited by each, if required by the heirs.
This is a company petition under Section 155 of the Indian Companies Act, 1956, hereinafter the Act, for rectification of Register of Members.
2. Late Dhrubajyoti Barua, husband of petitioner No. 1 and father of petitioner Nos 2 and 3, who owned 900 equity shares in the Dalowjan Tea Company (Private) Ltd., hereinafter 'the Company', died on 5.9.73 intestate. The District Judge, U.A.D. at Jorhat appointed petitioner No. 1 as the guardian of her son and daughter, petitioner Nos 2 and 3, and all the three now reside at Shillong. The petitioner No. 1 obtained on 26.7.74 a Succession Certificate but it did not cover the 900 shares of late Dhrubajyoti Barua in the Company. The petitioner No. 1 having applied for extension of the certificate under section 376 of the Indian Succession Act, the extension was granted on 8.6.77 so as to include the 900 shares (Annexure-(A). On receipt of the extended certificate the petitioner No. 1 wrote to the Company on 5.8.77 requesting it to pay the outstanding dividends as well as to record her name in the Register of Members in place of her husband; but the latter by letter dated 19.8.77 informed that the letter would be placed in the next meeting of the Board of directors. By letter dated 25.1.78 the Managing Director informed that the matter could not be discussed in the meeting of the Board of directors on 10.9.77 as many of the senior directors were not present, and the petitioner No. 1 was requested to send a certified copy of the Succession Certificate in respect of the 900 shares; and the same was accordingly sent. The petitioner No. 1 meanwhile wrote to the Registrar of Joint Stock Companies complaining about non-receipt of dividends and non-transfer of shares; and from a copy of the Registrar's letter dated 2.5.78 she learnt that the Board decided not to transfer the 900 equity shares to her. The Registrar also forwarded a copy of the company's letter dated 18.2.78 along with a copy of the extract of the resolution adopted in company's Board meeting held on 13.2.78 which runs as follows :-
"Item No. I :
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(b) The following letters regarding the application of Shri Bina Barua for transfer of shares were placed before the meeting. Letters (1 to 9) correspondence amongst Smti Bina Barua, Registrar of Companies and the Managing Director, Dalowjan Tea Company.
The matter was fully discussed and the Board considered the question of the share transfer from all angles viz. long term interest of the company, circumstances leading to the tragic death of late Shri Dhrubajyoti Barua and in the interest of the two minor children Shri Ruk-mashyam Barua and Smti Rukmini Barua, it was unanimously resolved that no action should be taken for the transfer of the shares of late Shri Dhrubajyoti Barua.
It was further resolved that the dividend pertaining to the shares held in the name of late Shri D. J. Barua be kept in the Unpaid Dividend Account of Dalowjan Tea Co. (P) Ltd."
3. Thereafter she served a lawyer's notice which was replied to by the Company on 27.5.75 stating that the Board resolved not to transfer the shares to her in exercise of its powers under the Articles of the Company; it was not bound to transfer t he shares simply because a Succession Certificate had been obtained; and that there was no Court order to transfer the shares under the Act, and in taking the above decision the Board was only actuated by the long term interest of the Company and its members and the Board kept the interest of the minor children of the deceased in view in taking all decisions including the one on the dividend according to the shares held by the deceased. Hence this petition for rectification of the Register of Members.
4. 'Articles 36 to 39 deal with transmission of shares which read as follows :
"36. If any share of a member is attached under a process of a Court for a liability of the member, all or any of the other members of the Company shall be entitled to pay off the debt, and, on his or
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