Directors' discretion to refuse registration must be exercised within the limits permitted by the articles of association and should not be based on reasons not personal to the transferee.

1. These appeals arise from the judgment of a learned judge of this Court in B. C. P. Nos 2 to 13 and 15 to 17 of 1975. The learned judge disposed of the 15 petitions by a common judgment on the basis of the facts in B.C.P. No. 2 of 1975 as all the other petitions arose in identical circumstances and related to a common question. It is with reference to B.C P. No. 2 of 1975 that we propose to dispose of all the fifteen appeals by this common judgment.

2. The appellant is a banking company having its registered office at Trichur, and we shall refer to it as the ‘company'. The 1st respondent (who was the petitioner in the B.C.P.) is a transferee of shares from the 2nd respondent and we shall respectively refer to them as the 'transferee' and 'transferor'.

3. The case of the transferee is that he purchased 210 equity shares from the transferor on 22nd January 1975 for a consideration of Rs. 10,000/- and forwarded to the company the share transfer deed duly executed by the transferor and transferee together with the share certificates relating to the said shares for registering the transfer and entering the name of the transferee on the register of the company as the holder of the said 210 shares. But the company informed the transferee by a letter dated 18th March 1975 that the board of directors of the company, in exercise of their power under Regulation.42 of the articles of association of the company, read with S 111 (1) of the Companies Act, 1956 ("the Act"), refused the application to register the transfer. According to the transferee the board of directors have acted capriciously, mala fide and in excess of their power in refusing to register the transfer of the shares.

4. The company contended before the learned judge that the directors were justified in refusing to register the transfer by virtue of their power under S.111(1) of the Act read with Regulation.42 of the articles of association. It was stated that the reasons for the refusal were explicit from the resolution adopted by the board which was produced along with the counter-affidavit filed on behalf of the company as Ext. RI. It was pointed out that the proposed transfer was not a genuine investment, but was an attempt at cornering of shares in violation of S.12 (2) of the Banking Regulation Act, 1949, and in contravention of the policy of the Reserve Bank of India. It was further contended that the petition under S.155 was not maintainable as the transferee did not have recourse to S.111 by filing an appeal before the Central Government.

5. The learned judge rejected the contentions of the company and, as stated earlier, allowed the 15 petitions by a common judgment from which the present appeals arise. The learned judge held that the remedy provided under S.111 of the Act did not limit or interfere with the jurisdiction of the Court under S.155; the proposed transfer did not offend against S.12 (2) of the Banking Regulation Act or contravene the policy of the Reserve Bank of India; and the directors did not properly exercise the discretion vested in them. It was accordingly held that the refusal of the directors to register the transfer was invalid and the company was directed to give effect to the transfer by registering the transferees as members of the company.

6. S.111 of the Act provide.

"S. 111. Power to refuse registration and appeal against refusal. (1) Nothing in Ss 108.109 and 110 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. (italics supplied)

The section further provides for an appeal, to the Central Government against a refusal to register the transfer of shares. S.155 on the other hand has conferred power on the court to rectify the register of members. It says that if "default is made, or unnecessary delay takes place in entering on the register the fact of any per