Circumstances for interference by Court.

The Chief Justice.-The facts which led up to the suit out of which this appeal arises are not in dispute. The first defendant is a public limited company incorporated under the provisions of the Indian Companies Act. The plaintiff purchased from defendants 2 to 12, who were shareholders of the company, a total number of 172 shares and applied to the company to register the transfer of the shares in his name in the books of the company. On 9th January, 1945, the company wrote to the plaintiff that the Board of Directors of the company had refused to register the shares purchased by the plaintiff in his name at a meeting held on 5th January, 1945. The share certificates and the transfer deeds were therefore returned to the plaintiff. On 19th January, 1945, the plaintiff wrote to the company alleging that the Directors’ refusal to register the transfers was arbitrary, unjust and opposed to law and gave them notice that unless they recognised the transfers in his favour and registered them he would seek redress in a court of law. To this the company replied that the Directors had acted in good faith and had refused to register the transfer after due deliberation and the transfers could not be given effect to. Thereupon the plaintiff filed the present suit in the Court of the Subordinate Judge of Coimbatore for a mandatory injunction directing the company to register the transfers in his favour of the shares mentioned in Schedule A to the plaint and to enter his name in the register of share holders of the company in respect of the said shares in the place of the names of defendants 2 to 12. In his plaint he alleged that there was no lawful excuse or justification for the refusal of the company to register the transfers in his favour. They had been duly executed and stamped and the form of transfer prescribed by the articles of association had been followed and all material particulars had been furnished. The plaintiff stated that nothing was due to the company by the transferors or himself solely or jointly and that the company could have no personal objection to the transfers by reason of his status, education and business experience and also because he was already a share holder of the company and they had registered the transfer of about 40 shares in his favour before the purchase of the shares in question. The plaintiff further stated that the action of the Directors was not bona fides because the partners of the Managing Agency firm of the first defendant company wanted the plaintiff to sell to them the shares purchased by him to enable them to secure an increasing control over the affairs of the first defendant company, but he would not accede to their request, and mortified at this and with a view to coerce the plaintiff to sell the shares to them the Directors of the company were influenced to refuse the registry of the transfers sought by the plaintff. The company in the written statement filed on its behalf pleaded in defence that under Article 37 of the Articles of Association of the company the Directors were given powers to refuse registry of any transfer without assigning reasons therefor and that the Directors had acted bona fide and in the best interests of the company. The company also denied that the action of the Directors was not bona fide. The learned Subordinate Judge who tried the suit held that the Directors must be deemed to have acted arbitrarily in refusing to register the transfer in favour of the plaintiff and that their action was not bona fide and could not be upheld. He came to this conclusion mainly on two grounds, (1) that five or six months before the date of his application for the transfer of registry in respect of the suit shares the company had no objection to the recognition of the transfer of certain other shares in his favour, and there was no suggestion that anything had taken place subsequent to the date of recognition of the prior transfers which made it undesirable that the plaintiff s

Click Here to Read the rest of this document