TMI Blog1947 (2) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 38 of the Companies Act for rectification of the register of members of the respondent company. The defence is that the respondent company being a private limited concern, under the articles of association, the directors have an absolute and uncontrolled discretion to register any proposed transfer of shares and the fact that the petitioner have bought the shares in an auction sale under the orders of a Court does not make any difference. The following issue Was framed by Munir, J.: "Is the petitioner entitled to have his name substituted for that of Chaudhri Zaffarullah Khan in the register of members in respect of eighty shares." The fact that Ch. Zaffarullah Khan was a shareholder in the respond ent company is not denied. That out of his shares, eighty shares were attached and sold by public auction to the petitioner under the orders of the Subordinate Judge, 2nd Class, Multan, is proved by the evidence of Diwan Ram Chand, Court t Auctioneer (P.W. 1), and Sarup Singh, one of the partners of the petitioner company (P.W. 2), and the copy of the Subordinate Judge's order dated the 7th December, 1945, (Ex. P/D). It is also clear from Ex. P/D that after the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. [1928] AIR 1928 Mad. 571 Manilal Brijlal v. Gordhan Spinning, Weaving and Manufacturing Co. . [1916] ILR 41 Bom. 76 , was cited. Srinivasa Ayyangar, J., did not follow it while the order learned Judge distinguished it. Articles 19 to 27 of the articles of association of the company, to which that case related, were under the heading "shares transfer" and articles 28 to 30 were under the heading "shares transmission." Relying on articles 20 to 23, the lower Court had held that it was open to the directors of the company to refuse to register the transfer even by operation of law. The High Court held that the finding of the lower Court on this point was wrong. This is what Ananthakrishna Ayyar, J., observed: "It seems to me that the lower Courts were wrong in not keeping the distinction between the transfer and transmission of shares, which are two quite different matters. Transfer is by the voluntary act of parties, whereas transmission is by operation of law. The distinction is well pointed out in the case of In re Benthan and Spinning Mill Company [1880] 41 LT 10 . James, L.J., observed as follows: 'In Table A the word transmission is put in, in contradistinction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer or making any such payment to any person except the purchaser. It is laid down in rule 80 that where the execution of a document or the endorsement of the party in whose name a negotiable instrument or a share in a corporation is standing is required to transfer such negotiable instrument or share, the Judge, or such officer as he may appoint in this behalf, may execute such document or make such endorsement as may be necessary, and such execution or endorsement shall have the same effect as an execution of endorsement by the party. In the present case as I have already mentioned the Subordinate Judge under whose order the shares were sold to the petitioner has already executed a document transferring the shares in the petitioner's favour. There can, therefore, be no doubt that the shares no longer belong to Ch. Zaffarullah Khan and the title in them has passed to the petitioner. Evidently, this must have resulted in the satisfaction of the extent of the amount for which the sale of shares was knocked down in the petitioner's name. Under the circumstances, to hold that the directors of the company were competent to ignore the sale and to retain the name of Ch. Zaffarullah Khan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and it being the highest bidder the sale was knocked down in its favour. No objection of any kind appears to have been raised on behalf of the respondent company. The perusal of Ex. P/D further shows that before executing the deed of transfer, the Subordinate Judge gave the respondent company an opportunity to raise objections if it had any but it did not even appear in spite of service. Assuming for the sake of argument that the word transfer in article 20 is wide enough to cover a Court sale, the question is whether the directors of the respondent company availed of the discretion they possessed under that article. The article has to be read along with article 21( a ) which reads follows: "If the directors refuse to register a transfer of any shares, they shall within two months after the date on which the transfer was lodged with the company send to the transferee and transferor notice of the refusal." The following resolution was passed by the board of directors in their meeting of the 30th November, 1945: "Considered the prohibitory order issued by the Court directing the transfer of eighty shares of Ch. Zaffarullah Khan in favour of Narankari Motor Company. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o send another application. The letter shows that by then the respondent company had begun to think of going back upon its previous decision. The following passage taken from their letter is significant: "You should kindly get duly filled in whereas we will again reconsider your case in our board of directors as you have failed to put in the proper transfer application. We are constrained to point out that our previous letter No. 747, dated 5th December, 1946, should be considered as cancelled. Transfer application form sent by you is being returned. Note. It is well settled law that if the shares are purchased at a Court auction, it does not entitle the purchaser to be registered as a member as of right. Such a transfer too is subject to the provisions of company's articles." The petitioner wrote to the respondent company in reply that the transfer in its favour was not a voluntary one and it being an auction purchaser at a Court sale, the assignment by the Court was the proper form. It, however, added that if in the opinion of the respondent company some other form should be used, the same be supplied to it and it would be making another application as desired. Af ..... X X X X Extracts X X X X X X X X Extracts X X X X
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