TMI Blog1961 (4) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... the company, we are unable to decide whether the Central Government did not transgress the limits of their power. We are however of the view that there has been no proper trial of the appeals, no reasons having been given in support of the orders by the Deputy Secretary who heard the appeals. In the circumstances, we quash the orders passed by the Central Government and direct that the appeals be reheard and disposed of according to law. - 33 AND 34 OF 1959 - - - Dated:- 25-4-1961 - S.K. DAS, J.L. KAPUR, M. HIDAYATULLAH, J.C. SHAH AND T.L. VENKATARAMA AYYAR, JJ. A.V. Viswanatha Sastri and Ganpat Rai for the Appellant. B.P. Maheshwari, M.C. Setalvad, B.R.L. Iyengar and T.M. Sen for the Respondent. JUDGMENT Shah, J. M/s. Harinagar Sugar Mills Ltd. is a public limited company incorporated under the Indian Companies Act (7 of 1913). Article 47 B of the articles of association of the company invests the directors of the company with absolute discretion to refuse to register any transfer of shares. That article is in the following terms : "The directors may in their absolute discretion and without giving any reason refuse to register any transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anarasi Prasad transferred a block of 100 shares to his son, Shyam Sunder, and another block of 100 shares to his daughter-in-law, Savitadevi, and the transferees requested the company by letters dated November 21, 1956, to register the transfers. In the meeting dated January 12, 1957, the directors of the company resolved not to register the transfers and informed the transferees accordingly. Against this resolution separate appeals were prepared by Shyam Sunder and Savitadevi under section III, clause (3), of the Companies Act, 1956, to the Central Government. It was submitted in paragraph 4 of the petitions of appeal that the refusal to register the transfer of shares was without "any reason, arbitrary and untenable." The company filed representations submitting that the refusal was bona fide and was not "without any reason, arbitrary and untenable" as alleged. Shyam Sunder and Savitadevi filed rejoinders to the representations submitting that they had never alleged that refusal to transfer the shares was "capricious or mala fide" and that all they had alleged was that the" refusal was without any reason, arbitary and untenable." By separate orders dated May 29, 1957, the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Mineral Concession Rules, 1949, against an administrative order of the State Government granting a mining lease was subject to the appellate jurisdiction of this court, because the power to review was judicial and not administrative. In that case, the action of the State Government granting the mining lease was undoubtedly an administrative act, but rule 54 of the Mineral Concession Rules, 1949, granted a right of review at the instance of an aggrieved party to the Central Government, and authorised it to cancel the order of the State Government or to revise it in such manner as it deemed just and proper. The exercise of this power was held by this court to be quasi-judicial. Before it was amended by section 27 of Act 65 of 1960, section 111 of the Companies Act, 1956 omitting parts not material provided : "(1) Nothing in sections 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. (2) If, in pursuance of any such power, a company refuses to register any such transfer or transmission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company specified in the order acquire the right aforesaid within such time as may be allowed for the purpose by the order, on payment to the purchaser of the price paid by him therefor or such other sum as the Central Government may determine to be a reasonable compensation for the right in all circumstances of the case." Against the refusal by a company to register the transfer or transmission of a right to the shares, an appeal lies to the Central Government. The Government, after giving notice of the appeal and hearing the parties concerned may order that the shares be registered if it thinks that that course is in the circumstances proper. The Central Government may by the proviso to sub-section (8) in lieu of an order under sub-section (5), directing a private company to register transmission of shares sold by a court or public authority, order that any member or members of the company specified in the order do acquire the right on payment to the purchaser of the price paid by him, or such other sum as the Central Government determine to be reasonable compensation. In exercise of the powers under section 642, rules called "the Companies (Appeals to the Central Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he resolution of the directors to displace the presumption of bona fide exercise of the power. The discretion to refuse to register transfers was not liable to be controlled unless the directors "acted oppressively, capriciously, or corruptly or in some way mala fide " ( In re Bell Brothers Ltd.: Ex parte Hodgson [1891] 65 L.T. 245). Power to refuse to register transfer of shares, without assigning any reasons, or in their absolute and uncontrolled discretion, is often found in the articles of association, and exercising jurisdiction .under section 38 of the Indian Companies Act, 1913, the court may not draw unfavourable inferences from the refusal to disclose reasons in support of their resolution. The power given to the court under section 38 is now confirmed with slight modification by section 155 of the Companies Act, 1956. Under that section, the court may rectify the register of shareholders if the name of any person is without sufficient cause entered in or omitted from the register of members of a company, or default is made, or unnecessary delay has taken place in entering on the register the fact of any person having ceased to be a member. The court is in exercising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Government to decide the disputes arising out of the claims made by the transferor or transferee which claim is opposed by the company, and by rendering a decision upon the respective contentions, the rights of the contesting parties are directly affected. Prima facie, the exercise of such authority would be judicial. It is immaterial that the statute which confers the power upon the Central Government does not expressly set out the extent of the power; but the very nature of the jurisdiction requires that it is to be exercised subject to the limitations which apply to the court under section 155. The proviso to sub-section (8) of section in clearly indicates that in circumstances specified therein reasonable compensation may be awarded in lieu of the shares. This compensation which is to be reasonable has to be ascertained by the Central Government; and reasonable compensation cannot be ascertained except by the application of some objective standards of what is just, having regard to all the circumstances of the case. In Province of Bombay v. Kusaldas S. Advani [1950] S.C.R. 621 , this court considered the distinction between decisions quasi-judicial and administrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate control of this court whenever it is found and necessary to exercise that control in the interests of justice." It was also observed by Fazl Ali J., at page 463, that a body which is required to act judicially and which exercises judicial power of the State does not cease to be one exercising judicial or quasi- judicial functions merely because it is not expressly required to be guided by any recognised substantive law in deciding the disputes which come before it. The authority of the Central Government entertaining an appeal under section 111(3) being an alternative remedy to an aggrieved party to a petition under section 155 the investiture of authority is in the exercise of the judicial power of the State. Clause (7) of section 111 declares the proceedings in appeal to be confidential, but that does not dispense with a judicial approach to the evidence. Under section 54 of the Indian Income-tax Act (which is analogous), all particulars contained in any statement made, return furnished or account or documents produced under the provisions of the Act or in any evidence given, or affidavit or deposition made, in the course of any proceedings under the Act are to be tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holder shall be at liberty to transfer his shares to any other person who was already a shareholder, or who should be approved by the board of directors, and that no person not being already a shareholder or the executor of a shareholder should be entitled to become the transferee of any share unless approved by the board. One J. R. De Paiva who was the holder of ten shares of the company sold them to W. J. Penney and lodged the transfer with the shares for registration at the company's office. The directors in exercise of the powers conferred upon them by the deed of settlement refused to register the shares. In a joint summons taken out by Paiva and Penney under section 35 of the Companies Act, 1862, the Master of the Rolls directed the transfer to be registered, the directors of the company having failed to submit any reasonable ground or objection to the purchaser. In the view of the Master of the Rolls, it was for the court to judge whether the objection was reasonable and that objection must be disclosed to the court. Against this order, the company approached the Court of Appeal. James L.J. in dealing with the contention raised by the appellant observed that the directors we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat. It appears to me that it is very important that directors should be able to exercise the power in a perfectly uncontrollable manner for the benefit of the shareholders ; but it is impossible that they could fairly and properly exercise it if they were compelled to give the reason why they rejected a particular individual. I am therefore of opinion that in order to preserve to the company the right which is given by the articles a shareholder is not to be put upon the register if the board of directors do not assent to him, and it is absolutely necessary that they should not be bound to give their reasons although I perfectly agree that if it can be shown affirmatively that they are exercising their power capriciously and wantonly, that may be a ground for the court interfering." A similar view was also expressed in Smith and Fawcett Ltd. In re [1942] 1 Ch. 304 where the Court of Appeal held that where the directors of the company had uncontrolled and absolute discretion to refuse to register any transfer of shares, while such powers are of a fiduciary nature and must be exercised in the interests of the company, the petition for registration of transfer should be dismis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not obliged to set out reasons in support of its conclusion and it must be assumed that in disposing of the appeal, the authority acted properly and directed registration of shares, But the provision that the proceedings are to be treated as confidential is made with a view to facilitate a free disclosure of evidence before the Central Government which disclosure may not, in the light of publicity which attaches to proceedings in the ordinary courts, be possible in a petition under section 155 of the Companies Act. The mere fact that the proceedings are to be treated as confidential does not dispense with a judicial approach nor does it obviate the disclosure of sufficient grounds and evidence in support of the order. In the present case, the position is somewhat unsatisfactory. The directors passed a resolution declining to register the shares and informed the transferor and the transferees of that resolution. The transferees in their petition stated that the refusal to register transfer was without any reason, arbitrary and untenable and in the grounds of appeal they stated that they did not know of any reasons in support of the refusal and reserved liberty to reply thereto i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper trial of the appeals, no reasons having been given in support of the orders by the Deputy Secretary who heard the appeals. In the circumstances, we quash the orders passed by the Central Government and direct that the appeals be reheard and disposed of according to law. Costs of these appeals will be costs in the appeals before the Central Government. Hidayatullah, J. I have had the advantage of reading the judgment just delivered by my brother, Shah J. In view of the strong objection to the competence of the appeals under article 136 by the respondents, to whom liberty was reserved by the order granting special leave, I have found it necessary to express my views. The facts have been stated in detail by my learned brother, and I shall not repeat them in full. Very shortly stated, the facts are that the second respondent, Banarsi Prasad Jhunjhunwala, transferred 2,5,00 shares to his son, and 2,100 shares to his daughter-in-law, in the appellant company in 1953. The appellant company declined to register these transfers. Proceedings for rectification of the register under section 38 of the Indian Companies Act, 1913, followed in the High Court of Bombay, but the High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely administrative. It is, therefore, submitted that article 136 does not apply, because special leave can only be granted in respect of a determination by a court or a tribunal, which the Central Government is not. This is not the only provision of law, under which the Central or State Governments have been empowered to hear appeals, revisions or reviews, and it is thus necessary to find out the exact status of the Central Government when it hears and decides appeals, etc., for the application of article 136. Article 136(1) reads as follows : "Notwithstanding anything in this Chapter, the Supreme Court may, in its discretion, grant special leave to appeal from any judgment, decree, determination, sentence or order in any cause or matter passed or made by any court or tribunal in the territory of India." The orders which the Central Government passes certainly fall within the words "determination" and "order". The proceeding before the Central Government also falls within the wide words "any cause or matter". The only question is whether the Central Government, when it hears and decides an appeal, can be said to be acting as a court or tribunal. That the Central Government is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e into existence. These tribunals have the authority of law to pronounce upon valuable rights ; they act in a judicial manner and even on evidence on oath, but they are not part of the ordinary courts of civil judicature. They share the exercise of the judicial power of the State, but they are brought into existence to implement some administrative policy or to determine controversies arising out of some administrative law. They are very similar to courts, but are not courts. When the Constitution speaks of "courts" in article 136, 227 or 228 or in articles 233 to 237 or in the Lists, it contemplates courts of civil judicature but not tribunals other than such courts. This is the reason for using both the expressions in articles 136 and 227. By "courts" is meant courts of civil judicature and by "tribunals", those bodies of men who are appointed to decide controversies arising under certain special laws. Among the powers of the State is included the power to decide such controversies. This is undoubtedly one of the attributes of the State, and is aptly called the judicial power of the State. In the exercise of this power, a clear division is thus noticeable. Broadly speaking, certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide matters before him "judicially" in the second sense does not make him a court or even a tribunal, because that only establishes that he is following a standard of conduct, and is free from bias or interest. Courts and tribunals act "judicially" in both senses, and in the term "court" are included the ordinary and permanent tribunals and in the term "tribunal" are included all others, which are not so included. Now, the matter would have been simple, if the Companies Act, 1956, had designated a person or persons whether by name or by office for the purpose of hearing an appeal under section 111. It would then have been clear that though such person or persons were not "courts" in the sense explained, they were clearly "tribunals". The Act says that an appeal shall lie to the Central Government. We are, therefore, faced with the question whether the Central Government can be said to be a tribunal. Reliance is placed upon a recent decision of this court in Shivji Nathubhai v. Union of India [1960] 2 S.C.R. 775, where it was held that the Central Government in exercising power of review under the Mineral Concession Rules, 1949, was subject to the appellate jurisdiction confer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecide disputes. In those circumstances, it is legitimate to regard the officer who deals with the matter and even Government itself as a tribunal. The officer who decides, may even be anonymous; but the decision is one of a tribunal, whether expressed in his name or in the name of the Central Government. The word "tribunal" is a word of wide import, and the words "court" and "tribunal" embrace within them the exercise of judicial power in all its forms. The decision of Government thus falls within the powers of this court under article 136. It is next argued by the learned Attorney-General that there is no law to interpret or to apply in these cases. He argues that since there are no legal standards for judging the correctness or otherwise of the order of the Central Government and the decision being purely discretionary, it is neither judicial nor quasi-judicial but merely administrative and that no appeal can arise from the nature of things. Such a line was taken before the Committee on Ministers' Powers by Lord Hewart, and the argument reminds one of what he then said that such decisions are purely discretionary and the exercise of such arbitrary powers is "neither law nor j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onesty between man to man, to presume that the directors were acting within their powers unless the contrary was proved ; but that was not proved by casting unfounded aspersions upon them. " Thus, the matter comes to this that the directors have a presumption in their favour and the opposite party must prove that there was want of good faith. The right of appeal which is given under the Companies Act, 1956, allows the Central Government to judge this issue. For that purpose, parties are required, if they desire, to make representations and to put in evidence. But to enable the parties to have a free say, the proceedings are made confidential by law, and there is protection against action, both civil and criminal. The appeal is disposed of on the basis of the representations and the evidence. A decision of a tribunal on a dispute inter partes, in the light of pleadings and evidence, is essentially a judicial one, and this court ought to be able, on the same material, to decide in an appeal whether the decision given was correct. If no substantive law is applicable, there are questions of evidence, of burden and adequacy of proof and of the application of the principles of justic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... every public officer ought to be. But they are expressly exonerated from all rules of law and equity and all legal forms. How then can the propriety of their decision be tested on appeal. What are the canons by which this Board is to be guided in advising Her Majesty whether the Supreme Court is right or wrong ? It seems almost impossible that decisions can be varied except by reference to some rule ; whereas the court making them is free from rules. If appeals were allowed, the certain result would be to establish some system of rules; and that is the very thing from which the Tasmanian Legislature has desired to leave the Supreme Court free and unfettered in each case. If it were clear that appeals ought to be allowed, such difficulties would doubtless be met somehow. But there are strong arguments to shew that the matter is not of an appealable nature." (Italics supplied). See also Thebrege v. Laudry [1876] 2 App. Cas. 102. The exercise of the powers under article 136 is a counterpart of the royal prerogative to hear appeals in any cause or matter decided by courts or tribunals. But where the articles of association of a company give absolute discretion to the directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use to register shares without giving any reasons, and on the authorities quoted earlier, the directors must be presumed to have acted honestly. There was thus no reason for the Central Government to reverse the decision of the directors, and the fact that no reasons have been given when nothing was confidential, leads to the only inference that there was none to give. In my opinion, these appeals must succeed. I would, therefore, set aside the order of the Central Government, and allow the appeals with costs here and before the Central Government, if an order to that effect was passed by the Central Government. Before parting with the case, I may say that the Report of the Companies Act Amendment Committee had recommended amendment of section in, and it has been amended, inter alia, by the addition of sub-section (5A), which reads: "Before making an order under sub-section (5) on an appeal against any refusal of the company to register any transfer or transmission, the Central Government may require the company to disclose to it the reasons for such refusal, and on the failure or refusal of the company to disclose such reasons, that Government may, notwithstanding anything ..... X X X X Extracts X X X X X X X X Extracts X X X X
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