TMI Blog1987 (2) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... .V.Mehta, the petitioner also entered into negotiations for sale of shares in favour of the directors of the company and those negotiations were carried on for several years. On May 28,1977, a letter has been addressed by the petitioner for transmission of the abovementioned shares in favour of the petitioners as the heirs and legal representatives of the deceased. This letter is at exhibit A to the petition. As no reply was received to this letter, a reminder was also sent on June 27, 1977, which is at exhibit B to the petition. On July 9, 1977 an advocate's notice has also been addressed to the respondent -company in this behalf . Thereafter, it seems that as a result of negotiations, nothing further was done until June 23, 1984, when the respondent-company wrote a letter, exhibit D , asking the petitioners to approach a the respondent-company after obtaining a succession certificate. On September 23, 1984, letters of administration/heirship certificates were issued in favour of the petitioners by the Second Joint Senior Judge, Senior Division, Rajkot, inter alia, in respect of these 100 shares and even though the petitioners addressed two letters dated August 31,1984 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order the said company petition had been remanded to this court for disposal. However, by the said order, liberty was reserved to parties to file affidavits, one dated January 29. 1986, and the second dated February 18, 1986, and the petitioners have filed an affidavits, one dated January 29, 1986, and the petitioners have filed an affidavits dated February 27, 1986. It is under these circumstances that the petition has come up for hearing today. 3. Mr. Kamdar had urged a very interesting point of law. His first submission had been that the time limit provided under article 26 of the article of association of the respondent - company as read with section 111(2) of the Companies Act, was the maximum time permitted and that if the power to decline to register is not exercised within the stipulated period, that is the period of two months , then that power is lost. Mr. Kamdar has also submitted on merits that an exercise of power of refusal to transmit shares after a period of time is itself and indication of mala fide exercise of power and that a power given under the articles of association to refuse registration of shares can be exercised only in cases where the directors can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt continues. (3) The transferor or transferee, or the person who gave intimation of the transmission by operation of law, a the case may be ; may where the company is a public company or private company which is subsidiary of a public company, appeal to the Central Government against any refusal of the company to register or transmission, or against any failure on his part, within the period referred to in sub-section (2), either to register the transfer or transmissions or to send notice of its refusal to register the same. (4) An appeal to the Central Government under sub-section (3) shall be made- (a) in case the appeal is against the refusal referred to register a transfer or transmission within two months of the receipt by him of the notice of refusal ; and (b) in case the appeal is against the failure referred to in sub-section (3) within in two months from the expiry of the period preferred to the sub-section (2). (4A) Every appeal under sub-section (3) shall be made by a petition in writing and shall be accompanied by such fee not exceeding fifty rupees as may be prescribed by the Central Government. (5) The Central Government shall, after causing reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government within the period specified in sub-section (5) or to a direction of that Government gave under the provision to sub-section (8), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one hundred rupees for every day after the first during which the default continues. 5. It is the submission of Mr. Kamdar that under article 34, on the death of the deceased, the petitioners are the persons entitled to shares in consequence of the death and that in this respect the directors of the respondent-company have the same rights to decline or suspend registration as if the deceased had transferred shares before his death which is in the manner laid down under article 26. Under article 26 as well as under section 111(2) of the Companies Act, there is a duty cast on the respondent-company to send to the transferee, as well as transferor, notice of refusal. According to Mr. Kamdar, this necessarily implies that there must be first a refusal has to be a compulsorily sent within a period of two months, it automatically follows that the right of refusal must be exercised within this period of two months. According to Mr. K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal, whilst dismissing the appeal, has watered down the broad proposition laid by Lord Justice Pennycuick by stating as follows (at page 622): As to unreasonable delay, I take the view of the judge (and it seems to me merely, if I may say so, common sense), that, as there is an obligation on directors who refuse to register a transfer to inform the persons who are aggrieved within two months of such a refusal, the Act of 1948 quite clearly indicates that a reasonable time, other things being equal, within which directors must make up their minds either to accept the transfer or to refuse it must be the two months within which they have to make an answer. Therefore, it does seem to me that waiting for four months without any decision at all was an unreasonable delay. One has, however, to go one step further than that ; one has to say that unreasonable delay has destroyed the right so that when, in December, 1967, the new board purported to refuse, they were no longer in a position to exercise that discretion which, if they had acted promptly, undoubtedly would have been theirs, to consider and, if they thought fit in the interests of the company, to refuse registration of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Companies Act and does not lay down what Mr. Kamdar is urging, Mr. Kamdar then cited the case of State of Orissa V. Indian Chemical Products Ltd. [1958] 28 Comp Cas 500 where, inter alia, it is laid down that the attitude of the company in refusing to register was not bona fide. However, that is on the facts of that particular case and does not avail Mr. Kamdar much as far as this particular case is concerned. 10. Mr. Mehta, on the other hand, has argued that no such implication as urged by Mr. Kamdar can be presumed. Mr. Mehta argues that if the Legislature intended that on the expiry of a period of two months, the right of refusal was to come to an end and/or that an absolute right was to be created in favour of a transferee, then the Legislature would have so categorically provided. Mr. Mehta submits that when the Legislature wants to provide for a deeming provision, the Legislature always so provides According to Mr. Mehta neither under article 26 nor under section 111(2) of the Companies Act was there any provision regarding a vesting or right in favour of the transferee on the expiry of a period of two months or a restriction on the right of refusal of the company Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 111(2) provides is that in the event of a company refusing to register any transfer or transmission. It must within two months send notice of intimation of its refusal to the transferor or transferee. Sub-section (2) further provides that if such notice is not sent.then every officer of the company who is in default shall be punishable with fine as stipulated therein. Thus this section merely deals with a right to receive a notice and the consequence of non-sending of a notice is a penalty. Further under sub-section (3) one of the matters on which is a appeal can be filed to the Central Government is non-sending of a notice and Mr. Kamdar does not dispute that the appeal which may be filed may be only in respect of non-sending of a notice and even in that case, the Central Government under sub-section (5) will have the power to decide whether or not the transfer or transmission should be registered. If as Mr. Kamdar submitted an absolute right vested in a transferee, then the question of the Central Government having power to decide in an appeal of the sort mentioned hereinabove would not arise because in that case automatically, the transferee would have a right a to insist t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company or whether it was motivated out of personal interst of the directors of the company Mr. Kamdar has, for this purpose, relied on the case of Bajaj Auto Ltd, V. N. K. Firodia [1971] 41 Comp Cas 1 wherein it has been laid down that where a company purports to give reasons, it was open to the court to consider whether the reasons were legitimate and/or genuine and whether the directors had acted in the interst of the company. Mr. Kamdar also relied upon this authority to show that the reasons given in that case were not considered to be legitimate by the Supreme Court and he submits that in the present case also reasons of a similar nature are given and that they should also be rejected on the reasonings given by the Supreme Court. It may only be mentioned at this stage that the proposition that the Court must consider the reasons and test them is accepted. However, whether the reasons given are to be accepted or not has to be tested on the facts of each particular case. Mr. Kamdar also relied on the case of LIC V. Escorts Ltd. [1986] 59 Comp Case 548 wherein in paragraph 83, the earlier judgment of Bajaj Auto Ltd. [1971] 41 Comp Cas 1 is cited with approval and it is laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that at an earlier stage, there had been in fact negotiations between the deceased-shareholder and the company for the purposes of enabling the company to buy over the shares of the deceased shareholder and that at one stage it had been agreed that the directors would buy over these shares for adequate compensation, and therefore, it was alleged by the company that this petition had been filed merely with a view to pressurise the directors of the company into paying the petitioners a much higher compensation for the said shares. According to Mr. Kamdar, this statement clearly shows that the real reason for refusing the transfer they are not willing to transfer the shares in the names of the petitioners. I do not think that from the statement made by the company any such intention can be presumed. The other reason which has been stated in the affidavit is that the deceased shareholder was in fact one of the directors of the company and an employee of the company. However, for a few years prior to his death, the deceased had behaved in a manner prejudicial to the interest of the company and had attempted to hamper the working of the company Mr. Kamdar points out, and to my mind right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and even go to the extent of addressing this letter dated June, 27, 1977, which is at exhibit B to the petition wherein the petitioners asked that the meeting be adjourned, again a threat is given and the letter is addressed to the Register of Companies. According to the company it is very clear that the petitioners had animosity toward the company and its directors and that the petitioners were, therefore, undesirable persons and it was not in the interest of the company to register a transfer in their favour. In view of the fact that there are a number of disputes pending and counter allegations between the company and its associate concerns and the petitioners merely on affidavits and without evidence, it cannot be said that the decision of the directors to refuse transmission of shares in favour of the petitioners is not bona fide and/or that it is for an ulterior motive and that it is not in the interest of the company, Further, in the absence of any such allegation in the petition, the petitioners cannot be permitted to now urge any such mala fides. Mr. Kamdar, however, submits that in the petition it is mentioned that the company is trying to close down and dispose of a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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