1. This appeal is against a judgment and decree dated March 27, 1972, passed by S. K. Roy Choudhury J., decreeing the suit, namely, Suit No. 1221 of 1966, which was filed by the first respondent against the appellant and the second respondent. The said suit was one for a declaration that the shares mentioned in the plaint belonged absolutely to the plaintiff and no other person had any right, title and interest therein. There was also a prayer for deleting the name of the second defendant (respondent No. 2 in the present appeal) in respect of the said shares and inclusion of the name of the plaintiff therein as the registered holder of the said shares in the books of the defendant No. 1 (appellant in the present appeal). There were also prayers for further reliefs in the suit, but we are not concerned with these in this appeal.
2. The facts relevant for the purpose of the present appeal are briefly as follows :
On October 16, 1958, the second respondent, Ballavdas, purchased a lot of shares in Jatia group of companies at a public auction held by the Certificate Officer, 24 Parganas, for a sum of Rs. 3,500. In February, 1959, the said Ballavdas applied to the appellant-company, Jatia Cotton Mills Ltd., for registration of his name as the purchaser of the said shares in the auction sale. Ballavdas did not obtain the share scrips which were purchased by him in the auction sale. The company refused to register the name of Ballavdas in respect of the said shares. Ballavdas also claimed all dividends payable to him by the company in respect of the shares but the company did not pay the same. On November 20, 1961, Ballavdas made an application to this court for rectification of the share register of the appellant-company by deleting the name of K. L. Jatia, since deceased, who was the registered holder of the said shares and by inclusion of the name of Ballavdas. In the said application the company and also the heirs and legal representatives of K. L. Jatia were made parties. After a contested hearing this court made an order on March 9, 1962, directing rectification of the share register of the appellant-company in respect of the aforesaid shares by deleting the name of K. L. Jatia and inserting the name of Ballavdas. Thereafter, Ballavdas through his solicitor demanded from the appellant-company issue of duplicate share scrips and all arrearsof dividends from October 16, 1958. It appears that the company did not comply with the said request of Ballavdas.
3. It was alleged that on October 6, 1964, Ballavdas sold the said shares to the plaintiff for Rs. 60 and the transfer deed was duly signed by the said Ballavdas. Ballavdas sold the whole lot of shares of Jatia group of companies purchased by him at the auction sale held by the Certificate Officer, 24-Parganas, to the plaintiff and it was alleged that the plaintiff paid a sum of Rs. 4,500 for the said lot of shares and Ballavdas granted receipt to the plaintiff in respect of the same. On June 10, 1965, Ballavdas forwarded a power-of-attorney executed by him in favour of the first respondent, Ram Prosad Bajoria, authorising him to act on his behalf until the duplicate share certificate was issued by the company and registered in the name of first respondent as the purchaser. He was also authorised to collect all arrears of dividends on the said shares. On June 18, 1965, the company replied to Ballavdas stating that the company was unable to take any notice of power-of-attorney and the sale of the said shares in favour of the first respondent and returned the said power-of-attorney to Ballavdas. Thereafter, on August 24, 1965, the plaintiff along with a covering letter sent the transfer deed duly filled up and stamped to the company for registration of his name with the company as a member in respect of the said shares purchased by him from Ballavdas and asked for issue of duplicate share certificate in his name. By its letter dated September 16, 1965, the company refused to register the said transfer on the ground that no share scrip was forwarded along with the application, the transfer deed was under-stamped and the transfer deed was undated. Thereafter, the first respondent filed the suit in this court for the reliefs mentioned hereinbefore.
4. The suit was contested by the appellant. The second respondent, Ballavdas, did not file any written statement nor did he contest the suit, In the written statement filed by the appellant it denied the sale of the aforesaid shares by Ballavdas in favour of the plaintiff. It was stated that the company had no liability to register the said shares in the name of the plaintiff and to issue duplicate share certificate. It took the plea that it was not concerned with the question as to whether the first respondent had acquired valid title to the said shares by his purchase from the second respondent, but it was only concerned with the proper proof of the purchase of the said shares by the first respondent and with the due compliance with the statutory requirement for getting the name of the first respondent registered in the books of the company.
5. The learned judge in the trial court held that the appellant had wrongfully and illegally and without justifiable cause refused to transfer the said shares in the name of the plaintiff. He further held that the plaintiff wasentitled to all arrears of dividends due in respect of the said shares which the company is holding as a trustee for the plaintiff who is the lawful owner of the shares. He, accordingly, decreed the suit in favour of the plaintiff.
6. Mr. Sanjib Kumar Dutt, learned counsel on behalf of the appellant, contended before us that unless the provisions of Section 108 of the Companies Act were strictly complied with, the company was not under any obligation to register the name of the respondent No. 1. In the present case, the share certificate in respect of the disputed shares not having been furnished along with the instrument of transfer, the application for transfer was not in compliance with the requirement of Section 108 of the Companies Act and, therefore, the company could not register the said shares in the name of the first respondent. According to him if the company had registered the said shares in the name of the first respondent the company would have acted illegally and in violation of the mandatory provision of the statute. He relied upon Section 75 of the English Companies Act and also certain passages from Palmer's Company Law, 21st edition, pages 343-345, to substantiate his contention that unless a proper instrument of transfer has been delivered to the company, the company cannot transfer the shares. He further contended that in the present case the company disputed the validity of the sale of the shares in question by Ballavdas in favour of the first respondent in view of the fact that the consideration, according to Mr. Dutt, was grossly inadequate. He drew our attention to the fact that in the plaint the plaintiff himself stated that the face value of the shares was Rs. 5,000 but the consideration mentioned in the transfer deed is only Rs. 60. He contended that under Section 21 read with Article 62 of the Stamp Act the instrument of transfer is required to be properly stamped and unless an instrument is properly stamped, it is invalid and the company cannot recognise the same. Mr. Dutt, relied upon the decision of this court in Babulal Choukhani v. Western India Theatres Ltd.,  28 Comp Cas 565(Cal), in support of the proposition that if the articles of association require certain formalities to be complied with before the shares can be registered, and if the directors of the company in exercise of their discretion have refused to register the shares, the court will not interfere with the use of that discretion by the director and will not act as a court of appeal reviewing or revising that discretion. Learned counsel for the appellant has drawn our attention to Clause 40 of the articles of association which gives the board of directors the power to refuse to register any transfer of shares under certain circumstances.
7. Mr. P. K, Das, learned counsel appearing on behalf of the first respondent, contended that Section 108 of the Companies Act has no application in the present case at all. He further contended that in the present case the company from the very beginning of the purchase of the said shares by Ballavdas in the public auction refused to pay the dividend and to register the name of the said Ballavdas and to isssue duplicate share scrip in his favour. He contended that the company was aware from the very beginning that the original share scrip was not available. He, therefore, submitted that the directors failed to exercise their discretion and they have acted arbitrarily or capriciously. He pointed out that in the decision, Babulal Choukhani v. Western India Theatres Ltd.,  28 Comp Cas 565 (Cal), cited by Mr. Dutt, it was held that the test of discretion is not satisfied if the act or the decision of the directors declining to register is oppressive, capricious, corrupt and mala fide or not in the interest of the company at all. Mr. Das, further contended that the present suit was one under Section 34 of the Specific Relief Act, 1877, which conferred a discretion upon the court either to grant or not to grant the relief asked for in the suit. It was submitted that if in the use of that discretion the court granted a decree in favour of the plaintiff the appellate court should not interfere with the use of such discretion unless the discretion was exercised on erroneous principles of law or it was arbitrary or capricious. In support of this contention reliance was placed upon the decisions in Sant Kumar v. Deo Saran,  ILR 8 All 365, Thakurani Jaipal Kunwar v. Bhaiya Indar Bahadur Singh,  ILR 26 All 238 (PC), Printers (Mysore) Private Ltd. v. Pothan Joseph, : 3SCR713 and Uttar Pradesh Co-operative Federation Ltd. v. Sunder Brothers, : AIR1967SC249 .
8. In the present case, the first respondent claims to have purchased the disputed shares from the second respondent. No doubt the stand taken by the appellant was that the said purchase was not genuine and it was not for adequate consideration. The learned judge in the trial court, upon the consideration of the entire evidence and the facts and circumstances of the case has come to the conclusion that the first respondent had succeeded in proving that he had purchased the said shares from the second respondent for valuable consideration. The learned judge further held that the appellant-company had wrongfully and illegally refused to transfer the said shares in the name of the first respondent, and accordingly, he granted a decree in favour of the first respondent. The appellant has not been able to place before us any material to show that the learned judge has used his discretion in an arbitrary or capricious manner or that he has acted on wrong principles of law or that he has not taken relevant facts into consideration. In our view, therefore, this court should not interfere with the discretion used by the learned trial judge.
9. It was contended on behalf of the appellant that even though the first respondent might have acquired title to the shares in question by virtue of his purchase from the second respondent, that by itself was not sufficient to give him a right to have his name recorded in the register nor was there any obligation upon the appellant-company to include the name of the first respondent in the register of members. It was contended that unless all the requirements of Section 108 were duly complied with the company was not bound to, and it could not, under the law, recognise such a transfer by incorporating the name of the first respondent in the register of members. Counsel for the appellant relied upon the decision in Smt. Hemlata Saha v. Stadmed Private Ltd.,  34 Comp Cas 875 (Cal). In that case certain shares which were held by one Gour Gopal Saha were recorded jointly in the names of the heirs and legal representatives of the said Gour Gopal after his death. One of the heirs and legal representatives of the said Gour Gopal subsequently asked the company to send the share scrips in respect of a certain number of shares to her. To this the company replied that the shares which belonged to the aforesaid Gour Gopal Saha had been, after his death, recorded jointly in the names of his heirs and legal representatives. It was under these circumstances that it was held that an allotment in severalty of the shares can only be done in an action for partition unless the parties agree to amicable partition and that the company cannot take upon itself the obligation to divide and allot the shares among the several joint holders. This case is, therefore, no authority for the proposition contended for by learned counsel for the appellant in the present case. The next case relied upon by Mr. Dutt is the decision in Jayanthilal Purshottamdas Patel v. Gordhan-das Desai Pvt. Ltd.,  38 Comp Cas 405 (Bom). That was a decision on an application under Section 155 of the Companies Act in which the petitioner prayed for a rectification of the register of members on the allegation that the respondent-company had, on the request of one Gobordhanbhai illegally and wrongfully removed the name of the petitioner from the register of members and included the name of the second respondent of that case. It was held that under the articles of the company and Section 108 of the Companies Act the company could not register a transfer of shares unless a proper instrument of transfer duly stamped and executed on behalf of the transferor and the transferee is submitted to the company. The facts of that case, therefore, were quite different from the facts of the present case and the decision in that case can have no application to the present case. Learned counsel on behalf of the appellant also relied upon the decision in Amraoti Electric Supply Co. Ltd. v. R. S. Chandak,  24 Comp Cas 465 (Nag). In that case, it was held that until a transfer of shares is registered the transferor continues to be the legal owner of the shares and after his death the same right inheres in his heirs who would be competent to obtain letters of administration in respect of the shares. Hence, where after filing an application for a duplicate share certificate the member who has subsequently transferred his shares dies, the company would be entitled to demand letters of administration from the heirs when the articles of association of the company authorise it to do so. Consequently, the demand of the company for production of letters of administration cannot be a ground of attack in the proceedings started by the transferee under Section 38, Companies Act, 1913 (which corresponds to Section 155 of the present Act). It was further held that this conclusion is not affected by the fact that the heirs do not claim any interest in the shares in question, for the company is entitled to claim immunity not only from them but also from the rest of the world. In our view, the decision in that case proceeded upon wholly different considerations and that decision can have no manner of application to the facts of the present case. Mr. Dutt also relied upon the decision in Kasiviswanathan Chettiar v. Indo-Burma Petroleum Co. Ltd.,  6 Comp Cas 42 (Rang). In that case, under the articles of a company, it had a right and a duty to recognise only the executors or administrators of the deceased member. Where a member died leaving behind him his heir who under Hindu law claimed to represent the deceased by right of survivorship the company could rightly ask the claimant to produce a probate or a succession certificate. We do not think that there is anything in that decision which can be used as an authority for the proposition that in an appropriate case the court has no power to direct rectification of the register of members of the company, as has been done in the present case. Learned counsel on behalf of the appellant also relied upon certain observations in Maheshwari Khetan Sugar Mills (P.) Ltd. v. Ishwari Khetan Sugar Mills,  33 Comp Cas 1142, 1151 (All). In our opinion, the observations made in that case, instead of supporting the appellant rather go against the contention advanced on behalf of the appellant, as would appear from the judgment in that case :
' Section 108(1) has been worded as a prohibition against the registration of transfer of a share in the company unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee has been delivered to the company along with the certificate relating to the share, or if no such certificate is in existence along with the letter of allotment of the share. If the sub-section is read in isolation, it can be said that the provision is mandatory and the company has no power to register transfer of a share unless compliance thereof is made. It shall, however, be found that no penalty has been imposed for non-compliance of Section 108(1). It has not been provided in Section 155 nor in any other section, what the consequences shall be for the disregard of this provision. It could be provided in Section 155 that in case of non-compliance of Section 108 the court shall order rectification of the register of members unless for reasons to be recorded, rectification was not necessary or proper. Similarly, non-compliance of Section 108 could be declared an offence. When the law does not prescribe the consequences or does not lay down penalty for non-compliance of Section 108 the provision can be considered to be directory and not mandatory.'
10. It has been further held in that case that Section 108 of the Companies Act, 1956, is not exhaustive. It covers only two kinds of transfer of shares but there may be other kinds of transfer not covered by that section and that although there has to be substantial compliance of a provision of that section yet in cases not strictly covered by the provision the authority can deviate from that rule and take a decision which is equitable and fair to both the parties. This case is, therefore, of little assistance to the appellant in the present case. Lastly, Mr. Dutt relied upon the decision of the Supreme Court in Bajaj Auto Ltd. v. N. K. Firodia,  41 Comp Cas 1, 6 (SC). It may be noted here that Mr. Das, learned counsel for the respondent, also relied upon the said decision and contended that discretion conferred upon the directors of a company must be exercised fairly and bona fide in the best interest of the company and not arbitrarily and not for any collateral motive. Mr. Das further submitted that the use of discretion of the directors must be reflected in a resolution of the board's meeting. In the present case, according to him, there was no proper use of discretion by the directors as there was no resolution passed at a meeting of the board of directors. In the case before the Supreme Court, the directors of the company had under the articles of association absolute and uncontrolled discretion to decline to register any transfer of shares. In considering whether this discretion was used by the directors properly, the Supreme Court observed as follows1:
' Discretion does not mean a bare affirmation or negation of a proposal. Discretion implies just and proper consideration of the proposal in the facts and circumstances of the case. In the exercise of that discretion the directors will act for the paramount interest of the company and for the general interest of the shareholders because the directors are in a fiduciary position both towards the company and towards every shareholder. The directors are, therefore, required to act bona fide and not arbitrarily and not for any collateral motive.
If the articles permit the directors to decline to register transfer of shares without, stating the reasons, the court would not draw unfavourable inferences against the directors because they did not give reasons. In other words, the court will assume that the directors acted reasonably and bona fide and those who allege to the contrary would have to prove and establish the same by evidence. Where, however, the directors gave reasons the court would consider whether they were legitimate and whether the directors proceeded on a right or wrong principle. As a result of the introduction of Section 111(5A) in the Companies Act, 1956, tv/o consequences follow. First, if the articles permit the directors not to disclose reasons for declining to register a transfer the statute confers power to interrogate the directors and disclose the reasons. Secondly, if the directors do not disclose reasons presumption can be drawn against the directors for non-disclosure of reasons in spite of being called upon to do so.'
11. On this aspect of the case the learned judge in the trial court has taken the view that the appellant-company had full knowledge that the share scrip was not available to the second respondent, Ballavdas, and as such it could not have been made over to the first appellant (sic-respondent). The learned judge took the view that the appellant-company did not produce any evidence regarding the availability of the original share scrips. The learned judge accordingly came to the conclusion that it was not now open to the company to take such an unreasonable stand and insist upon the production of the share certificate by the first respondent. The learned judge, therefore, took the view that the discretion used by the directors of the appellant-company declining to register the name of the first respondent as the holder of the disputed shares had been improperly exercised. Upon the materials on record before us we see no reason to differ from the view taken by the learned judge.
12. The other objection taken by Mr. Dutt, on behalf of the appellant, is that the stamp in the transfer deed was inadequate. On behalf of the first respondent, Mr. Das submitted that, having regard to the fact that the total price for which the whole lot of shares in the Jatia group of companies was purchased in the auction by Ballavdas was Rs. 3,500 and those shares were transferred by Ballavdas to the first respondent for Rs. 4,565, it could not be said that the consideration paid by the first respondent, to Ballavdas was inadequate. He further submitted that the consideration could not be said to be inadequate because the first respondent purchased the said shares from Ballavdas with the knowledge that in all probability he would have to go in for litigation in view of the attitude taken by the companies regarding the purchase of the shares by Ballavdas. The learned judge in the trial court accepted the evidence regarding the purchase of the shares in question by the first respondent and he was satisfied that in the facts and circumstances of the case the shares were acquired by the first respondent for valuable consideration. Nothing has been placed before us on behalf of the appellant to persuade us to take a view different from the view taken by the learned trial judge on this aspect of the case. It must,therefore, be held that the first respondent acquired the disputed shares in the appellant-company from the second respondent, Ballavdas, for valuable consideration.
13. Lastly, it was contended on behalf of the appellant that the appellant-company had not denied the right or ownership of the first respondent in respect of the shares in question. The appellant-company was only denying the right of the first respondent to have his name registered in respect of the said shares in the register of members of the company. Mr. Dutt drew our attention to the averment made in paragraph 7 of the plaint where it has been stated that defendant No. 1 is not denying and/or interested to deny the right, title and interest of the plaintiff in respect of the shares. He also drew our attention to paragraph 8 of the written statement where the defendant has stated that it is only concerned with the proper proof of the plaintiff having acquired title to the said shares and due compliance with the statutory requirement by the plaintiff for getting his name registered. Mr. Dutt, accordingly, submitted that the present suit under Section 34 of the Specific Relief Act, 1963, is not maintainable, inasmuch as, the defendant was not denying or interested to deny the plaintiff's title to the said shares or his legal character as the holder of the said shares. We are unable to accept this contention advanced by Mr. Dutt, on behalf of the appellant. The plaintiff who is claiming to be a shareholder in respect of the disputed shares in the appellant-company has a right to have his name registered in respect of the said share in the register of members of the company. The appellant-company is denying that right of the plaintiff and the suit is, therefore, perfectly maintainable. It was also contended by Mr. Dutt that such a decree under Section 34 of the Specific Relief Act would be binding only upon the parties to the suit or persons claiming through them under Section 35 of the said Act. Mr. Dutt, therefore, contended that for the protection of the company it was necessary for it to have indemnity from the plaintiff or from his transferor, Ballavdas, and unless such indemnity was given, the company would not be protected. In our view the decree of this court would be sufficient protection to the company, and in the facts and circumstances of the present case no question of further protection of the company can arise at all.
14. For the reasons mentioned above this appeal fails and it is accordingly dismissed with costs. Certified for two counsel.
Sabyasachi Mukharji, J.
15. I agree.