ivil Appeal No 4565 of 1989
85 From the Judgment and Order dated 451988 of the Cal cutta High Court in Appeal No 806 of 1987 AK Sen PL Sen Bhaskar Sen DK Sinha AN Chat terjee NDB Raju and VK Jain for the Appellant
FS Nariman RC Nag SB Mukharjee RF Nariman Kusum Agarwal OC Mathur and DN Misra for the Respond ent
The Judgment of the Court was delivered by OJHA J
Special leave granted
This appeal by special leave has been preferred against the judgment dated May 4 1988 of a Division Bench of the Calcutta High Court in Appeal No 806 of 1987
Facts in brief necessary for consideration of the submissions made by learned counsel for the parties are that the respondent Pradip Kumar Sarkar made an application under section 155 of the hereinafter referred to as the Act for rectification of the share register of the appellantcom pany by inserting his name therein as a registered share holder of certain shares transferred in his favour
These shares were fully paid up and the company had no lien over them
According to the respondent notwithstanding the shares being duly lodged with the Company along with the transfer deeds and requisite fees for registration being paid the Board of Directors of the Company disapproved of the registration of the said shares
This disapproval led the respondent to make the application under section 155 of the Act for rectification of the share register
The case of the respondent was that the shares in question being fully paid up and the company having no lien over them the regis tration of the transfer of the shares in his favour could not be refused under Article 39 of the Articles of Associa tion of the Company which was the article relevant for the purpose
The application aforesaid was contested by the Company on various grounds
Overruling the objections raised by the Company a learned single judge allowed the application
Aggrieved the Company preferred the appeal aforesaid before a Division Bench of the High Court which has been dismissed by the judgment appealed against
It has been urged by learned counsel for the appellant that even if the Articles of Association do not make any specific provision in this behalf the Company had residuary inherent power to refuse registra 86 tion of the transfer of the shares for the benefit of the Company and its existing sharesholders
Power of refusal to register the transfer of shares was also sought to be de rived from the words or otherwise used in Article 42 of the Articles of Association and section 1112 of the Act
The transferor not being made a party to the application under section 155 of the Act was also pleaded in justifica tion of the submission that the said application deserved to be dismissed
It was also urged that in view of section 108 of the Act the Company was entitled to go into the question as to whether the consideration for transfer of shares as shown in the transfer deeds was real consideration for purposes of finding out as to whether the transfer deeds were duly stamped and refuse registration of the transfer of the shares if the Company was of the view that the transfer deeds were not duly stamped
For the respondent on the other hand it was urged by his learned counsel that in view of the specific provision contained in this behalf in Article 39 of the Articles of Association and no residuary power whatsoev er having been conferred on the Company or its Directors to refuse registration of the transfer of shares it did not have the power claimed by it in aid of refusal of registra tion of the shares transferred to the respondent
Having heard learned counsel for the parties we are of the opinion that unless there is any impediment in the transfer of a share of a public limited company such as the appellant a shareholder has the right to transfer his share
Correspondingly in the absence of any impediment in this behalf the transferee of a share in order to enable him to exercise the rights of a sharesholder as against the Company and third parties which is not possible until the transfer is registered in the company s register is enti tled to have a rectification of the share register of the company by inserting his name therein as a registered share holder of the share transferred to him
To have such recti fication carried out is the right of the transferee and can be defeated by the company or its Directors only in pursu ance of some power vested in them in this behalf
Such power has to be specified and provided for
It may even be residu ary but in that case too it should be provided for and traceable either in the Act or the Articles of Association
Even if the power of refusal is so specified and provided for the registration of a transferred share cannot be re fused arbitrarily or for any collateral purpose and can be refused only for a bona fide reason in the interest of the company and the general interest of the sharesholders
If neither a specific nor residuary power of refusal has been so provided such power cannot be exercised on the basis of the so called undeclared inherent power to refuse registra tion on the ground that the 87 company or its Directors take the view that in the interest of the company and the general interest of the shareholders registration of the transfer of shares should be refused
Indeed making a provision in the Act or the Articles of Association etc
conferring power of refusal would become futile if existence of an inherent power such as claimed by the company in the instant case is assumed for the simple reason that the amplitude of the so called undeclared inher ent power would itself take care of every refusal to regis ter the transfer of share
Assumption of such a power would result in leaving the matter of transfer of share and its registration at the mercy and sweet will of the company or its Directors as the case may be
In the absence of any valid and compelling reason it is difficult to comprehend such a proposition
Even the submission based on the words or otherwise in subsection 2 of Section 111 of the Act and in Article 42 of the Articles of Association to the effect that these words recognise the existence of an inherent power to refuse registration of the transfer of the share does not commend itself to us
The words or otherwise were inserted in sub section 2 of Section 111 of the Act in 1960 and it is this subsection so amended which is applicable to the facts of the instant case
Sub section 2 of Section 111 does not confer any right but only casts a duty to give notice of refusal to register the transfer of a share and provides for punishment in case of default in doing so
Giving of notice is necessary inter alia to facilitate the exercise of the right of appeal conferred by sub section 3 and 4 of Section 111
To introduce a concept of either conferment or recognition of a right to refuse registration of the trans fer of a share in sub section 2 militates against and runs counter to the very texture and purpose of this sub section
Such an interpretation would have the effect of imputing to the legislature an intention of making an effort to fix a square peg in a round hole when the purpose if it was to confer or recognise any inherent power to refuse registra tion of the transfer of a share could plainly be achieved by inserting the words or otherwise after the words under its articles and before the words to refuse to register in sub section 1 of Section 111 which is the sub section relevant for such purpose
The words or otherwise take colour from the context in which they are used
In our opinion the words under its articles in subsection 2 of Section 111 of the Act have been used in the same sense as is expressed in legal termi nology by the familiar words conferred by law
Consequent ly if the opening part of sub section 2 is read as If a Company refuses whether in pursuance of any power conferred by 88 law or otherwise it would be incongruous to suggest that the legislature in using the words or otherwise intended to give recognition to a power to refuse registration of the transfer of a share even otherwise than in accordance with law
This would be tantamount to putting a premium on taking the law into one s own hands
The legislature cannot be imputed with any such intention
For these reasons we are of the view that in the context in which the words or otherwise have been used in sub section 2 of Section 111 they only purport to cast a duty or impose an obligation of giving notice of refusal to register the transfer of a share irrespective of the fact whether such refusal is under the Articles of Association of the Company or de hors the Arti cles which would include even a case where such refusal has been made arbitrarily or for any collateral purpose
A fortiorari this would be the interpretation of even Article 42 of the Articles of Association of the Company inasmuch as on its plain language which except for the provision for punishment is in pari materia with sub section 2 of Section 111 of the Act the purpose of this Article is the same as of the said sub section 2
Even the marginal note of Article 42 lends support to this interpretation
At this place we may point out that it has not been disputed before us by learned counsel for the appellant that the shares in question having been fully paid up and the Company having no lien over them Article 39 of the Articles of Association could not be invoked to refuse registration of the transfer of these shares
We may now advert to the text books and the decided cases on which reliance has been placed by learned counsel for the appellant in support of the submission that the Company had an inherent power to refuse registration of the transfer of the shares
It was pointed out that the board of directors is now the principal organ of a company
The management of the affairs of the company is vested in the board of directors and all powers excepting those which are specifically reserved for the general meeting by the act or the articles or memorandum of association or otherwise must now be done by the board of directors vide section 291 of the Act The New Frontiers of Company Law by SC Sen 1971 Edition Page 51
Whatever may fairly be regarded as inci dental to the objects for which the Corporation was created is not to be taken as prohibited
The incidental power is one that is directly and immediately appropriate to the execution of the specific power created and not one that has a slight or remote relation to it
Furthermore the want of an express enumeration of powers does not exclude such incidental powers as are reasonably 89 necessary to accomplish the corporate purpose
The mere creation of a corporation was alone sufficient in the absence of prohibition to confer upon such corporation all those powers which are regarded as incident to corporate existence
Thomsons  Commentaries on the Law of Corporation 3rd Edition Vol
3 Pages 820 to 822 As to the relationship between the general meeting and the directors to some extent a more exact analogy would be with the division of powers between the Federal and State Legislatures under a Federal Constitution and the residual powers are in this case with the directors Gower s Principles of Modern Company Law 4th Edition Page 147
Corporate authority powers are deter mined by reference to 1 charter 2 incorporation law or act 3 general and special corporation statutes relevant 4 other applicable statutes 5 case decisions 6 cus tomary practices and 7 treatises and other discussions
They include 1 general powers usually recognized in all corporations 2 general powers usually recognized in corporations of the particular type 3 powers inherent in or limited by the purposes or business as stated in the charter and 4 implied powers to do all things reasonably and properly incidental to the specified purpose and busi ness
Modern Corporation Law by Howard L Oleck Vol
It is a well recognised rule that a Corporation is not restricted to the exercise of the powers expressly conferred upon it by its charter but has the implied or incidental power to do whatever is reasonably necessary to effectuate the powers expressly granted and to accomplish the purposes for which it was conferred unless a particular act sought to be done is prohibited by the law or its charter
American Jurisprudence 2nd Edition Vol
Every corpora tion is of course created with certain express powers but in addition to those every corporation has also certain powers which attach to it as an incident to its corporate exist ence
The powers which are incidental to corporate existence and which are always implied in the absence of express restrictions are 1 The power to have perpetual succes sion or succession during the period for which the corpora tion is created which includes the power to elect members in the place of those who are removed by death or otherwise 2 The power to have a corporate name 3 The power to purchase and hold land and chattels for authorised corporate purposes 4 The power to have a common seal 5 The power to make by laws for the government of the corporation 6 The power to disfranchisement or removal of members except in the case of modern joint stock corporations
Corpus Juris Secundum Vol
XlX Pages 372 373 Suffice it to say in this behalf that what has been stated above with regard to residuary implied or incidental powers is calculated to 90 accomplish the objects the corporate purpose or corporate existence of the corporation
Refusal to register the trans fer of a share obviously does not fall in this category
As has been pointed out in Palmer s Company Law 24th Edition Page 121 the objects or purposes for which a company is created should be distinguished from the powers which it can exercise
So far as refusal to register the transfer of a share is concerned it is almost the consistent view in decided cases that the power has to be specified and can be exercised only in the manner specified and within the frame work of the said specification
There is no inherent power in this behalf
See In re Smith Knight  Co IV Chan cery Appeal Cases Page 20 In re National Provincial Marine Insurance Company V Chancery Appeal Cases Page 559 Moffatt vs Parqunar V11 Chancery Division Page 59 1 In re Cawley  Co XLII Chancery Division Page 209 In re Discovers Fi nance Corporation Limited 1910 1 Chancery Division Page 312 and Sadashiv vs Gandhi Sewa Samaj A1R 1958 Bombay Page 247 Reliance was then placed by learned counsel for the appellant on The Conservators of the River Tone vs Ash 109 English Reports Page 479
In that case by an Act for making and keeping the river Tone navigable it was enacted that the thirty persons therein named and their successors should be conservators of the river and should have various powers referred to therein
By a subsequent Act some more powers were conferred on them
A question arose as to whether the conservators were entitled to sue in their corporate name for an injury done to their real property
It was held that as it manifestly appeared from the different clauses of the Acts of Parliament that the conservators should take land by succession and not by inheritance although they were not created a corporation by express words they were so by implication and that being so they were entitled to sue in their corporate name for an injury done to their real property
In our opinion on the basis of this decision it is difficult to cull out any power in the board of directors of the company in the instant case to refuse to register the transfer of a share by implication
Reliance was also placed on Attorney General vs The Lord Mayor Etc
of the City of Leeds 1929 2 Chancery Division Page 291 where it was pointed out that a corporation incor porated by royal charter stands on a different footing from a statutory corporation the difference being that the latter species of corporation can do only such acts as are authorised directly or indirectly by the statute creating it whereas the former can speaking generally do anything that an ordinary individual can do
If however the corporation by charter be a 91 municipal corporation then it is subject to the restriction imposed by the Municipal Corporations Act 1882
The ques tion in connection with which the above observations were made was whether the Corporation of Leeds a municipal corporation was entitled to work or run certain omnibuses along any route whether within or without the boundaries of the City of Leeds
This again was obviously a question relating to the business of the corporation to work or run omnibuses and has no bearing on the question as to whether the directors of the appellant company in the instant case had inherent power to refuse to register the transfer of shares
In EM Muthappa Chettiar vs Salem Rajendra Mills Ltd XXV Company Cases Page 283 it was held that if a person is of such a character as to throw their company into confusion and if he was not a desirable one then the Board of Direc tors would certainly be acting in the best interests of the company in refusing to register the shares in his name and such a reason is quite a valid reason
Suffice it to say so far as this case is concerned that Article 56 which was the relevant article dealing with the refusal to register the transfer of a share itself clearly conferred power on the board of directors to refuse to register the transfer of a share inter alia if the transferee of the share is not approved
It was thus a case where power had been conferred by an article and was not a case of refusal to register under any inherent power
Lastly reliance was placed on Life Insurance Corpora tion of India vs Escorts Ltd  Ors 1985 Supp 3 SCR Page 909
In that case with reference to an earlier decision of this Court in Bajaj Auto Ltd vs N K Firodia and Anoth er 41 Company Cases page 1 it was held that where the articles permitted the directors to decline to register the transfer of shares without assigning reasons the court would not necessarily draw adverse inference against the directors but will assume that they acted reasonably and bona fide
Here again as is apparent from the decision in the case of Bajaj Auto Ltd supra Article 52 of the appellant company in that case provided that the directors might at their absolute and uncontrolled discretion decline to register any transfer of shares
This too was therefore a case of power being conferred by the articles of association and not a case of exercise of inherent power
We may also point out that at page 997 of the Reports of Escorts Ltd Supra it was held that even though it was open to the company and indeed it was bound to refuse to register the transfer of shares of an Indian company in favour of a non resident where the requisite permission under the FERA was not ob tained but 92 once permission was obtained whether before or after the purchase the shares the company could not thereafter refuse to register the transfer of shares
The third submission made by learned counsel for the appellant that the application under section 155 of the Act was not maintainable as the transferors had not been made parties therein may now be considered
A similar submission had been made before the Division Bench of the High Court also and was repelled by holding that the transferor is not a necessary party to an application under section 155 of the Act unless the transfer was disputed by him
It was pointed out that even though in the instant case the transferors had been served with notice and in any event had knowledge of the proceedings for registration of transfer of shares they had not disputed the transfer of the shares
We do not find any infirmity in the order of the High Court on this point
Likewise we find no substance even in the submission made by learned counsel for the appellant based on section 108 of the Act for the simple reason that after taking into consideration the evidence produced by the parties it has been found as a fact by the High Court that it had not been proved that the respondent had paid higher prices for the shares than those stated in the transfer deeds
We find no justification for interferring with the said finding of fact in the present appeal
On this finding the transfer deeds could not be termed as unduly stamped and power to refuse the registration of the transfer of shares contemplated by section 108 of the Act would not be invoked
In the result we find no substance in this appeal and it is accordingly dismissed with costs assessed at Rs2000
TNA Appeal dismissed


Summary:
The respondents faced trial for the charge of theft
After a General Court Martial they were found guilty convicted and sentenced
All the three respondents were dismissed from service
The respondents filed a writ petition in the High Court challenging the decision of the Court martial and the order of the dismissal
The High Court set aside the order of conviction and punishment of imprisonment as also the order of dismissal from service by holding that the trial before the Court Martial General was in contravention of Rule 22 of the Army Rules 1954
Hence this appeal by the Union of India
Allowing the appeal in part this Court
HELD 1
It is a fact that the allegation at the stage of inquiry under Rule 22 was described as prejudicial to good order and military discipline but the basic facts said to constitute that allegation were nothing else than removal of the foodstuff which constituted the charge of theft
It is therefore clear that no prejudice has been caused to respondent 1 and the enquiry under Rule 22 and the trial before General Court Martial were over the selfsame facts
21H 22A 2
It is a fact that as against respondents 2 and 3 there was no inquiry under Rule 22
It is not disputed that the Commanding Officer of the Unit had stated before the General Court Martial that he did not find any case against respondents 2 and 3
The conclusion reached by the Command ing Officer was reasonable
Therefore there is no justifica tion to set aside the order of the High Court so far as respondents 2 and 3 are concerned
21D E 20 Lt Col Prithi Pal Singh Bedi vs Union of India  Ors 1982 3 SCC 140 referred to