Appeal No 303 of 1963
Appeal from the judgment and order dated September 5 1960 of the Orissa High Court in Appeal under Orissa High Court Order No 4 of 1956
N C Chatterjee Ranadey Chaudhuri G section Chatterjee and section C Majumdar for the appellant
C K Daphtary Attorney General N D Karkhanis and R N Sachthey for respondent No 1
The Judgment of the Court was delivered by Bachawat J
On November 29 1947 the Indian Chemical Products Ltd a limited company was incorporated having its registered offices in Baripada Mayurbhanj and in the town of Calcutta
Its authorised capital is Rs 25 lakhs divided into 25000 shares of Rs 100 each
The company has seven share holders
The Maharaja of Mayurbhanj subscribed and paid for 7500 shares
The remaining six shareholders hold 150 shares only
All the shareholders are signatories to the memorandum of association of the company
The State of Orissa claims that by reason of the constitutional changes since the declaration of independence all the shares held by the Maharaja of Mayurbhanj have now vested in it by operation of law
The State also based its claim to the shares on a formal instrument of transfer executed by the Maharaja
On March 16 1950 the Government of Orissa lodged the share scrip and the transfer deed with the company and requested it to make the necessary changes in the share register
The Government as also the Maharaja through his agent the Imperial Bank of India repeatedly requested the company to register the Secretary to the Government of Orissa Finance Department as the holder of the shares in place of the Maharaja
There was protracted correspondence in the matter for over three LS5SCI 26a 382 years and eventually on May 16 1953 the board of directors of the company refused to register the transfer
On December 1 1953 Sri section K Mandal attorney for the State of Orissa requested the company to record the name of the State as the owner of the shares in the share register but the company declined to do so
On February 9 1955 the State of Orissa filed  an application under section 38 of the Indian Companies Act 1913 in the High Court of Orissa asking for rectification of the share register by inserting its name as the holder of the shares in place of the Maharaja
The company and the Maharaja were impleaded as respondents
The application was contested by the company only
On November 22 1956 Ray J allowed the application
On September 13 1957 he passed a supplemental order directing the filing of the notice of rectification with the Registrar within a fortnight
On September 5 1960 a Division Bench of the High Court dismissed the appeal preferred by the company
The company now appeals to this Court on a certificate granted by the High Court
Both courts concurrently held that 1 the title to the shares vested in the State of Orissa by operation of law 2 the refusal of the board of directors to register the transfer was mala fide 3 the State of Orissa was entitled to rectification of the share register and a proper case for the exercise of the Court s jurisdiction under section 38 of the Indian Companies Act 1913 had been made out 4 the petition was not liable to be dismissed on the ground that the State had asked the company to register the name of the Secretary to the Government of Orissa as the shareholder in place of the Maharaja
The appellate Court also held that under the articles of association of the company the board of directors had no power to refuse registration of a transfer where the transfer was by operation of law
The appellant challenges the correctness of these findings
The courts below concurrently found that the 7500 shares were held by the Maharaja in his capacity as ruler of the State of Mayurbhanj
This finding is amply supported by the documentary evidence on the record and is no longer challenged
The State of Mayurbhanj was one of the feudatory States of Orissa under the suzerainty of the British Crown
As from August 15 1947 with the declaration of independence the paramountly of the British Crown lapsed
Thereafter steps were taken for the integration of the State with the Dominion of India
On October 17 1948 the Maharaja of Mayurbhanj signed an agreement for the merger of the State with the Dominion
By article 1 of this agreement the Maharaja completely ceded to the Dominion his sovereignty over the State of Mayurbhanj as from November 9 1948
Article 4 of the agreement allowed the Maharaja to retain the ownership of his private properties only as distinct from the State properties
On and from November 9 1948 as a necessary 383 consequence of the cesser of sovereignty all the public properties of the State including the 7500 shares in the company vested in the Dominion
By operation of law in consequence of the change of sovereignty all the public properties of the State which were vested in the Maharaja as the sovereign ruler devolved on the Dominion as the succeeding sovereign
As from January 1 1949 the Government of India in exercise of its powers under section 32 of the Extra Provincial Jurisdiction Act 47 of 1947 delegated to the Government of Orissa the power to administer the territories of the merged State
On August 1 1949 the States Merger Governors  Provinces Order 1949 came into force and in consequence of section 51 of the Order all property vested in the Dominion Government for purposes of governance of the merged State became from that date vested in the Government of Orissa unless the purposes for which the property was held were central purposes
By a certificate dated November 10 1953 the Government of India declared that the 7500 shares were not held for central purposes
Under the Constitution which came into force on January 26 1950 the territories of the merged State were included in the State of Orissa
By reason of these successive constitutional changes the shares became vested in the State of Orissa
The State is now the legal owner of the shares and the directors of the company are bound to enter its name in the register of members unless there is one restrictive provision in the articles authorising them to refuse the registration
The company contends that under its articles the directors have the power to refuse the registration
It relies on article 11 which reads The Board of Directors shall have full right to refuse to register the transfer of any share or shares to any person without showing any cause or sending any notice to the transferee or transferor The Board may refuse to register any transfer of shares on which the Company has lien
 Article 1 A attracts the regulations in Table A of the First Schedule to the Indian Companies Act 1913 so far as they are applicable to private companies and are not inconsistent with the articles
The regulations in Table A make a distinction between transfer and transmission of shares
In respect of a transfer they require that the instrument of
transfer shall be executed both by the transferor and the transferee
A transmission by operation of law in not such I transfer
In In re Bentham Mills Spinning Company1 James LJ said In Table A the word transmission  384 is put in contradistinction to the word transfer 
One means a transfer by the act of the parties the other means transmission by devolution of law
 Article 11 refers to transfers
A devolution of title by operation of law is not within its purview
Being a restrictive provision the article must be strictly construed
In the instant case the title to the shares vested in the State of Orissa by operation of law and the State did not require an instrument of transfer from the Maharaja to complete its title
 Article 11 does not confer upon the board of directors a power to refuse recognition of such a devolution of title
We may add that we express no opinion on the question whether such an article applies to an involuntary transfer of shares by a Court sale having regard to the provisions of O21 r 80 of the Code of Civil Procedure with regard to the execution of necessary documents of transfer
Clause 22 of the regulations in Table A read with article 1 A confers power upon the board of directors to decline registration of transmission of title in consequence of the death or insolvency of a member
In the instant case there is no transmission of title in consequence of death or insolvency and clause 22 has no application
Under the articles the directors had therefore no power to refuse registration of the devolution of title on the State of Orissa by operation of law in consequence of the constitutional changes
Though the State of Orissa had acquired title to the shares by operation of law by way of abundant caution it obtained a deed of transfer and lodged it with the company together with the share scrip
The transfer deed was duly stamped and complied with all the formalities required by law
The claim of the State of Orissa based upon the transfer deed was within the purview of article 11
Even with regard to this claim the Courts below concurrently held that the board of directors acted mala fide in refusing to register the transfer
This finding is amply supported by the materials on the record
In spite of the fact that the State had filed with the company a certificate of the Collector of Stamp Revenue
West Bengal that no stamp duty was payable on the transfer the company raised the objection that the transfer deed must be stamped
To avoid this objection the Government stamped the deed and again lodged it with the company
For over three years the directors delayed registration of the transfer on frivolous pretexts
On May 16 1953 the directors without assigning any reason declined to register the transfer
Before the High Court the company asserted that the registration was refused because the Maharaja of Mayurbhanj was under an obligation to execute an agreement conferring valuable rights on the company and the State of Orissa had failed to honour this obligation
Reliance was placed on cl 6 of the company s memorandum of association which stated that the company and the Maharaja proposed to 385 enter into an agreement and a copy of the proposed agreement was annexed
Clause 6 shows that there was a proposal between the parties to enter into an agreement but there was no concluded agreement between them nor was there any binding obligation on the Maharaja to execute an agreement
The directors could not use their power of declining to register the transfer under article 11 for the purpose of forcing the State of Orissa to enter into the proposed agreement
Actually the reason given at the trial was an afterthought
The Imperial Bank of India representing the Maharaja was pressing for registration of the transfer
By its letter dated March 17 1953 the company assured the Bank that the registration would be effected shortly
Nevertheless on May 16 1953 the directors capriciously refused to register the transfer
The power under article 11 to refuse registration of the trans fer is a discretionary power
The directors must exercise this power reasonably and in good faith
The Court can control their discretion if they act capriciously or in bad faith
The directors cannot refuse to register the transfer because the transferee will not enter into an agreement which the directors conceive it to be for the interests of the company
We cannot accept the contention that the petition was liable to be dismissed because the State of Orissa had asked for registration in the name of the Secretary Finance Department
No such objection was taken by the company although it had taken numerous other objections
Moreover by letter dated December 1 1953 Shri section K Mandal the attorney for the State of Orissa had definitely called upon the company to record the name of the State as the owner of the shares in the share register
In spite of this letter the company refused to make the necessary registration
The Maharaja of Mayurbhanj has ceased to be the owner of the shares
The State of Orissa is now their owner and has the legal right to be a member of the company and is entitled to say that the company should recognise its membership and make an entry on the register of the fact of its becoming a member and its predecessor in title having ceased to be a member
The name of the State of Orissa has without sufficient reason been omitted from the register and there is default in not entering on the register the fact of the Maharaja having ceased to be a member
The Court s jurisdiction under section 38 is therefore attracted
The High Court rightly ordered the rectification in the exercise of its summary powers under section 38
The jurisdiction created by section 38 is very beneficial and should be liberally exercised
We see no reason why the Court should deny the applicant relief under section 38
The directors of the appellant company on the most frivolous of objections have prevented the State of Orissa from becoming a 386 member for the last 16 years
It is a matter of regret that justice has been obstructed so long
There is no merit in this appeal
The appeal is dismissed with costs
The appellant company do forthwith carry out the order of rectification passed by the Courts below in case the order has not been carried out yet
Appeal dismissed


Summary:
As a result of constitutional changes following the Indian Independence Act 1947 the ownership of the public properties of the Maharaja of the Mayurbhanj including certain shares in the appellant company passed to the State of Orissa
Although the State had acquired title to these shares by operation of law it also obtained from the Maharaja by way of abundant caution a deed transferring these shares to it
In 1950 the State Government lodged the share scrip and transfer deed with the company and requested it to make the necessary changes in the share register
Despite repeated requests
however the directors of the company refused to do so
In 1955 the State filed an application under section 38 of the Indian Companies Act 1913 in the High Court of Orissa asking for rectification of the share register by inserting its name as the holder of the share in place of the Maharaja
The High Court allowed the application and passed a supplemental order directing the filing of the notice of rectification with the Registrar within a fortnight
The company s appeal before the Division Bench failed whereupon it appealed to this Court by special leave
It was urged on behalf of the appellant company inter alia that under article 11 of its Articles of Association as well as under cl 22 of Table A read with article 1 A the directors has power to refuse registration of the transfer
HELD i In Table A which was attracted by article 1 A of the company s Articles of Association the word transmission is put in contradistinction to the word transfer 
One means a transfer by the act of the parties the other a transmission by devolution of law
article If refers to transfers
A devolution of title by operation of law is not within its purview
Being a restrictive provision the article must be strictly construed
In the instant case the title to the shares vested in the State of Orissa by operation of law and the State did not require an instrument of transfer from the Maharaja to complete its title
Article 11 does not confer upon the Board of directors a power to refuse recognition of such a devolution of title
r383G 384C
In re Bentham Mills Spinning Company  referred to
iiClause 22 of the regulations in Table A read with article 1 A confers power on the Board of directors to decline registration of transmission of title in consequence of the death or insolvency of a 381 member
In the instant case there was no transmission of title in consequence of death or insolvency and clause 22 had therefore no application 384 D iiiIn so far as the claim of the State was based on the transfer deed it fell within the purview of article 11
But the refusal of the board of directors to register the transfer under that article was mala fide
The power under that article was a discretionary power
The directors must exercise that power reasonably and in good faith
The Court can control this discretion if they act capriciously or in bad faith
384 E F 385 C D ivThe name of the State of Orissa had without sufficient reason been omitted from the register and there was default in not entering on the register the fact of the Maharaja having ceased to be a member
The Court s jurisdiction under section 38 was there fore attracted
The High Court rightly ordered the rectification in the exercise of its summary powers under section 38
The jurisdiction created by section 38 is very beneficial and should be liberally exercised
385G