LexM/S. HARINAGAR SUGAR MILLS LTD. versus SHYAM SUNDAR JHUNJHUNWALA AND OTHERS
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2 s.c.R. SUPREME COUHT HE.PORTS 33\l M/S. HARINAGAR SUGAR MILLS LTD. v. SHYAM SUNDAR JHUNJHUNW ALA AND OTHERS (S. K. DAS, J. L. KAPUR, M. HIDAYATULLAH, J. c. SHAH and T. L. VENKATARAMA AIYAR, JJ.) Appeal-Company rufusing to register transfer of shares- Appeal to Central Government-Decision in appeal-Whether judi- cial-Central Government, if acts as a tribunal-Special leave, if lies against decision-Powers of Central Government in appeal- W hether giving of reasons for decision essential--Companies Act, r956, (r of r956) ss. III and r55-Constitution of India, Art. r36. One B who held a large number of shares in the appellant company, transferred two blocks of 100 shares each to his son and daughter-in-law. The transferees applied to the company to register the transfers. Purporting to act under art. 47B of the Articles of Association of the company the directors of the company resolved not to register the transfers. Against this resolution the transferees preferred appeals to the Central GoverPment under s. 111(3) of the Companies Act, 1956. The Central Government, without giving any reasons for its deci- sion, set aside the resolution of the directors and directed the company to register the transfers. The company obtained special leave to appeal against the decision of the Central Government under Art. 136 of the Constitution and appealed to the Supreme Court on the gro11nd that the Central Government acted in excess of its jurisdiction or otherwise acted illegally in directing the company to register the transfers. The respondents raised a preliminary objection that the Central Government exercising appellate powers under s. III of the Act (before its amendment in i960) was not a tribunal exercising judicial func- tions and was not subject to the appellate jurisdiction oj the Supreme Court under Art. 136. Held, that the appeal was competent to the Supreme Court by special leave against the decision of the Central Government under s. ru(3) of the Companies Act, 1956. The Central Govern- ment, when exercising po\vers under s. 111 was a tribunal v.1ith- in the meaning of Art. 136 and was required to act judicially. A person aggrieved by the refusal to register transfer of shares had two remedies under the Act, viz., (r) to apply to the court for rectification of the register under s. 155 or (2) to prefer an appeal under s. rrr. The power of the Court under s. 155, which has necessarily to be exercised judicially, and the power of the Central Government under s. III have to be exercised subject to the same restrictions. In both cases it has to be r96r 340 SUPREME COURT REPORTS [1962] 1961 decided whether the directors have acted oppressively, caprici- . ously, corruptly or malafide. Th.e decision has manifestly to flannaga> Sugar stand those objective tests and has not merely to be founded on M•lls Ltd. the subjective satisfaction of the authority. Jn an appeal under v. s. ur(3) there is a lis or dispute between the contesting parties Shyam Sundar relating to their civil rights, and the Central. Government has Jhunjhunwala to determine the dispute according to law in the light of the evidence and not on grounds of policy or expediency. There was thus a duty imposed on the Central Government to act judicially. The proviso to sub-s. (8) of s. ru which provided for the award of reasonable compensation in lieu of the shares in certain circumstances also fortifies that view. Shivji Nathubhai v. The Union of India, [1960] 2 S.C.R. 775, Re Bell Brothers Ltd. Ex Parle Hodgson, (1891) 65 L.T. 245, The Province of Bombay v. Kusaldas S. Advani, [1950) S.C.R. 621, The King v. London County Council, [1931) 2 K.B. 215 and The Bharat Bank Ltd., Delhi v. Employees of the Bharat Bank Ltd., Delhi, [1950] S.C.R. 459, referred to. In an appeal under s. lII(3) of the Act the Central Govern- ment has to determine whether the exercise of the discretion by the directors. refusing to register the transfer is ma/a fide, arbi- trary or capricious and whether it is in the interest of the com- pany. The decision of the Central Government is subject to appeal to the Supreme Court under Art. i36; the Supreme Court cannot effectively exercise its power if the Central Government gives no reasons in support of its order. The mere fact that the proceedings before the Central Government are to be treated as confidential does not dispense with a judicial approach, nor does it obvia
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