SHAILESH PRABHUDAS MEHTA AND ORS. versus CALICO DYING AND PRINTING MILLS LTD.

Citation: [1994] 1 S.C.R. 968 · Decided: 15-02-1994 · Supreme Court of India · Bench: K. JAYACHANDRA REDDY, G.N. RAY

Judgment (excerpt)

A 
SHAILESH PRABHUDAS MEHTA AND ORS. 
v. 
CALICO DYING AND PRINTING MILLS LTD. 
FEBRUARY 15, 1994 
B 
[K. JAYACHANDRA REDDY AND G.N. RAY, JJ.] 
Companies Act, 1956 : Section 111. 
Shares-Transmission and Registration-Power of Board of Directors 
C of Company-Refusal to register shares-Notice of refusal of registration 
within 2 months from the date of lodging-Right to. refuse registration of 
shares-Whether lost on .the expiry of pe1iod of two months. 
Articles of Association-In the absence of specific power to refuse 
registration of shares-Board of Directors of Company-Whether can refuse 
D registration. 
E 
Amendment of Articles of Association confening power to refuse 
registration-Subsequent lodging of shares for transfe~Action of amending 
Articles of Association and refusal to register share-Whether bona fide. 
Constitution of India, 1950 : Article 136. 
Appeal-Concurrent findings of fact-lnterf erence with. 
The appellants' predecessor-in-interest, holding 100 equity shares of 
F 
the respondent-Company, died on 26.8.1974 without leaving any will. There 
were certain disputes originally between him and the management of the 
Company and subsequently between the appellants and the Management 
of the Company. The Directors of the Company made efforts to purchase 
the shares but negotiations in this regard could neither be completed 
between the Company and appellants' predecessor-in-interest nor between 
G the appellants aud the Management. Therefore, the appellants sought for 
transmission of shares in their names. In the meantime i.e. on 21.9.1977 
the respondent-Company replaced its existing Articles of Association by a 
new set of Articles of Association conferring power on the Company to 
reject any application for transfer or transmission of shares without 
H assigning any reasons in that behalf. 
968 
l 
f 
S. P. MEHTA v. CALICO PRINTING MILLS 
969 
However, the appellants obtained the heirship certificate and on A 
21.11.1984 sent it to the Company for the purpose of effecting transmission 
of the said shares in their favour. Since no reply was received from the 
Company they filed a Company Petition in the High Court praying for 
rectification of the register of members. The Company opposed the petition 
stating that the Directors of the Company had resolved to refuse to register 
the shares. A single Judge dismissed the petition on the preliminary 
ground that alternative remedy was available under Section 111 of the 
Companies Act. 
B 
The appellants preferred an appeal before a Division Bench which 
remanded the matter back to the single judge to decide the matter afresh. C 
The single Judge again dismissed the matter on the ground that the 
appellants should file their appeal under Section 111 of the Companies 
Act or file a separate suit to agitate the issues involved in view of the 
diverse disputes raised between the appellants and the Company. Ag-
grieved by the said order the appellant'i filed an appeal and the Division D 
Bench of the High Court dismissed the appeal holding that (i) the Board 
-1'-
of Directors did not lose its powers to refuse to transmit shares after a 
lapse of two months and thereafter the whole question was exercise of 
discretion rather than any alleged loss of power and for that purpose the 
factual position in each case had to be examined; (ii) the Board's failure 
to register transmission of shares within the period of two months and the E 
subsequent resolution dated 9.4.1985 declining to register shares was a 
commercial decision taken in the interest of the Company and could not 
be characterised as capricious, perverse or ma/a fide. 
In appeal to this Court it was contended on behalf of the appellants p 
that (i) the Company had no power to refuse registration or transmission 
in absence of specific provision in the Articles of Association empowering 
the Company for the same and that transmission of shares was by opera-
tion of law and was completed in 1974 itself i.e. on the death of appellants' 
predecessor-in-interest and the subsequent amendment of Articles of As-
sociation to deny registmtion of transmission was invalid and ineffective; 
(ii) since a notice of intimation of refusal had to be compulsorily sent 
within a period of two mcnths it automatically followed that the right of 
refusal must be exercised within the period of twQ months and since the 
Directors had not exercised this right of refusal within the prescribed 
period of two months, then the

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