P L D 1964 (W (PLP)

This is an application under section 38 of the Companies Act praying for the rectification of the register of members of the company, namely Messrs Valika Textile Mills Limited in respect of 500 shares, the description of which is stated in the petition.

2. It is the case of the petitioner that he purchased these shares in the year 1953 or 1954, but in so far as the payment in this regard had been made out of black-market money he did not apply for the registration of the transfer of these shares. However, after the promulgation of the Martial Law he made a declaration in respect of these shares and therefore he approached the company for recording the transfer. The earliest corres pondence on record shows that the petitioner applied on 10th January 1962 to the State Bank for permission under section 5 of the Foreign Exchange Regulation Act regarding the transfer of these shares. This permission was necessary because the alleged transferors were Indian nationals. On 26th February 1962 the petitioner seta the share scripts and transfer forms to the company along with his Advocate's letter asking for the registration thereof. This was not done and on the following day this was sent to the company by a registered letter. In the meantime the company had received telegrams from the registered owner of these 500 shares, telling the company not to register the transfer without their written consent. The company had received a letter from the Advocate of the registered share‑holder that these shares had been handed over to the father of the petitioner merely as their agent and that he had been handed over blank forms and it was only after his death that the petitioner has been dishonestly attempting to appropriate these shares to himself. In these circumstances when the application for transfer came before the Board of Directors they refused to register the transfer and informed the petitioner accordingly by their letter dated 7‑5‑

62. It was then that the present petition under section 38 of the Companies Act was filed. Upon notice being issued to the company the company objected to the petition and meanwhile one Mr. Keki Pestonji Jamedar applied as an intervenor to this Court to be made a party and was joined as such. He then filed a long affidavit showing the circumstances in which these 500 shares which belonged to him had been handed over to the father of the petitioner. It was categorically asserted that these had never been transferred to the petitioner's father or to the petitioner, and the allegations made in this affidavit clearly amount to an allegation of a very serious fraud. The petitioner was examined in respect of the affidavit filed by him in this case and he admitted that he held no receipt of any pay ment to the so‑called transferor of the consideration for the trans action.

3. Consent issues had been filed in this case but when the case came up before me for hearing yesterday Mr. Valiani for the intervenor raised a preliminary point of limitation. This was contested by Mr. Fakhruddin for the petitioner and in the course of the hearing it transpired that in order to decide the real dispute between the parties I will have to go into most complicated questions of fact and an elaborate inquiry into the alleged fraud or the claim of the petitioner that he was a bona fide purchaser of these shares. I, therefore, asked Mr. Fakhruddin to satisfy me that this was a fit case in which I should hold such an inquiry in a petition under section 38 of the Companies Act. Mr. Fakhrud din asked for time and I have heard him to‑day. His main contention in short was that prima facie these shares accompanied with transfer forms, which are admittedly signed by the registered owner, should have been enough for the company to record the transfer and in not doing so they have not acted in the interest of the company. The argument was that the power to refuse the registration of transfer can only be exercised in the interest of the company and this does not entitle the directors to arrogate to themselves the power of determining whether a transfer is bona ode or fraudulent. A case was cited by the learned counsel which is reported in Yodh Raj v. Lakshmi Insurance Co. Ltd. (A I R 1935 Lah. 123). This Is an extremely short judgment and the only ground upon which rectification was granted was that if the objector had really a good ground to oppose the registration as was suggested he should have long ago instituted a suit to set aside the transfer. The learned Judge, therefore, held that the directors had not therefore ported to act under the powers given to them by the articles namely the powers to be exercised in the interest of the company. In the present case, clause 41 of the Articles of Association of the respondent‑company gives absolute powers to the Board of Directors to decline to register or acknowledge any transfer of shares. This is what Article 41 says

41. The Board may in their absolute and uncontrolled discretion and without assigning any reason decline to register or acknowledge any transfer of share .. If these are the powers which the Board of Directors posses$ is it for this Court to inquire into the validity of the opinion particularly when it involves investigation into allegations of fraud ? With great respect I do not agree with the learned judge who decided the Lahore case referred to above that merely because an objector has not gone to Civil Court that by itself is a sufficient ground upon which it must be held that the Board of Directors have not acted in the interest of the company. Let us look at the circumstances in this case. It is claimed by the petitioner that these shares were purchased in the year 1953‑

54. No receipt of payment was obtained. The documentary evidence with regard to his attempt to have the transfer registered Was made for the first time in the year 1962 ; the comp my received a lawyer's letter from the registered share‑holder saying that the petitioner was dishonestly trying to appropriate these shares and that neither he nor his father were the transferees thereof. In these circumstances can it be said that when the directors exercised their powers under Article 41 they did so arbitrarily, capriciously or in a mala fide manner. Mr. Fakhruddin seed that upon the face of the documents the petitioner purported to be the transferee but I cannot accept the view that merely because a document purports to transfer the property concerned a person f dealing with such a situation is bound to accept it as genuine when allegations to the contrary are made. Even with regard to the question that the Board of Directors must act in the interest of the company. I put it to Mr. Fakhruddin that assuming it came to the notice of the company that some thieves had broke into someone's house and stolen documents and filled it up a0d presented it to the company for registration, would the Board of Directors be not acting in the interest of the company by refusing to register such a transfer ? The answer seems to me to be obvious.

4. For the reasons above I do not think that this is a fit case in which rectification should be ordered under section 38 of the Companies Act. Nothing that I have said above should be construed to mean that I have expressed any opinion whatever upon the respective merits and demerits of the conflicting claims put in these proceedings. That in fairness must be decided in a regular suit. The application is dismissed with costs. K.B. A. Petition dismissed.