PETITIONER:
\nM\/S. HARINAGAR SUGAR MILLS LTD.<\/p>\n
Vs.<\/p>\n
RESPONDENT:
\nSHYAM SUNDAR JHUNJHUNWALA AND OTHERS<\/p>\n
DATE OF JUDGMENT:
\n25\/04\/1961<\/p>\n
BENCH:
\nSHAH, J.C.
\nBENCH:
\nSHAH, J.C.
\nAIYYAR, T.L. VENKATARAMA
\nDAS, S.K.
\nKAPUR, J.L.
\nHIDAYATULLAH, M.<\/p>\n
CITATION:
\n1961 AIR 1669 1962 SCR (2) 339
\nCITATOR INFO :
\nR 1963 SC 874 (9)
\nRF 1964 SC 648 (11)
\nRF 1964 SC1140 (12)
\nR 1965 SC1222 (10)
\nR 1965 SC1595 (20)
\nE 1966 SC 671 (5,19)
\nRF 1966 SC1922 (5)
\nR 1967 SC1606 (11,14)
\nRF 1971 SC 321 (15)
\nD 1977 SC 567 (21)
\nRF 1977 SC2155 (24)
\nRF 1987 SC1629 (15)
\nRF 1990 SC1984 (22,23,27)
\nACT:
\nAppeal-Company rufusing to register transfer of
\nshares–Appeal to Central Government-Decision in appeal–
\nWhether judicial-Central Government, if acts as a tribunal-
\nSpecial leave, if lies against decision-Powers of Central
\nGovernment in appeal–Whether giving of reasons for decision
\nessential–Companies Act, 1956, (1 of 1956) ss. 111 and 155-
\nConstitution of India, Art. 136.<\/p>\n
HEADNOTE:
\nOne B who held a large number of shares in the appellant
\ncompany, transferred two blocks of 100 shares each to his
\nson and daughter-in-law. The transferees applied to the
\ncompany to register the transfers. Purporting to act under
\nart. 47B of the Articles of Association of the company the
\ndirectors of the company resolved not to register the
\ntransfers. Against this resolution the transferees
\npreferred appeals to the Central Government under s. III(3)
\nof the Companies Act, 1956. The Central Government, without
\ngiving any reasons for its decision, set aside the
\nresolution of the directors and directed the company to
\nregister the transfers. The company obtained special leave
\nto appeal against the decision of the Central Government
\nunder Art. 136 of the Constitution and appealed to the
\nSupreme Court on the ground that the Central Government
\nacted in excess of its jurisdiction or otherwise acted
\nillegally in directing the company to register the
\ntransfers. The respondents raised a preliminary objection
\nthat the Central Government exercising appellate powers
\nunder s. III of the Act (before its amendment in 1960) was
\nnot a tribunal exercising judicial functions and was not
\nsubject to the appellate jurisdiction of the Supreme Court
\nunder Art. 136.
\nHeld, that the appeal was competent to the Supreme Court by
\nspecial leave against the decision of the Central Government
\nunder s. III (3) Of the Companies Act, 1956. The Central
\nGovernment, when exercising powers under s. III was a
\ntribunal within the meaning of Art. 136 and was required to
\nact judicially. A person aggrieved by the refusal to
\nregister transfer of shares had two remedies under the Act,
\nviz., (1) to apply to the court for rectification of the
\nregister under s. 155 or (2) to prefer an appeal under s.
\nIII. The power of the Court under s. 155, which has
\nnecessarily to be exercised judicially, and the power of the
\nCentral Government under s. III have to be exercised subject
\nto the same restrictions. In both cases it has to be
\n340
\ndecided whether the directors have acted oppressively,
\ncapriciously corruptly or malafide. The decision has
\nmanifestly to stand those objective tests and has not merely
\nto be founded on the subjective satisfaction of the
\nauthority. In an appeal under S. III(3) there is a lis or
\ndispute between the contesting parties relating to their
\ncivil rights, and the Central Government has to determine
\nthe dispute according to law in the light of the evidence
\nand not on grounds of policy or expediency. There was thus
\na duty imposed on the Central Government to act judicially.
\nThe proviso to sub-s. (8) of s. III which provided for the
\naward of reasonable compensation in lieu of the shares in
\ncertain circumstances also fortifies that view.
\nShivji Nathubhai v. The Union of India, [1960] 2 S.C.R. 775,
\nRe Bell Brothers Ltd. Ex Parte Hodgson, (1891) 65 L.T. 245,
\nThe Province of Bombay v. Kusaldas S. Advani, [1950] S.C.R.
\n621, The King v. London County Council, [1931] 2 K.B. 215
\nand The Bharat Bank Ltd., Delhi v. Employees of the Bharat
\nBank Ltd., Delhi, [1950] S.C.R. 459, referred to.
\nIn an appeal under s. 111(3) of the Act the Central Govern-
\nment has to determine whether the exercise of the discretion
\nby the directors refusing to register the transfer is
\nmalafide, arbitrary or capricious and whether it is in the
\ninterest of the company. The decision of the Central
\nGovernment is subject to appeal to the Supreme Court under
\nArt. 136; the Supreme Court cannot effectively exercise its
\npower if the Central Government gives no reasons in support
\nof its order. The mere fact that the proceedings before the
\nCentral Government are to be treated as confidential does
\nnot dispense with a judicial approach, nor does it obviate
\nthe disclosure of sufficient grounds and evidence in support
\nof the order. In the present case no reasons have been
\ngiven in Support of the orders and the appeals have to be
\nremanded to the Central Government for rehearing.
\nIn re Gresham Life Assurance Society, Ex Parte Penney, (1
\n872) Law Rep. 8 Ch. 446 and In re Smith and Fawcett, Ltd.,
\nL. R. (1942) 1 Ch. D. 304, referred to.
\nPer Hidayatullah, J.-The appeal to the Supreme Court under
\nArt. 136 was competent. The Act and the Rules showed that
\nthe function of the Central Government under s. 11(3) was
\ncurial and not executive; there was provision for filing a
\nmemorandum of appeal setting out the grounds, for the
\ncompany making representations against the appeal, for
\ntendering evidence and award of costs. There was provision
\nfor a hearing and a decision on evidence. The Central
\nGovernment acted as a tribunal within the meaning of Art.
\n136.
\nHuddart, Parker & Co. Pyoprietar Ltd. v. Moorehead, (108) 8
\nC.L.R. 330, Shell Company of Australia v. Federal
\nCommissioner of Taxation, [1931] A.C. 275, Rex v.
\nElectricity Commissioners, [1924] 1 K. B. 171 Royal Aquarium
\nand Summer and Winter Garden
\n341
\nSociety v. Parkinson, (1892) 1 Q.B. 431, Shivji Nathubai v.
\nThe Union of India, [1960] 2 S.C.R. 775 and Province of
\nBombay v. Kushaldas S. Advani, [1950] S.C.R. 621, referred
\nto.
\nBut special leave should not ordinarily be granted in such
\ncases. The directors were not required to give reasons for
\ntheir decision and there was a presumption that they had
\nacted properly and in the interest of the company. In the
\nappeal under s. 111 of the Act all allegations and counter
\nallegations were confidential and the Central Government
\ncould not make them public in its decision. An appeal
\nagainst such a decision could rarely be effective. In the
\npresent case the appeal under s. III(3) was confined to the
\nground that the refusal to register was without giving any
\nreasons; there was no question of confidential allegations
\nand there was no evidence to consider. The Articles of
\nAssociation gave the directors absolute discretion to refuse
\nto register the transfers without giving any reasons and
\nthere was a presumption that the directors had acted
\nhonestly. There was thus no reason for the Central
\nGovernment to reverse the decision of the directors.
\nIn re Gresham Life Assurance Society; Ex Parte Penney,
\n(1872) Law Rep. 8 Ch. 446, In re Hannan’s King (Browning)
\nGold Mining Company Limited, (1897) 14 T.L.R. 314 and Moses
\nv. Parkar Ex parte Moses, [1896] A.C. 245, referred to.<\/p>\n
JUDGMENT:
\nCIVIL APPELLATE, JURISDICTION: Civil Appeals Nos. 33 and 34
\nof 1959.
\nAppeal by special leave from the order dated May 29,1957, of
\nthe Central Government Ministry of Finance, New Delhi in
\nAppeal Cases Nos. 24 and 33 of 1957.
\nA. V. Viswanatha Sastri and Ganpat Rai, for the
\nappellants.
\nB. P. Maheshwari, for the respondents.
\nM. C. Setalvad, Attorney-General for India, B. B. L.
\nIyengar and T. M. Sen, for Union of India.
\n1961. April 25. The Judgment of S. K. Das, Kapur, Shah and
\nVenkatarama Ayyar, JJ., was delivered by Shah, J.
\nHidayatullah, J. delivered a separate Judgment.
\nSHAH, J.-M\/s. Harinagar Sugar Mills Ltd. is a public limited
\ncompany incorporated under the Indian Companies Act, 1913 (7
\nof 1913). Article 47B of the Articles of Association of the
\ncompany invests the
\n44
\n342
\ndirectors of the company with absolute discretion to refuse
\nto register any transfer of shares. That Article is in the
\nfollowing terms:
\n“The directors may in their absolute
\ndiscretion and without giving any reason
\nrefuse to register any transfer of any shares
\nwhether such shares be fully paid or not.
\nIf the directors refuse to register the
\ntransfer of any shares, they shall within two
\nmonths, after the date on which the transfer
\nwas lodged with the company, send to the
\ntransferees and the transferor notice of the
\nrefusal.”
\nOne Banarasi Prasad Jhunjhunwala is the holder of a block of
\n9500 fully paid-up shares of the company. In January, 1953,
\nhe executed transfers in respect of 2500 out of those shares
\nin favour of his son Shyam Sunder and in respect of 2100
\nshares in favour of his daughter-in-law Savitadevi and
\nlodged the transfers with the company for registration of
\nthe shares in the names of the transferees. The directors
\nof the company by resolution dated August 1, 1953, in
\npurported exercise of the powers under Article 47B of the
\nArticles of Association, declined to register the shares in
\nthe names of the transferees. Petitions were then filed by
\nBanarasi Prasad and the transferees in the High Court of
\nJudicature at Bombay for orders under s. 38 of the Indian
\nCompanies Act, 1913 for rectification of the register of the
\ncompany maintaining that the refusal by the board of
\ndirectors to register the transfer of the shares was “mala
\nfide, arbitrary and capricious” and that the directors had
\nacted with improper and ulterior motives. The High Court
\nrejected these petitions holding that in summary proceedings
\nunder s. 38, controversial questions of law and fact could
\nnot be tried and that the proper remedy of the transferees,
\nif so advised, was to file suits for relief in the civil
\ncourt. Requests were again made by the transferees to the
\ncompany by letters dated February 29, 1956 to register the
\ntransfers made by Banarasi Prasad in 1953. The directors of
\nthe company in their meeting of March 15, 1956 reiterated
\ntheir earlier resolution not to register the shares trans-
\nferred in the names of the transferees. Against this
\n343
\naction of the company, appeals were preferred to the Central
\nGovernment under s. 111 el. (3) of the Indian Companies Act,
\n1956, which had since been brought into operation on April
\n1, 1956. K. R. P. Ayyangar, Joint Secretary, Ministry of
\nFinance, who heard the appeals declined to order
\nregistration of transfers, because in his view, the
\nquestions raised in the appeals could, as suggested by the
\nHigh Court of Bombay, be decided only in a civil suit.
\nThereafter, Banarasi Prasad transferred a block of 100
\nshares to his son Shyam Sunder and another block of 100
\nshares to his daughter-in-law Savitadevi, and the
\ntransferees requested the company by letters dated November
\n21, 1956, to register the transfers. In the meeting dated
\nJanuary 12, 1957, the directors of the company resolved not
\nto register the transfers and informed the transferees
\naccordingly. Against this resolution, separate appeals were
\npreferred by Shyam Sunder and Savitadevi under s. 111 el.
\n(3) of the Indian Companies Act, 1956 to the Central
\nGovernment. It was submitted in para 4 of the petitions of
\nappeal that the refusal to register the transfer of shares
\nwas without “any reason, arbitrary and untenable”. The
\ncompany filed representations submitting that the refusal
\nwas bona fide and was not “without any reason, arbitrary and
\nuntenable” as alleged. Shyam Sunder and Savitadevi filed
\nrejoinders to the representations submitting that they had
\nnever alleged that refusal to transfer the shares “was
\ncapricious or mala fide” and that all they had alleged was
\nthat the “refusal was without any reason, arbitrary and
\nuntenable”. By separate orders dated May 29, 1957, the
\nDeputy Secretary to the Government of India, Ministry of
\nFinance set aside the resolution passed by the board of
\ndirectors in exercise of the powers conferred by sub-ss. (5)
\nand (6) of s. Ill of the Indian Companies Act, 1956, and
\ndirected that the company do register the transfers. In so
\ndirecting, the Deputy Secretary gave no reasons. Against
\nthe orders passed by the Deputy Secretary, with special
\nleave under Art. 136 of the Constitution, these two appeals
\nare preferred by the company.
\n344
\nTwo questions fall to be determined in these ap peals, (1)
\nwhether the Central Government exercising appellate powers
\nunder s. 111 of the Companies Act, 1956 before its amendment
\nby Act 65 of 1960 is a tribunal exercising judicial
\nfunctions and is subject to the appellate jurisdiction of
\nthis court under Art. 136 of the Constitution, and (2)
\nwhether the Central Government acted in excess of its
\njurisdiction or otherwise acted illegally in directing the
\ncompany to register the transfer of shares in favour of
\nShyam Sunder and Savitadevi.
\nArticle 136 of the Constitution, by the first clause
\nprovides:
\n“Notwithstanding anything in this Chapter, the
\nSupreme Court may, in its discretion, grant
\nspecial leave to appeal from any judgment,
\ndecree, determination, sentence or order in
\nany cause or matter passed or made by any
\ncourt or tribunal in the territory of India”.
\nThe Central Government exercising powers under s. Ill of the
\nCompanies Act is not a court; that is common ground. The
\nAttorney-General intervening on behalf of the Union of India
\nsubmits that the Central Government merely exercises
\nadministrative authority in dealing with an appeal under s.
\n111 of the Indian Companies Act, 1956 and is not required to
\nact judicially. He submits that the authority of the
\ndirectors of the company which is in terms absolute, and is
\nnot required to be exercised judicially, when exercised by
\nthe Central Government under s. 111 does not become
\njudicial, and subject to appeal to this court. But the mere
\nfact that the directors of the company are invested with
\nabsolute discretion to refuse to register the shares will
\nnot make the jurisdiction of the appellate authority
\nadministrative.
\nIn a recent case decided by this court Shivji Nathu bhai v.
\nThe, Union of India (1), it was held that the Central
\nGovernment exercising power of review under r. 54 of the
\nMineral Concession Rules, 1949 against an
\n(1) [1960] 2 S.C.R. 775.
\n345
\nadministrative order of the State Government granting a
\nmining lease was subject to the appellate jurisdiction of
\nthis court, because the power to review was judicial and not
\nadministrative. In that case, the action of the State
\nGovernment granting the mining lease was undoubtedly an
\nadministrative act, but r. 54 of the Mineral Concession
\nRules, 1949 granted a right of review at the instance of an
\naggrieved party to the Central Government, and authorised it
\nto cancel the order of the State Government or to revise it
\nin such manner as it deemed just and proper. The exercise
\nof this power was held by this court to be quasi-judicial.
\nBefore it was amended by s. 27 of Act 65 of 1960, s. III of
\nthe Indian Companies Act, 1956-omitting parts not material-
\nprovided:
\n(1) Nothing in sections 108, 109 and 110 shall prejudice
\nany power of the company under its articles to refuse to
\nregister the transfer of, or the transmission by operation
\nof law of the right to, any shares or interest of a member
\nin, or debentures of, the company.
\n(2) If, in pursuance of any such power, a company refuses
\nto register any such transfer or transmission of right, it
\nshall, within two months from the date on which the
\ninstrument or transfer, or the intimation of such
\ntransmission, as the case may be, was delivered to the
\ncompany, send notice of the refusal to the transferee and
\nthe transferor or to the person giving intimation of such
\ntransmission, as the case may be.
\n(3) The transferor or transferee, or the person who gave
\nintimation of the transmission by operation of law, as the
\ncase may be, may, where the company is a public company or a
\nprivate company which is a subsidiary of a public company,
\nappeal to the Central Government against any refusal of the
\ncompany to register the transfer or transmission, or against
\nany failure on its part within the period referred to in
\nsub-s. (2) either to register the transfer or
\ntransmission or to send notice of its refusal to register
\nthe same.
\n(4)………………………………………………
\n(5) The Central Government shall, after causing reasonable
\nnotice to be given to the company and
\n346
\nalso to the transferor and the transferee or as the case may
\nrequire, to the person giving intimation of the transmission
\nby operation of law and the previous owner, if any, and
\ngiving them a reasonable opportunity to make their
\nrepresentations, if any, in writing by order, direct either
\nthat the transfer or transmission shall be registered by the
\ncompany or that it need not be registered by it: and in the
\nformer case, the company shall give effect to the decision
\nforthwith.
\n(6) The Central Government may, in its order aforesaid give
\nsuch incidental and consequential directions as to the
\npayments of costs or otherwise as it thinks fit.
\n(7) All proceedings in appeals under sub-s. (3) or in
\nrelation thereto shall be confidential and no suit, pro-
\nsecution or other legal proceeding shall lie in respect of
\nany allegation made in such proceedings, whether orally or
\notherwise.
\n(8) In the case of a private company which is not a
\nsubsidiary of a public company, where the right to any
\nshares or interest of a member in, or debentures of, the
\ncompany, is transmitted by a sale thereof held by a court or
\nother public authority, the provisions of sub-ss. (3) to (7)
\nshall apply as if the company were a public company:
\nProvided that the Central Government may, in lieu of an
\norder under sub-s. (5) pass an order directing the company
\nto register the transmission of the right unless any member
\nor members of the company specified in the order acquire the
\nright aforesaid within such time as may be allowed for the
\npurpose by the order, on payment to the purchaser of the
\nprice paid by him therefor or such other sum as the Central
\nGovernment may determine to be a reasonable compensation for
\nthe right in all the circumstances of the case.
\nAgainst the refusal by a company to register the transfer or
\ntransmission of a right to the shares, an appeal lies to the
\nCentral Government. The Government, after giving notice of
\nthe appeal and hearing the parties concerned may order that
\nthe shares be registered if it thinks that course is in the
\ncircumstances proper. The Central Government may
\n347
\nby the proviso to sub-s. (8) in lieu of an order under sub-
\ns. (5), directing a private company to register,,
\ntransmission of shares sold by a court or public authority,
\norder that any member or members of the company specified in
\nthe order do acquire the right on payment to the purchaser
\nof the price paid by him, or such other sum as the Central
\nGovernment determine to be reasonable compensation. In
\nexercise of the powers under s. 642, rules called “The
\nCompanies (Appeals to the Central Government) Rules, 1957”
\nhave been framed by the Central Government. By cl. (3) of
\nthe rules, the form of the petition of appeal is prescribed.
\nClause (4) provides that the memorandum of appeal shall be
\naccompanied by an affidavit and documentary evidence if any
\nin support of the statements made therein including a copy
\nof the letter written by the appellant to the company for
\nthe purpose of registration of the shares. Clause (5) pres-
\ncribes the mode of service of notice of appeal to the
\ncompany and el. (6) authorises the Central Government before
\nconsidering the appeal to require the appellant or the
\ncompany to produce within a specified period such further
\ndocumentary or other evidence as it considers necessary.
\nClause (7) enables the parties to make representations if
\nany in writing accompanied by affidavits and documentary
\nevidence. Clause (8) authorises the Central Government
\nafter considering the representations made and after making
\nsuch further enquiries as it considers necessary to pass
\nsuch orders as it thinks fit under sub-s. (5) of s. 111 of
\nthe Act. By the appendix to the rules, the form in which
\nnotice is to be given to the company is prescribed.
\nParagraph 2 of the form states that the company shall be
\ncalled upon to make its representations in writing against,
\nthe appeal and be informed that if no representation is
\nreceived, the appeal will be determined according to law.
\nThere was no provision similar to s. Ill of the Indian
\nCompanies Act, 1956, in the Act of 1913, nor is our
\nattention invited to any provision in the English Companies
\nAct on which our Act is largely based, to a similar
\nprovision. Prior to 1956, if transfer of
\n348
\nshares was not registered by the directors of a company,
\naction under the Companies Act of 1913 could only be taken
\nunder s. 38 of the Indian Companies Act, 1913 by petition
\nfor rectification of the share register. As we will
\npresently point out, the power to refuse to register a
\ntransfer granted by the Articles of Association, if
\nchallenged in a petition for rectification of register was
\nto be presumed to have been exercised reasonably, bona fide
\nand for the benefit of the company, and unless otherwise
\nprovided by the Articles, the directors were not obliged to
\ndisclose reasons on which they acted. The power had to be
\nexercised for the benefit of the company and bona fide, but
\na heavy onus lay upon those challenging the resolution of
\nthe directors to displace the presumption of bona fide
\nexercise of the power. The discretion to refuse to register
\ntransfers was not liable to be controlled unless the
\ndirectors “acted oppressively, capriciously or corruptly, or
\nin some way mala fide” (Re Bell Brothers Ltd. ex parte
\nHodgson) (1).
\nPower to refuse to register transfer of shares, without
\nassigning any reasons, or in their absolute and uncontrolled
\ndiscretion, is often found in the Articles of Association,
\nand exercising jurisdiction under s. 38 of the Indian
\nCompanies Act, 1913, the court may not draw unfavourable
\ninferences from the refusal to disclose reasons in support
\nof their resolution. The power given to the court under s.
\n38 is now confirmed with slight modification by s. 155 of
\nthe Indian Companies Act, 1956. Under that section, the
\ncourt may rectify the register of shareholders if the name
\nof any person is without sufficient cause entered in or
\nomitted from the register of members of a company, or
\ndefault is made, or unnecessary delay has taken place in
\nentering on the register the fact of any person having
\nceased to be a member. The court is in exercising this
\njurisdiction competent to decide any question relating to
\nthe title of the person claiming to have his name registered
\nand generally to decide all questions which may be necessary
\nor expedient to decide for the rectification. A person
\naggrieved by the refusal to
\n(1) (1891) 65 L.T. 245.
\n349
\nregister transfer of shares has, since the enactment of the
\nCompanies Act, 1956, therefore two remedies for seeking
\nrelief under the Companies Act, (1) to apply to the court
\nfor rectification of the register under s. 155, and (2) to
\nappeal against the resolution refusing to register the
\ntransfers under s. 111. It is common ground that in the
\nexercise of the power under s. 155, the court has to act
\njudicially: to adjudicate upon the right exercised by the
\ndirectors in the light of the powers conferred upon them by
\nthe Articles of Association. The respondents however
\nsubmit-and they are supported by the Union of India-that the
\nauthority of the Central Government under s. Ill is
\nnevertheless purely administrative. But in an appeal under
\ns. 111 el. (3) there is a lis or dispute between the
\ncontesting parties relating to their civil rights, and the
\nCentral Government is invested with the power to determine
\nthat dispute according to law, i.e., it has to consider and
\ndecide the proposal and the objections in the light of the
\nevidence, and not on grounds of policy or expediency. The
\nextent of the power which may be exercised by the Central
\nGovernment is not delimited by express enactment, but the
\npower is not on that account unrestricted. The power in
\nappeal to order registration of transfers has to be
\nexercised subject to the limitations similar to those
\nimposed upon the exercise of the power of the court in a
\npetition for that relief under s. 155: the restrictions
\nwhich inhere the exercise of the power of the court also
\napply to the exercise of the appellate power by the Central
\nGovernment, i.e., the Central Government has to decide
\nwhether in exercising their power, the directors are acting
\noppressively, capriciously or corruptly, or in some way mala
\nfide. The decision has manifestly to stand those objective
\ntests, and has not merely to be founded on the subjective
\nsatisfaction of the authority deciding the question. The
\nauthority cannot proceed to decide the question posed for
\nits determination on grounds of expediency: the statute
\nempowers the Central Government to decide the disputes
\narising out of the claims made by the transferor or
\ntransferee which claim is opposed by the company,
\n45
\n350
\nand by rendering a decision upon the respective con
\ntentions, the rights of the contesting parties are directly
\naffected. Prima facie, the exercise of such authority would
\nbe judicial. It is immaterial that the statute which
\nconfers the power upon the Central Government does not
\nexpressly set out the extent of the power: but the very
\nnature of the jurisdiction requires that it is to be
\nexercised subject to the limitations which apply to the
\ncourt under s. 155. The proviso to sub-s. (8) of s. Ill
\nclearly indicates that in circumstances specified therein
\nreasonable compensation may be awarded in lieu of the
\nshares. This compensation which is to be reasonable has to
\nbe ascertained by the Central Government; and reasonable
\ncompensation cannot be ascertained except by the application
\nof some objective standards of what is just having regard to
\nall the circumstances of the case.
\nIn The Province of Bombay v. Kusaldas S. Advani(1), this
\ncourt considered the distinction between decisions quasi-
\njudicial and administrative or ministerial for the purpose
\nof ascertaining whether they are subject to the jurisdiction
\nto issue a writ of certiorari. Fazl Ali, J. at p. 642
\nobserved:
\n“The word “decision” in common parlance is more or less a
\nneutral expression and it can be used with reference to
\npurely executive acts as well as judicial orders. The mere
\nfact that an executive authority has to decide something
\ndoes not make the decision judicial. It is the manner in
\nwhich the decision has to be arrived at which makes the
\ndifference, and the real test is: Is there any duty to
\ndecide judicially?”
\nThe court also approved of the following test suggested in
\nThe King v. London County Council (2) by
\nScrutton L.J.:
\n“It is not necessary that it should be a court in the sense
\nin which this court is a court; it is enough if it is
\nexercising, after hearing evidence, judicial functions in
\nthe sense that it has to decide on evidence between a
\nproposal and an opposition; and it is not necessary to be
\nstrictly a court; if it is a tribunal which has to
\n(1) [1950] S.C R. 62 T.
\n(2) [1931] 2 K.B. 215, 233.
\n351
\ndecide rights after hearing evidence and opposition, it is
\namenable to the writ of certiorari.”
\nIn The Bharat Bank Ltd., Delhi v. Employees of the Bharat
\nBank Ltd., Delhi (1), the question whether an adjudication
\nby an industrial tribunal functioning under the Industrial
\nDisputes Act was subject to the jurisdiction of this court
\nunder Art. 136 of the Constitution fell to be determined:,
\nMahajan J. in that case observed:
\n“There can be no doubt that varieties of administrative
\ntribunals and domestic tribunals are known to exist in this
\ncountry as well as in other countries of the world but the
\nreal question to decide in each case is as to the extent of
\njudicial power of the State exercised by them. Tribunals
\nwhich do not derive authority from the sovereign power
\ncannot fall within the ambit of Art. 136. The condition
\nprecedent for bringing a tribunal within the ambit of Art.
\n136 is that it should be constituted by the State. Again a
\ntribunal would be outside the ambit of Art. 136 if it is not
\ninvested with any part of the judicial functions of the
\nState but discharges purely administrative or executive
\nduties. Tribunals however which are found invested with
\ncertain functions of a Court of Justice and have some of its
\ntrappings also would fall within the ambit of Art. 136 and
\nwould be subject to the appellate control of this Court
\nwhenever it is found necessary to exercise that control in
\nthe interests of justice.”
\nIt was also observed by Fazl Ali J. at p. 463 that a body
\nwhich is required to act judicially and which exercises
\njudicial power of the State does not cease to be one
\nexercising judicial or quasi-judicial functions merely
\nbecause it is not expressly required to be guided by any
\nrecognised substantive law in deciding the disputes which
\ncome before it.
\nThe authority of the Central Government entertaining an
\nappeal under s. 111(3) being an alternative remedy to an
\naggrieved party to a petition under s. 155 the investiture
\nof authority is in the exercise of the judicial power of the
\nState. Clause (7) of s. III
\n(1) [1950] S.C.R. 459.
\n352
\ndeclares the proceedings in appeal to be confidential, but
\nthat does not dispense with a judicial approach to the
\nevidence. Under s. 54 of the Indian Income-tax Act, (which
\nis analogous) all particulars contained in any statement
\nmade, return furnished or accounts or documents produced
\nunder the provisions of the Act or in any evidence given, or
\naffidavit or deposition made, in the course of any
\nproceedings under the Act are to be treated as confidential;
\nbut that does not make the decision of the taxing
\nauthorities merely executive. As the dispute between the
\nparties relates to the civil rights and the Act provides for
\na right of appeal and makes detailed provisions about
\nhearing and disposal according to law, it is impossible to
\navoid the inference that a duty is imposed upon the Central
\nGovernment in deciding the appeal to act judicially.
\nThe Attorney-General contended that even if the Central
\nGovernment was required by the provisions of the Act and the
\nrules to act judicially, the Central Government still not
\nbeing a tribunal, this court has no power to entertain an
\nappeal against its order or decision. But the proceedings
\nbefore the Central Government have all the trappings of a
\njudicial tribunal. Pleadings have to be filed, evidence in
\nsupport of the case of each party has to be furnished and
\nthe disputes have to be decided according to law after con-
\nsidering the representations made by the parties. If it be
\ngranted that the Central Government exercises judicial power
\nof the State to adjudicate upon rights of the parties in
\ncivil matters when there is a lis between the contesting
\nparties, the conclusion is inevitable that it acts as a
\ntribunal and not as an executive body. We therefore over-
\nrule the preliminary objection raised on behalf of the Union
\nof India and by the respondents as to the maintainability of
\nthe appeals.
\nThe Memorandum and Articles of Association of a company when
\nregistered bind the company and the members of the company
\nto the same extent as if they respectively had been signed
\nby the company and each member, and contained covenants on
\nits and
\n353
\nhis part to observe all the provisions of the Memorandum and
\nof the Articles. Clause 47B of the Articles of Association
\nwhich invests the director with discretion to refuse to
\nregister shares is therefore an incident of the contract
\nbinding upon the transferor, and registration of transfer or
\ntransmission cannot therefore be insisted upon as a matter
\nof right. The conditions subject to which a party can
\nmaintain a petition for an order for rectification of the
\nregister of shareholders have been settled by a long course
\nof decisions. Two of those may be noticed.
\nIn In re Gresham Life Assurance Society Ex parte Penney (1),
\nthe deed of settlement of a life insurance company provided
\nthat any shareholder shall be at liberty to transfer his
\nshares to any other person who was already a shareholder, or
\nwho should be approved by the board of directors, and that
\nno person not being already a shareholder or the executor of
\na shareholder, should be entitled to become the transferee
\nof any share unless approved by the board. One J. R. De
\nPaiva who was the holder of ten shares of the company sold
\nthem to W. J. Penney and lodged the transfer with the shares
\nfor registration at the company’s office. The directors in
\nexercise of the powers conferred upon them by the deed of
\nsettlement refused to register the shares. In a joint
\nsummons taken out by Paiva and Penney under s. 35 of the
\nCompanies Act, 1862, the Master of the Rolls directed the
\ntransfer to be registered, the directors of the company
\nhaving failed to submit any reasonable ground or objection
\nto the purchaser. In the view of the Master of the Rolls,
\nit was for the court to judge whether the objection was
\nreasonable and that objection must be disclosed to the
\ncourt. Against this order, the company approached the Court
\nof Appeal. James L. J. in dealing with the contention
\nraised by the appellant observed that the directors were in
\na fiduciary position both towards the company and towards
\nevery shareholder and that it was easy to conceive of cases
\nin which the court may interfere with any violation of the
\nfiduciary duty so
\n(1) (1872) Law Rep. 8 Ch. 446.
\n354
\nreposed in the directors. It was observed by James L. J.:
\n“But in order to interfere upon that ground it
\nmust be made out that the directors have been
\nacting from some improper motive, or
\narbitrarily and capriciously. That must be
\nalleged and proved, and the person who has a
\nright to allege and prove it is the
\nshareholder who seeks to be removed from the
\nlist of shareholders and to substitute another
\nperson for himself … this Court would have
\njurisdiction to deal with it as a corrupt
\nbreach of trust; but if there is no such
\ncorrupt or arbitrary conduct as between the
\ndirectors and the person who is seeking to
\ntransfer his shares, it does not appear to me
\nthat this court has any jurisdiction whatever
\nto sit as a Court of Appeal from the
\ndeliberate decision of the board of directors,
\nto whom, by the constitution of the company,
\nthe question of determining the eligibility or
\nnon-eligibility of new members is committed.
\nIf the directors had been minded, and the
\nCourt was satisfied that they were minded,
\nwhether they expressed it or not, positively
\nto prevent a shareholder from parting with his
\nshares, unless upon complying with some
\ncondition which they chose to impose, the
\nCourt would probably, in exercise of its duty
\nas between the cestui que trust and the
\ntrustees, interfere to redress the mischief,
\neither by compelling the transfer or giving
\ndamages, or in some mode or other to redress
\nthe mischief which the shareholder would have
\nhad a just right to complain of.”
\nIt was also observed by James L.J.:
\n” I am of opinion that we cannot sit as a
\nCourt of Appeal from the conclusion which the
\ndirectors have arrived at if we are satisfied
\nthat the directors have done that which alone
\nthey could be compelled by mandamus to do, to
\ntake the matter into their consideration”.
\nMellish L.J. observed:
\n“But it is further contended that in order to
\nsecure the existing shareholder against being
\ndeprived of the right to sell his shares, the
\ndirectors are
\n355
\nbound to give their reason why they reject the
\ntransferee, and if they reject him without
\ngiving a reason that is a ground from which
\nthe Court ought to infer that they were acting
\narbitrarily. I cannot agree with that. It
\nappears to me that it is very important that
\ndirectors should be able to exercise the power
\nin a perfectly uncontrollable manner for the
\nbenefit of the shareholders; but it is
\nimpossible that they could fairly and properly
\nexercise it if they were compelled to give the
\nreason why they rejected a particular
\nindividual….I am therefore of opinion that
\nin order to preserve to the company the right
\nwhich is given by the articles a shareholder
\nis not to be put upon the register if the
\nboard of directors do not assent to him, and
\nit is absolutely necessary that they should
\nnot be bound to give their reasons although I
\nperfectly agree that if it can be shown
\naffirmatively that they are exercising their
\npower capriciously and wantonly, that may be a
\nground for the Court interfering”.
\nA similar view was also expressed in In re, Smith and
\nFawcett Ltd. (1) where the Court of Appeal held that where
\nthe directors of the company had uncontrolled and absolute
\ndiscretion to refuse to register any transfer of shares,
\nwhile such powers are of a fiduciary nature and must be,
\nexercised in the interest of the company, the petition for
\nregistration of transfer should be dismissed unless there is
\nsomething to show that they had been otherwise exercised.
\nRectification of the register under s. 155 can therefore be
\ngranted only if the transferor establishes that the
\ndirectors had, in refusing to register the shares in the
\nnames of a transferee, acted oppressively, capriciously or
\ncorruptly, or in some way mala fide and not in the interest
\nof the company. Such a plea has, in a petition for
\nrectification, to be expressly raised and affirmatively
\nproved by evidence. Normally, the court would presume that
\nwhere the directors have refused to register the transfer of
\nshares when they have been invested with absolute discretion
\nto refuse registration, that the exercise of the power was
\nbona fide. When
\n(1) L.R. [1942] 1 Ch. D. 304.
\n356
\nthe new Companies Act was enacted, it was well settled that
\nthe discretionary power conferred by the articles of
\nassociation to refuse to register would be presumed to be
\nproperly exercised and it was for the aggrieved transferor
\nto show affirmatively that it had been exercised mala fide
\nand not in the interest of the company.
\nBefore the Committee appointed by the Government of India
\nunder the Chairmanship of Mr. C. H. Bhabha representation
\nwas made by several bodies that this power which was
\nintended to be exercised for the benefit of the company was
\nbeing misused and the Committee with a view to afford some
\nreasonable safeguards against such misuse of the power
\nrecommended that a right of appeal should be provided
\nagainst refusal to register transfer of shares. The
\nLegislature, it appears, ,accepted this suggestion and
\nprovided a right of appeal. But the power to entertain the
\nappeal is not unrestricted: being an alternative to the
\nright to approach the civil court, it must be subject to
\nthe same limitations which are implicit in the exercise of
\nthe power by the civil court under s. 155. The Central
\nGovernment may therefore exercise the power to order that
\nthe transfer which the directors have in their discretion
\nrefused, be registered if it is satisfied that the exercise
\nof the discretion is mala fide, arbitrary or capricious and
\nthat it is in the interest of the company that the transfer
\nshould be registered.
\nRelying upon el. (7) of s. 111 which provided that the
\nproceedings in appeals under sub-s. (3) or in relation
\nthereto shall be confidential, it was urged that the
\nauthority hearing the appeal is not obliged to set out
\nreasons in support of its conclusion and it must be assumed
\nthat in disposing of the appeal, the authority acted
\nproperly and directed registration of shares. But the
\nprovision that the proceedings are to be treated as
\nconfidential is made with a view to facilitate a free
\ndisclosure of evidence before the Central Government which
\ndisclosure may not, in the light of publicity which attaches
\nto proceedings in the ordinary courts, be possible in a
\npetition under s. 155 of the
\n357
\nCompanies Act. The mere fact that the proceedings are to be
\ntreated as confidential does not dispense with a judicial
\napproach nor does it obviate the disclosure of sufficient
\ngrounds and evidence in support of the order.
\nIn the present case, the position is somewhat un-
\nsatisfactory. The directors passed a resolution declining
\nto register the shares and informed the transferor and the
\ntransferees of that resolution. The transferees in their
\npetition stated that the refusal to register transfer was
\nwithout any reason, arbitrary and untenable and in the
\ngrounds of appeal they stated that they did not know of any
\nreasons in sup-port of the refusal and reserved liberty to
\nreply thereto if any such reasons were given. The company
\nin reply merely asserted that the refusal was not without
\nany reason or arbitrary or untenable. The transferees in
\ntheir rejoinder made a curious statement-of which it is
\ndifficult to appreciate the import-that they had “nowhere
\nstated in the memoranda of appeals that the refusal to
\ntransfer shares was capricious or mala fide” and all that
\nthey “had stated was that the refusal was without any
\nreason, arbitrary or untenable”. The Deputy Secretary who
\ndecided the appeals chose to give no reasons in support of
\nhis orders. There is nothing on the record to show that he
\nwas satisfied that the action of the directors in refusing
\nto register the shares “was arbitrary and untenable” as
\nalleged. If the Central Government acts as a tribunal
\nexercising judicial powers and the exercise of that power is
\nsubject to the jurisdiction of this court under Art. 136 of
\nthe Constitution, we fail to see how the power of this court
\ncan be effectively exercised if reasons are not given by the
\nCentral Government in support of its order. In the petition
\nunder s. 38 of the Indian Companies Act, 1913, the Bombay
\nHigh Court declined to order rectification on a summary
\nproceeding and relegated the parties to a suit and a similar
\norder was passed by the Joint Secretary, Ministry of
\nFinance. These proceedings were brought to the notice of
\nthe Deputy Secretary who heard the appeals. Whether
\n46
\n358
\nin spite of the opinion recorded by the High Court and by
\nthe Joint Secretary, Ministry of Finance in respect of
\nanother block out of shares previously attempted to be
\ntransferred, there were adequate grounds for directing
\nregistration, is a matter on which we are unable to express
\nany opinion. All the documents which were produced before
\nthe Deputy Secretary are not printed in the record before us
\nand we were told at the bar that there were several other
\ndocuments which the Deputy Secretary took into con-
\nsideration. In the absence of anything to show that the
\nCentral Government exercised its restricted power in hearing
\nan appeal under s. 111(3) and passed the orders under appeal
\nin the light of the restrictions imposed by art. 47B of the
\narticles of association and in the interest of the company,
\nwe are unable to decide whether the Central Government did
\nnot transgress the limits of their power. We are however of
\nthe view that there has been no proper trial of the appeals,
\nno reasons having been given in support of the orders by the
\nDeputy Secretary who heard the appeals. In the
\ncircumstances, we quash the orders passed by the Central
\nGovernment and direct that the appeals be re-heard and
\ndisposed of according to law. Costs of these appeals will
\nbe costs in the appeals before the Central Government.
\nHIDAYATULLAH, J.-I have had the advantage of reading the
\njudgment just delivered by my brother, Shah, J. In view of
\nthe strong objection to the competence of the appeals under
\nArt. 136 by the respondents, to whom liberty was reserved by
\nthe order granting special leave, I have found it necessary
\nto express my views.
\nThe facts have been stated in detail by my learned brother,
\nand I shall not repeat them in full. Very shortly stated,
\nthe facts are that the second respondent, Banarsi Prasad
\nJhunjhunwala, transferred 2500 shares to his son, and 2100
\nshares to his daughter-in-law, in the appellant Company in
\n1953. The appellant Company declined to register these
\ntransfers. Proceedings for rectification of the Register
\nunder s. 38 of the Indian Companies Act, 1913, followed
\n359
\nin the High Court of Bombay, but the High Court referred the
\ndisputants to the Civil Court. In the petition before the
\nHigh Court, the respondents had charged the Directors of the
\nappellant Company with bad faith and arbitrary dealing.
\nThe respondents renewed their requests for registration, but
\nthey were again declined, and appeals were filed before the
\nCentral, Government under s. 111(3) of the Companies Act,
\n1956, which had come into force from April 1, 1956. These
\nappeals were heard by Mr. K. R. P. Aiyengar, Joint
\nSecretary, Ministry of Finance, who dismissed them, holding
\nthat only a suit was the appropriate remedy.
\nBanarsidas Prasad then made a fresh transfer of 100 shares
\neach to his son and daughter-in-law, and requests for
\nregistration of these shares were made. The appellant
\nCompany again declined to register the shares, but gave no
\nreaons. Under cl. 47-B of the Articles of Association of
\nthe appellant Company, it is provided:
\n“The Directors may in their absolute
\ndiscretion and without giving any reason
\nrefuse to register any transfer of any shares
\nwhether such shares be fully paid or not. If
\nthe Directors refuse to register the transfer
\nof any shares, they shall, within two months
\nafter the date on which the transfer was
\nlodged with the company, send to the trans-
\nferee and the transferor notice of the
\nrefusal.”
\nThe appellant Company was prima facie within its rights when
\nit did not state any reasons for declining to register the
\nshares in question.
\nAppeals were again taken to the Central Government under s.
\n111(3). It was alleged that the refusal to register the
\nshares without giving any reasons was “arbitrary and
\nuntenable”. In accordance with the provisions of the
\nsection, representations were filed by the appellant Company
\nand rejoinders by the opposite party. The transferees made
\nit clear that they did not charge the appellant Company with
\n“capricious or mala flee conduct” but only with arbitrary
\nany reasons. The appeals
\n360
\nsucceeded, and the shares were ordered to be registered.
\nThe Deputy Secretary, who heard and decided the appeals,
\ngave no reasons for his decision. Against his order, the
\npresent appeals have been filed with special leave.
\nThe preliminary objection is that the appeals are
\nincompetent, because the Central Government, which heard
\nthem, is not a tribunal muchless a Court, and the action of
\nthe Central Government is purely administrative. It is,
\ntherefore, submitted that Art. 136 does not apply, because
\nspecial leave can only be granted in respect of a
\ndetermination by a Court or a tribunal, which the Central
\nGovernment is not. This is not the only provision of law,
\nunder which the Central or State Governments have been
\nempowered to hear appeals, revisions or reviews, and it is
\nthus necessary to find out the exact status of the Central
\nGovernment when it hears and decides appeals, etc., for the
\napplication of Art. 136.
\nArticle 136(1) reads as follows:
\n“Notwithstanding anything in this Chapter, the
\nSupreme Court may in its discretion, grant
\nspecial leave to appeal from any judgment,
\ndecree, determination, sentence or order in
\nany cause or matter passed or made by any
\nCourt or tribunal in the territory of India.”
\nThe orders which the Central Government
\npasses, certainly fall within the words
\n“determination” and “order”. The proceeding
\nbefore the Central Government also falls
\nwithin the wide words “any cause or matter”.
\nThe only question is whether the Central
\nGovernment, when it hears and decides an
\nappeal, can be said to be acting as a Court or
\ntribunal. That the Central Government is not
\na Court was assumed at the hearing. But to
\nascertain what falls within the expression
\n“Court or tribunal”, one has to begin with
\n“Courts”. The word “Court” is not defined in
\nthe Companies Act, 1956. It is not defined in
\nthe Civil Procedure Code. The definition in
\nthe Indian Evidence Act is not exhaustive, and
\nis for the purposes of that Act. In the Now
\nEnglish Dictionary (Vol. II, pp. 1090, 1091),
\nthe meaning given is:
\n361
\n“an assembly of judges or other persons
\nlegally appointed and acting as a tribunal to
\nhear and determine any cause, civil,
\necclesiastical, military or naval.”
\nAll tribunals are not Courts, though all Courts are
\ntribunals. The word “Courts” is used to designate those
\ntribunals which are set up in an organised State for the
\nadministration of justice. By administration of justice is
\nmeant the exercise of judicial power of the State to
\nmaintain and uphold rights and to punish “wrongs”. Whenever
\nthere is an infringement of a right or an injury, the Courts
\nare there to restore the vinculum juris, which is disturbed.
\nJudicial power, according to Griffith, C. J. in Huddart,
\nParker & Co. Proprietary Ltd. v. Moorehead (1) means:-
\n“the power which every sovereign authority
\nmust of necessity have to decide controversies
\nbetween its subjects, or between itself and
\nits subjects, whether the rights relate to
\nlife, liberty or property. The exercise of
\nthis power does not begin until some tribunal
\nwhich has power to give a binding and
\nauthoritative decision (whether subject to
\nappeal or not) is called upon to take action.”
\nWhen rights are infringed or invaded, the aggrieved party
\ncan go and commence a querela before the ordinary Civil
\nCourts. These Courts which are instrumentalities of
\nGovernment, are invested with the judicial power of the
\nState, and their authority is derived from the Constitution
\nor some Act of legislature constituting them. Their number
\nis ordinarily fixed and they are ordinarily permanent, and
\ncan try any suit or cause within their jurisdiction. Their
\nnumbers may be increased or decreased, but they are almost
\nalways permanent and go under the compendious name of
\n“Courts of Civil Judicature”. There can thus be no doubt
\nthat the Central Government does not come within this class.
\nWith the growth of civilisation and the problems of modern
\nlife, a large number of administrative tribunals have come
\ninto existence. These tribunals have the authority of law
\nto pronounce upon valuable
\n(1) [1908] 8 C.L. R. 330, 357.
\n362
\nrights; they act in a judicial manner and even on evidence
\non oath, but they are not part of the ordinary Courts of
\nCivil Judicature. They share the exercise of the judicial
\npower of the State, but they are brought into existence to
\nimplement some administrative policy or to determine
\ncontroversies arising out of some administrative law. They
\nare very similar to Courts, but are not Courts. When the
\nConstitution speaks of ‘Courts’ in Art. 136, 227 or 228 or
\nin Art,%. 233 to 237 or in the Lists, it contemplates Courts
\nof Civil Judicature but not tribunals other than such
\nCourts. This is the reason for using both the expressions
\nin Arts. 136 and 227. By “Courts” is meant Courts of Civil
\nJudicature and by “tribunals”, those bodies of men who are
\nappointed to decide controversies arising under certain
\nspecial laws. Among the powers of the State is included the
\npower to decide such controversies. This is undoubtedly one
\nof the attributes of the State, and is aptly called the
\njudicial power of the State. In the exercise of this power,
\na clear division is thus noticeable. Broadly speaking,
\ncertain special matters go before tribunals, and the residue
\ngoes before the ordinary Courts of Civil Judicature. Their
\nprocedures may differ, but the functions are not essentially
\ndifferent. What distinguishes them has never been success-
\nfully established. Lord Stamp said that the real
\ndistinction is that Courts have “an air of detachment”. But
\nthis is more a matter of age and tradition and is not of the
\nessence. Many tribunals, in recent years, have acquitted
\nthemselves so well and with such detachment as to make this
\ntest insufficient. Lord Sankey, L.C. in Shell Company of
\nAustralia v. Federal Commissioner of Taxation (1) observed:
\n“The authorities are clear to show that there
\nare tribunals with many of the trappings of a
\nCourt, which, nevertheless, are not Courts in
\nthe strict sense of exercising judicial
\npower…. In that connection it may be useful
\nto enumerate some negative propositions on
\nthis subject: 1. A tribunal is not necessarily
\na Court in this strict sense because it gives
\na final decision. 2. Nor because it hears
\n(1) [1931] A.C.275. 296.
\n363
\nwitnesses on oath. 3. Nor because two or more
\ncontending parties appear before it between
\nwhom it,, has to decide. 4. Nor because it
\ngives decisions which affect the rights of
\nsubjects. 5. Nor because there is an appeal to
\na Court. 6. Nor because it is a body to which
\na matter is referred by another body. See Rex
\nv. Electricity Commissioners
\nIn my opinion, a Court in ‘the strict sense is a tribunal
\nwhich is a part of the ordinary hierarchy of Courts of Civil
\nJudicature maintained by the State under its constitution to
\nexercise the judicial power of the State. These Courts
\nperform all the judicial functions of the State except those
\nthat are excluded by law from their jurisdiction. The word
\n“judicial”, be it noted, is itself capable of two meanings.
\nThey were admirably stated by Lopes, L.J. in Royal Aquarium
\nand Summer and Winter Garden Society v. Parkinson (2), in
\nthese words:
\n“The word ‘judicial’ has two meanings. It may
\nrefer to the discharge of duties exercisable
\nby a judge or by justices in court, or to
\nadministrative duties which need not be
\nperformed in court, but in respect of which it
\nis necessary to bring to bear a judicial mind-
\nthat is, a mind to determine what is fair and
\njust in respect of the matters under con-
\nsideration.”
\nThat an officer is required to decide matters before him
\n“judicially” in the second sense does not make him a Court
\nor even a tribunal, because that only establishes that he is
\nfollowing a standard of conduct, and is free from bias or
\ninterest.
\nCourts and tribunals act “judicially” in both senses, and in
\nthe term “Court” are included the ordinary and permanent
\ntribunals and in the term “tribunal” are included all
\nothers, which are not so included. Now, the matter would
\nhave been simple, if the Companies Act, 1956 had designated
\na person or persons whether by name or by office for the
\npurpose of hearing an appeal under s. 111. It would then
\nhave been clear that though such person or persons were not
\n“Courts” in the sense explained, they were clearly
\n(1) [1924] 1 K.B. 171.
\n(2) [1892] 1 Q.B 431, 452,
\n364
\n“tribunals”. The Act says that an appeal shall lie to the
\nCentral Government. We are, therefore, faced with the
\nquestion whether the Central Government can be said to be a
\ntribunal. Reliance is placed upon a recent decision of
\nthis Court in Shivji Nathubai v. The Union of India (1),
\nwhere it was held that the Central Government in
\nexercising power of review under the Mineral Concession
\nRules, 1949, was subject to the appellate jurisdiction
\nconferred by Art. 136. In that case which came to this
\nCourt on appeal from the High Court’s order under Art. 226,
\nit was held on the authority of Province of Bombay v.
\nKushaldas S. Advani (1) and Rex v. Electricity Commissioners
\n(3) that the action of the Central Government was quasi-
\njudicial and not administrative. It was then observed:
\n“It is in the circumstances apparent that as
\nsoon as r. 52 gives a right to an aggrieved
\nparty to apply for review a lis is created
\nbetween him and the party in whose favour the
\ngrant has been made. Unless therefore there
\nis anything in the statute to the contrary it
\nwill be the duty of the authority to act
\njudicially and its decision would be a quasi-
\njudicial act.”
\nThis observation only establishes that the decision is a
\nquasi-judicial one, but it does not say that the Central
\nGovernment can be regarded as a tribunal. In my opinion,
\nthese are very different matters, and now that the question
\nhas been raised, it should be decided.
\nThe function that the Central Government performs under the
\nAct and the Rules is to hear an appeal against the action of
\nthe Directors. For that purpose, a memorandum of appeal
\nsetting out the grounds has to be filed, and the Company, on
\nnotice, is required to make representations, if any, and so
\nalso the other side, and both sides are allowed to tender
\nevidence to support their representations. The Central
\nGovernment by its order then directs that the shares be
\nregistered or need not be registered. The Central
\nGovernment is also empowered to include in its orders,
\ndirections as to payment of costs or otherwise. The
\n(1) [1960] 2 S.C.R. 775 (2) [1950] S.C.R. 621.
\n(3) [1924] 1 K.B. 171.
\n365
\nfunction of the Central Government is curial and not
\nexecutive. There is provision for a hearing and a decision
\non evidence, and that is indubitably a curial function.
\nNow, in its functions Government often reaches decisions,
\nbut all decisions of Government cannot be regarded as those
\nof a tribunal. Resolutions of Government may affect rights
\nof parties, and yet, they may not be in the exercise of
\njudicial power. Resolutions of Government may be amenable
\nto writs under Arts. 32 and 226 in appropriate cases, but
\nmay not be subject to a direct appeal under Art. 136 as the
\ndecisions of a tribunal. The position, however, changes
\nwhen Government embarks upon curial functions, and proceeds
\nto exercise judicial power and decide disputes. In these
\ncircumstances, it is legitimate to regard the officer who
\ndeals with the matter and even Government itself as a
\ntribunal. The officer who decides, may even be anonymous;
\nbut the decision is one of a tribunal, whether expressed in
\nhis name or in the name of’ the Central Government. The
\nword “tribunal” is a word of wide import, and the words
\n“Court” and “tribunal” embrace within them the exercise of
\njudicial power in all its forms. The decision of Government
\nthus falls within the powers of this Court under Art. 136.
\nIt is next argued by the learned Attorney-General that there
\nis no law to interpret or to apply in these cases. He
\nargues that since there are no legal standards for judging
\nthe correctness or otherwise of the order of the Central
\nGovernment and the decision being purely discretionary, it
\nis neither judicial nor quasi-judicial but merely
\nadministrative, and that no appeal can arise from the nature
\nof things.
\nSuch a line was taken before the Committee on Ministers’
\nPowers by Lord Hewart, and the argument reminds one of what
\nhe then said that such decisions are purely discretionary
\nand the exercise of such arbitrary power is “neither law nor
\njustice or at all”. Sir Maurice Gwyer also was of the
\nopinion that an appeal could not be taken to Court against a
\nMinister’s
\n47
\n366
\ndecision even on the ground of miscarriage of justice,
\nbecause that, in his opinion, was “putting a duty on the
\nCourt” which was “not the concern of the Court”.
\nThis argument takes me to the heart of the controversy, and
\nbefore I give my decision, I wish to say a few preliminary
\nthings. Article 47-B gives to the Directors a right to
\nrefuse to register shares in their absolute discretion,
\nwithout giving reasons. In In re Gresham Life Assurance
\nSociety, Ex Parte Penney James, L.J. observed:
\n“No doubt the directors are in a fiduciary
\nposition both towards the company and towards
\nevery shareholder in it. It is very easy to
\nconceive cases such as those cases to which we
\nhave been referred, in which this Court would
\ninterfere with any violation of the fiduciary
\nduty so reposed in the directors. But in
\norder to interfere upon that ground it must be
\nmade out that the directors have been acting
\nfrom some improper motive, or arbitrarily and
\ncapriciously. That must be alleged and
\nproved, and the person who has a right to
\nallege and prove it is the shareholder who
\nseeks to be removed from the list of
\nshareholders and to substitute another person
\nfor himself…… But if it is said that
\nwherever any shareholder has proposed to
\ntransfer his shares to some new member, the
\nCourt has a right to say to the directors, ‘We
\nwill presume that your motives are arbitrary
\nand capricious, or that your conduct is
\ncorrupt, unless you choose to tell us what
\nyour reasons were, and submit those reasons to
\nour decision’, it would appear to me entirely
\naltering the whole constitution of the company
\nas provided by the articles.”
\nThat shows that the Directors are presumed to have acted
\nhonestly in the interests of the company and a case has to
\nbe made out against them. I shall only quote from another
\ncase, which summarises the position very aptly. In In re
\nHannan’s King (Browning) Gold Mining Company (Limited) (2),
\nLindley, M.R. is reported to have decided the case thus:
\n“Their Lordships did not sit there as a Court
\nof
\n(1) (1872) Law Rep. 8 Ch. 446.
\n(2) (1897) 14 T.L.R. 314,
\n367
\nhonour; the question was whether the
\napplicants had made out that the transferee
\nwas being improperly kept off the register.
\nThere was no evidence of that … The Court
\nought, as a matter of honesty between man to
\nman., to presume that the directors were
\nacting within their powers unless the contrary
\nwas proved; but that was not proved by casting
\nunfounded aspersions upon them.”
\nThus, the matter comes to this that the Directors have a
\npresumption in their favour and the opposite party must
\nprove that there was want of good faith. The right of
\nappeal which is given under the Companies Act, 1956, allows
\nthe Central Government to judge this issue. For that
\npurpose, parties are required, if they desire, to make
\nrepresentations and to put in evidence. But to enable the
\nparties to have a free say, the proceedings are made
\nconfidential by law, and there is protection against action,
\nboth civil and criminal. The appeal is disposed of on the
\nbasis of the representations and the evidence. A decision
\nof a tribunal on a dispute inter partes, in the light of
\npleadings and evidence, is essentially a judicial one, and
\nthis Court ought to be able, on the same material, to decide
\nin an appeal whether the decision given was correct. If no
\nsubstantive law is applicable, there are questions of
\nevidence, of burden and adequacy of proof and of the
\napplication of the principles of justice, equity and good
\nconscience to guide the Court. Once it is held that the
\ndecision is that of a tribunal and subject to appeal, it is
\nmanifest that an appeal may lie, unless there be some other
\nreason.
\nThe difficulty which arises in these cases is whether it was
\nnot the intention of the law that the decision of the
\nCentral Government was to be final. The law makes all
\nallegations and counter-allegations confidential. If Courts
\ncannot compel disclosure of these allegations and the veil
\nof secrecy drawn by law is not rent, then it appears to me
\nthat a further appeal can hardly be efficacious. In this
\nview, in my opinion, this Court should not grant special
\nleave in such cases. The situation which arises is not very
\ndifferent from what arose before the Judicial Committee in
\nMoses v.
\n368
\nParker, Ex Parte Moses (1). The headnote adequately
\ngives the facts, and may be quoted:
\n“By Tasmanian Act No. 10 of 1858, s. 5,
\ndisputes concerning lands yet ungranted by the
\nCrown are referred to the Supreme Court, whose
\ndecision is to be final; and by s. 8 the Court
\nis directed to be guided by equity and good
\nconscience only, and by the best evidence
\nprocurable, even if not required or admissible
\nin ordinary cases, and not to be bound by
\nstrict rules of law or equity or by any legal
\nforms:-
\nHeld: that the Crown’s prerogative to grant
\nspecial leave to appeal is inapplicable to a
\ndecision so authorised.”
\nIn dealing with the case, Lord Hobhouse
\nobserved at p. 248:
\n“The Supreme Court has rightly observed that
\nHer Majesty’s prerogative is not taken away by
\nthe Act of 1858, but intimates a doubt whether
\nit ever came into existence.
\nTheir Lordships think that this doubt is well
\nfounded. They cannot look upon the decision
\nof the Supreme Court as a judicial decision
\nadmitting of appeal. The Court has been
\nsubstituted for the commissioners to report to
\nthe governor. The difference is that their
\nreport is to be binding on him. Probably it
\nwas thought that the status and training of
\nthe judges made them the most proper
\ndepositaries of that power. But that does not
\nmake their action a judicial action in the
\nsense that it can be tested and altered by
\nappeal. It is no more judicial than was the
\naction of the commissioners and the governor.
\nThe Court is to be guided by equity and good
\nconscience and the best evidence. So were the
\ncommissioners. So every public officer ought
\nto be. But they are expressly exonerated from
\nall rules of law and equity, and all legal
\nforms. How then can the propriety of their
\ndecision be tested on appeal? What are the
\ncanons by which this Board is to be guided in
\nadvising Her Majesty whether the Supreme Court
\nis right or wrong? It seems almost
\n(1) [1896] A.C. 245.
\n369
\nimpossible that decisions can be varied except
\nby reference to some rule; whereas the Court
\nmaking them is free from rules. If appeals
\nwere allowed, the certain result would be to
\nestablish some system of rules; and that is
\nthe very thing from which the Tasmanian
\nLegislature has desired to leave the Supreme
\nCourt free and unfettered in each case. If it
\nwere clear that appeals ought to be allowed,
\nsuch difficulties would doubtless be met
\nsomehow. But there are strong arguments to
\nshow that the matter is not of an appealable
\nnature.”
\nSee also The’ berge v. Laudry (1).
\nThe exercise of the powers under Art. 136 is a counterpart
\nof the royal prerogative to hear appeals in any cause or
\nmatter decided by Courts or tribunals. But where the
\nArticles of Association of a company give absolute
\ndiscretion to the Directors and empower them to withhold
\ntheir reasons, the appeal taken to the Central Government
\nwould involve decision on such material, which the parties
\nplace before it. If the allegations are made confidential
\nby law and the Central Government in giving its decision
\ncannot make them public, it is manifest that the decision,
\nto borrow Lord Hobhouse’s language, “is not of an appealable
\nnature”. Whether the right to hear appeals generally
\nagainst decisions of the Central Government acting as a
\ntribunal be within Art. 136, in my opinion and I say it
\nwith great respect-special leave to appeal should not be
\ngranted in such cases, unless this Court is able to rend the
\nveil of secrecy cast by the law without rending the law
\nitself. The argument is that the allegations are
\nconfidential only so far as the public are concerned but not
\nconfidential where Courts are concerned. The question is
\nnot that but one of practice of this Court. This Court
\nshould intervene only when practicable, and that can only
\narise if the parties agree not to treat the allegations as
\nconfidential.
\nThat, however, does not end the present appeals. Special
\nleave has been granted, and I have held that the appeals are
\ncompetent, even though such cases
\n(1) (1876) 2 App. Cas. 102.
\n370
\noften may not be fit for appeal. In this case, there is no
\nclaim that any allegation was confidential. In fact, the
\nappellants before the Central Government made it clear that
\nthey did not charge the Directors with “capricious or mala
\nfide conduct” but only with arbitrary refusal, without
\nstating any reasons. The appellant Company in its
\nrepresentation set out the history of previous refusals and
\nthe decisions of the High Court of Bombay and the Central
\nGovernment, and made it clear that the action was taken in
\nthe interest of the Company. There are indications in the
\nrepresentation to show that on the previous occasion when
\nthese claimants were referred by the High Court and by Mr.
\nK. R. P. Aiyengar, Joint Secretary, to the Civil Court, they
\ndid not go to Court to establish that the action was mala
\nfide and capricious. Before the Central Government, they
\ndropped that allegation, and confined the case to one of
\nrefusal without giving any reasons, and that was the plain
\nissue before the Central Government. There was no evidence
\nfor the Central Government to consider, and the Articles of
\nAssociation give the Directors an absolute discretion to
\nrefuse to register shares without giving any reasons, and,
\non the authorities quoted earlier, the Directors must be
\npresumed to have acted honestly. There was thus no reason
\nfor the Central Government to reverse the decision of the
\nDirectors, and the fact that no reasons have been given when
\nnothing was confidential, leads to the only inference that
\nthere was none to give.
\nIn my opinion, these appeals must succeed. I would,
\ntherefore, set aside the order of the Central Government,
\nand allow the appeals with costs here and before the Central
\nGovernment, if an order to that effect was passed by the
\nCentral Government.
\nBefore parting with the case, I may say that the Report of
\nthe Companies Act Amendment Committee had recommended
\namendment of s. 111, and it has been amended, inter alia, by
\nthe addition of sub-s. (5A), which reads:
\n“Before making an order under sub-section (5)
\non an appeal against any refusal of the
\ncompany to
\n371
\nregister any transfer or transmission, the
\nCentral Government may require the company to
\ndisclose to it the reasons for such refusal,
\nand on the failure or refusal of the company
\nto disclose such reasons, that Government may,
\nnotwithstanding anything contained in the
\narticles of the company, presume that the
\ndisclosure, if made, would be unfavourable to
\nthe company.”
\nThat would stop the blind man’s buff under the unamended
\nlaw!
\nBy COURT. In view of the majority judgment of the Court, we
\nquash the orders passed by the Central Government and direct
\nthat the appeals be reheard and disposed of according to
\nlaw. Costs of these appeals will be costs in the appeals
\nbefore the Central Government.<\/p>\n","protected":false},"excerpt":{"rendered":"
PETITIONER: M\/S. HARINAGAR SUGAR MILLS LTD. Vs. RESPONDENT: SHYAM SUNDAR JHUNJHUNWALA AND OTHERS DATE OF JUDGMENT: 25\/04\/1961 BENCH: SHAH, J.C. BENCH: SHAH, J.C. AIYYAR, T.L. VENKATARAMA DAS, S.K. KAPUR, J.L. HIDAYATULLAH, M. CITATION: 1961 AIR 1669 1962 SCR (2) 339 CITATOR INFO : R 1963 SC 874 (9) RF 1964 SC 648 (11) RF 1964 … Read more<\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":""},"categories":[4928],"tags":[],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/posts\/29778"}],"collection":[{"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/comments?post=29778"}],"version-history":[{"count":1,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/posts\/29778\/revisions"}],"predecessor-version":[{"id":115011,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/posts\/29778\/revisions\/115011"}],"wp:attachment":[{"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/media?parent=29778"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/categories?post=29778"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/tags?post=29778"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}