M/S. Harinagar Sugar Mills Ltd vs Shyam Sundar Jhunjhunwala And Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 33 and 34 of 1959

Decision Date: 25 April 1961

Coram: J.C. Shah, S.K. Das, J.L. Kapur, M. Hidayatullah

In the matter titled M/S. Harinagar Sugar Mills Ltd versus Shyam Sundar Jhunjhunwala and Others, a judgment was delivered on 25 April 1961 by the Supreme Court of India. The judgment was authored by Justice J.C. Shah, and the bench comprised Justice J.C. Shah, Justice S.K. Das, Justice J.L. Kapur and Justice M. Hidayatullah. The parties are recorded as petitioner M/S. Harinagar Sugar Mills Ltd and respondents Shyam Sundar Jhunjhunwala and others. The formal citation of the decision appears as 1961 AIR 1669 and 1962 SCR (2) 339, with subsequent citator references including R 1963 SC 874, RF 1964 SC 648, RF 1964 SC 1140, R 1965 SC 1222, R 1965 SC 1595, E 1966 SC 671, RF 1966 SC 1922, R 1967 SC 1606, RF 1971 SC 321, D 1977 SC 567, RF 1977 SC 2155, RF 1987 SC 1629, RF 1990 SC 1984, among others. The relevant statutory provisions cited include sections 111 and 155 of the Companies Act, 1956 (the first edition), and Article 136 of the Constitution of India.

The factual background states that a person identified as “One B” held a large block of shares in the appellant company. He transferred two groups of one hundred shares each to his son and to his daughter‑in‑law. The transferees then applied to the company for registration of those share transfers. The company’s directors, invoking Article 47B of the company’s Articles of Association, resolved not to register the transfers. The transferees consequently filed appeals to the Central Government under section III(3) of the Companies Act, 1956. The Central Government, without providing any reasons for its decision, set aside the directors’ resolution and directed the company to register the transfers. The company thereafter sought special leave to appeal the Government’s order under Article 136 of the Constitution, contending that the Central Government had exceeded its jurisdiction and acted illegally in directing registration. The respondents raised a preliminary objection, asserting that the Central Government, while exercising appellate powers under section III of the Act as it stood before its 1960 amendment, was not a tribunal exercising judicial functions and therefore could not be subject to the Supreme Court’s appellate jurisdiction under Article 136. The Court held that the appeal was competent to the Supreme Court by way of special leave against the decision of the Central Government under section III(3) of the Companies Act, 1956. It further held that when the Central Government exercised powers under section III, it functioned as a tribunal within the meaning of Article 136 and was required to act judicially. Accordingly, a person aggrieved by a refusal to register a share transfer has two statutory remedies: either to apply to the court for rectification of the register under section 155, or to prefer an appeal under section III.

The Court held that the authority vested in the Court by section 155, which must necessarily be exercised in a judicial manner, and the authority vested in the Central Government by section III were both required to operate under identical constraints. In each situation the Court explained that it was essential to determine objectively whether the directors had acted in an oppressive, capricious, corrupt or malicious way. The assessment, the Court said, had to be based on these objective criteria and could not rely solely on the personal satisfaction of the authority concerned. The Court further observed that an appeal filed under section III(3) necessarily created a genuine dispute, or lis, between the opposing parties concerning their civil rights, and that the Central Government was obliged to resolve that dispute by applying the law to the evidence, rather than by invoking considerations of policy or expediency. Accordingly, the Court imposed a duty upon the Central Government to act in a judicial capacity. The Court noted that the proviso to subsection (8) of section III, which allowed for the award of reasonable compensation in place of shares under certain conditions, reinforced this view.

The Court listed several authorities that supported its reasoning, namely Shivji Nathubhai v. The Union of India, [1960] 2 S.C.R. 775; Re Bell Brothers Ltd. Ex Parte 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, all of which were referred to. The Court explained that in an appeal under section 111(3) of the Act, the Central Government was required to examine whether the directors’ refusal to register a share transfer was malicious, arbitrary or capricious and whether it served the interest of the company. The Court emphasized that the Central Government’s decision was subject to appeal before the Supreme Court under article 136, and that the Supreme Court could not effectively exercise its jurisdiction unless the Central Government furnished reasons supporting its order.

The Court rejected the argument that the confidentiality of the proceedings before the Central Government eliminated the need for a judicial approach, stating that confidentiality did not excuse the authority from disclosing sufficient grounds and evidence justifying its order. In the case at hand, the Court observed that no reasons had been provided to support the orders of the Central Government, and therefore the appeals had to be remanded to the Central Government for rehearing. The Court cited In re Gresham Life Assurance Society, Ex Parte Penney, (1872) Law Rep. 8 Ch. 446 and In re Smith and Fawcett, Ltd., L.R. (1942) 1 Ch. D. 304 as authorities for this principle. Per Justice Hidayatullah, the appeal to the Supreme Court under article 136 was competent because the Act and the Rules demonstrated that the function of the Central Government under section 111(3) was curial rather than executive. The Court noted that the procedural framework permitted the filing of a memorandum of appeal stating the grounds, allowed the company to make representations, provided for the tendering of evidence, and included provisions for awarding costs, a hearing, and a decision based on evidence. Consequently, the Court concluded that the Central Government acted as a tribunal within the meaning of article 136. The judgment concluded with a reference to Huddart, Parker & Co. Pyoprietar Ltd.

The Court cited a number of authorities, including Moorehead (108) 8 C.L.R. 330, Shell Company of Australia v. Federal Commissioner of Taxation [1931] A.C. 275, Rex v. Electricity Commissioners [1924] 1 K.B. 171, Royal Aquarium and Summer and Winter Garden Society v. Parkinson (1892) 1 Q.B. 431, Shivji Nathubai v. The Union of India [1960] 2 S.C.R. 775 and Province of Bombay v. Kushaldas S. Advani [1950] S.C.R. 621. The Court observed that, in general, special leave should not be granted in such circumstances. It noted that the directors of a company were not obliged to explain their decisions and that a presumption existed that they had acted properly and in the interests of the company. In the appeal made under section 111 of the Act, the Court explained that all allegations and counter‑allegations were confidential, and consequently the Central Government could not disclose them publicly in its decision; an appeal against such a confidential decision was rarely effective. In the present matter, the appeal under section III(3) was limited to the ground that the refusal to register the transfer had been made without providing any reasons. The Court held that there was no question of confidential allegations and that no evidence was available for consideration. The Articles of Association of the company conferred upon the directors an absolute discretion to refuse registration of transfers without giving reasons, and the Court affirmed the presumption that the directors had acted honestly. Accordingly, there was no basis for the Central Government to set aside the directors’ decision. The Court also referred to In re Gresham Life Assurance Society; Ex Parte Penney (1872) Law Rep. 8 Ch. 446, In re Hannan’s King (Browning) Gold Mining Company Limited (1897) 14 T.L.R. 314 and Moses v. Parkar Ex Parte Moses [1896] A.C. 245. The judgment concerned Civil Appeals Nos. 33 and 34 of 1959, filed by special leave against the order dated 29 May 1957 of the Central Government Ministry of Finance, New Delhi, in Appeal Cases Nos. 24 and 33 of 1957. Counsel for the appellants included A.V. Viswanatha Sastri and Ganpat Rai, while the respondents were represented by B.P. Maheshwari, M.C. Setalvad, Attorney‑General for India, B.B.L. Iyengar and T.M. Sen for the Union of India. The judgment dated 25 April 1961 was delivered by Justice Shah, with a separate judgment delivered by Justice Hidayatullah. Justice Shah noted that M/s. Harinagar Sugar Mills Ltd. was a public limited company incorporated under the Indian Companies Act, 1913 (7 of 1913). Article 47B of its Articles of Association vested the directors with absolute discretion to refuse to register any share transfer. The provision read: “The directors may in their absolute discretion and without giving any reason refuse to register any transfer of any shares whether such shares be fully paid or not. If the directors refuse to register the transfer of any shares, they shall within two months, after the date on which the transfer was lodged with the company, send to the transferees and the transferor notice of the refusal.” One Banarasi Prasad Jhunjhunwala was the holder of a block of

In this case, Banarasi Prasad Jhunjhunwala was the holder of a block of nine thousand five hundred fully paid‑up shares of M/s Harinagar Sugar Mills Ltd. In January 1953 he executed transfers of two thousand five hundred of those shares in favour of his son Shyam Sunder and of two thousand one hundred shares in favour of his daughter‑in‑law Savitadevi, and he lodged the transfer deeds with the company for registration. By a resolution dated 1 August 1953, the directors, invoking the discretion conferred by Article 47B of the company’s Articles of Association, declined to register the shares in the names of the transferees. Banarasi Prasad and the transferees then filed petitions in the High Court of Judicature at Bombay under section 38 of the Indian Companies Act 1913, seeking rectification of the register on the ground that the board’s refusal was mala fide, arbitrary, capricious and motivated by improper ulterior motives. The High Court rejected the petitions, holding that summary proceedings under section 38 could not entertain contested questions of law and fact, and that the appropriate remedy for the transferees, if they so chose, was to institute a civil suit. The transferees again wrote to the company on 29 February 1956 requesting registration of the 1953 transfers; the directors, at a meeting on 15 March 1956, reiterated their earlier resolution and again refused registration. Appeals against this refusal were made to the Central Government under section 111(e)(3) of the Companies Act 1956, which had come into force on 1 April 1956. The Joint Secretary, K.R.P. Ayyangar, declined to order registration, agreeing with the Bombay High Court that the matters raised should be determined only in a civil suit. Subsequently, Banarasi Prasad transferred an additional block of one hundred shares to his son and one hundred shares to his daughter‑in‑law; the transferees wrote to the company on 21 November 1956 requesting registration. In the directors’ meeting of 12 January 1957 the board again resolved not to register the transfers and communicated this decision to the transferees. Separate appeals under section 111(e)(3) were then filed by Shyam Sunder and Savitadevi. In paragraph 4 of their petitions of appeal they contended that the refusal to register the transfers was made without any reason, was arbitrary and untenable. The company filed representations asserting that its refusal was made in good faith and was not without reason, arbitrary or untenable as alleged. Shyam Sunder and Savitadevi filed rejoinders to those representations, stating that they had never claimed the refusal was capricious or mala fide, but only that it was without reason, arbitrary and untenable.

In the petitions filed by Shyam Sunder and Savitadevi, they expressly denied that the refusal to transfer the shares was “capricious or mala fide”; they maintained only that the refusal was “without any reason, arbitrary and untenable”. By orders dated 29 May 1957, the Deputy Secretary to the Government of India, Ministry of Finance, set aside the resolution adopted by the board of directors under the powers conferred by sub‑sections (5) and (6) of section III of the Indian Companies Act, 1956, and directed the company to register the transfers. The Deputy Secretary gave no reasons for issuing the directive. The company, aggrieved by those orders, obtained special leave to appeal under Article 136 of the Constitution and filed two appeals. The appeals raised two principal questions. First, whether the Central Government, when exercising appellate powers under section 111 of the Companies Act, 1956 before its amendment by Act 65 of 1960, functioned as a tribunal exercising judicial functions and therefore was subject to the Supreme Court’s appellate jurisdiction under Article 136. Second, whether the Central Government had acted beyond its jurisdiction or otherwise illegally by directing the company to register the share transfers in favour of Shyam Sunder and Savitadevi. Article 136, in its opening clause, provides that the Supreme Court may, in its discretion, grant special leave to appeal from any judgment, decree, determination, sentence or order made by any court or tribunal in the territory of India. It was accepted that the Central Government, while exercising powers under section III of the Companies Act, was not a court. The Attorney‑General, appearing for the Union of India, argued that the Central Government merely exercised administrative authority in handling an appeal under section 111 and was therefore not required to act judicially. He submitted that the directors’ authority, being absolute and not required to be exercised judicially, did not become judicial merely because the Central Government exercised it under section 111, and consequently the appellate decision could not be subject to this Court’s jurisdiction. However, the Court observed that the mere fact that directors possess absolute discretion to refuse registration does not automatically render the jurisdiction of the appellate authority administrative. In the recent decision of Shiv Ji Nathu Bhai v. Union of India, the Court held that the Central Government, while exercising a power of review under rule 54 of the Mineral Concession Rules, 1949, over an administrative order of the State Government granting a mining lease, was performing a judicial function. Consequently, that review power fell within the Supreme Court’s appellate jurisdiction because the power of review was judicial, not administrative. In that case, although the State Government’s act of granting the mining lease was administrative, rule 54 expressly granted a right of review, which transformed the exercise into a quasi‑judicial function.

In the earlier discussion the Court observed that the power granted to the Central Government to act on the request of an aggrieved party, to annul or modify an order issued by a State Government, was characterised as quasi‑judicial by this Court. The Court then turned to the provisions that existed before their amendment by section 27 of Act 65 of 1960, which were contained in section III of the Indian Companies Act, 1956. Those provisions, although excerpted here with non‑essential parts omitted, set out the framework for the registration of share transfers or transmissions and the right of an aggrieved party to appeal to the Central Government. The first clause stated that nothing in sections 108, 109 and 110 would affect any power of a company, under its articles, to refuse to register the transfer of, or the transmission by operation of law of, the right to any shares, interest of a member, or debentures of the company. The second clause required that if a company exercised such a power and refused to register a transfer or transmission, it must within two months from the receipt of the instrument or notice of transmission send a notice of refusal to the transferee and the transferor, or to the person who gave notice of the transmission, as appropriate. The third clause gave the transferor, transferee, or the person who gave notice of transmission the right, where the company was a public company or a private company that was a subsidiary of a public company, to appeal to the Central Government against any refusal to register the transfer or transmission, or against any failure to either register it or to send the required notice within the period specified in the second clause. The fifth clause explained that, after giving reasonable notice to the company, the transferor, the transferee and any other interested person, and after providing a reasonable opportunity to make written representations, the Central Government could, by order, direct that the transfer or transmission be registered by the company or that it need not be registered; in the former case the company was required to comply with the decision immediately. The sixth clause authorised the Central Government, in the same order, to issue any incidental or consequential directions, including the payment of costs, as it deemed appropriate. The seventh clause mandated that all proceedings relating to appeals under the third clause, or any matter connected with them, be confidential, and that no suit, prosecution or other legal action could be instituted on any allegation made in such proceedings, whether oral or written. Finally, the eighth clause provided that, in the case of a private company that was not a subsidiary of a public company, the provisions of sub‑sections three to seven would apply as if the company were a public company.

When a transfer or transmission of a share right is ordered by a court or another public authority, the provisions contained in sub‑sections (3) to (7) are to be applied as though the company involved were a public company. The provision further states that, instead of issuing an order under sub‑section (5), the Central Government may issue an order directing the company to register the transmission of the right, unless the member or members of the company identified in that order acquire the right within the time allowed by the order. In such a case the purchaser must be paid either the price he paid for the right or any other sum that the Central Government may deem to be reasonable compensation, taking into account all the circumstances of the case. If a company refuses to register the transfer or transmission of a share right, an appeal against that refusal lies with the Central Government. After giving notice of the appeal and hearing the parties concerned, the Government may, if it considers it appropriate in the circumstances, order that the shares be registered. Moreover, the proviso to sub‑section (8) permits the Central Government, in place of an order under sub‑section (5) directing a private company to register a transmission of shares sold by a court or public authority, to order that any member or members of the company specified in the order acquire the right, upon payment to the purchaser of the price he paid or such other sum that the Central Government determines to be reasonable compensation. In the exercise of the powers conferred by section 642, the Central Government has framed the “Companies (Appeals to the Central Government) Rules, 1957.” Clause (3) of those Rules prescribes the form of the petition of appeal. Clause (4) requires that the memorandum of appeal be accompanied by an affidavit and any documentary evidence supporting the statements made therein, including a copy of the letter sent by the appellant to the company requesting registration of the shares. Clause (5) prescribes the manner in which notice of the appeal must be served on the company, and clause (6) authorises the Central Government, before considering the appeal, to require either the appellant or the company to produce, within a specified period, any further documentary or other evidence that the Government deems necessary. Clause (7) enables the parties to make written representations, if any, which must be accompanied by affidavits and documentary evidence. Clause (8) empowers the Central Government, after evaluating the representations and conducting any further inquiries it considers necessary, to pass such orders as it thinks fit under sub‑section (5) of section 111 of the Act. The appendix to the Rules prescribes the format of the notice to be given to the company. Paragraph 2 of that form states that the company shall be called upon to make its written representations against the appeal and shall be informed that if no representation is received, the appeal will be determined in accordance with the law.

It was observed that the Companies Act of 1913 did not contain any provision comparable to section three of the Indian Companies Act of 1956, and no reference was found to a similar provision in the English Companies Act, upon which the Indian legislation was largely modeled. Before the year 1956, when a transfer of shares was not registered by a company’s directors, the only remedy available under the 1913 Act was a petition for rectification of the share register filed under section thirty‑eight. The court noted that the Articles of Association often granted the directors the power to refuse registration of a transfer, and that such refusal was presumed to have been exercised reasonably, in good faith, and for the benefit of the company, unless the Articles specified otherwise. The directors were not required to disclose the reasons for their decision, and the burden of proof lay heavily on any party challenging the directors’ resolution to overcome the presumption of bona‑fide exercise of the power. The discretion to refuse registration was not subject to control unless the directors acted oppressively, capriciously, corruptly, or otherwise in a mala‑fide manner, as stated in Re Bell Brothers Ltd. ex parte Hodgson (1891) 65 L.T. 245. The court further explained that the power to refuse registration without assigning reasons, or in an absolute and uncontrolled manner, was frequently embedded in the Articles of Association, and that while exercising jurisdiction under section thirty‑eight, a court could not draw adverse inferences from the directors’ refusal to disclose the basis of their resolution. This authority, originally derived from section thirty‑eight, was later confirmed, with slight modification, by section one‑fifty‑five of the Indian Companies Act of 1956. Under that provision, a court could rectify the register of shareholders where any person’s name had been entered or omitted without sufficient cause, where a default had occurred, or where there had been an unnecessary delay in recording the cessation of membership. In exercising this jurisdiction, the court was competent to decide any question concerning the title of the person seeking registration and any other matters necessary or expedient for the rectification. Consequently, a person aggrieved by a refusal to register a transfer now possessed two statutory remedies: to apply to the court for rectification of the register under section one‑fifty‑five, and to appeal the directors’ resolution under section one‑eleven. It was accepted as common ground that, when exercising the power conferred by section one‑fifty‑five, the court must act judicially and adjudicate the right exercised by the directors in light of the powers granted to them by the Articles of Association.

The Court observed that the directors exercised their right in accordance with the powers granted to them by the Articles of Association. The respondents, with the support of the Union of India, contended that the authority of the Central Government under section III was purely administrative. However, the Court noted that an appeal filed under section 111(e)(3) creates a dispute, or lis, between the parties concerning their civil rights. In such a situation, the Central Government is vested with the power to determine the dispute according to law, meaning it must consider the proposal and the objections in the light of the evidence and may not decide on the basis of policy or expediency.

The Court explained that although the extent of the power exercisable by the Central Government is not expressly limited by the statute, this lack of explicit limitation does not render the power unrestricted. The power to order registration of transfers in an appeal must be exercised subject to limitations that are similar to those imposed on the court when it grants relief under section 155. Consequently, the same restrictions that apply to the court’s exercise of power also bind the Central Government’s appellate power. The Central Government must examine whether, in exercising its authority, the directors acted oppressively, capriciously, corruptly, or otherwise mala fide. The decision must satisfy objective tests and cannot rest merely on the subjective satisfaction of the authority deciding the question.

The Court further held that the authority could not decide the question presented to it on grounds of expediency. The statute empowers the Central Government to resolve disputes arising from claims made by the transferor or transferee that are opposed by the company, and a decision on those contentions directly affects the rights of the contesting parties. On this basis, the exercise of such authority is prima facie judicial. The Court emphasized that it is immaterial that the statute conferring power on the Central Government does not expressly define the extent of that power; the nature of the jurisdiction requires that it be exercised subject to the same limitations that apply to the court under section 155.

The Court pointed out that the proviso to sub‑section (8) of section III clearly indicates that, in the circumstances specified therein, reasonable compensation may be awarded in lieu of shares. Such compensation must be ascertained by the Central Government, and it can be determined only by applying objective standards of justice that consider all the circumstances of the case. Referring to the precedent in The Province of Bombay v. Kusaldas S. Advani, the Court discussed the distinction between quasi‑judicial and administrative or ministerial decisions for the purpose of deciding whether they are amenable to a writ of certiorari. As observed by Justice Fazl Ali at page 642, “The word ‘decision’ in common parlance is”.

In its discussion, the Court explained that the expression “more or less a neutral expression” may be applied to both purely executive actions and to judicial orders. The Court emphasized that simply because an executive authority is required to make a decision, that decision does not automatically become judicial. The crucial factor, according to the Court, is the manner in which the decision is reached; the essential question is whether there exists a duty to decide the matter judicially. The Court then endorsed a test proposed in The King v. London County Council, articulated by Scrutton L.J., which states that it is not necessary for a body to be a court in the formal sense. It is sufficient if, after hearing evidence, the body performs judicial functions by having to decide on evidence presented between a proposal and an opposition. Accordingly, a tribunal that must decide rights after hearing evidence and opposition, even if not strictly a court, is amenable to the writ of certiorari. The Court further referred to the case of The Bharat Bank Ltd., Delhi v. Employees of the Bharat Bank Ltd., Delhi, where the issue was whether an adjudication by an industrial tribunal under the Industrial Disputes Act fell within the jurisdiction of this Court under Article 136 of the Constitution. Mahajan J. observed that many administrative and domestic tribunals exist, but the decisive inquiry in each case is the extent of judicial power of the State exercised by the tribunal. He explained that tribunals not deriving authority from the sovereign power cannot be brought within Article 136; the tribunal must be constituted by the State. Moreover, a tribunal that does not exercise any judicial function but only performs administrative or executive duties lies outside Article 136. Conversely, tribunals that are vested with certain judicial functions and possess some characteristics of a court fall within Article 136 and are subject to appellate control by this Court when justice requires it. Additionally, Fazl Ali J. observed that a body required to act judicially and exercising the State’s judicial power does not lose its quasi‑judicial character merely because it is not expressly mandated to follow recognized substantive law in resolving disputes. The Court noted that the authority of the Central Government to entertain an appeal under section 111(3) serves as an alternative remedy for a party aggrieved by a petition under section 155.

The Court observed that Section 155 confers authority that is exercised as part of the judicial power of the State. Although Clause (7) of Section III (1) of the 1950 Supreme Court Reports (page 459) declares that appeal proceedings are to be treated as confidential, the Court emphasized that such confidentiality does not remove the requirement of a judicial approach to the evidence. In a similar vein, Section 54 of the Indian Income‑Tax Act provides that every detail contained in a statement, return, account, document, affidavit or deposition produced or given in any proceeding under that Act must be treated as confidential; however, the Court noted that this confidentiality does not transform the decision of the taxing authorities into a purely executive act. Since the dispute between the parties in the present case concerns civil rights and the Act itself creates a statutory right of appeal along with detailed provisions governing the hearing and disposal of matters according to law, the Court found that it is impossible to escape the inference that the Central Government is imposed with a duty to act judicially when deciding the appeal. The Attorney‑General argued that even if the provisions of the Act and its rules required the Central Government to act judicially, the Government is not a tribunal and therefore this Court lacks jurisdiction to entertain an appeal against its order or decision. The Court rejected that view, observing that the proceedings before the Central Government possess all the hallmarks of a judicial tribunal: parties must file pleadings, each side must furnish evidence supporting its case, and the disputes must be decided in accordance with law after considering the representations of the parties. Consequently, if the Central Government is deemed to exercise the State’s judicial power to adjudicate civil rights where a genuine dispute exists between the parties, the inevitable conclusion is that it functions as a tribunal rather than as an executive body. Accordingly, the Court overruled the preliminary objection raised on behalf of the Union of India and the respondents and held that the appeals are maintainable. The Court then turned to the law governing company documents, stating that when a Memorandum and Articles of Association are registered, they bind both the company and its members to the same extent as if each had signed them individually, thereby creating covenants on the part of the company and each member to observe all provisions of the Memorandum and Articles. Clause 47B of the Articles, which authorises a director to refuse registration of shares, is therefore an incident of the contractual relationship binding on the transferor, and registration of a transfer or transmission cannot be claimed as an absolute right. The Court further noted that the conditions under which a party may file a petition for rectification of the register of shareholders have been settled through a long line of decisions, and it cited two illustrative authorities, including the case of In re Gresham Life Assurance Society Ex parte Penney, wherein the deed of settlement of a life‑insurance company provided…

In the case under discussion the deed of settlement of the company stipulated that a shareholder could transfer his shares only to a person who was already a member of the company or to a person who would obtain the approval of the board of directors. The deed further provided that any person who was not already a shareholder and who was not the executor of a shareholder could not become the transferee of a share unless the board gave its approval. One J. R. De Paiva, who owned ten shares of the company, sold those shares to W. J. Penney and submitted the transfer documents to the company for registration. The directors, invoking the authority conferred on them by the deed of settlement, refused to register the transfer. Paiva and Penney then instituted a joint summons under section 35 of the Companies Act, 1862, seeking an order that the transfer be entered in the register. The Master of the Rolls ordered that the transfer be registered, observing that the directors had failed to put forward any reasonable ground or objection to the purchaser. The Master further held that it was for the court to determine whether the directors’ objection was reasonable and that any objection had to be disclosed to the court. Dissatisfied with that order, the company appealed to the Court of Appeal. Lord James L. J., addressing the issues raised by the appellant, observed that the directors occupy a fiduciary position both toward the company and toward each of its shareholders, and that the court may interfere where there is a breach of that fiduciary duty. He explained, however, that to justify interference the court must find that the directors acted out of an improper motive or that they acted arbitrarily and capriciously. Such an allegation, he said, must be made and proved by the shareholder who wishes to be removed from the register and to substitute another person in his place. The court would have jurisdiction to address the matter as a corrupt breach of trust, but if no corrupt or arbitrary conduct exists between the directors and the shareholder seeking to transfer his shares, the court lacks any jurisdiction to sit as an appellate court reviewing the deliberate decision of the board, a decision that under the company’s constitution is entrusted to the directors in determining the eligibility of new members. Lord James further noted that if the directors were, whether expressly or impliedly, determined to prevent a shareholder from parting with his shares unless a condition of their own choosing was satisfied, the court might, in the exercise of its duty as trustee, intervene to redress the wrong, either by ordering the transfer, by awarding damages, or in

The Court noted that a shareholder who believes his rights have been infringed may seek redress in some appropriate manner. Judge James, L.J., observed that the Court could not act as a Court of Appeal to review the directors’ conclusion when the directors had performed the act that a mandamus could only compel them to do, namely, to consider the proposed transfer. Judge Mellif, L.J., further commented on the argument that directors should be required to explain why they reject a proposed transferee in order to protect an existing shareholder’s right to sell his shares. He rejected that requirement, stating that directors must be free to exercise their power without being compelled to give reasons, because such freedom is essential for the benefit of the shareholders. Nevertheless, he explained that if it can be positively shown that the directors are exercising their power in a capricious or wanton manner, that circumstance would provide a basis for the Court to intervene. He affirmed that the articles of association give the company the right to refuse registration of a share transfer unless the board assents, and that the board is not obligated to disclose its reasons, although proof of mala‑fide or arbitrary exercise may justify Court interference.

A similar principle was expressed in the decision of In re Smith and Fawcett Ltd., where the Court of Appeal held that directors possess absolute and uncontrolled discretion to refuse registration of any share transfer. Although such discretion is fiduciary and must be exercised in the interest of the company, a petition for registration must be dismissed unless there is evidence that the directors have exercised the power otherwise. Accordingly, rectification of the register under section 155 may be ordered only if the transferor demonstrates that the directors acted oppressively, capriciously, corruptly, or otherwise mala‑fide and not in the company’s interest. The allegation must be expressly raised in the petition for rectification and proved by evidence. Generally, the Court presumes that when directors, invested with absolute discretion to refuse registration, decline to register a transfer, the exercise of that power is bona‑fide. When the new Companies Act was enacted, it was already well settled that the articles of association confer a discretionary power to refuse registration, as noted in L.R. [1942] 1 Ch. D. 304.

In this matter the Court observed that the presumption was that a refusal by directors to register a share transfer, when they were invested with absolute discretion, was a proper exercise of that discretion; consequently the burden lay on the aggrieved transferor to prove affirmatively that the refusal had been made mala fide and contrary to the interests of the company. Before the Committee appointed by the Government of India under the Chairmanship of Mr. C. H. Bhabha, several bodies represented that this discretionary power, which was intended to benefit the company, was being misused; the Committee, seeking reasonable safeguards against such misuse, recommended that a right of appeal should be provided against a refusal to register share transfers. The Legislature appears to have accepted this recommendation and incorporated a statutory right of appeal. However, the Court emphasized that the power to entertain such an appeal was not unfettered; because it serves as an alternative to approaching the civil courts, it must be subject to the same limitations implicit in the exercise of judicial power under section 155 of the Companies Act. Accordingly, the Central Government could order registration of a transfer that the directors had refused only if it was satisfied that the directors’ discretion was exercised mala fide, arbitrarily or capriciously, and that registration would be in the company’s interest. Relying on sub‑paragraph (7) of section 111, which made appeal proceedings confidential, it had been urged that the authority hearing the appeal was not obliged to set out reasons for its decision and that the registration order should be presumed proper. The Court rejected that view, explaining that confidentiality was intended merely to facilitate free disclosure of evidence before the Central Government—disclosure that might be impossible in the public setting of ordinary court proceedings—and that confidentiality did not dispense with a judicial approach nor eliminate the requirement to disclose sufficient grounds and evidence supporting the order. In the present case the directors had passed a resolution declining to register the shares and had communicated that resolution to both the transferor and the transferees. The transferees, in their petition, asserted that the refusal was without any reason, arbitrary and untenable, and stated that they did not know of any reasons supporting the refusal while reserving the liberty to reply if any reasons were later provided. The company, in response, merely asserted that the refusal was not without reason nor arbitrary or untenable. The transferees, in their rejoinder, made a curious statement whose import was difficult to appreciate.

In the memoranda of appeal the petitioners asserted that the refusal to transfer shares was capricious and made in bad faith, and they repeated their claim that the refusal was without any reason, arbitrary or untenable. The Deputy Secretary who decided the appeals, however, provided no reasons to support his orders. The record contains no indication that the Deputy Secretary was satisfied that the directors’ action of refusing to register the shares was indeed arbitrary and untenable as alleged. The Court observed that when the Central Government functions as a tribunal exercising judicial power, its exercise of that power falls within the jurisdiction of this Court under article 136 of the Constitution. Consequently, the Court could not see how it could effectively exercise its supervisory jurisdiction if the Central Government failed to give reasons for its order. Earlier, in a petition under section 38 of the Indian Companies Act, 1913, the Bombay High Court declined to order rectification on a summary proceeding and directed the parties to a suit; a similar order was later issued by the Joint Secretary, Ministry of Finance. Those proceedings were brought to the notice of the Deputy Secretary hearing the present appeals. Whether, despite the High Court’s opinion and the Joint Secretary’s view regarding another block of shares previously sought to be transferred, there were sufficient grounds to direct registration is a question on which the Court could not form an opinion. Moreover, the documents presented before the Deputy Secretary have not been reproduced in the record before this Court, and counsel informed the Court that several additional documents were considered by the Deputy Secretary. In the absence of any material showing that the Central Government exercised its limited power under section 111(3) of the Companies Act in accordance with the restrictions imposed by article 47B of the company’s articles of association and in the company’s interest, the Court could not determine whether the Central Government had exceeded its authority. Nevertheless, the Court is of the view that the appeals did not receive a proper trial because the Deputy Secretary failed to give reasons for his orders. Accordingly, the Court set aside the orders issued by the Central Government and directed that the appeals be reheard and disposed of in accordance with law, with the costs of the rehearing to be borne by the parties in the appeals before the Central Government. Justice Hidayatullah, having read the judgment delivered by his brother Justice Shah, expressed the need to state his views in view of the strong objection raised by the respondents to the competence of the appeals under article 136, an objection for which liberty was reserved by the order granting special leave. The factual background has already been detailed by his brother, and therefore he refrained from repeating it in full.

In this matter, the Court recorded that the second respondent, Banarsi Prasad Jhunjhunwala, transferred two thousand five hundred shares to his son and two thousand one hundred shares to his daughter‑in‑law in the appellant company during 1953, and that the appellant company refused to register those transfers. The respondents then instituted proceedings for rectification of the register under section thirty‑eight of the Indian Companies Act, 1913, before the High Court of Bombay. The High Court, however, directed the disputants to the Civil Court for further consideration. Within the petition presented before the High Court, the respondents alleged that the directors of the appellant company acted in bad faith and dealt arbitrarily. After the respondents renewed their demands for registration, the appellant company again declined, prompting the filing of appeals before the Central Government under section one‑eleven, sub‑section three of the Companies Act, 1956, which had become operative on 1 April 1956. Those appeals were heard by the Joint Secretary of the Ministry of Finance, who dismissed them on the ground that a suit, rather than an administrative appeal, was the appropriate remedy.

Subsequently, Banarsi Prasad made fresh transfers of one hundred shares each to his son and his daughter‑in‑law, and again sought registration of those shares, which the appellant company rejected without providing any reasons. Clause forty‑seven‑B of the appellant company’s articles of association provides that the directors may, in their absolute discretion and without giving any reason, refuse to register any transfer of shares, whether fully paid or not, and that they must, within two months of the receipt of the transfer, send notice of refusal to both transferee and transferor. The Court observed that the company was prima facie within its rights when it declined registration without stating reasons. The parties again appealed to the Central Government under the same statutory provision, alleging that the refusal to register without reasons was arbitrary and untenable. Representations were filed by the appellant company and rejoinders by the opposite party; the transferees clarified that they did not accuse the company of capricious or mala fide conduct but only of an arbitrary refusal to give reasons. The appeals succeeded, and the shares were ordered to be registered, although the Deputy Secretary who heard and decided those appeals gave no reasons for his decision. The present petitions, filed under special leave, challenge that order. A preliminary objection was raised that the appeals were incompetent because the Central Government is not a tribunal or court and its action is purely administrative, thus Article 136 would not be applicable, as special leave may be granted only against determinations of a court or tribunal.

The Court observed that both the Central Government and the State Governments possessed statutory power to entertain appeals, revisions or reviews. Consequently, it was necessary to determine the precise legal character of the Central Government when it heard and decided such appeals, for this characterization would decide whether Article 136 could be invoked. Article 136(1) was quoted in full: “Notwithstanding anything in this Chapter, the Supreme Court may in its discretion, grant special leave to appeal from any judgment, decree, determination, sentence or order in any cause or matter passed or made by any Court or tribunal in the territory of India.” The Court noted that the orders issued by the Central Government unmistakably fell within the terms “determination” and “order”. Likewise, the proceedings before the Central Government were encompassed by the broad phrase “any cause or matter”. The pivotal issue, therefore, was whether the Central Government, while hearing and deciding an appeal, could be described as acting in the capacity of a Court or a tribunal. The Court remarked that the assumption at the hearing was that the Central Government was not a Court. To resolve the question, the Court said that it was necessary first to examine the meaning of the word “Court”. It pointed out that the Companies Act of 1956 did not define “Court”, nor did the Code of Civil Procedure. The definition provided in the Indian Evidence Act was noted to be limited to the purposes of that Act and therefore not exhaustive. The Court then turned to the definition found in the Now English Dictionary (Volume II, pages 1090‑1091), which described a Court as “an assembly of judges or other persons legally appointed and acting as a tribunal to hear and determine any cause, civil, ecclesiastical, military or naval.” The Court explained that while every Court is a tribunal, not every tribunal qualifies as a Court.

Continuing its analysis, the Court explained that the term “Courts” was employed to denote those tribunals that had been established by an organised State for the purpose of the administration of justice. It clarified that “administration of justice” meant the exercise of the State’s judicial power to uphold rights and to punish wrongs. Whenever a right was infringed or an injury occurred, the Courts were tasked with restoring the disturbed legal relationship, or “vinculum juris”. The Court then cited the observation of Chief Justice Griffith in Huddart, Parker & Co. Proprietary Ltd. v. Moorehead, stating that judicial power was “the power which every sovereign authority must of necessity have to decide controversies between its subjects, or between itself and its subjects, whether the rights relate to life, liberty or property. The exercise of this power does not begin until some tribunal which has power to give a binding and authoritative decision (whether subject to appeal or not) is called upon to take action.” The Court added that when rights were violated, the aggrieved party could lodge a petition before the ordinary Civil Courts. These Courts, being instrumentalities of the Government, possessed judicial power derived from the Constitution or from the statute that created them. Their numbers were ordinarily fixed and permanent, and they were empowered to try any suit or cause within their jurisdiction. Although their composition could be altered by legislation, they remained essentially permanent institutions that operated under the heading of “Courts of Civil Judicature”.

The term “Courts of Civil Judicature” is used as a collective name for the ordinary civil courts, and it is clear that the Central Government does not fall within this category. As civilization has progressed and modern life has presented new problems, a great many administrative tribunals have been created. These tribunals possess legal authority to decide matters relating to valuable rights, as indicated by the citation (1) [1908] 8 C.L. R. 330, 357. Though they operate in a judicial manner and may hear evidence on oath, they are not part of the ordinary Courts of Civil Judicature. They share in the exercise of the State’s judicial power, but they were established primarily to implement specific administrative policies or to resolve disputes that arise under particular administrative laws. Consequently, while they resemble courts in many respects, they are not themselves courts. When the Constitution refers to “courts” in Articles 136, 227, 228, or in Articles 233 to 237 and in the Lists, the reference is intended to denote Courts of Civil Judicature and not tribunals that fall outside that class. This explains why the Constitution uses both expressions in Articles 136 and 227. By “courts” the Constitution means Courts of Civil Judicature, whereas “tribunals” are understood to be bodies of persons appointed to adjudicate disputes that arise under certain special statutes. Deciding such disputes is among the powers of the State; this power is undeniably an attribute of the State and is aptly described as the State’s judicial power. In exercising this power, a clear division becomes apparent. In general, specialised matters are directed to tribunals, while the remaining matters are heard by the ordinary Courts of Civil Judicature. Their procedural rules may differ, but the essential functions are not fundamentally different. The precise factor that distinguishes the two has never been firmly established. Lord Stamp observed that the real distinction lies in the “air of detachment” that courts possess, but this characteristic is more a matter of tradition and age than of essential nature. Moreover, many tribunals in recent years have performed with such detachment that the test proposed by Lord Stamp is no longer adequate. Lord Sankey, L.C., in Shell Company of Australia v. Federal Commissioner of Taxation (1) noted that authorities clearly show that tribunals may have many characteristics of a court yet remain not courts in the strict sense of exercising judicial power. He then listed several negative propositions to clarify the point: (1) a tribunal is not automatically a court merely because it gives a final decision; (2) it is not a court simply because it hears witnesses on oath, as cited in (1) [1931] A.C. 275, 296; (3) it is not a court merely because two or more parties appear before it for adjudication; (4) it is not a court simply because its decisions affect the rights of subjects; (5) it is not a court merely because an appeal lies to a court; and (6) it is not a court merely because another body refers a matter to it, as illustrated in Rex v. Electricity Commissioners. In the view expressed, a court in the strict sense is a tribunal that forms part of the ordinary hierarchy of Courts of Civil Judicature maintained by the State under its constitution to exercise the judicial power of the State.

In the strict sense, a Court is a tribunal that forms part of the ordinary hierarchy of civil courts established by the State under its constitution to exercise the State’s judicial power. Such courts discharge every judicial function of the State, except those matters that the law expressly excludes from their jurisdiction. The term “judicial” can bear two distinct meanings. As Justice Lopes explained in Royal Aquarium and Summer and Winter Garden Society v. Parkinson, the word may refer either to the duties performed by a judge or justices in a courtroom, or to administrative tasks that do not occur in a courtroom but nevertheless require the application of a judicial mind – that is, a mind that determines what is fair and just in the matter before it. The requirement that an officer decide a matter “judicially” in the latter sense does not transform that officer into a Court or even a tribunal; it merely indicates that the officer must adhere to a standard of conduct that is impartial and free from bias. Both Courts and tribunals act “judicially” in each of these senses. The expression “Court” therefore encompasses the ordinary, permanent tribunals, while the broader term “tribunal” includes all other bodies that are not already captured by the former description. The analysis would be straightforward if the Companies Act, 1956 had named a specific person or office to hear an appeal under section 111. In that circumstance, although such a person or office would not be a Court in the strict sense, it would clearly be a tribunal. The Act, however, states that an appeal lies to the Central Government, raising the question of whether the Central Government itself can be characterized as a tribunal. The argument relies on the recent decision in Shivji Nathubai v. Union of India, where the Court held that the Central Government, while exercising its power of review under the Mineral Concession Rules, 1949, was subject to the appellate jurisdiction conferred by Article 136. That case, which arrived on appeal from a High Court order issued under Article 226, invoked the authorities in Province of Bombay v. Kushaldas S. Advani and Rex v. Electricity Commissioners to conclude that the Central Government’s action was quasi‑judicial rather than purely administrative. The Court observed that when rule 52 grants an aggrieved party the right to apply for review, a legal dispute is created between that party and the authority that made the original grant; consequently, unless the statute provides otherwise, the authority must act judicially and its decision becomes a quasi‑judicial act. This observation merely confirms the quasi‑judicial nature of the decision, but it does not settle whether the Central Government itself qualifies as a tribunal. The present issue, therefore, remains to be determined.

The Court observed that the earlier statement merely confirms that the decision of the Central Government is of a quasi‑judicial nature; it does not, however, conclude that the Central Government itself can be characterized as a tribunal. In the Court’s view these are distinct questions, and since the issue has now been raised, it must be resolved. The function performed by the Central Government under the Act and the Rules is to entertain an appeal against the action of the Directors. To exercise that function, a memorandum of appeal setting out the grounds of challenge must be filed. The Company, upon receiving notice, is required to make any representations it wishes to advance, and the opposite party is likewise entitled to present its own representations. Both parties are permitted to tender evidence in support of their respective positions. After considering the pleadings and the evidence, the Central Government issues an order directing that the shares be registered or that they need not be registered. The order may also contain directions regarding the payment of costs or other matters. This sequence of steps demonstrates that the role of the Central Government is curial rather than executive. The presence of a hearing, the consideration of evidence, and the rendering of a decision are unmistakably curial functions. While the Government frequently makes decisions in its ordinary administrative capacity, not every governmental decision can be regarded as that of a tribunal. Government resolutions may affect the rights of parties without necessarily constituting the exercise of judicial power. Such resolutions may be amenable to writ jurisdiction under Articles 32 and 226 in appropriate circumstances, yet they do not attract a direct appeal under Article 136 as decisions of a tribunal would. The situation changes, however, when the Government undertakes curial functions and exercises judicial power to adjudicate disputes. In those circumstances it is proper to regard the officer handling the matter, and even the Government itself, as a tribunal. The deciding officer may remain unnamed, but the decision is nevertheless that of a tribunal, whether rendered in his name or in the name of the Central Government. The term “tribunal” is broad, and the words “court” and “tribunal” both encompass the exercise of judicial power in all its varieties. Consequently, the Government’s decision falls within the jurisdiction of this Court under Article 136.

The learned Attorney‑General advanced a further argument that there is no law to interpret or apply in these cases. He contended that, because there are no legal standards against which the correctness of the Central Government’s order can be measured and because the decision is purely discretionary, it is not judicial or even quasi‑judicial but merely administrative. Accordingly, he claimed that no appeal can arise from the nature of the decision. This line of reasoning mirrors that previously presented before the Committee on Ministers’ Powers by Lord Hewart, who described such decisions as purely discretionary and the exercise of an arbitrary power as “neither law nor justice or at all.” Sir Maurice Gwyer similarly expressed the view that an appeal could not be taken to Court against a Minister’s decision, even on the ground of miscarriage of justice, because that would impose a duty on the Court which, in his opinion, was not within the Court’s concern. The Court noted these arguments as part of the broader controversy that required resolution.

Justice Gwyer had expressed the view that an appeal could not be brought before a Court against a Minister’s decision even on the ground of miscarriage of justice, because doing so would impose a duty on the Court that was not within its concern. This line of argument leads to the core of the controversy, and before a decision is rendered the Court wishes to make a few preliminary observations. Article 47‑B confers upon directors the right to refuse to register shares at their absolute discretion and without the obligation to give reasons. In the decision of In re Gresham Life Assurance Society, Ex Parte Penney James, L.J. observed that directors occupy a fiduciary position both toward the company and each shareholder. He noted that it is easy to imagine cases such as those presently before the Court in which interference might be warranted for a breach of fiduciary duty, but that interference is permissible only when it is shown that the directors acted from an improper motive or acted arbitrarily and capriciously. The burden of alleging and proving such misconduct rests on the shareholder who seeks removal from the register of shareholders and wishes to substitute another person. The judge warned that if the Court were to presume that whenever a shareholder proposes to transfer his shares the directors’ motives are arbitrary, capricious or corrupt unless the directors explain themselves, the very constitution of the company as set out in its articles would be fundamentally altered. This reflects the presumption that directors act honestly in the interests of the company and that a case must be established against them. A further authority, In re Hannan’s King (Browning) Gold Mining Company (Limited), recorded by Lindley, M.R., held that the applicants failed to demonstrate that the transferee was being improperly excluded from the register, and that there was no evidence of such wrongdoing. The Court emphasized that, as a matter of honesty between persons, directors are to be presumed to be acting within their powers unless the contrary is proved, and that unfounded aspersions do not meet that burden. Consequently, the position is that directors enjoy a presumption in their favour and the opposing party must prove a lack of good faith. The Companies Act, 1956 provides a right of appeal that allows the Central Government to adjudicate this issue, with parties required, if they wish, to make representations and submit evidence, while the proceedings remain confidential and protected from civil and criminal action. The appeal is decided based on those representations and evidence. A tribunal’s decision in an inter‑partes dispute, formed on pleadings and evidence, is essentially judicial, and the Court should be able to determine on the same material whether the decision was correct. In the absence of substantive law, issues of evidence, burden and adequacy of proof, and the principles of justice, equity and good conscience arise to guide the Court. Once it is held that the decision is that of a tribunal and is subject to appeal, it follows that an appeal may lie unless another reason precludes it.

In the matter before the Central Government, the authority is called upon to adjudicate the dispute. For that purpose, the parties may, if they so wish, present written representations and submit any evidence they deem relevant. The law, however, mandates that the proceedings be conducted in confidence so that each side can speak freely, and it also provides a shield against any civil or criminal proceedings that might otherwise be launched as a result of those representations. The appeal is decided solely on the basis of the submissions and the evidence that have been placed before the tribunal. A determination rendered by a tribunal in a dispute between the parties, after considering the pleadings and the evidence, is essentially a judicial determination, and the Court should be able to use the same material to decide on an appeal whether the tribunal’s decision was correct. Where no substantive statutory provision applies, the inquiry turns on questions of evidence, the burden of proof, the adequacy of that proof, and the application of the principles of justice, equity and good conscience to guide the Court.

Once it is held that the order in question is that of a tribunal and that the order is subject to appeal, it follows that an appeal is permissible unless some other impediment exists. A difficulty that arises in such cases is the question of whether the legislation intended the decision of the Central Government to be final. The law expressly renders all allegations and counter‑allegations confidential. If the Courts are unable to compel disclosure of those allegations and the statutory veil of secrecy remains intact, it appears to the Court that a further appeal would be of little practical effect. Accordingly, in the Court’s view, a special leave to appeal should not be granted in such circumstances. The situation is not unlike that which before the Judicial Committee in Moses v. Parker, Ex Parte Moses, involved. The headnote of that case states that, under Tasmanian Act No. 10 of 1858, section 5, disputes concerning lands not yet granted by the Crown are referred to the Supreme Court and the Court’s decision is to be final; section 8 directs the Court to be guided only by equity, good conscience and the best evidence that can be procured, even if such evidence would not be admissible in ordinary cases, and it relieves the Court from being bound by strict rules of law, equity or any legal forms. The judgment in that case held that the Crown’s prerogative to grant special leave to appeal does not apply to a decision so authorized. In the present case, Lord Hobhouse, at page 248, observed that the Supreme Court correctly noted that Her Majesty’s prerogative is not taken away by the 1858 Act, but he expressed doubt as to whether that prerogative ever existed. He and the other Lords considered that doubt well founded, and they concluded that the Supreme Court’s decision could not be treated as a judicial decision open to appeal. The Court was effectively substituted for the commissioners to report to the Governor, and that report was binding on the Governor. It was perhaps thought that the status and training of judges made them the most suitable custodians of that power, but that does

The Court observed that the actions of the Supreme Court in this context did not amount to judicial actions that could be examined or altered by an appeal. It noted that, like the commissioners and the governor, the Court’s functions were not judicial in nature. The Court was directed to act according to equity, good conscience, and the best evidence available, a standard that also applied to the commissioners and, indeed, to every public officer. However, the Court emphasized that such officers were expressly exempted from all rules of law, equity, and legal formalities. This exemption raised the question of how the propriety of their decisions could be tested on appeal and what principles should guide the Board when advising Her Majesty on the correctness of the Supreme Court’s decisions. The Court found it almost impossible for decisions to be varied without reference to some rule, while the Court making those decisions was itself free from rules. It warned that permitting appeals would inevitably create a system of rules, which the Tasmanian Legislature had intended to avoid in order to keep the Supreme Court unrestricted in each case. The Court acknowledged that if it were clear that appeals should be allowed, difficulties would inevitably arise, but it concluded that strong arguments demonstrated the matter was not of an appealable nature.

The Court further referred to the case of Theberge v. Laundry, noting that the exercise of powers under Article 136 mirrored the royal prerogative to hear appeals from any cause or matter decided by courts or tribunals. It explained that where a company’s Articles of Association grant directors absolute discretion and allow them to withhold reasons, an appeal to the Central Government would involve consideration of material that the parties had presented. If such allegations were confidential by law and the Central Government could not make them public, the decision, using Lord Hobhouse’s language, was not of an appealable nature. The Court expressed the view, with due respect, that special leave to appeal should not be granted in such cases unless the Court could lift the veil of secrecy without violating the law itself. The argument that the allegations were confidential only to the public but not to the courts was noted, yet the Court stressed that the real issue concerned its own practice. It stated that the Court should intervene only when practicable, which could occur only if the parties consented not to treat the allegations as confidential. Nevertheless, this did not terminate the present appeals. Special leave had been granted, and the Court held that the appeals were competent even though such cases often may not be suitable for appeal. In the present case, there was no claim that any allegation was confidential. In fact, the appellants had not asserted confidentiality of any allegation.

Before the Central Government clarified its position, it stated that the Directors were not accused of acting capriciously or in bad faith; the Government’s allegation was limited to an arbitrary refusal to register shares and it did not provide any reasons for that refusal. In the Company’s written representation, the appellant traced the earlier instances in which share registrations had been refused, and it cited the judgments of the High Court of Bombay as well as the subsequent rulings of the Central Government. The Company emphasized that the refusal had been made for reasons that were purportedly in the Company’s own interest. The representation also contained material suggesting that, on a prior occasion when the claimants had been referred by the High Court and by Mr K R P Aiyengar, Joint Secretary, to the Civil Court, the claimants had not approached the Court with the intention of proving that the Directors’ action was motivated by mala fide intent or capriciousness. Instead, before the Central Government, the claimants had withdrawn that particular allegation and had confined their case to the question of an arbitrary refusal made without any stated reasons, which was precisely the issue that the Central Government was asked to consider. The Government had no evidence on which to base a contrary finding, and the Company’s Articles of Association conferred upon the Directors an absolute discretion to refuse registration of shares without obligating them to give any explanation. Accordingly, relying on earlier authorities, the Court presumed that the Directors had acted honestly. There was therefore no justification for the Central Government to overturn the Directors’ decision, and the absence of any reasons – when no information was deemed confidential – logically led to the inference that no reasons existed. On these grounds, the Court concluded that the appeals should be allowed. Consequently, the order of the Central Government was set aside, the appeals were allowed with costs, and it was directed that the Central Government issue a corresponding order, if it had not already done so. The Court also noted that the Companies Act Amendment Committee had recommended amendment of section 111, resulting in the insertion of sub‑section (5A), which empowers the Central Government, before making an order under sub‑section (5) on an appeal against a refusal to register a transfer, to require the company to disclose the reasons for such refusal; failure or refusal to disclose permits the Government to presume that the undisclosed reasons would be unfavorable to the company. This amendment would eliminate the difficulty created by the previous law. In accordance with the majority judgment, the Court quashed the orders issued by the Central Government, directed that the appeals be reheard and disposed of according to law, and ordered that the costs of these appeals be the costs incurred in the proceedings before the Central Government.