Kochu Thommen, J.
1. These appeals arise from the judgment of a learned judge of this court in B.C.P. Nos. 2 to 13 and 15 to 17 of 1975. The learned judge disposed of the 15 petitions by a common judgment on the basis of the facts is B.C.P. No. 2 of 1975 as all the other petitions arose in identical circumstances and related to a common question. It is
with reference to B.C.P. No. 2 of 1975 that we propose to dispose of all the fifteen appeals by this common judgment.
2. The appellant is a banking company having its registered office at Trichur, and we shall refer to it as the “company. ” The 1st respondent (who was the petitioner in the B.C.P.) is a transferee of shares from the 2nd respondent and we shall respectively refer to them as the “transferee” and ” transferor “.
3. The case of the transferee is that he purchased 210 equity shares from the transferor on 22nd January, 1975, for a consideration of Rs. 10,000 and forwarded to the company the share transfer deed duly executed by the transferor and transferee together with the share certificates relating to the said shares for registering the transfer and entering the name of the transferee on the register of the company as the holder of the said 210 shares. But the company informed the transferee by a letter dated 18th March, 1975, that the board of directors of the company, in exercise of their power under Regulation 42 of the articles of association of the company, read with Section 111(1) of the Companies Act, 1956 (“the Act “), refused the application to register the transfer. According to the transferee the board of directors have acted capriciously, male fide and in excess of their power in refusing to register the transfer of the shares.
4. The company contended before the learned judge that the directors were justified in refusing to register the transfer by virtue of their power under Section 111(1) of the Act read with Regulation 42 of the articles of association. It was stated that the reasons for the refusal were explicit from the resolution adopted by the board which was produced along with the counter-affidavit filed on behalf of the company as exhibit R-1. It was pointed out that the proposed transfer was not a genuine investment, but was an attempt at cornering of shares in violation of Section 12(2) of the Banking Regulation Act, 1949, and in contravention of the policy of the Reserve Bank of India. It was further contended that the petition under Section 155 was not maintainable as the transferee did not have recourse to Section 111 by filing an appeal before the Central Government.
5. The learned judge rejected the contentions of the company and, as stated earlier, allowed the 15 petitions by a common judgment from which the present appeals arise. The learned judge held that the remedy provided under Section 111 of the Act did not limit or interfere with the jurisdiction of the court under Section 155 ; the proposed transfer did not offend against Section 12(2) of the Banking Regulation Act or contravene the policy of the Reserve Bank of India ; and the directors did not properly exercise the discretion vested in them. It was accordingly held that the refusal of the directors to register the transfer was invalid and the
company was directed to give effect to the transfer by registering the transferees as members of the company. Section 111 of the Act provides I
“111. Power to refuse registration and appeal against refusal.– (1) Nothing in Sections 108, 109 and 110 shall prejudice any power of the company under its articles to refuse to register the transfer of, or the transmission by operation of law of the right to, any shares or interest of a member in, or debentures of, the company…..” (underlining* by us).
6. The section further provides for an appeal to the Central Government against a refusal to register the transfer of shares. Section 155 on the other hand has conferred power on the court to rectify the register of members. It says that if ” default is made, or unnecessary delay takes place in entering on the register the fact of any person having become, or ceased to be, a member, the person aggrieved or any member of the company, or the company, may apply to the court for rectification of the register “. The power of the court under Section 155 is untrammelled by Section 111. It is open to the transferee to seek relief either under Section 111 by an appeal to the Central Government or under Section 155 by petitioning the court. In the present case, the transferee chose the latter procedure and he was well within his rights to do so : Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala  31 Comp Cas 387 (SC) and Vidyasagar Cotton Mills v. Mt. Nazmunnessa Begum  34 Comp Cas 704 (Cal).
7. A shareholder has, subject to the articles of association, the right to transfer his shares. Restrictions can be legitimately imposed on such right, but such restrictions must be explicitly stated in the articles of association : Moodie v. W. & J. Shepherd Ltd.  2 All ER 1044, 1050 (HL), As stated by Lord Greene M R. in In re Smith and Fawcett Ltd.  1 Ch 304, 306;  1 All ER 542 (CA).
” The right, if it is to be cut down, must be cut down with satisfactory clarity. It certainly does not mean that articles, if appropriately framed, cannot be allowed to cut down the right of transfer to any extent which the articles on their true construction permit. ”
8. The relevant provisions in the articles of association of the company is Regulation 42, which reads :
” The directors may decline to register any transfer of shares on which the company has a lien and in case of shares not fully paid up, may refuse to register the transfer to a person of whom they do not approve. The directors may, in their absolute discretion and without assigning any reason, refuse to register the transfer of any shares to any person whom it will, in their opinion, be not desirable in the interests of the company to
admit to membership. The directors shall not be bound to give any reason for such refusal. ”
9. It is clear from Regulation 42 that the discretion vested in the directors is not an absolute discretion in the sense that they can refuse registration of transfer of shares for any reason whatever. Their discretion has to be exercised on the basis of a reason permitted under the regulation. In the case of shares on which the company has a lien, the directors are entitled to decline registration. Apart from such cases, the directors’ discretionary power can be validly exercised only where they do not approve of the transferee, which means, where they have a personal objection to the transferee. This is the position whether or not the shares are fully paid. The directors have no case that there was any lien on the shares in question or any calls remained unpaid or the transferors were in any manner indebted to the company. That being the position, the only valid reason for which the directors could have refused to register the transfer was one based on personal objections to the transferee.
10. It is not necessary that the directors should give reasons for refusal. The court would not draw any unfavourable inference against the directors merely because they did not give their reasons. The court would in fact assume that they acted reasonably and in good faith and for a valid reason. The burden is upon the person who alleges to the contrary to substantiate his allegations by evidence. It is only where it is clear from the records that the action of the directors was not based on a valid reason or that they acted without bona fides would the court intervene to rectify the register. If, on the other hand, the directors did give their reasons for refusal, the court would look into such reasons to find out whether they were legitimate or otherwise. As stated by the Supreme Court in Baja Auto Ltd. v. N.K. Firodia  41 Comp Cas 1, 7 (SC) :
“…..the reasons of the directors have to be tested from three points of view : First, whether the directors acted in the interest of the company; secondly, whether they acted on a wrong principle ; and, thirdly, whether they acted with an oblique motive or for a collateral purpose.”
11. If, upon an examination of the reasons disclosed by the directors, it is seen that they acted on a wrong principle, the refusal to register the transfer can be rescinded under Section 155 of the Act. Even where the articles have conferred on the directors absolute and unlimited power, and the directors have ostensibly acted within the limits of the articles, yet their discretion is liable to be nullified if it is established that they ” acted oppressively, capriciously or corruptly or in some other way mala fide “. Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala  31 Comp Cas 387 (SC). In Bajaj Auto Ltd. v. N.K. Firodia  41 Comp Cas 1 (SC) the articles conferred absolute and unlimited power upon the directors.
12. Nevertheless the refusal of the directors to register the transfer of shares was held to be invalid as it was found to be mala fide, arbitrary and for a collateral purpose. (See also the judgment of Mellish L.J. in In re Gresham Life Assurance Society: Ex parte Penney  8 Ch App 446, 452)
13. In the instant case, the reasons were disclosed by the directors. These reasons are stated in exhibit R-1 resolution dated March 17, 1975, which reads:
” RESOLVED that the application for registration of transfer of 210 shares of the South Indian Bank Ltd. held in the name of T.A. Antony in favour of Sri Joseph Michael, Palai, be and is hereby refused in exercise of the powers of the board of directors under Article 42 of the articles of association of the bank and Section 111 of the Companies Act, 1956, as the proposed transfers are found to be not in the nature of genuine investment but an attempt at cornering of shares of the bank and to circumvent the provisions contained in Section 12(2) of the Banking Regulation Act, 1949, and in contravention of the policy of the Reserve Bank of India; it is not desirable in the interests of the company to admit the proposed transferee to membership.”
14. Exhibit R-1 discloses that the registration of the transfer was refused by the directors as they were of opinion that the transfer was not in the nature of a genuine investment and that it was not desirable in the interests of the company to admit the transferee to membership for the following reasons:
(a) it was an attempt at cornering of the shares of the company ;
(b) it was an attempt to circumvent the provisions of Section 12(2) of
the Banking Regulation Act, 1949 ; and
(c) it was in contravention of the policy of the Reserve Bank of India.
15. Exhibit R-1 does not disclose any personal objection to the transferee. It is nowhere stated that the transferee is an undesirable person for being admitted to membership either because he is a quarrelsome person or because he had acted contrary to the interests of the company or for any other reason based on a personal objection to him. The objections stated in exhibit R-1 are not personally directed against the transferee. The question is whether the power vested in the directors under Regulation 42 contemplates the exercise of a right of refusal based on the reasons stated in exhibit R-1. Have the directors acted intra vires the powers vested in them ? In other words have they acted on a ground permitted under the articles. If they have not, the refusal is invalid and is of no effect.
16. In In re Bede Steam Shipping Company Ltd.  1 Ch 123 (CA) an identical question arose for consideration. Articles 22 and 24 of the articles of association of the Bede Steam Shipping Company provided :
” 22, Subject to the restrictions of these articles any registered holder of shares may transfer all or any of his shares.
24. The directors and managers may in their discretion and without assigning any reason therefor refuse to register the transfer of any share (not being a fully paid up share) to any person of whom they shall not approve as transferee and may decline to register the transfer of any fully paid up share or shares on certifying that in their opinion it is contrary to the interests of the company that the proposed transferee should be a member thereof.”
17. Article 24 is in substance identical to Regulation 42. Considering Articles 22 and 24 of the Bede Steam Shipping Company, Lord Cozens-Hardy M.R. ( 1 Ch 123, 133 (CA)) referred to the decision of Mellish L.J. in In re Gresham Life Assurance Society; Ex parte Penney  8 Ch App 446, and stated :
” The point which is taken by Mellish L.J. is this: You may look and see personally who the transferee is. There may be personal objections to him ; it may be because he is a quarrelsome person, it may be because he is an uncertain person, or it may be that he is acting in the interests of a rival company, or something of that kind. All those things are fairly included in the word ‘personal’; but to seek to say ‘ we will not accept any transfer of a single share from a particular shareholder who holds a large number is, it seems to me, an abuse of the power which was conferred by the clause in the articles.”
18. The Master of the Rolls then referred to an illustration given by Chitty J. in In re Bell Brothers  65 LT 245, 246, which is as follows (page 134):
” If the reasons assigned are legitimate, the court will not overrule the directors’ decision merely because the court itself would not have come to the same conclusion. But if they are not legitimate, as, for instance, if the directors state that they rejected the transfer because the transferor’s object was to increase the voting power in respect of his shares by splitting them among his nominees, the court would hold that the power had not been duly exercised.”
19. The Master of the Rolls further observed (page 135) :
” Is it possible to say that that was a proper exercise of the power? Or, in other words, is it possible to say that refusing to transfer shares because you do not approve of splitting up the holding, when you have no personal objection of any sort or kind to the proposed transferee, is a proper exercise of the power ? In my opinion it is not. The certificate given by the directors agrees with the minutes, and on the face of them it seems to me that the directors are attempting to use this Article 24 for a purpose for which the article was plainly not intended.”
20. Warrington L.J. agreeing with the Master of the Rolls, observed that the directors acted on a ground not within the articles of the company. The majority of the judges, therefore, stated that the refusal of the directors to register the transfer was of no effect. Scrutton L.J., in his dissenting opinion, did not doubt the correctness of what the majority stated as regards the limited scope of Article 24.
21. In In re Smith and Fawcett Ltd.  Ch 304 (CA) the decision in In re Bede Steam Shipping Company Ltd.  1 Ch 123 (CA) was referred to and distinguished on two grounds : (1) Unlike the Bede Steam Shipping Company Ltd., Smith and Fawcett Ltd. was a private company; and (2) Unlike the limited scope of Article 24 of the former, Article 10 of the latter conferred absolute and unlimited powers on the directors. Article 10 was as follows:
“The directors may at any time in their absolute and uncontrolled discretion refuse to register any transfer of shares, and Clause 19 of Table A shall be modified accordingly.”
22. Lord Greene M.R. pointed out that absolute powers, as under Article 10, are normally vested in the directors of a private company. He then observed:
” Private companies are in law separate entities just as much as are public companies, but from the business and personal point of view they are much more analogous to partnerships than to public corporations. Accordingly, it is to be expected that in the articles of such a company the control of the directors over the membership may be very strict indeed. There are, or may be, very good business reasons why those who bring such companies into existence should give them a constitution which confers on the directors powers of the widest description.”
23. The Master of the Rolls farther stated :
“The language of the article in the present case does not point out any particular matter as being the only matter to which the directors are to pay attention in deciding whether or not they will allow the transfer to be registered. The article, does not, for instance, say, as is to be found in some articles, that they may refuse to register any transfer of shares to a person not already a member of the company or to a transferee of whom they do not approve. Where articles are framed with some such limitation on the discretionary power of refusal as I have mentioned in those two examples, it follows on plain principle that if the directors go outside the matters which the articles say are to be the matters and the only matters to which they are to have regard, the directors will have exceeded their powers.”
24. In support of that proposition the Master of the Rolls referred to the judgment of Warrington L.J. in In re Bede Steam Shipping Company
Ltd.  1 Ch 123, 136 (CA). But then he stated that there was nothing in principle or on authority which made it impossible to confer, by inserting a suitable provision in the articles, a wider and more comprehensive power on the directors to refuse to register a transfer of shares for reasons not personal to the transferees, as was the position in In re Smith and Fawcett Ltd.  Ch 304 (CA). The Master of the Rolls concluded:
“In the present case the article is drafted in the widest possible terms, and I decline to write into that clear language any limitation other than a limitation, which is implicit by law, that a fiduciary power of this kind must be exercised bona fide in the interests of the company. Subject to that qualification, an article in this form appears to me to give the directors what it says, namely, an absolute and uncontrolled discretion.”
25. For that reason the refusal of the directors to register the transfer was upheld.
26. The principle to be deduced from these decisions is that while the court would generally assume that the directors acted bona fide in the general interests of the company, if either from the reasons disclosed or from the relevant records it is seen that the directors acted in excess of the power conferred by the articles or on a wrong principle, or, while in the purported exercise of their power under the articles, they acted “oppressively, capriciously or corruptly, or in some way mala fide”, the court would intervene to nullify the illegal action of the directors : Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala  31 Comp Cas 387 (SC). If, on the other hand, the reasons disclosed are legitimate, the court would not overrule the directors’ decision merely because the court itself would not have come to the same conclusion. The question is, did the directors act on a ground permitted under the articles, and if they did, was their power exercised bona fide in the interests of the company ? In In re Bede Steam Shipping Company Ltd.  1 Ch 123 (CA), the articles, as in the present case, conferred a limited discretionary power of refusal on the directors, and their refusal to register the transfer of shares, for reasons not personal to the transferee, was held to be ultra vires. In In re Smith and Fawcett Ltd.  Ch 304 (CA) the position was held to be different as the articles had conferred an absolute and unlimited power on the directors and it was not established that they had acted mala fide. In Bajaj Auto Ltd. v. N.K. Firodia  41 Comp Cas 1 (SC), notwithstanding the absolute and unlimited nature of the power conferred on the directors, the refusal to register was held to be invalid as it was found to be a mala fide and arbitrary exercise of power.
27. As stated earlier, the power conferred by Regulation 42, as it stands, is of a limited nature. Cornering of shares or an attempted cornering of shares is not a reason personal to the transferee, and it is not a legitimate
reason coming within Regulation 42. The same is the position in regard to the other reasons mentioned in exhibit R-1. It is, therefore, manifest that the directors exceeded their authority under the articles and consequently their refusal to register the transfer of shares was ultra vires their power and is of no effect.
28. Shri P.A. Francis, appearing for the company, however, contended that even if the directors acted in excess of their power under Regulation 42, the proposed transfer was invalid as it violated Section 12(2) of the Banking Regulation Act, which reads as follows :
” No person holding shares in a banking company shall, in respect of any shares held by him, exercise voting rights on poll in excess of one per cent. of the total voting rights of all the shareholders of the banking company.”
29. We fail to see how it is possible to read into this provision any restriction whatever on the right to hold or transfer shares. That provision is only intended as a limit on the voting rights and not anything else. This objection, in our view, has no substance.
30. Shri Francis further contended that the proposed transfer was in contravention of the policy of the Reserve Bank of India as evidenced by exhibit R-3, circular (DBOD No. EFS. 93/C. 249/70, dated 13 January, 1970). The learned judge did not think so. He held that exhibit R-3 circular did not prohibit transfer of shares or registration of the transfer. We do not know, and counsel is not in a position to tell us, under what provision of law the circular has been issued. The circular does not indicate whether it has been issued under any provision of law at all. We do not wish to express any view either on the scope of the circular or its validity, except to point out that the circular cannot confer on the directors a power which they do not have under the articles.
31. The learned judge further held that from the number of shares purchased by the transferee together with the total number of shares purchased by the other transferees in the connected appeals, it cannot be stated by any stretch of imagination that there was any cornering or attempted cornering of shares. It is unnecessary for us to express any view on this question in view of our finding that cornering of shares or an attempted cornering of shares is not a legitimate reason under Regulation 42 to refuse to register the transfer of shares.
32. In all the fifteen appeals the reasons disclosed for the refusal to register the transfer of shares are identical. All the fifteen appeals thus fail. Accordingly, these appeals are dismissed. There will be no order as to costs.