1963 (5) TMI 10 - SC - Companies Law

Whether the court would have been within its right to direct his name to be included in the register even if the company was impleaded in the suit filed by Sir Padampat against Reddy? Held that - We are however unable to grant the relief to the plaintiff in view of our finding that Reddy could not be compelled as constructive trustee to buy new shares in his own name for the cestui que trust and further in view of our finding that even if he could be compelled to acquire those shares in his own name for the cestui que trust he could not be said to have defaulted in his duty in carrying out the directions of the cestui que trust as in this case no proper and valid requisition was made by the cestui que trust on the trustee for the acquisition of those shares. The plaintiffs in the two suits are therefore not entitled to any relief. For the reasons given above we allow Reddy s appeal and dismiss the cross appeal of Sir Padampat as well as the receiver s appeal and dismiss both the suits but in the circumstances of this case we will make no order as to costs in both the suits throughout.

Issues Involved:
1. Legal obligation of Reddy as a trustee to apply for and obtain new shares on behalf of Sir Padampat.
2. Sufficiency of the requisition made on Reddy to apply for new shares.
3. Impact of Sir Padampat's delay in lodging the shares for transfer.
4. Receiver's entitlement to apply for new shares in his own name.
5. Entitlement to specific reliefs in the altered situation of the company.

Detailed Analysis:

1. Legal Obligation of Reddy as a Trustee:
The court examined whether Reddy, as a trustee, was legally obligated to apply for and obtain new shares on behalf of Sir Padampat. It was established that Sir Padampat became the sole beneficial owner of the 484 shares sold by Reddy, thus creating a trustee and cestui que trust relationship. However, the court concluded that Reddy could not be compelled to apply for new shares in his own name for the benefit of Sir Padampat, as this would involve new obligations and liabilities. The court stated, "It is difficult to conceive any principle of equity which obliges a person in the position of a constructive trustee in respect of X number of shares to also become a constructive trustee in respect of an additional, say, Y number of shares and thus become a trustee of X plus Y shares."

2. Sufficiency of the Requisition:
The court analyzed whether the requisition made on Reddy by Messrs. Craigie Blunt & Caroe was legally sufficient. The requisition was deemed inadequate because it was made on behalf of some disclosed and other undisclosed beneficiaries, and the indemnity offered was considered illusory. The court noted, "A mere bald statement in the following words 'Our clients agree to indemnify you against each and every liability that you incur by applying for these partly paid up shares' was in our opinion wholly inadequate."

3. Impact of Sir Padampat's Delay:
The court considered whether Sir Padampat's delay in lodging the 484 shares for transfer until April 1945 affected his entitlement to reliefs. The court held that this delay did not disentitle Sir Padampat to reliefs, but it emphasized that the relationship of constructive trustee and cestui que trust could not be extended indefinitely.

4. Receiver's Entitlement:
The court evaluated whether the receiver was entitled to apply for new shares in his own name. The court concluded that the receiver could not acquire the newly issued shares in his name as he was not on the register of members. The court stated, "The receiver's name admittedly was not in the register and the company was not bound to entertain that application."

5. Entitlement to Specific Reliefs:
The court assessed whether the plaintiff was entitled to specific reliefs (a) and (b) in the altered situation of the company. The court found that the sanction given to the company to issue new capital had lapsed, and it was extraordinary to direct the company to obtain fresh sanction for issuing new shares. The court held, "It was an extraordinary procedure in a civil suit to direct a company which was no party to the original suit to obtain fresh sanction for the issue of new shares and then allot them to the plaintiff."

Conclusion:
The court allowed Reddy's appeal and dismissed the cross-appeal of Sir Padampat as well as the receiver's appeal. Both suits were dismissed, with no order as to costs throughout. The court concluded that Reddy could not be compelled to buy new shares in his own name for the benefit of Sir Padampat and that no proper and valid requisition was made by the cestui que trust on the trustee for the acquisition of those shares.

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