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TMI Blog1952 (2) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... also the enforcement of the pledge by the guarantor. He has proved the promissory note and the guarantee and is, therefore, entitled to the money decree claimed against Pandit Shirali & Co. and Hemmad. The difficulty arises with regard to the other part of the plaintiff's claim, namely, his enforcement of the pledge. This claim is opposed by defendant 3, the Orient Movietone Corporation Ltd. I will call this defendant, the defendant company. It says that it has a prior charge over the shares. This question of priority was the principal point argued in this case. The defendant company also denied that the plaintiff had any pledge. As I have said, the plaintiff proved the pledge and produced the share scrips and transfers. These transfers are, however, completely blank except for the signatures of Hemmad and of a witness who attested Hemmad's signatures thereon. It does not seem to me that this condition of the transfers makes the pledge invalid and I did not understand learned counsel for the defendant company to contend seriously that it was so. It is well settled that the person, to whom share scrips and transfers in blank as to the name of the transferee and the date of the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sult in an actual pledge as the scrips were not delivered in terms of the agreement. There is no evidence of any agreement creating a charge on the shares without a pledge. The result is that the defendant company cannot establish that in February, 1949, it acquired any right to the shares which would have been binding on the plaintiff. It is also clear that, even if it had acquired any rights then, such rights must, on the facts proved, have been of a kind which would have ranked in priority after the pledge in the plaintiff's favour because the plaintiff's rights accrued earlier and no equity has been established entitling the defendant company to supersede the plaintiff. The defendant company then contends that it has, in any event, a lien on the shares under Article 39 of its articles of association. That article is in these terms: "The company shall have a first and paramount lien upon all the shares registered in the name of each member (whether solely or jointly with others) and upon the proceeds of sale thereof for his debts, liabilities, and engagements, solely or jointly with any other person to or with the company, whether the period for the payment, fulfilment, or dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies Act which is in the same terms as the section in the Indian statute. The extent of the contractual force given to the articles by the statute has always been and still is a question which cannot be regarded as fully settled. This is recognised in those judicial decisions themselves. One of the authorities, which Das J. called to his aid, is a passage in Halsbury's Laws of England (1932 Edition), Vol. V, Article 256, at p. 142. That passage, as in the case before Das J., is concerned with the binding force of the articles as a contract between the members inter se. I am concerned with the binding force of the articles as between a member and the company. This position is considered in Article 255 at p. 140 of the volume in Halsbury's Laws of England already referred. It is there stated: "The articles constitute a contract between the company and a member in respect of his rights and liabilities as a shareholder, and the company may sue a member and a member may sue a company to enforce and restrain breaches of the regulations contained in the articles dealing with such matters." It would not be wrong to presume from the reasoning employed by Das J. that he would have expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant company was in February 1949. The question then arises, who has the priority, the defendant company under its lien or the plaintiff under its pledge? On this point Bradford Banking Co. Ltd. v. Briggs Son & Co. Ltd., is again an authority. There Easby had pledged the shares with the Bradford Banking Co. Ltd. as security for the balance due and to become due on his current account with the banking company. The banking company had given notice of the pledge to Briggs Son and Co. Ltd., who replied that Easby was indebted to them and, under their articles, they had a first and paramount lien on the shares. A question arose as to who had the priority and it was held that Briggs Son & Co. Ltd. had priority in respect of the money that had become due to it before the Bradford Banking Co. Ltd. had given notice of the pledge but not in respect of the moneys that became due to it subsequent to the notice. It was held that the service of the notice decided the question of priority. Lord Blackburn put the matter thus at page 36: "The first mortgagee is entitled to act on the supposition that the pledgor who was the owner of the whole property when he executed the first mortgage continued s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to secure advances received by him from that person. The question arose, whether the lien or the pledge had the priority. It was held, following Rainford v. James Keith & Blackwan & Co. Ltd., that notice to the directors even in their personal capacity was notice to the company. It was also held that as the director was the agent of the company notice to him was notice to the company and the only exception was where the agent was acting in fraud of the principal. With regard to the last proposition, I think, it states the law too broadly. The correct proposition may be gathered from Bowstead on Agency (10th Edn.) Article 110, page 222, and it is that knowledge acquired by an agent otherwise than in the course of his employment on the principal's behalf is not imputed to the principal. In pledging the shares to the plaintiff, Hemmad was not obviously acting as the director of the defendant company and his knowledge of the pledge was, therefore, not the knowledge of the defendant company. Now, coming to Rainford v. James etc., Co. Ltd., on which also the Allahabad case is based, it appears that the rules of a company provided that no transfer of shares would be effected without th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bargain, they acted as agents of the company and had notice of the plaintiff's rights, the notice must, of course, be imputed to the company. The facts in the present case are different. The agreement of guarantee by Hemmad was made on behalf of the company by its directors other than Hemmad. Such directors had no knowledge of the pledge by Hemmad and Hemmad's knowledge of the pledge cannot be imputed to the defendant company, for such knowledge was not received by Hemmad as agent of the company. In making the pledge he was in fact acting for himself and not the company. The Allahabad case may be justified by reason of the special provision in the articles of the company there concerned, making Debi Dutt, in substance, the sole director of the company. In the case before me there is no such provision. I am unable, therefore, to agree that In re Union Indian Sugar Mills Co. Ltd., covers the present case. It was then said that the defendant company had waived its lien because it entered into the agreement for pledge with Hemmad in February, 1949. Rajib Nath v. Chota Nagpur Banking Association Ltd. was cited as an authority for this contention. There, the defendant bank had an ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scharged to the extent to which the promisee has waived his rights." It is true that if a person having a contractual lien creating an equitable charge in his favour accepts a pledge of the goods over which he has the lien, the lien disappears by waiver, for the pledge is a higher security than the equitable charge and the acceptance of it implies an intention to give up the lower security. As is stated in the passage just read from Halsbury, in order to have this effect the pledge must have been created, or to put it in the language of that passage, "the new arrangement must in fact be carried out." Now, in the present case there was only an agreement to pledge which had never been carried out. The pledge had never in fact been made in terms of the agreement to make it. It cannot be said that a mere agreement to take a pledge amounts to a waiver of the existing lien. There is in such a case no executed contract giving up the lien nor any conduct creating an estoppel against the exercise of the rights under the lien. In the Patna case there may have been waiver because an order for sale had actually been made expressly providing that the sale would be without any incumbrance. I am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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