TMI Blog1962 (4) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... Mehta and Central Bank, Executor and Trustee Company Private Limited. The copies of the relevant transfer deeds signed by the registered holders, the receipts, the bills and other documents have been annexed to the affidavit in reply and marked "A". On the 14th June, 1960, the petitioner wrote to its bankers, the Punjab National Bank Limited, enclosing the transfer deeds for 200 shares which stood in the name of the respondent No. 2 and requesting the bank to take steps to have the shares registered in the petitioner's name. On the 16th June, 1960, a similar letter was addressed to the Punjab National Bank Limited by the petitioner in respect of the 300 shares registered in the name of the respondent No. 3. The respondent No. 1, namely, the Jay Engineering Works Limited, on October 15, 1960, had passed a resolution for increase of share capital of the company. Then on January 13, 1961, a resolution was passed under section 81 of the Companies Act, 1956, offering right shares and the proposal was that two shares would be allotted for every three shares. The letters of allotment and renunciation were sent out by the company on 31st January, 1961, offering two shares for every t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny." Article 35 of the English Companies Act of 1929 made certain alterations to these provisions. It provided that "subject to any direction to the contrary that may be given by the company in general meeting all new shares shall, before issue, be offered to such persons as at the date of the offer are entitled to receive notice from the company of general meeting in proportion, as nearly as circumstances admit, to the amount of the existing shares to which they are entitled ". The language, therefore, was altered but the provision remained substantially the same, namely, that the new shares were to be offered to the "members". The language of Regulation 42 in Table "A" to the Indian Companies Act, 1913, was exactly, the same. It provided that the new shares "shall, before issue, be offered to such persons as at the date of the offer are entitled to receive notices from the company of general meetings in proportion, as nearly as circumstances admit, to the amount of the existing shares to which they are entitled ". By Act of 1936 section 105C was introduced into the Indian Companies Act of 1913. This section ran thus: "Where the directors decide to increase the capital of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... honoured it and failed to pay. The seller sued the buyer and the respondent, parties to whom the buyer had handed the certificates and transfers. He claimed from the respondents the return of the certificates and transfers and damages. By rule C of the Bombay Stock Exchange, upon dishonour of a cheque for the price of shares sold, they were to be returned to the seller and, if cash was not then paid, they were to be sold by auction. It was held that the seller's only rights were against the buyer upon the cheque and for the price. The subject of the sale was the right to be placed on the register, a chose-in-action which was within the definition of "goods" in section 76 of the Indian Contract Act, 1872, and under section 35 of that Act there had been a complete delivery, excluding any right of lien, while section 121 precluded the seller from, rescinding the contract in the absence of any stipulation in the contract. The facts of this case were that the second plaintiff, Arajania, who described himself as the sub-buyer of the first plaintiff, Bharucha, a certified share-broker, sold on the Bombay Stock Exchange to the first defendant, Gora, certain shares in Alcock, Ashdown . C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods at the time of the contract, for the contract was only for so many shares of Alcocks ', not of any particular shares, but then section 83 provides: 'Where the goods are not ascertained at the time of making the agreement for sale, but goods answering the description in the agreement are subsequently appropriated by one party for the purpose of the agreement, and that appropriation is assented to by the other, the goods have been ascertained, and the sale is complete.' So soon, therefore, as Arajania, acting for Bharucha, handed Gora the certificates and transfers, and Gora accepted them and gave the cheque, the goods became ascertained goods, the sale was complete and the property passed. From that time onwards Bharucha and Arajania could only sue Gora on the cheque, or for the price of the shares unpaid in respect that the cheque had not been honoured. They had no longer any jus in re of the certificates and transfers. They had no statutory lien, for they had parted with possession, and, consequently, as they had no contracts with the defendants Nos. 2 and 3, they could not sue them for the delivery of the shares, whether the defendants had got good title as against Gora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1960. It is alleged in paragraph 6 of the petition in the instant case that by a resolution passed on January 13, 1961, the directors of the respondent company in terms of section 81 of the Companies Act on or about the 30th January, 1961, offered the said new shares to the holders of equity shares in the company. It is not necessary, therefore, to consider the provisions of section 81 as it originally stood. I shall set out in full these provisions as they now stand. But the portions introduced by the amending Act have been underlined. ' " 81. Further issue of capital. (1) Where at any time after the expiry of two years from the formation of a company or at any time after the expiry of one year from the allotment of shares in that company made for the first time after its formation, whichever is earlier, it is proposed to increase the subscribed capital of the company by allotment of further shares, then, ( a )such further shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid up on. those shares at that date ; ( b )the offer aforesaid sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r ( b ) to the increase of the subscribed capital of a- public company. caused by the exercise of an option attached to debentures issued or loans ' raised by the company ( i ) to convert such debentures or loans into shares in the company, or ( ii ) to subscribe for shares in the company : Provided that the terms of issue of such debentures or the terms of. such loans include a term providing for such option and such term ( a ) has been approved by a special resolution passed by the company in general meeting before the issue of the debentures or the raising of the loans ; and also ( b ) either has been approved by the Central Government before the issue of the debentures or the raising of the loans, or is in conformity with the rules, if any, made by that Government in this behalf." It is evident from a comparison of the provisions, of the older Acts and Regulations with those of section 81 that there has been a deliberate departure by Parliament. Previously where increase of capital was proposed by issue of further, shares such shares had first to be offered to the "members". Now the legislature prescribes that they shall be offered to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section 81( i )( a ) but in every other part of that section wherever it has been necessary to do so. Upon considering this matter from all these points of view it seems to me that "the further shares" envisaged by section 81 are to be offered to the "persons" who at the date of the offer are "holders" of these equity shares of the company and, unless the articles otherwise provide, the offer shall be deemed to include a right exercisable by the "person" concerned to renounce the shares offered to him or any of them in favour of any other "person". The "persons" who are entitled to receive this offer are not necessarily "members" of the company. I visualise the difficulty that may arise by reason of this conclusion of Section 81. For example, it may be, that the company has objections valid and substantial to enter in its register the name of the "person" to whom a "member" has sold his shares ; but such a "person" would be entitled to receive the offer for subscribing for "further shares" in terms of section 81. A company which envisages a difficulty of this nature may resort to the procedure laid down in sub-section (1-A) and offer the new shares to such "persons" as the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is-a-vis the company in the instant case if the respondents Nos. 4 and 5 are volunteers they are also "persons" whose names have not yet been registered ; the purchaser's right and the volunteer's right appear in the circumstances to be the same ; and between the two equities the first in time will prevail: vide Snell's Principles of Equity, 25th edition, pages 27 and 43. These propositions, of Mr. Chaudhuri were not disputed by Mr. Mitter appearing for the respondents Nos. 2 to 5. Mr. Mitter contended, however, that the respondents Nos. 4 and 5 were bona fide purchasers for value of the right to receive these new shares and as such the considerations put forward by the learned counsel for the petitioner do not apply to them. I have, therefore, to express my views on this contention of Mr. Mitter. When under section 81(1)( c ) the offeree of new shares exercises his rights to renounce the shares offered to him in favour of any other person, the nominee gets a right to accept the offer and complete the contract. Obviously, the nominee gets an enforceable right to compel the issue of shares. This is a chose in-action and is capable of being sold or dealt with. If the nominee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at is relevant is the amount, if any, that has been paid to the persons who renounced their rights to purchase the new shares. , On this point the affidavit is significantly silent. I shall now come to the affidavit of Vinod Chandra Chunilal Mehta, the respondent No. 3 also of No. 43 Mahatma Gandhi Road, Bombay, affirmed on the 9th August, 1961. In paragraph 5 of this affidavit Vinod Chandra says, "I renounced my right to the said 366 2/3 shares in favour of the respondents Nos. 4 and 5 being the trustees of Banu Master Trust. I am informed and verily believe that the respondents Nos. 4 and 5 also filled in and signed the said form "C" and sent application moneys at the rate of Rs. 4.50 per share to the company on the 9th February, 1961." In paragraph 7 of this affidavit he says, " I have in any event sold and validly renounced the right to 366 2/3 new equity shares in favour of Banu Master Trust . "In paragraph 8 of this affidavit he says, "that the respondents Nos. 4 and 5 are purchasers of the said right without notice". In paragraph 3 of this affidavit he states, "I confirm and repeat each and every statement, contentions and submissions made in the said affidavit of Sir Chun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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