TMI Blog1970 (9) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... ther outstanding liabilities of the appellant to other members of the exchange and to the. exchange which are. enforceable under the articles. The appellant is entitled to receive from the exchange the balance remaining due after deducting the aggregate amount or value of the obligations. He will be entitled to interest on the balance at the rate of 6% per annum from the date of the institution of the suit. Parties will bear their own costs throughout. - 1626 OF 1966 - - - Dated:- 25-9-1970 - J.C. SHAH AND A.N. GROVER, JJ. R.B. Datar for the Appellant. B. Sen, N.R. Khaitan and B.P. Maheshwari for the Respondent. JUDGMENT Shah, J. Naresh Chandra Sanyal was the holder of a fully paid-up share of the Calcutta Stock Exchange Association Ltd. hereinafter called "the exchange". As a member of the exchange he was authorised to carry on business as a broker in shares, stocks and securities in the hall of the exchange. In December, 1941, Sanyal purchased one hundred shares of the Indian Iron Steel Company Ltd. from Johurmull Daga Company, but did not arrange to take delivery of the shares on the due date. Johurmull Daga and Company sold the shares purs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no resolution for the expulsion of a member or if being a firm any member or authorised assistant of the firm shall be valid unless passed by a majority consisting of not less than two-thirds of the members of the committee at a meeting specially convened for the purpose and at which meeting not less than seven members of the committee shall be present". Article 22 : "Any member who has been declared a defaulter by reason of his failure to fulfil any engagement between himself and any other member or members and who fails to fulfil such engagements within six months from the date upon which he has been so declared a defaulter shall at the expiration of such period of six calendar months automatically cease to be a member". Article 24 : "Upon any member ceasing to be a member under the provisions of article 22 hereof and upon any resolution being passed by the committee expelling any member under the provisions of article 21 hereof or upon any member being adjudicated insolvent the share held by such member shall ipso facto be forfeited". Article 27 : "Any share so forfeited shall be deemed to be the property of the association, and the committee shall sell, re-a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is preferred with the decision of the standing or special sub-committee, such member or members so in default shall be dealt with by the committee under the rules, regulations and/or bye-laws of the association for the time being in force". Bye-law 13 : " Defaulters. Any member who shall fail to pay any subscription or other moneys due by him to the association, on due date, or who shall fail to fulfil any engagement between himself and another member or members may be declared a 'defaulter' by the committee and on such declaration his name shall be posted as a 'defaulter' on the notice board of the association and so long as his name remains so posted he shall not be at liberty to exercise any of the privileges of membership". Under the scheme of the articles of association of the exchange, the committee is authorised to expel or suspend a member on the ground, inter alia, that he refuses to abide by the decision of the committee in any matter which is under the articles or under the bye-laws referred to the committee. A person declared a "defaulter" because he has failed to fulfil any engagement between himself and any other member or members within six months ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The argument raised by counsel for Sanyal that a member of the exchange forfeits his share only if a resolution expelling him and a resolution declaring him a defaulter are passed is without substance. The conjunctive "and" between the first two clauses of article 24 is used to indicate an alternative, and does not make the two conditions cumulative. We agree with the observations of Panckridge J. in Surajmall Mohta v. Ballabhdas Mohta [1936] ILR 63 Cal. 531 that article 24 "is carelessly drawn, because, on its literal application, before his share could be forfeited, a member would both have to be expelled by the committee under article 21 and automatically cease to be a member under article 22. Clearly this cannot be the intention of the article and it is obvious that by a slip, 'and' has been substituted for 'or'". In any event the full committee passed on February 19, 1942, a resolution declaring the appellant a defaulter. The appellant did not carry out his engagements for a period of six months thereafter. By resolution dated September 1, 1942, at a meeting of the full committee the appellant was expelled from the membership of the exchange and it was resolved that hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is appeal. The court held that the exchange was not liable to file any return of the forfeited shares under section 75(1) of the Companies Act, 1956, when the same were reissued. The court observed that when a share is forfeited and re-issued, there is no allotment, in the sense of appropriation of shares out of the authorised and unappropriated capital, and approved the observations of Harries C.J. in S.M. Nandy's case ( supra ) that : "On such forfeiture all that happened was that the right of the particular shareholder disappeared but the shares considered as a unit of issued capital continued to exist and was kept in suspense until another shareholder was found for it". In the view of this court, the shares so forfeited may not be " allotted " in the sense in which that word is understood in the Companies Act. The court also pointed out that re-issue of forfeited shares is not allotment of the shares but only a sale, for, if it were not so, the forfeiture even for non-payment of call would be invalid as involving an illegal reduction of capital. Article 27 of the exchange, it may be recalled, is in terms mandatory. The share forfeited to the exchange must be re-allotted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmittee and the full committee which rendered the forfeiture of Sanyal's share illegal. It is not in dispute that Sanyal incurred liability in favour of one of the members of the exchange to pay Rs. 438-10-0 in the transaction relating to the sale of Indian Iron Steel Company's shares and he failed to discharge that liability. He continued to remain in default for six months even after the resolution of the full committee, and on that account he ceased to be a member and his share was forfeited. The High Court has found that the copies of the letters dated 9th, 10th, 16th, 17th and 20th December, 1941, and of 8th January, 11th 19th February, 1942, were sent to Sanyal and the usual notices relating to the complaints placed before the sub-committee or the full committee were served upon Sanyal, that such notices were pasted on the notice board of the exchange, that the appellant had opportunities at all stages of the proceedings to come before the exchange and refute the charges made against him and that at no stage of the proceeding until September 1, 1942, did Sanyal appear before the sub-committee or the full committee. The High Court was of the view that the order had not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hands of the exchange had to be held for and on behalf of the appellant. That is expressly provided in article 33. The expression used in article 29 "the forfeiture shall involve the extinction of all interest" is subject to those rights as by the articles are saved, and article 33 saves to the defaulting shareholder whose share is forfeited the right of the balance remaining with the exchange. Even assuming that articles 24 and 31 reserve to the exchange two distinct powers the power to forfeit and the power to exercise a lien, and that article 33 only applies to sale in enforcement of a lien, and not to a sale under article 27, we are of the view that the balance on hand after satisfying the liability of the defaulter must still be returned to the defaulting shareholder. The power to forfeit does not imply authority to appropriate the balance remaining in hand after satisfying the liabilities and obligations of the defaulter to the exchange and its members. Any such implication would be contrary to the intendment of section 74 of the Contract Act. The power of the exchange to forfeit the shares arises out of the articles and its source is in contract. Forfeiture of share is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rem is a penalty and the court refuses to enforce it, awarding to the aggrieved party only reasonable compensation. The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law, by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach, and stipulations by way of penalty". The court also observed at page 530 : "Section 74 declares the law as to liability upon breach of contract where compensation is by agreement of the parties pre-determined, or where there is a stipulation by way of penalty. But the application of the enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff. The section does not confer a special benefit upon any party; it merely declares the law that notwithstanding any term in the contract pre-determining damages or providing for forfeiture of any property by way of penalty, the court will award to the party aggrieved only reasonable compensation not exceeding the amount named or penalty stipulated". Granting that article 33 deals with those cases in which lien alone is enforced and not in cases where forfeiture is levied, an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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