TMI Blog1977 (4) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... f Ramnad held 5,000 shares in the third defendant-company. Under Ex. B-1, the late Raja borrowed a sum of Rs. 25,000 on the pledge of such shares as above and the pledge is evidenced by a letter Ex. B-2, which bears the same date as the promissory note, Ex. B-1, namely, January 25, 1960. Under Ex. B-3, the said loan was renewed. On the same security, the Raja further borrowed a sum of Rs. 10,000 under Ex. B-4, and under Ex. B-5, the shares were received as security for the additional borrowings also. It is common ground that on the date when the shares were pledged with the intention of creating a security for the borrowings made, the blank transfer forms exhibited as Ex. B-31 (Ex. A-15) were handed over by the Raja to defendants 1 and 2. As the Raja failed to repay the amounts borrowed, there was a notice of demand for payment by the creditors. Apparently finding that he could not pay off the debts, the Raja bargained with the plaintiff to sell the shares to the 1st plaintiff for a sum of Rs. 50,000 with a direction to the first plaintiff to discharge the debts due to defendants 1 and 2 out of the said sale consideration and pay the balance thereof to him. The transaction of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d see them to complete the transaction. In the first instance, the stand of defendants 1 and 2 was that they had title to the shares and that the sale of such shares by the Raja to the first plaintiff was invalid. This is seen from Exs. A-3 and A-4. But this was later given up. Consequent upon the attitude of defendants 1 and 2, the first plaintiff wrote a letter, Ex. A-5, enclosing the amount due and payable to them as pledgees of the 5,000 shares and called upon defendants 1 and 2 to send the share certificates together with the transfer form and other documents duly discharged. This letter was refused by the defendants. Finally under Ex. A-12 dated 27th January, 1967, the first plaintiff once again called upon defendants 1 and 2 to respect their obligations. For a second time, the defendants 1 and 2 took up again the stand that they were the owners which for purposes of completion was reiterated, is not the present stand of defendants 1 and 2. In the trial and before us the only stand taken up is that they are the pledgees and quite in consonance with the latter stand taken by them, they have instituted O.S. No. 658 of 1970, to enforce the pledge on the securities and for other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t bound to deliver the share certificates to the plaintiffs after receiving a sum of Rs. 37,747.21? (3)Whether the 3rd defendant-company is not bound to effect the transfer of the said shares from the name of late Raja of Ramand to the name of the plaintiffs? (4)Whether the defendants 1 and 2 are liable to pay to the plaintiffs the costs of the suit? (5)To what reliefs are the parties entitled to? Issues in O.S. No. 658 of 1970: (1)Is the 18th defendant the absolute owner of the 5,000 equity shares in Sri Krishna Tiles and Potteries (Madras) Private Ltd., and was the title to those shares legally and validly transferred to him? (2)Is the 18th defendant entitled to redeem the 5,000 shares in question by making a payment to the plaintiffs? (3)Is not the 18th defendant bound to pay the interest on the amounts due by the late Raja of Ramnad in respect of the suit promissory notes? The learned trial judge was of the view that the plaintiffs cannot be said to be the owners of the 5,000 shares in question and, therefore, they are not entitled to redeem the pledge in favour of defendants 1 and 2 and that the right of redemption still remains with the legal representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer forms and such other instruments and orders under the company law as are necessary in the eye of law which would prompt an incorporated company to consider such applications for transfer and act legally thereon. Contending contra, Mr. Dulipsingh appearing for some of the legal representatives of the Raja, to wit, respondents 8 and 9 would say that there was no valid transfer or transmission of the shares or any right annexed thereto in favour of the plaintiffs at any time and after referring to the provisions of the Companies Act and the Sale of Goods Act, he would vehemently contend that there is in praesenti no light in the plaintiffs to seek for a declaration that they have secured a right over the shares, whatever may be the quality of such right and for a mandatory injunction directing defendants 1 and 2 to receive the principal amount from them and hand over the share certificates as also blank forms of transfer to enable them to further their rights in the share certificates. The other legal representatives of the Raja are not opposing the plaintiffs' right to obtain the declaration as prayed for before us. Though at one stage, defendants 1 and 2 would take up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s title. This understanding of the expression "possession" would stand in the forefront, if there is any ambiguity in a given case as to the person who could be said to be in possession of the goods. If, therefore, the title in the goods is traceable to a particular person, then possession would follow such title. In the instant case, as already stated by us, the accepted case of defendants 1 and 2 is that the shares belonged to the Raja and that they were in possession of the same as pledgees. Possession sometimes is interpreted and understood as an indivisible right and law imports a rule by which legal possession is always with the person who has title to the goods. This by itself is sufficient to hold that the legal possession or the right to possess or to have legal possession was with the Raja at or about the time when the Raja bargained for the sale of the shares with the plaintiffs. The so called doctrine of double possession referred to in section 36(3) of the Act has to be understood in the pale of normal general principles relating to possession. Merely because physical possession is with a third party, it would not automatically follow that the person who is entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would operate as a valid delivery of such goods notwithstanding the non-co-operation of the person in physical possession of the goods by refusing to attorn or acknowledge to the buyer that he holds the goods on his behalf. We are unable, therefore, to agree with the contention of Mr. Dulipsingh that in the instant case, there could be no delivery of the goods at all because the shares were in the possession of a third party. As each case has to be decided on its relative merits, it appears to us that by reason of the issuance of the blank transfer forms, which is one of the accredited methods under the law merchant by which shares could be transferred by one to the other, by the mere fact that such goods or shares were in the possession of the defendants 1 and 2 at the time of their sale by the Raja to the plaintiffs there could be no delivery at all, is not an acceptable proposition. As pointed out by Sri Fredrick Pollock, "delivery" means "a voluntary dispossession in favour of another". In all cases, "the essence of delivery is that the delivery by some apt and manifest act puts the deliverance in the same position of control over the thing either directly or through a custod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les of association of the company. Realising again this difficulty section 130 of the Transfer of Property Act is invoked. No doubt under section 130 of the Transfer of Property Act, the transfer of an actionable claim shall be effected only by the execution of an instrument in writing signed by the transferor and shall be complete and effectual upon the execution of such instrument. But it should not be forgotten that section 137 of the Transfer of Property Act makes it clear that the other provisions in Chap. VIII commencing from sections 130 to 136 do not apply to stocks, shares, or debentures or instruments which are for the time being by law or custom negotiable or mercantile documents of title to goods. In Kunhunni Elaya Nayar v. Krishna Pattar [1942] 12 Comp. Cas. 180; ILR 1943 Mad. 115; AIR 1943 Mad. 74, the well-known practice of shares being the subject-matter of a valid pledge by a mere deposit of a share certificate unaccompanied by deed of transfer has been recognised. The question, therefore, in the instant case, has to be considered in the light of such accepted practice. If such shares could be pledged by its owner without an instrument, then a method by which h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 Comp. Cas. 43 ; AIR 1974 SC 1728. The Supreme Court in the above case approved of the well-known dicta of the Privy Council in what is commonly known as Bharucha's case, AIR 1926 PC 38 (M. P. Bharucha v. W. Sarabhai Co.). The following passage from the speech of the House of Lords was approved by the Supreme Court ( 45 Comp Cas 43 , 50) (also AIR 1926 PC 38, 40): "But, further, there seems to their Lordships a good deal of confusion arising from the prominence given to the fact that the full property in shares in a company is only in the registered holder. That is quite true. It is true that what Bharucha had was not the perfected right of property, which he would have had if he had been the registered holder of the shares which he was selling. The company is entitled to deal with the shareholder who is on the register, and only a person who is on the register is in the full sense of the word owner of the share. But the title to get on the register consists in the possession of a certificate, together with a transfer signed by the registered holder. This is what Bharucha had. He had the certificates and the blank transfers, signed by the registered holders. It would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intention in writing to the pledgees to hand over the shares to the purchaser after receiving the monies due and payable to him and contemporaneously putting the transferee or purchaser on notice of his having so expressed himself. This has been done in this case, as is seen from Exs. A-16, A-1 and A-2. On a consideration of the facts of this case and after giving our considerable thought over the legal contentions raised, we are of the view that section 36(3) of the Sale of Goods Act would not bar the sale of shares which are the subject-matter of a valid pledge by executing a blank transfer form accompanied by a letter in writing addressed to the pledgee directing him to deliver possession of the shares to the purchaser who is also at or about the same time put on notice of such a direction to obtain delivery. It is in these peculiar circumstances that the blank transfer form could be understood as a mercantile document. It is also pertinent to observe that the other legal heirs of the Raja are not taking up the stand taken by respondents Nos. 8 and 11. The last contention of Mr. Dulipsingh is that until the company recognised the transfer, the property in the shares cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iptions laid down in section 108 of the Companies Act. But this cannot be taken advantage of by respondents 8 and 11. Their father has sold the shares in a manner known to law and common to the practice prevailing and as pointed out by the Supreme Court in Vasudev v. Pranlal [1975J 45 Comp. Cas. 43 ; AIR 1973 SC 1728 and as pointed out by us earlier, the plaintiffs undoubtedly obtained the title to get on the register, though there is time enough for them to obtain a full property right in the shares after complying with the mandatory provisions in the Companies Act. In the above circumstances, the plaintiffs could only be entitled to a declaration that the second plaintiff is the owner of the 5,000 shares, the description of which is given in the plaint, in the Krishna Tiles Potteries (Madras) Private Ltd., the third defendant herein and also for a direction as against defendants 1 and 2 to receive from the second plaintiff, the sum of Rs. 37,747.21 and deliver over to him the share certificates with the relevant transfer forms and other instruments duly cancelled. The plaintiffs would not be entitled to a mandatory injunction compelling the third defendant-company to effe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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