TMI Blog1980 (2) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... by the New Bank of India Ltd. The respondents impleaded are the Union of India and the Public Trustee to the Government of India, Department of Company Affairs. It is averred that the petitioner-bank in the normal course of its banking business is having a large number of cash credit accounts against the security of shares, etc. One such account is being maintained by the Universal Investment Private Ltd. from December 12, 1968, at the bank's office in K-Block, Connaught Circus, New Delhi. The credit limit permissible in this account is up to Rs. 4,50,000. That concern has, apart from executing a pronote in favour of the bank for Rs. 4,50,000 as collateral security, handed over to the bank 67,600 shares of Rs. 10 each held by it in the Jaipur Udyog Ltd. and given blank transfer deeds as security towards the payment of the amount. A further agreement for cash credit account was executed by this concern on August 20, 1971, and the shares were pledged in favour of the bank. In terms thereof the bank was given full authority either to sell the shares or to get them transferred in its favour. The bank accordingly got those shares transferred in its name. This was also in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition No. 787 of 1978, the petitioner No. 1 is the Sutlej Cotton Mills Ltd. (hereinafter called "the Sutlej Cotton") and the petitioner No. 2 is the Gwalior Rayon Silk Manufacturing (Weaving) Company Ltd. (hereinafter called "the Gwalior Rayon"). The respondents impleaded are the Union of India, the Public Trustee and the Punjab National Bank, Bhawani Mandi. The facts enumerated are that the Sutlej Cotton pledged and/or deposited 1,46,000 equity shares of Rs. 10 each which it held in Gwalior Rayon with the Punjab National Bank, Bhawani Mandi, as collateral security, in consideration of the bank agreeing to stand guarantee for the machinery purchased by Sutlej Cotton's unit known as "Rajasthan Textile Mills" on deferred payment terms. Those shares were subsequently got registered with the Gwalior Rayon in the name of the bank during the period from February 24, 1975, to January 21, 1977. By this pledging and/or deposit of shares, a mere charge was created over the shares in favour of the bank which held them as a bailee for the specific purpose. A resolution of the board of directors of the Sutlej Cotton was passed on June 25, 1974, giving out the circumstances in which the shares w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferred in its favour. Trusts, it is pleaded, are of various kinds and included constructive trusts also. The expressions "trust" and "trustee" appearing in section 153B, it has been urged, are used in a general sense and not in the technical sense given to them by section 3 of the Indian Trusts Act. The beneficial interest in those shares, it is pointed out, still vests in the Sutlej Cotton. Various documents have been filed from the side of the petitioners. One of them dated April 3, 1974, is addressed by the Punjab National Bank to the Rajasthan Textile Mills Unit of the Sutlej Cotton in which it was intimated that the bank had extended deferred payment guarantees for an amount of Rs. 36.50 lakhs. The securities required from the Rajasthan Textile Mills were the counter-indemnity and the pledge of shares of Gwalior Rayon to the extent of 125% of the guarantee amount. The charge was to be got registered with the Registrar of Joint Stock Companies and the shares also transferred in the name of the bank as per rules. Another document shows that the Punjab National Bank in compliance with the notice of the Public Trustee submitted the required declaration under section 153B of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... another letter, the name of the company in which the shares were held, namely, the Gwalior Rayon, was elaborated and an hypothecation agreement was also executed on September 3, 1973. While forwarding the shares to the bank, the Sutlej Cotton in its letter dated August 8, 1973, mentioned that they were being sent as security for issuing the deferred payment guarantee. The bank, however, informed in writing that the shares be transferred in its favour. This was done accordingly. During the course of the hearing of this writ moved by the Sutlej Cotton and the Gwalior Rayon, it was found that the Punjab National Bank had not made any appearance. The other respondents, therefore, sought that the bank should be required to produce the documents which the Sutlej Cotton might have executed while obtaining credit and the transfer of shares. Directions were, therefore, issued to the bank to file those documents. Some documents were thereafter filed along with an affidavit to the effect that, apart from them, no other document existed in the possession of the bank. It thus appears that no formal document was executed between the bank and the Sutlej Cotton about the pledging of the shares. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further fine which may extend to Rs. 100 for every day's default. Section 187B further enjoins that the rights and powers (including the right to vote by proxy) exercisable at any meeting of the company, etc., cease to vest in the trustee but become exercisable by the Public Trustee. The latter is empowered to attend the meetings and exercise these rights and powers himself or require the trustee to do so under his directions. The Public Trustee, however, may abstain from exercising these rights and powers, if in his opinion the object of the trust or the interest of the beneficiaries of the trust are not likely to be adversely affected by such abstention. The trustee on his part may advise the Public Trustee but it is left to the latter's discretion to accept or reject the same. The Public Trustee is also conferred the rights and powers to receive and inspect all books and papers which a member is entitled to receive and inspect. Section 187C makes provision for the filing of declarations with the companies concerned by the holders of shares who do not hold the beneficial interest in such shares. Similar requirement is enjoined on the holders of beneficial interests also. On t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o held in the case of Nandkishore Bajoria v. Gaya Sugar Mills Ltd., AIR 1953 Pat. 390, that section 185 of the Indian Companies Act, 1913, was confined to trusts as defined in section 3 of the Trusts Act. Distinction was drawn between an express trust and a constructive trust. The later category was opined as not covered by the provisions of section 185 of the Indian Companies Act, 1913. From the side of the Public Trustee, it has been contended that the word "trust" as used in section 153B has not to be understood in the legal concept as envisaged by the Indian Trusts Act, but has to be given the common parlance meaning of faith or confidence reposed. The same was claimed as analogous to trust or confidence or tacit belief which one may have in another. In our opinion, however, when certain terms have become words of well-recognised legal import, they have to be understood as such when found introduced in any statute, unless they are denned otherwise or are stated in a different context. There is, therefore, no reason to ascribe a different meaning to the word "trust" occurring in section 153B of the Companies Act from what has come to be understood in the context of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han of the beneficiaries. The intention of these provisions was, therefore, not to interfere in the affairs of genuine trusts but to prevent the holding of securities by trusts to be used by a group of persons for the purpose of augmenting their own voting rights. A public trustee was, therefore, sought to be appointed to whom the exercise of voting rights was to be transferred. We next advert to the facts of the present cases as to what in substance were the nature of loan accounts and whether the transfer of shares in the form of extending securities in favour of the banks did result in the creation of trusts as envisaged by section 153B of the Companies Act. Ex facie, three factors were already discernible. Firstly, though the shares stood transferred in the names of the banks, the dividends accrued on them were credited to the respective cash credit accounts of the debtors. Thus, the benefit of those dividends was accruing to them. There was further an obligation to transfer back the shares to the debtors once the accounts were squared up. Thirdly, according to the Public Trustee, the voting rights were also being exercised by the banks at the behest of the debtors. In this w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey have vigorously contested in these writs the creation of any such trusts. In fact, these transfers seem to have resulted from the directives of the Reserve Bank of India to which reference had already been made above. The real object behind them continued to be to obtain absolute safeguard for the loans advanced. Perhaps it could as well be said that the necessity for these transfers was dictated by the desire to secure fully the interest of the bank lest any surreptitious disposing of those shares by the debtors in any manner took place. The present are not cases of the nature where trusts are created to enable individuals to derive personal advantages by way of control over companies to curb which section 153B was introduced in the Companies Act. Rather the banks have obtained transfers of shares for protection of their own interest and for their benefit. This does not appear compatible with the creation of a trust as in that case the beneficiary should be a third party or such party and the owner. Furthermore, a trustee is generally not entitled to dispose of or appropriate the trust property for his benefit. In the present cases, however, the rights of the banks to approp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s it would have suffered penalties in case it did not serve notices and other documents on the Public Trustee. The Sutlej Cotton, however, it seems has no right over the shares as long as they stand transferred in favour of the bank and the loan amount is not discharged. However, it cannot here also be ignored that the transfer of these shares was in the context of extending security to the loan and the company has a right to obtain back their transfer as and when the loan is discharged. The result, therefore, is that we allow these writs to the extent that the notices issued by the Public Trustee to the petitioners and the Punjab National Bank are quashed, and the Public Trustee is restrained from proceeding against the petitioners for any violation of those notices. Looking at the circumstances, we make no order as to costs. Ranganathan J. I agree. I think that in interpreting section 153B one should give due weight to the very careful language used in it, particularly when considered in contrast with that employed in section 153 and section 187C. Section 153 is very widely worded and embraces within its sweep all types of trusts, express, implied or constructive. Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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