TMI Blog1958 (3) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... shares. Under the Articles, only the ordinary shares had voting rights. To become a director, one need not hold any share at all. The plaintiff was the Managing Director for life under the Articles and under an agreement entered into between the company and the plaintiff pursuant to the Articles. ( 3. ) At the beginning the company used to deal with imported medicines. In 1939 the plaintiff conceived the idea of manufacturing medicine and with that object the plaintiff appointed Dr. Mukherjee a very able chemist and put him in charge of the manufacturing side. Dr. Mukherjee was given full scope and every facility to manufacture medicine. Dr. Mukherjee in his turn proved his worth. Dr. Mukherjee's services to the company were recognised and he was made a director of the company in July 1940. In a formal resolution passed in a meeting of the Board of Directors held on May 4, 1943 the plaintiff as Managing Director recorded that the success achieved by the company was chiefly due to the quality products prepared by Dr. Mukherjee. The phenomenal success of the company will appear from the sale of its products which rose to over ₹ 50 Lacs from 1952 onward. Dr. Mukherjee& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Ordinary Shares. There is a minute of the Company to this effect. The plaintiff contends that it is false minute. Be that as it may, it is clear that there was open hostility between the plaintiff on one side and Dr. Mukherjee with whom Dr. Neogy sided on the other. Events began to move vapidly thereafter. A meeting of the Board of Directors was alleged to have been held at 4 P.M. in the office in which Dr. Mukherjee and Neogy were alleged to have been present. No notice of the meeting was given to the plaintiff because Dr. Mukherjee was proceeding on the basis that the plaintiff had ipso facto vacated his office as director. In this meeting a number of important resolutions were passed. Services of seven employees who, apparently, were loyal to the plaintiff were terminated. The plaintiff was deprived of the power of operating on Company's account. Messrs. Mukherjee and Biswas were appointed solicitor of the company and lastly the company was declared to have a lien on all the shares registered in the name of the plaintiff for the sum of ₹ 4 00,887/14/8 alleged to be a debt due by the plaintiff to the company on the said date. At or about the same time, all the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal was preferred. This is Appeal No. 56 of 1955. An injunction was issued on the plaintiffs application in Suit No. 3112 of 1954 restraining the sale of the same shares, as in the instant suit. Ultimately the suits were settled and withdrawn, and on 24-1-1956 the Receiver made over possession of the Company to Dr. Mukherjee pursuant to the order of the Appeal Court in Appeal No. 56 of 1956. On the same date the shares in suit were sold to the defendant, Ramapada Gupta for ₹ 2.67,520. The defendant Ramapada Gupta is alleged to have paid ₹ 1,30,000/- on account of price and the balance to be paid after delivery of the relevant share certificates. Ramapada's name was immediately entered in the share Register as the owner of the said shares in place of the plaintiff. This will appear from the letter written by the Company to Ramapada Gupta bearing date 24/25th January 1956. By a letter dated February 1, 1956 the plaintiff was informed by the Company that in enforcement of the lien the entire bunch of ordinary shares of the plaintiff had been sold and the purchaser's name had been entered in the register of members as the registered holder of the said shares. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay to the company the sum referred to in the letter dated 24-9-1954, that the same was presently payable and that the Company had lien on the shares of the plaintiff for the said sum, that the sale was properly effected in enforcement of the lien. It is alleged that the plaintiff is not entitled to challenge Ramapada's title as purchaser. It is denied that the sale was fraudulent or fictitious as alleged in the plaint. In paragraph 22 the point is taken that the suit is bad for non-joinder of necessary parties. In paragraph 23 it is pleaded that the suit is barred by the provisions of Order 2 Rule 2 and Order 23 Rule 1(3) of the Code of Civil Procedure by reason of the withdrawal of suits Nos. 8112 and 3117 of 1954 without permission to institute a fresh suit. The defendant Ramapada Gupta in his written statement made out substantially the same defence. In paragraph 1 of the written statement he sets out the informations he had when he purchased the shares. The only information he had was that the shares belonged to the plaintiff, that the plaintiff was indebted to the company for ₹ 4.00,887/14/8 for which the company had a lien, that due notice to enforce the lien was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the company. 7. Is the plaintiff entitled to rectification of the Share Register. 8. Did the plaintiff continue to be the owner of the shares in suit after the date of alleged sale. 9. Did Dr. S.L. Mukherjee or Dr. Neogy vacate their office of Directors or cease to be Directors of the Company as alleged in paragraph 9 read with paragraphs 7 and 8 of the plaint. 10. Is the suit bad for non-joinder of Dr. S. L. Mukherjee and Dr. Neogy. ( 11. ) To what relief or reliefs, if any, is the plaintiff entitled? 11. In support of his case the plaintiff tendered his own evidence. The defendant company tendered the evidence of Dr. S.L. Mukherjee its present managing director, Sri Bimal Mitra the Accountant in 1954 and a number of other employees of the company and one Dr. Das Gupta. Defendant Ramapada Gupta did not tender his own evidence nor call any witness to tender evidence on his behalf. Over and above this oral evidence, a large mass of documentary evidence has been tendered. To prove the plaintiffs liability, entries in the ledger books of the company for various years, a number of statements compiled by the officers of the company, the balance sheets of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the plaintiff authorising the offer of shares under Section 105C of the Indian Companies Act, or otherwise affecting his rights as a share-holder of the defendant company and all action taken pursuant to such resolutions are void, illegal and not binding on him and that the said resolutions and such action have not in any way affected his rights; 3. Declaration that the plaintiff as a member of the defendant company is entitled as of right to obtain shares in case of a proper issue of capital thereof; 4. Allotment to the plaintiff of shares to which he may be entitled in case of any such proper, issue of capital; 5. Rectification of the share register of the defendant Company, if necessary; 6. Injunction; 7. Accounts; 8. Enquiry into damages and judgment for the amount found due; 9. All such directions and orders as will afford complete relief to the plaintiff; and 10. Costs. ( 14. ) The fact pleaded in the body of the plaint, apart from the introductory facts, relate to the prayers 1 and 2, that is, with reference to the title of the plaintiff to act as Managing Director and to the increase of share capital and the allotment of new shares. All the allegations in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y relief thereon. In my judgment, suit No. 3112 of 1954 was not in relation to 26,752 old shares in the defendant company of which the plaintiff was the registered holder. The threat of sale of the shares is in enforcement of a lien for debt. The right to sell the shares is based on a contract contained in the Articles. In a suit for injunction restraining a breach of a contractual obligation, a pleader must, at least, plead the contract and the threatened breach thereof. In the plaint under consideration the Articles constituting the contract have not been pleaded at all. At its highest, the allegation made in paragraph 20 amounts to an allegation of the breach. In the absence of any averment of the Articles constituting the contract in the plaint I cannot persuade myself to hold that by merely pleading a breach the learned pleader intended to frame a claim for injunction against the sale of shares. Mr. Das argued that even though in the prayer of the plaint no declaration is claimed to the effect that the shares are not liable to be sold in enforcement of the lien for the dett alleged, the Court can in the suit as framed pass a decree for such declaration and issue injunction res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es include a prayer for injunction restraining the defendants from selling the shares in suit, can it be said that the instant suit is barred by reason of the withdrawal of the previously instituted suit No. 3112 of 1954? This will depend on the construction of Order 23, Rule 1(3) of the Code of Civil Procedure. That rule provides that when the plaintiff withdraws from a suit without the permission of the Court he shall be precluded from instituting a fresh suit in respect of such subjectmatter . In order that this rule may apply the instant suit must be in respect of the same subject-matter as the suit No. 3112 of 1954. The question, therefore, involves the determination of the meaning of the phrase in respect to the same subject-matter used in the rule. ( 18. ) Mr . Das argued that the words same subject-matter do not mean and cannot be taken as equivalent to the same cause of action for the same reliefs . The words cause of action and relief are very familiar phrases well-known to the legislature and having a clear meaning. In fact in the Code itself the legislature has used the phrase in very many sections and rules. If the legislature intended the subject-matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt suit is different from the cause of action in the previous suit withdrawn, the two suits must be held to be in respect of different subject-matter. I hasten to add that the two causes of action must not be different in form only but in substance; in other words, the difference must not be due to the clever draftsmanship of the counsel who drafted the subsequent plaint whereby the same cause of action has been presented in different form. As I read the decided authorities to be referred to presently, I think the trend of decisions is consistent with the conclusions set out above. ( 19. ) It is however, argued that cause of action' is nothing but a bundle of facts that entitles the plaintiff to the reliefs claimed. If the bundle of facts constituting the cause of action in the first suit is the same as the bundle of facts constituting the cause of action in the second suit, less one fact, that entitles the plaintiff to the reliefs claimed in the second suit, would the cause of action in the two suits be considered substantially the same? I do not think so. It is the combination of facts, the concatenation of circumstances that give rise to a cause of action and a claim for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thdrawn, no question of res judicata arises and in law the plain tiff is still entitled to agitate the question in Court. The argument advanced by Mr. Das in substance and in fact is an attempt to extend the principles of res judicata to cases in which there has been no adjudication by the Court. In my judgment the principles of Section 11 and Order 23, Rule 1(3) are different and it is not permissible to apply the principles of res judicata to cases under Order 23 Rule 1(3). ( 21. ) Mr . Das has strenuously argued that Order 23, Rule 1(3) having made the identity of subject-matter and not the identity of cause of action and relief claimed, as a bar and the word subject-matter having been nowhere defined, the Legislature must be taken to have laid down a commonsense test for not allowing a subsequent suit to proceed having regard to the withdrawal of the prior suit. That important test, according to Mr. Das is would the subsequent suit be necessary had the earlier suit proceeded upto judgment? If not the subsequent suit must be in respect to the same subject-matter within the meaning of Order 23, Rule 1(3). In other words, if the subsequent suit becomes unnecessary had the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 of 1954 was instituted. The allegations of fact in support of the case of fraud and collusion and the mala fide character of the transaction that took place on 24-1-1956 are to be found in the plaint and I am not entitled to ignore them. Lastly. I do not consider that there has been any clever ness on the part of the draftsman of the plaint in the instant suit and I do not agree that the object of drafting the plaint in the present form was to evade the provisions of Order 23 Rule 1 (3) or that certain redundant or unsubstantial grounds have been taken in the present suit to challenge the sale which were not taken in the previous suit. It follows that even if Mr. Das's interpretation of the word 'subject matter' in Order 23 Rule 1(3) is accepted, the present suit cannot be batted under that rule. I am, how-ever, unable to accept Mr. Das's interpretation of the word 'subject matter' in Order 23 Rule 1 (3) and the test which, according to him should be applied in determining whether the subsequent suit is barred under that sub-rule or not. In order that the bar may operate the suit sought to be barred must be covered by the previous suit withdrawn. If the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t matter. The same result arises if 'subject-matter' is to be taken to be 'the cause of action' in the sense in which it is usually understood, namely the bundle of facts which have to be proved in order to entitle the plaintiff to relief. In that sense the word, 'subject matter' was understood by the Madras High Court in Achuta Menon v. Achuta Nayer (ILR 21 Mad 35) and by the Calcutta High Court in Kamini Kant Roy v. Ram Nath Chuckerbutty (ILR 21 Cal 265) in cases arising under Section 373 of the Code of 1882. A. Mr. Das's argument is that in the cited case the suit withdrawn could not have been successfully prosecuted to a decree and it is because of this fact that the Court held that the suit withdrawn would not operate as a bar under Order 23 Rule 1 (3). But if the suit could have been successfully prosecuted upto the decree, the subsequent suit for ejectment would have been barred. I am unable to agree with Mr. Das. The reason why the suit withdrawn was held not to operate as a bar to the subsequent suit for ejectment was that the fact or due service of the notice to quit-an essential fact to enable the plaintiff to get a decree was not in exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The crucial matter of each suit is in reality the title of plaintiffs to the winning ticket. If they failed to prove that title neither suit could succeed. Plaintiffs' alleged title to the ticket is in each suit the ultimate cause of action. ( 24. ) Again a little below, The further relief claimed in the second suit is purely consequential; and the fundamental basis of the suits to slightly vary in the words of the District Judge, remains the same. The ratio of decision in this case is that the title to the ticket is in each case the ultimate cause of action, therefore, there was identity of subject-matter Stripped of its trappings the suit alleged to be hit by the mischief of Order 23 Rule 1 (3) is the same as the suit withdrawn. It will be noticed that the ultimate cause of action has been taken to be the test in determining whether there was identity of subject matter. Some observations in the judgment do to some extent lend support to the argument of Mr. Das. But at the same time it must be noticed that ultimate decision rests on the finding that the ultimate cause of action in both the suits was the same, namely, title to the ticket and the consequential relief tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laintiff by the original decree holder. But that hardly affects the applicability of the rule. The point noted by the Bench is that though the suit withdrawn and the subsequent suit in all other respects were identical the cause of action in the suit withdrawn was different from the cause of action in the subsequent suit. Then follows the following observation which is very important: That being so, we think the present suit is not for the same matter as that for which the former suit was brought. It may be quite true that the main issue to be tried in the present suit is the same as that which was the main issue in the former suit, but that would not make the present suit one for the same matter as that for which the former suit was brought. If the former suit had been heard and determined, and if Section 13 (Section 11 of the present Code) was in consequence applicable to the suit such an issue tried in the former suit might have operated as res judicata in the present suit; but that is not the case here. This observation runs counter to the proposition put forward by Mr. Das that identity of the main issue in both the suits is the test in determining the identity of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Iyer J. and expressed their opinion as Follows : The terms subject-matter and the same matter which occurred in the corresponding Section 373 of the old Code have not been defined, and must, we think, be construed strictly in a penal provision of this character. Without attempting an exhaustive definition of all that may be included in the term subject-matter we are of opinion that where as in the present case, the cause of action and the relief claimed in the second suit are not the same as the cause of action and the relief claimed in the first suit, the second suit cannot be considered. to have been brought in respect of the same subject-matter as the first suit. This was expressly decided in 4 Cal W.N. 110 with which we agree. ( 29. ) During argument, the applicability of Order 23 Rule 1 (3) to partition and redemption suits was raised. The judicial decisions are uniform that the withdrawal of such a partition or redemption suit without liberty, does not operate as a bar to a subsequent suit for partition or redemption. The suit withdrawn and the new suit instituted after the withdrawal of a suit for partition or redemption is in every respect the same except this t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Order 23l Rule 1 (3) because in the instant case it has not been proved that the advertisement as required by Order 1 Rule 8 had been issued and the suit has been decided as a representative suit in fact. The grounds on which I have decided against the nonapplicability of Order 23 Rule 1 (3) to the other suit also applies to this case. I may state at once that this point was not very much pressed by the learned counsel. Though the point was taken in the written statement that the suit is barred under Order 2 Rule 2 of the (a) Plaintiff's debit balance in the personal account amounting to ₹ 81,002/-. (b) Unrealised debit balance - (1) Albert David (G.B.) Ltd. amounting to ₹ 57,918/3/9. (2) Albert David (Pak) Ltd. amounting to ₹ 1,608/2/- and (3) Albert David (Cey.) Ltd. amounting to ₹ 54,654/4/6 and (c) Unusual discount given to - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Great Britain Company and advanced the value of the goods to the principal. But assuming as I do that there are debts due by these foreign companies to the defendant company, I do not understand how they become the liability of the plaintiff. Regarding the claim made on account of unusual discount alleged to have been given by the plaintiff to the Ceylon Company, I find on the evidence there was no such thing as usual or normal discount granted by the company to its different customers within and outside the country. The plaintiff as Managing Director in the usual course for the purpose of expending the market granted discount which in many cases appear to be heavy. This discount was granted in the interest of the Company to push its own products to new markets. There was not the slightest impropriety in the plaintiff's conduct in granting discount in some cases large discount but the sole motive of the plaintiff in granting large discount was to benefit the defendant company. There was no motive, as there could not be to further the interest of the Pakistan and Cevlon companies at the expense of the defendant company, of which the plaintiff was practically the owner. Mr. Subim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es is a foreign Company, and Mr. Choudhury is entitled to argue, as he did, that the Private Company referred to in Section 87F must be in private Company as defined by the Indian Companies Act, which does not include a foreign company. Thirdly, no contract for sale has been proved to enable the Court to ascertain the nature of contract. It is certainly doubtful whether the Section will apply if an employee of a private company purchases some goods from the defendant Company in the usual course. The plaintiff as Managing Director of the defendant Company or director of the private Company may have nothing to do with it. If in fact the contracts were entered into by the plaintiff, I believe the other directors had full knowledge and consent in the plaintiff trying to sell goods to the other Companies, though no resolution to that effect has been proved to have been passed. I do not think it imperative that there should be a formal resolution recording the consent of the other directors in the plaintiff's entering into these contracts. I do not think that Sec. 87F applies in terms to the facts of this case. A. Even assuming that Sec. 86F does apply to the case, I do not thin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiff as Managing Director of the defendant Company did deal with Great Britain, Pakistan and Ceylon Companies, in which admittedly the plaintiff had interest, AH these contracts the Court of Equity would refuse to enforce. Therefore they are illegal contracts under Section 23 of the Indian Contract Act. If the contracts resulting in the dealings of the defendant Company with the three above companies are illegal, then under Section 65 of the Contract Act the benefits received by the three companies from the defendant company are to be restored. The benefit received by the Pakistan and Ceylon Companies is the un usual commission, that is excess commission above the normal commission and also the goods. The benefit received by the Great Britain company is the advance made against goods less the price of such portion of the goods. This is the argument of Mr. P.R. Das to foist the liability on the plaintiff on account of dealings of the defendant Company with the three above Companies. 35A. The position of the directors has been laid down in a number of authoritative decisions. In Ferguson v. Wilson (1866) 2 Ch. A. 77, Turner and Cairns, LJJ. pointed out that the directors are agents o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can the plaintiff be held liable? I do not understand the argument of Mr. Das that Section 23 of the Indian Contract Act applies to the case of a contract entered into by the Managing Director of a public company with another private company in which the said Director has interest. Mr. Das has cited certain cases in which the Court of Equity refused Specific performance of contract. The fact that a contract is not enforced by a Court of Equity on equitable ground does not make the contract illegal within Section 23 of the Indian Contract Act. There may be a perfectly good contract, but nevertheless a Court of Equity would not enforce it on equitable consideration. There is no statute prohibiting contracts between two companies, one private and another public, with some common shareholders and common directors. The two companies in law are two different persons, even though they have some common share-holders or directors. Section 86F of the Companies Act does not, in my judgment, contain any such prohibition. On the contrary, it expressly states that a director, with the consent of the other directors, can enter into a contract with a partnership or private company in which he is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make the plaintiff liable. The other evidence is the vouchers. To the extent the vouchers are signed by the plaintiff and such of the vouchers as have been proved to represent payment made to the Bank on account of the plaintiffs relations or plaintiff's such relations as wife and daughter, they will constitute the liability of the plaintiff. But control vouchers from which many of the entries in the Control Ledger have been made represent money spent on other accounts for which the plaintiff has been made liable. These payments were made on other accounts and Bimal Mitra had no personal knowledge of it. They must have been debited against the plaintiff's personal account by Bimal Mitra under instruction of the man controlling the company-most probably Dr. Mukherjee or Dr. Neogy. I would not hold the plaintiff liable on these entries based on these control ledger vouchers. Many of the other entries in the Control Ledger were made by way of transfer of entries from the personal account of other people to the plaintiff's account. The correctness of the entries in the other accounts has not been satisfactorily Droved. ( 39. ) For reasons given above, I am unable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and paramount lien and charge available at law and in equity upon all shares (whether fully paid or not) registered in the name of any member, either alone or jointly with any other person for his debts, liabilities and engagements whether solely or jointly with any other person to or with the Company whether the period for the payment, fulfilment or discharge thereof shall have actually arrived or not and such lien shall extend to all dividends from time to time declared in respect of such shares. But the Directors may at any time declare any share to be exempt, wholly or partially from the provisions of this Article. 17. The Directors may sell the shares subject to any such lien at such time or times and in such manner as they think fit, but no sale shall be made until such time as the money in respect of which such lien exists or some part thereof are or is presently payable or the liability or engagement in respect of which such lien exists is liable to be presently fulfilled or discharged and until a demand and notice in writing stating the amount due or specifying the liability or engagement and demanding payment or fulfilment or discharge thereof and giving notice of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers, there would be equitable charge and shares subject to such equitable charge were not intended by the parties to be sold by the company under Article 17. The only way in which such equitable charge could be enforced is by way of a regular suit in a Civil Court. ( 42. ) It has been argued, on the other hand, by the learned Counsel for the defendants that the word 'lien' has a more comprehensive connotation. It not merely means possessory lien but equitable charge as well and the word 'lien' has been used in the Articles in the comprehensive sense: That the word 'lien' has a more comprehensive meaning to include 'equitable charge' as well cannot and indeed has not been disputed. (See the case of Everitt v. Automatic Weighing Machine Co. reported in (1892) 3 Ch. 506; In re National Bank of Wales Ltd. (1899) 2 Ch. 629 at p. 675; and In re General Exchange Bank, (1871) 6 Ch. A. 818. It has been further argued that when the word 'lien' is provided by Articles of the Company, it operates as an equitable charge. (See the observations in (1871) 6 Ch. A 818). The reason given by the learned Additional Solicitor General is that shares are to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves goods and can be delivered to the share-holders. The company like any other person can have possessory lien with respect to these share scrips. It has been contended that under the Companies Act the Company cannot retain the share scrips beyond a certain period, but this does not mean that under a collateral agreement under the Articles the company is debarred from retaining' possession of the share scrips in exercise of its possessory lien. Here in this country we are familiar with possessory lien of the finder of the goods, of the bailees, bankers, factors, attorneys and policy brokers, powers and agents under Sections 168, 170, 171, 173, 174 and 221 of the Indian Contract Act and possessory lien of the seller of goods and auctioneer under Section 47 of the Sale of Goods Act. These are important for the purpose of construction of the contract contained in Articles 16 and 17 of the Company's Articles of Association. When, therefore, we find in Article 16 that the company will have 'lien and charge available at law and in equity', it means that the company will have lien at law on the share scrips and equitable charge on the shares, if the scrips are not in poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laintiff, who is the ex-officio Managing Director, every other director must either be elected in General Meeting of the share-holders or appointed in a Board Meeting. Dr. Mukherjee and Dr. Neogy purported to act, at all material times as elected directors. It is very strongly urged that there has been no proper meetings of the company and no proper appointment of directors. Dr. Mukherjee and Dr. Neogy were not directors of the company at all. They were mere usurpers. Such usurpers had no authority under Article 17 to pass resolutions declaring lien, determining the debt due by the plaintiff to the company, to take any steps in enforcement of the lien by sale of shares. All proceedings beginning from the determination of indebtedness and ending with the sale are tainted with illegality done by and at the instance of two usurpers who were not directors of the Company at all. ( 46. ) To appreciate the point made by Mr. Chaudhuri it is necessary to consider the provisions of the Companies Act regarding meetings of the company. Section 76 of the Companies Act provides that a general meeting shall be held within 18 months from the date of incorporation and thereafter once at least i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Board of Directors of the Company. Such a Board cannot give any order for convening any meeting of the Company, recommend for re-election of directors whose office long expired and secure their re-election as directors, without proper nomination by members as required by the Articles, On these grounds, it was strongly urged by Mr. Chaudhuri that the 12th, 13th, 14th and 15th Annual General Meetings held on December 30, 1954 and adjourned and held on January 6, 1955, were illegal and the election of all the directors in the said meeting, including that of Dr. Mukherjee and Dr. Neogy must be held to be illegal. It is not a case of mere defect in the appointment, but a case of no appointment at all. It is urged that in any event from July 6, 1954 to January 6, 1955, there were no directors of the company entitled to function and it is during this period, that is, in September, 1954, that the first essential step to enforce the lien by sale was taken by certain usurpers, pretending themselves to be directors. It is again, emphasised that it is not a case of defective appointment but a case of no appointment at all. ( 48. ) The learned Advocate-General contended that even though t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n convening within the prescribed period. If certain technicalities stand in the way, those technicalities should be brushed aside and provided proper notice is given to all entitled to notice, the Court should uphold such a meeting and recognise as valid all acts done in that meeting, including the appointment of directors and passing of the accounts, even though the meeting is held without an order of the Court. Even if the meeting was not properly convened, it is nothing more than a mere irregularity and the appointment of the directors in such a meeting is nothing more than defective appointment. Such acts of the directors must be held valid under Section 86 of the Companies Act, notwithstanding that this appointment is subsequently discovered to be invalid because of the irregularity of the meeting in which the directors have been appointed. In the submission of the learned Advocate-General, the law recognises a 'de facto' director who is not a 'de jure' director. Such de facto director has all the powers of a de jure director and a sale of shares by such de facto directors in exercise of the lien under the Articles gives good title to the purchaser. If the pol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir place. In the case of Mahony v. East Holyford Mining Co. Ltd. (1875) 7 H. L. 869, the Official Liquidator of a company in liquidation sought to recover from the Banker amount paid on cheques drawn by the directors who were not directors properly appointed. In this case also the Court held that an outsider was not expected to know the indoor management of a company so as to ascertain whether the directors who signed the cheques in the usual way were properly appointed directors or not. The Lord Chancellor in his speech observed as follows at page 888: I have no hesitation in advising your Lordships, in accordance with the opinion of the learned Judges who have attended the hearing of this case and have advised your Lordships, that you should now hold that there having been de facto directors of the company, who were suffered and permitted by the majority of those who signed the articles of association to occupy the position of and act as directors, and the bankers having in the full belief that these persons were directors, as they were represented to be, honoured the cheques) drawn by them, the payment of these cheques is an answer to the action of the liquidator of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho allowed all these transactions to take place, when they were not conducted by persons legitimately appointed on the part of the company. On the other hand, on the part of the bankers, I see no possible mode by which they might have pursued their inquiries in the manner contended for at the Bar without requiring all the minute books of the company to be produced to them, and without conducting a detailed investigation into all the transactions of the company as to the appointment of directors and the like-a duty they were not called upon to perform, and a duty which, if it was objected to, they could not have insisted upon performing. Lord Penzance found in favour of the bank by applying what is known as the Rule in Royal British Bank v. Turquand (1856) 6 E and B 327, as the following observation in page 902 indicates:- My Lords, the question is a very broad one whether a bank under such circumstances, having a written authority of a de facto secretary, is bound, before it acts upon that authority, to ascertain whether he is the properly constituted secretary of the company or not, and not only that, but whether any resolution, of which he forwards a copy, was properly pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted a suit to recover the share money on the footing that the defendant was a share-holder and was liable for the share money. It was held that the defendant was liable. Lord Coleridge C. J. based his decision on three points -The Directors were entitled under the Articles to act by a majority. If there were three directors, the two acted as the majority of the Board. If there were two directors only, the two were acting in a casual vacancy. The Board does not come to an end because a casual vacancy occurs ... until Fry's resignation was accepted the Board did act by a majority and did by a majority allot these shares to the defendant. These considerations are sufficient to dispose of the case and to show that the defendant must pay the amount of the call upon these shares. It was also held that the defendant subsequently accepted the allotment, that the case at best was a case of defective appointment and that the defendant was completely estopped from stating that he was not a share-holder. The other Lord Justices (including Brett C, J.) took the same view and decided mainly on estoppel. This as noted before is also a case of defective appointment. ( 51. ) In the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a liability on outsiders apart from contract is quite another matter. Bowen L. J., the third member of the Board, took the same view as the other two. ( 52. ) In Dawson v. African Consolidated Land and Trading Co., reported in (1898) 1 Ch. 6, a share-holder resisted the claim of the company to recover share money on the ground that there were defects and irregularities in the appointment of directors i. e. the directors were not 'de jure' directors. One of the most important irregularities alleged against a director was that he parted with all his shares and in consequence under the Articles he was not qualified to be a director. This director, however, acquired the qualification shares six days later. When the director sold his shares, he ipso facto vacated office under the Articles. In the vacancy so created the other directors could very well appoint him director six days after when the director in question again acquired the qualification shares. In fact the other directors did treat him as a director but there was no formal appointment by passing a resolution to fill up a casual vacancy. It was held that Article 114 (same as our Section 86 of the Act) covers the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointing out that the appointed persons were not at the moment of their appointment qualified and a slip was made. Nevertheless acting in good faith they accepted the shares and acted and continued to act as directors. The question is whether their acts as de facto directors are protected by Section 99 of the Companies Clauses Act, 1845. It has been said that in substance the law is stated in a very short passage in Buckley on the Companies Acts, 9th Ed. p. 169, where it is summed up in these words: it is the note to Section 74 of the new Act: 'endangering accuracy for the sake of brevity, it may be said that the effect of this section is that, as between the company and persons having no notice to the contrary, directors c. de facto are as good as directors c de jure'. That is the note to Section 74 of the Companies (Consolidation) Act, 1908, but it is equally applicable to Section 99, which applies to companies-governed by the Companies Clauses Act, 1845. It is now settled that this section protects acts both with regard to insiders and outsiders, and having regard to the law as laid down by the Court of Appeal in (1898) 1 Ch. 6 and to the view subsequently of Farwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ector on his appointment does not ordinarily step into an office which is perpetual unless terminated by some act, but into an office the holding of which is limited by the terms of the Articles The duty of the directors was to call a meeting in 1906 and 1907 and they cannot take advantage of their own fault in that respect and say that they still remained directors . ( 57. ) In the case of Morris v. Kanssen decided by the House of Lords and reported in 1946 A. C. 459: (1946-1 All ER 586) it was held that Section 143 of the Companies Act and Table A Article 88 (the same as Section 86 of the Indian Statute) applied only to acts done by persons acting as directors whose appointment or qualification was afterwards found to be detective. They did not cover a case where there has been a total absence of appointment or a fraudulent usurpation of authority. The Rule in Turquand's Case was held not to be applicable because it can only be invoked by an outsider and not by one who was purporting to act on behalf of the company in the unauthorised transaction. In other words, a director who himself was a party to the irregular transaction cannot invoke the Rule in Turquand's Case i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only for one year from the date of their appointment, and if no general meeting is held at the lapse of one year the Directors would automatically vacate their office and the Company would go on without any Directors at all. I am unable to accept this contention of the learned Advocate as it seems to me that it would be unreasonable to hold that this is the true meaning of the Articles of Association. A. In the case of Ananthalakshmi Animal v. Indian Trades and Investments Ltd., decided by a Division Bench of the Madras High Court , it has been held that the directors who were due to retire at the Annual meeting next to that held on the previous occasion should be held to have vacated office on the last date on which the Annual Meeting should have been held and in consequence they ceased to be directors after such last date . This is a decision of a very strong Bench of the Madras High Court consisting of Rajamanar C. J. and Venkatarama Aiyar J. and is a well considered judgment. Kansen's case 1946 AC 459 has been cited by the Madras High Court with approval. ( 59. ) The case of Changamal v. Provincial Bank Ltd. decided by the Division Bench of the Allahabad High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gy leading upto the sale of plaintiffs share and as such the sale may be binding on the Company. Before retrospective appointments the acts of Dr. Mukherjee and Dr. Neogy were unauthorised and hence not binding on the company. But after appointment retrospectively those acts may become binding on the Company. But does it become, binding on the plaintiff? Does this ratification takeaway the right of the plaintiff to repudiate the sale which was effected by unauthorised persons? The plaintiff only gave authority to the directors to sell after taking necessary steps as provided in the Articles if the sale was effected not by directors but by some unauthorised persons the plaintiff's right to repudiate cannot be affected by the Company's ratifying the unauthorised acts of persons who purported to act as directors, though in fact they were not. ( 61. ) Again , law recognises that the appointment of directors may be defective in that they may not have the qualifications as required by the Articles or the provisions of the Articles of Association have not strictly been complied with in the matter of appointment. Many acts might be done by these directors bona fide on behalf o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court upheld the act of a 'de facto director' in which the outsider has dealt with such 'de facto director' bona fide the Court did not uphold the act because it was valid. They were held to be invalid, but the Company was precluded from raising the question of the invalidity of the acts, on principles akin to estoppel and holding out, only to protect the bona fide third party. I have kept out of consideration for the present, the acts of a 'de facto director' with whom an innocent third party deals bona fide. This aspect of the question will be considered later. ( 63. ) In the instant case I hold that on 20th and 24th September 1954 Dr. Mukherjee and Dr. Neogy had vacated their office as directors as 15 months expired after the last Annual General Meeting held on April 6, 1953. The resolution determining the liability of the plaintiff at over ₹ 4 lacs passed on September 10, 1954, and the resolution passed on September 23, 1954 to enforce the lien and making demand of payment, and giving notice under Article 17, and the notice served on the Plaintiff in terms of the resolution dated September 24. 1954-all these acts are not warranted by law and mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those who purported to act as directors, provided those acts can be ratified. In my judgment Dr. Mukherjee and Dr. Neogy were not directors a t any event from July 1954 onward having vacated their office and they had no authority under Article 17 to declare. and/or impose and/or enforce-lien on shares and/or sell them. These are wholly unauthorised acts and ratification of such unauthorised acts by the company cannot take away the right of the share-holder to repudiate such unauthorised acts. ( 65. ) It is next contended by Mr. Chowdhury that assuming Dr. Mukherjee and Dr. Neogy were directors, they as directors had no authority to sell the shares because the conditions for the exercise of that power are lacking in the instant case. The conditions precedent to the exercise of the powers are:- (1) money must be presently payable (2) until a demand is made and notice given in writing stating the amount due and (3) giving notice of intention to sell the shares in default. But in the instant case the amount of the debt for which the shares were sold was at its highest a claim on account and such claim does not become presently payable' till a demand for payment is made. Seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the director is not to benefit the company but to promote their own interest by driving away the plaintiff from the company, such act of the director would not be upheld by the Court. In support of this argument Mr. Chaudhury has cited the case of Najialal v. Bombay Life Assurance Co. decided by the Supreme Court and. In this case the directors increased the share capital of the company with two objects in view-(1) Company needed additional capital, (2) prevent cornering of shares by one group, a group of outsiders, namely, the Singhania group. This act of the directors in passing a resolution to issue additional shares was challenged on the ground that the directors did it to protect their own position. The Court upheld the action of the directors. There was a concurrent finding of fact by the Courts below that the resolution was passed because the Company needed additional funds and that the issue of shares was not due solely to the desire on the part of the directors to keep themselves in saddle. In the opinion of Das J., the motive to prevent the Singhania group, who were outsiders, from acquiring control over the company cannot as between the directors and the company and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to question the right of the company to exercise its legal right to sell the shares in exercise of lien for a debt due from the plaintiff as share-holder. The second point urged on behalf of the defendant is that the motive of sale immediately on getting possession of the company on January 24, 1956 was that the directors needed cash money to meet heavy disbursements in the first week of the following month. Possession was given to Dr. Mukherjee on January 24, 1956 and the Company needed cash money to the extent of about ₹ 1 Lac to meet heavy expenses in the first week of February next. It is in evidence that at the time when possession was made over to Dr. Mukherjee by the official Receiver, Dr. Mukherjee got ₹ 10,000/- in cash on the same date and the company had over ₹ 7 Lacs lying in the bank in the account of the Official Receiver. Dr. Mukherjee explained that he apprehended that the Official Receiver would not make over the money to him and he would be in difficulty in meeting the expected disbursement in the first week of February. Hence in order to get ready cash the plaintiff's shares were sold. I have no hesitation in rejecting this evidence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany and in such a case improper motive of the Directors would be immaterial and the principles laid down in the Supreme Court case would be hardly applicable. But in this case, the acts were not of directors 'de jure' but only of directors 'de facto' and the acts of the de facto directors are only upheld if the acts are done bona fide in the interest of the Company. If. however, the sole motive was not to benefit the company but to promote the private interest of the de facto directors, then the principles in the Supreme Court Case would apply and the acts of the 'de facto' directors would not be upheld by the Court. ( 69. ) Mr . Chaudhury has urged that the sale in the instant case is not merely irregular but illegal. The conditions laid down in Article 17 for the exercise of the power of sale not having been fully satisfied, the directors had no power to sell the shares, the sale was illegal as being beyond the power of the directors. It is contended in answer to this argument that they were not really conditions restricting the power of sale given to the directors but merely an indication as to how the power of sale was to be exercised. Hence when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the share-holders have given full authority to the directors to determine the quantum of indebtedness and to sell the share to liquidate the indebtedness. In the absence of a clear covenant to that effect, I will not assume that such wide power has been given to the directors. Neither Article 16 nor Article 17 contains any covenant whereby it can be said that the share-holders have agreed that for the purpose of sale under Article 17, whatever amount the directors choose to decide would be the liability of the share-holder. If the construction called for by the defendants is correct, then it follows that even though the indebtedness of the share-holder is far less than what is determined by the directors the share-holder is powerless to prevent the sale and the Court is equally powerless to prevent the sale, even if the Court is satisfied that the indebtedness is far less than what is determined by the Directors. If the amount of indebtedness as fixed by the directors cannot be challenged in Court, then a suit for injunction prior to sale must fail as a suit challenging sale after the sale has taken place on the same ground, namely, that the directors are the sole authority to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is a demand for payment in writing clearly stating the amount due and giving notice that in default of payment the shares will be sold That is, full opportunity must be given to the debtor share-holder to pay his debt and it is only on his failure to liquidate his indebtedness that the shares may be sold. It cannot therefore be contended that even if no proper notice is given stating correctly the amount of liability, but the demand is for a fantastically large amount the debtor share-holder is bound to comply with that illegal demand and pay otherwise his shares would be sold. Neither the debtor share-holder nor the creditor company could have entered into such a covenant. Such a construction is manifestly unjust. I am not compelled by the language of the Article to construe the Article in the manner suggested, on the sole ground that otherwise the company may be prevented from selling the share and the power of sale may prove to be illusory. ( 73. ) The points discussed above would have been conclusive if the dispute involved in this action was a dispute between the plaintiff and the company. But in the instant case the plaintiff to succeed must displace the title of Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... litigant got better legal assistance than what the defendant Ramapada Gupta got in this case. I need hardly say that the arguments advanced on behalf of the defendant Ramapada Gupta deserve very careful and serious consideration and to the best of my ability I have tried to appreciate them. ( 76. ) Assuming that the transaction resulting in the sale of shares is illegal in the sense that the directors under the Articles had no power to sell or that the sale had been effected by directors with defective appointment or that the sale was effected without satisfying the conditions laid down in Article 17 or that one important step in the transaction, namely, the determination of the liability and decision to enforce the lien by sale of the shares and giving notice required-was taken by these who at the time had ceased to be directors, then the defendant Ramapada can only protect his title as purchaser at such sale either under Section 86 of the Companies Act, or Article 19 of the Articles or by invoking the rule in Turquand's Case, (1856) 6 E and B 327. In each of these cases however the sale will not be upheld by the Court unless the party seeking the assistance of the Court a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been taken by the learned Counsel behind the conventional ground of sudden illness or being called away suddenly on urgent piece of business, often taken and seldom accepted by the Court. A very bold stand is taken that Ramapada has been advisedly withheld from the Court, because Ramapada has been advised that his evidence is not necessary. The reasons given for taking this attitude have now to be very carefully considered. ( 78. ) It is urged, in the first place, that on the plaint Ramapada Gupta has no case to meet. The suit as against Ramapada Gupta must be dismissed 'in limine'. This argument is an argument on pleadings. I have gone through the plaint very carefully. The drafting of the plaint may not be artistic and leaves considerable scope for improvement. But I am unable to hold that the plaint does not disclose a cause of action against the defendant Ramapada, so that I should dismiss the suit 'in limine' as against Ramapada. The plaint does state the various acts leading up to the sale of the shares and the rectification of the Share Register by substituting the name of Ramapada in place of the plaintiff as the holder of these shares. It is then al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purported sale'. This amounts to an averment of knowledge prior to the transaction. Without knowledge prior to the sale, there can be no connivance, no collusion and no conspiracy. It cannot therefore be held that the plaint does not disclose any cause of action against the defendant Ramapada Gupta and that in consequence the defendant Ramapada Gupta had no case to meet. ( 79. ) It is next argued that assuming that the plaint does disclose a cause of action against defendant Ramapada Gupta, nothing has been proved against him in the proceedings. The plaintiff who is the only witness on his behalf stated that he never knew Ramapada nor does he know him now. There being no evidence led by the plaintiff to prove that Ramapada had prior knowledge of the wrongful character of the sale there was no occasion for Ramapada to give rebutting evidence. The argument is that the presumption of law is in favour of the defendant, Ramapada, namely, that he acted in good faith in the transaction. That presumption has to be rebutted by the plaintiff, in the first place, by leading evidence to prove that there was bad faith on the part of Ramapada. The plaintiff has tendered no such evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fendant Ramapada to give evidence in this case. On the basis of the evidence tendered, if the plaintiff has failed to prove that the defendant Ramapada did not act bona fide in good faith, and this being one of the essential facts to be proved in support of the case of the plaintiff, the observation of Bowen L. J., above referred to applies with full force to the facts of this case. ( 81. ) In the instant case the want of bona fides on the part of Ramapada consists in his knowledge that the act of the directors in selling the shares was unauthorised and wrongful. That knowledge can be proved by tendering positive evidence. For instance, it may be proved that Ramapada made an admission that he had knowledge prior to sale that the sale was unauthorised and wrongful. That would be direct evidence on the point, though it must be considered that rarely such evidence of the state of mind is available. In any event, no direct proof of, Ramapada's knowledge has been tendered in this case. The evidence is that the plaintiff did not even know the defendant Ramapada. It must be held, therefore, that there is no direct evidence to prove that the defendant Ramapada had knowledge of the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l No. 56 of 1955 which was an appeal from an interlocutory order in suit No. 3117 of 1954. Apart from this admission, other facts have been proved in court by Dr. Mukherjee. The defendant Ramapada on 10th January came and saw Dr. Mukherjee and intimated his desire to purchase the shares of the plaintiff. Defendant Ramapada was not interested in purchasing other ordinary shares that were clearly available on that date. The defendant Ramapada took away the papers in connection with the litigation and on the following day made an offer in writing to purchase the shares. The letter containing the offer dated 11-1-1956 was not originally disclosed and the genuineness of the letter was questioned by the plaintiff in court. On the 24th shares were sold to the defendant Ramapada and in the evening a part of the purchase price amounting to ₹ 1,30,000/- was paid in cash. The cash money thus paid was never proved to have been deposited in Bank. The name of the plaintiff was immediately entered on the Share Register as the owner of this big bunch of shares in place of the plaintiff and there was no transfer deed. The defendant Ramapada was appointed a Director even before he had paid the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of shares and to prove that he was an innocent purchaser. On Ramapada's failure to tender evidence in support of his own innocence, it must be held that Ramapada had full knowledge of the entire transaction resulting in the sale of shares and on my finding that the transaction was wrongful I am bound to hold that the defendant Ramapada did not act bona fide in the impugned transaction. This finding negatives the argument made on behalf of Ramapada that his purchase is protected by Section 86 of the Companies Act and/or by Article 19 of the Articles of the company or by the Rule in Turquands' Case, (1856) 6 E and B 327. ( 84. ) Let me, nevertheless, consider how far the sale is protected on the basis of this argument. I have held that at the time when the resolution to enforce the lien by sale of the shares was passed on 23-9-1954, and the notice in terms of Article 17 was served on the plaintiff pursuant to that resolution on 24-9-1954 the directors who purported to act in the matter, that is, Dr. Mukherjee and Dr. Neogy, were no longer directors, their office having expired in July 1954, that is, 15 months after the last annual general meeting held in April 1953. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by sale under Article 17 of the Articles. Further conditions laid down in Article 17 were conditions precedent to the exercise of the power of sale and in the instant case, the conditions have not been fully complied with. I am in doubt whether this only amounts to irregularity or invalidity in the proceedings in reference to the sale within the meaning of Article 19. ( 85. ) The Rule in Turquand's case, (1856) 6 E and B 327, as stated in Halsbury's Laws of England, Hailsham Edition, Volume V, page 423 and quoted in Kanssen's Case, 1946 AC 459: (1946) 1 All ER 586, is in the following terms: But persons contracting with a company and dealing in good faith may assume that acts within its constitution and powers have been properly and duly performed, and are not bound to enquire whether acts of internal management have been regular . This presumption of regularity in the internal management of the company in favour of an outsider dealing with the company is due to the fact that an outsider has no right to look at the indoor management of the company. This rule has been followed in a number of decisions some of which has been already noticed. This rule of ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons who were aware of the facts, although not aware of the legal conclusions resulting from those facts, because such persons must be taken to know the law and it would be wrong that they should take the benefit of Section 99. I am unable to accept that view. It seems to me that the questions may be put very shortly: Aye or no, were the parties in the transaction acting in good faith. If they were, Section 99 would be available from all parties including the directors themselves. If there is a lack of good faith, then of course the court will not allow those who are lacking in good faith to take the benefit of it The test, therefore, is the presence or absence of good faith. ( 86. ) The reasons in support of the Rule in Turquand's case, (1856) 6 E and B 327, have been stated by Lord Simmonds in Kansen's case reported in 1946 AC 459 at p. 475: One of the fundamental maxims of the law is the maxim 'omina praesumuntur rite ease acta. It has many applications. In the law of agency it is illustrated by the doctrine of ostensible authority. In the law relating to corporations its application is very similar. The wheels of business will not go smoothly round unle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indoor can be known and is admitted to be known to the party to a certain extent: Knowledge is admitted by Ramapada. The only question is, how much he knew or could have known. ( 87. ) Another point has been raised and has to be considered and that is this: Does the Rule in Turquand's case, (1856) 6 E and B 327, apply to a case in which the dispute is in the title to shares between two rival claimants, even though the disputes has arisen because of the act of the company. The rule applies in the case of a dispute between an outsider and the company. But the instant dispute is not a dispute between the company and Ramapada, but a dispute between the defendant Ramapada and the plaintiff. The Rule in Turquand's case may prevent the company from disputing the title of Ramapada to the shares. But can it be invoked by Ramapada to defeat the plaintiff's title to the shares? The question is certainly not free from difficulty. The share-holder in law is distinct from the company and the shares are his property. The Articles which create a lien and charge constitutes nothing more than covenants between the company and its share-holders. If the shares are sold in breach of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in Turquand's case, (1856) 6 E and B 327, may apply in such a case. The point is important and, as stated before, it is a point of first impression and need not be decided in this case, having regard to the view I have taken otherwise. Admitting the rule in Turquand's case, (1856) 6 E and B 327, and applying it to the facts of this case, what follows? The Rule in Turquand's case, (1856) 6 E and B 327, fixes on the outsider dealing with the company, notice of the Memorandum and Articles of Association, Rampada, therefore in the instant case, is, in any event fixed with the knowledge of Article 17; I have held that Article 17 gave no power to the directors to sell the shares with respect to which the company had no lien in terms of the Articles. From the letter of Ramapada to the company it is clear that Ramapada knew that the shares scrips were not available at that point of time. Hence even if under the Rule in Turquand's case the defendant Ramapada as a total outsider may be entitled to assume that the directors were properly appointed, that the directors properly determined the liability of the plaintiff, that all steps were taken by the directors properly, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even though the allotment of new shares are recognised, the interest of the plaintiff would be protected. Hence to put an end to the litigation the suit is being withdrawn. No separate petition was filed to withdraw the Suit No. 3112 of 1954. But the two suits were withdrawn together at the same date. The defendant Ramapada, who admits to have some knowledge of the proceedings in court, might or might not have knowledge of the proceedings in Suit No. 3117 of 1954. There is no evidence to this effect, but the probabilities are that he had knowledge and if he had looked into the petition, he could have known the real reason of withdrawal of the suit. Further, in the petition before the Appeal Court for delivery of the company to the plaintiff's party it was clearly stated that they were the proper party to whom possession was to be made over by the Official Receiver and not to Dr. Mukherjee and Dr. Neogy. The Court, however, held that possession was to be made over to the party from whom possession was taken. This conduct of the plaintiff cannot he construed to mean that he gave up the claim that he had made and has made up till now. In any event, Ramapada, as the intending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34 (3), it was not lawful for the company to register the transfer and record the defendant Ramapada Gupta as the holder of these shares. It follows that even if there has been a sale in favour of the defendant of the shares in suit, in the absence of a deed of transfer duly executed and deposited with the company, the company had no power to register Ramapada as the holder of these shares. It is, therefore, urged by Mr. Chaudhury that there must be rectification of the Share Register by restoring the plaintiff's name as the holder of these shares. It is to be remembered that in the instant case, the shares have not been forfeited and the company was not selling its own shares, in which case no transfer deed would be necessary. The company in the present case was selling the shares of the plaintiff and hence in law a deed of transfer becomes imperative to enable the directors of the company to register Ramapada as the transferee of these shares. This is the argument of Mr. Chaudhury. ( 91. ) In answer to this argument it is contended on behalf of the defendants that Article 19 provides for registration of shares sold by the company in enforcement of lien oven without a deed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( 93. ) Two authorities have been cited in support of the contention that even without the transfer deed, registration may be effected by the directors, which may now be considered. The first case is the case of Mohiddin v. Tinnevelly Mills. Co., decided by a very strong Division Bench of the Madras High Court and reported in AIR 1928 Mad 571. The case before the Madras High Court was argued by the most eminent counsel Mr. Varadachariar and Sir Alladi Krishnaswami Ayer. The point considered was whether a purchaser of share in a court sale is entitled to succeed in a suit for rectification of the share register by recording his name on the strength of his purchase in a court sale. It was held that such a suit is maintainable and must succeed. In his judgment Srinivas Ayengar J., made the following observation at page 574: To begin with it must be pointed out that the expression 'transfer' by itself is not altogether appropriate to indicate a sale in invitum by the court. No doubt the expression 'transfer' has been used in such collocations as 'transfer by operation of law' but at the same time the expression 'transfer' is undoubtedly more appropr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale of shares by a pledgee, when sale is effected in enforcement of the pledge by the pledgee, unless the pledgor expressly consents to the sale. It is on the same reasoning that the sale of shares by a director in enforcement of the pledge can be said to be 'transfer' within the meaning of Section 34 on the ground that the sale is involuntary. It has not been held in any case that in the case of sale of shares by a pledgee to enforce the pledge-transfer deed is unnecessary. If not, how can it be urged that it is unnecessary in the case of sale in enforcement of a lien on the ground that sale is involuntary. In either case the authority to sell is derived from the owner of the shares. In the case of pledge when the pledge was given and in the case of lien when the shares were purchased. In both cases the sale is effected with the implied consent of the owner-consent having been given before, though at the time of sale, the owner of the share has not only given no consent but positively objected to the sale. Indeed unless there is consent though presumed in law on the part of the share-holder, there cannot be any transfer of the property to the purchaser. Such sale, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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