TMI Blog1968 (11) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... said 25,000 shares and the present registered holders thereof have been impleaded and brought on record in this suit. One of the original defendants Pannalal Beriwal who was the purchaser of 10,000 shares out of the said 25,000 shares died during the pendency of the suit and the defendant Nos. 2 to 10 are the heirs and legal representatives of the said Pannalal Beriwal. The defendant No. 3 Gopi Kissen Agarwal who is an heir and legal representative of Pannalal Beriwal is also himself a purchaser and the present registered holder of 5,000 shares out of the said 25,000 shares. The defendant No. 4 Sanwalram Agarwal, another heir and legal representative of Pannalal Beriwal is the purchaser and the present registered holder of another lot of 5,000 shares out of the said 25,000 shares and the defendant No. 5 Amarnath Agarwal who is also an heir and legal representative of Pannalal Beriwal is the purchaser and registered holder of another lot of 5,000 shares out of the said 25,000 shares which form the subject-matter of dispute in the present suit. 2. The case of the plaintiff as made in the plaint may be stated. In paragraph 1 of the plaint, the plaintiff states that the plaintiff i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that the plaintiff is still the owner of the said shares. It is claimed in paragraphs 7 (a), 7 (b), 7 (c), 7 (d) and 7 (e) which were introduced by amendment of the plaint, that the purported forfeiture of the said shares by the defendant company by its resolution dated 25th May, 1957 and allotment of the said shares to the alleged purchasers of the said shares and entering their names on the share-register of the defendant company and issuing fresh certificates in their favour and expunging the name of the plaintiff company from the share register of the defendant company are wrongful and illegal and not binding on the plaintiff company and that the share register of the defendant company should be rectified by deleting the names of the alleged purchasers therefrom and recording the name of the plaintiff as the lawful owner of the said shares. In para 8 the plaintiff alleges that the defendant are denying the plaintiffs title to the said 25,000 shares. In para 9 of the plaint, the plaintiff in the alternative claims damages from the defendant company in respect of the said shares for ₹ 12,50,000/- @ ₹ 50/- per share, being the value thereof on 18th October, 1957. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the same in easy monthly instalments and it was agreed by and between the plaintiff company and the defendant company as follows:-- (a) That the sum of ₹ 1,10,000/- would not become payable by the plaintiff company to the defendant company before 1st February, 1955. (b) That the plaintiff company would repay the said sum to the defendant company with interest thereon @ 6% per annum by monthly instalment of ₹ 5,000/-, the first of such instalment to be paid on 1st February 1955, and all subsequent monthly instalments on the first of each succeeding month. (c) That payments were to be made at the plaintiff's registered office. (d) That for the purpose of recovery of the said sum of ₹ 1,10,000/- and its interest thereon @ 6% per annum, the defendant company would be entitled to exercise all its rights provided under the Articles of Association in respect of the aforesaid 23,000 shares held by the plaintiff company in the defendant company. 4. It is the case of the defendant company that even after expiry of 1st February, 1955, and in spite of demands the plaintiff company failed and neglected to pay the said sum of ₹ 1,10,000/- or any part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company of the said forfeiture and sale and allotment of the raid 25,000 shares and also called upon the plaintiff company to pay the defendant company a sum of ₹ 42,940/- and 1 anna which was still due and owing to the defendant company by the plaintiff company. The defendant company denies the allegations made in the plaint and denies in particular the case made by the plaintiff company that the plaintiff company had liquidated the debt several years earlier or that the loans advanced -by the defendant company were barred by limitation. In substance the case of the defendant company is that the plaintiff company had failed and neglected to pay its debt to the defendant company of the said sum of ₹ 1,10,000/- with accrued interest and the said debt was justly payable by the plaintiff company to the defendant company and the defendant company in exercise of its lien has forfeited the said shares and has sold and allotted the said shares to purchasers of the said shares and the name of the defendant company has been expunged from the register of members of the defendant company and the names of the purchaser have been recorded therein. It may be noted that the defendant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1 ? (b) Did the plaintiff liquidate all advances made by the defendant No. 1 (defendant company) to the plaintiff ? (c) Was there any enforceable debt or liability by the plaintiff company to the defendant No. 1 at the time of alleged sale ? 2 (a) Did the defendant No. 1 have any lien on the 25,000 shares of the plaintiff in suit ? (b) Did the defendant No. 1 duly enforce its right of lien on the said 25,000 shares ? Were those shares sold at the proper value ? (c) Was the exercise of such right by the defendant No. 1 void, inoperative and not binding on the plaintiff company ? 3. Did the plaintiff company stand by and take no steps to prevent the sale of the said shares by the defendant No. 1 to the original defendant No. 2 and the defendants Nos. 3, 4 and 5 and thereby acquiesce in the said sale ? 4. Is the plaintiff estopped from challenging the sale of the said shares to the original defendant No. 2 and the defendants Nos. 3, 4 and 5 as alleged in paragraph 14 (a) of the written statement filed by the said defendants ? 5 (a) Are the original defendant No. 2 and the defendants Nos. 3, 4 and 5 bona fide purchasers for valuable consideration ? (b) We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 1 ? (b) Did the plaintiff liquidate all advances made by the defendant No. 1 to the plaintiff ? (c) Was there any enforceable debt or liability by the plaintiff to the defendant No. 1 at the time of the alleged sale ? Plaintiff led evidence first to prove Issue No. 1 (b) and I shall take up the Issue No. 1 (b) first. Onus of proving this issue is on the plaintiff. (After considering the evidence His Lordship proceeded): 11. I have, therefore, no hesitation in coming to the conclusion that the case of the plaintiff with regard to the repayment of the loan advanced by the defendant No. 1 is untrue and I hold that the plaintiff did not liquidate the advance made by the defendant company to the plaintiff company. (After discussing the evidence the judgment proceeded). 12. I now take up for consideration the question of the agreement between the plaintiff and the defendant No. 1, alleged in para l(e) of the written statement of the defendant No. 1, which is issue No. 1 (a). (After discussing the evidence. His Lordship concluded that a sum of ₹ 1,10,000/- remained due and payable by the plaintiff company to the defendant company and the same amount was payable wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il notice in writing of the intention to sell shall have been served on such member, his Executor or Administrator or his committee, Curator bonis or other legal Curator, and default shall have been made by him or them in payment, fulfilment or discharge of such debts, liabilities or engagement for 7 days after such notice. While setting out the above Articles, it will also be convenient to set out Article 38 which has also been relied on by the defendants and the said Article 38 is in the following terms-- Upon any sale after forfeiture or for enforcing a lien in purported exercise of the powers, hereinbefore given the Directors may cause the purchaser's name to be entered in the register in respect of the shares sold, and the purchasers shall not be bound to see to the regularity of the proceedings, not the application of the purchase money, and after is name has been entered in the register in respect of such shares the validity of the sale shall not be impeached by any person, and the remedy for any person aggrieved by the sale shall be in damages only and against the Company exclusively. 16. The validity of the aforesaid Articles cannot be and has not been impe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntiff and it has been mainly contended on behalf of the plaintiff that the defendant company bad no right to enforce the said lieu and had, in any event, lost the right to enforce the said lien, as the debt or liability in respect of which the lien arose had become barred and was not enforceable. I shall consider this aspect and deal with this contention when I take up Issue No. 2 (b) for consideration, as in my view this question really pertains to Issue No. 2 (b) and can be more conveniently decided, in dealing with the said Issue. 17. I now take up Issue No. 2 (b) for consideration. This Issue is: Did the defendant No. 1 duly enforce its right of lien on the said 25,000 shares ? Were those shares sold at the proper value ? It is to be seen that there are really two questions which have been included in this Issue No. 2 (b). The first question in this Issue is as to the due enforcement by the defendant company of the right of lien on the said 25,000 shares and the other question is as to whether the shares were sold at the proper value. I shall take up first the question as to whether the defendant company had duly enforced its right of lien on the said 25,000 shares of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dant company on the said 25,000 shares of the plaintiff has been argued and the sale in question has been attacked. The sale in question of the said shares by the defendant company, has also been impeached on the ground that there could be no valid sale of the said shares by the defendant company without a duly stamped instrument of transfer. 21. These contentions require very careful consideration and it will be convenient to note the arguments that have been advanced from the bar on behalf of the contending parties with regard to them. 22. The first contention, broadly stated, is whether the lien became unenforceable as the debt on which the lien was claimed, became barred by limitation. The learned counsel appearing on behalf of the defendant company has argued that the lien remains valid and enforceable even though the lien is claimed is barred by limitation. It is the argument of the learned counsel for the defendant company that when any debt becomes barred by the law of limitation, no suit can succeed or be entertained for recovery of such barred debt because of the statutory provisions contained in the Limitation Act, but the debt remains and is not extinguished. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a right of action, and consequently can be claimed in respect of a statute barred debt. A lien does not, except in special circumstances, give any right to sell the things retained, and if the thing is transferred without authority the lien does not pass with the possession of the property. Accordingly, a lien, being merely a personal right, which continues during possession of goods, cannot be taken in execution. In the case of a perishable article such as a horse, the party claiming the lien is bound to take reasonable care of such article, but, generally a person having a lien on a chattel, who keeps it for the purpose of enforcing its lien cannot make any claim against the owner for the cost of so keeping it. 24. The learned counsel for the plaintiff submitted that the lien becomes unenforceable and is extinguished as soon as the debt in respect of which the lien is created under the Articles is barred. He has argued that the lien created by the Articles in the instant case is in the nature of an equitable charge on the shares of the members of the Company in respect of their debts and liabilities. He has referred to the decision in the case of The Bradford Banking Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been overruled. 27. Before dealing with the respective contentions of the parties on this question it will be convenient to refer to and consider the decisions cited from the bar. In the case of Mussamat Janee Khartum v. Mussamat Amatool Fatima Khanum, (1867) 8 Suth WR 51 this Court observed at p. 54 as early as 1867-- The right of lien and the right to come to Court to pray to have the lien established, are causes of action which may be quite distinct from the right to sue for the original debt in respect of which the lien was created. It is no new doctrine that a lien may remain in full force, though any right of action in respect of the claim for which it was created has long been barred by limitation. Aforesaid observations were made in a case which was concerned with a claim made by Muslim lady for her dower and the defence taken was that the suit was barred by limitation. In the case of Nursing Doyal v. Hurryhur Saha, (1880) ILR 5 Cal 897, Pontifex, J., delivering the judgment of a Division Bench of this Court in 1880 observed: We are of the opinion that neither the Limitation Act 1871, nor that of 1877, extinguishes a debt. These Acts only bar or discharge t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the effect of Section 53(a) of the Transfer of Property Act and lays down that there is no bar of Limitation Act to any defence under Section 53(a) of the Transfer of Property Act and Section 28 or Article 113 of the Limitation Act does not apply to the right of defence under Section 53(a) of the Transfer of Property Act. This case, to my mind, has no application or bearing on the facts of the instant case or on the question involved. The decision in the case of Chotanagpur Banking Association v. Rajib Nath Mukherjee, AIR 1947 Pat 40 is not of any assistance, as the said decision was subsequently overruled by the decision of the Division Bench in ILR 27 Pat 108 = (AIR 1948 Pat 443). 29. In the case ILR 27 Pat 108 = (AIR 1948 Pat 443) one Digendranath Mukherjee who held 48 fully paid shares of Chhotanagpur Banking Association had borrowed from the Bank a sum of ₹ 1,500/-on a handnote on the 20th of July, 1915. The Bank obtained the decree against the heirs of Digendra on the said handnote on the 15th May, 1923. In execution of the decree on the 3rd August 1935, the shares of Digendra were sold through the Court and purchased by the Bank itself as the shareholder. In v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ights under the decree, the Bank had no other rights than those under the decree and consequently such rights as the Bank had, could only be exercised upon the decree, that is by execution, and once execution became barred there remained no right which could be enforced in any other way; and the lien ceased with the right for there could be no lien once there were no longer any rights upon which it could be founded. 30. It is to be noted that this decision is of no particular assistance on the question involved in the facts of the instant case and there cannot be any doubt that if the right to which the lien is attached ceased to exist or is extinguished, the lien must necessarily cease to exist and be extinguished. In the case of Amarnath v. Kamal Electric Supply Co. Ltd., AIR 1962 Punj. 411, it was held that the lien that a company had did not attach to admitted liability only but also extended to liabilities which might be disputed. 31. The other case is the case of First National Bank Ltd. v. Seth Santlal, . The facts of the case may be briefly noted: The respondents were past share-holders of the First National Bank Ltd., which went into liquidation, and whose respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the shares of quondam share-holders, the debt changes its character, giving rise to a fresh cause of action and a new liability is imposed in such a case on the share-holders. The learned Judge further observed at page 330 of the report-- It is well known that the Limitation Act, with regard to personal actions, bars the remedy without extinguishing the rights. It is only in the case of a suit for possession of any property that on the determination of the period of limitation not only the remedy, but the right also, is extinguished under Section 28 of the Limitation Act. But a debt does not cease to be due, because it cannot be recovered, after the expiration of the period of limitation provided for instituting a suit for its recovery. In all personal actions, the right subsists although the remedy is no longer available. If, therefore, a creditor, whose debt becomes statute barred, has any means of realising and enforcing his claim by any method except by a suit, the Limitation Act does not prevent him from recovering his debt by such means. After a debt becomes barred, a person is still deemed to owe. In case he pays the amount after the expiration of the period of limita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continues to remain a debt. It is open to any and every debtor to pay a debt which has become barred by limitation and it is equally open to any and every creditor to accept such payment in satisfaction of the debt. The obligation to pay the debt and the right to accept the payment remains, although the said obligation and the right cannot be enforced by suit in a Court of law. The debt continues to exist, although the remedy to recover the same by suit may be barred. As the debt continues to exist and is not extinguished, not only the right to receive payment validly exists, but it also remains open to the creditor to realise or recover the debt by any other means, if available to him, than by way of suit. Only in those cases in which the right itself gets extinguished, because of lapse of time, the enforcement of the right by any means is also completely gone, as in that case there is no right to enforce. Such means are provided for in Section 28 of the Limitation Act of 1908. The said section has already been set out. In the instant case, the plaintiff company owed a debt to the defendant company. The debt of the plaintiff company does not cease to exist and does not get exting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of the articles of association of the company which constitute a binding agreement between the companies and its members and create the lien in favour of the company. In the instant case, in view of the provisions contained in the Articles of Association, the lien created by the said Articles undoubtedly constitutes a charge on the share of the member, but in my opinion, cannot be equated to an equitable charge only. In the light of the provisions contained in the Articles of Association of the defendant company in the instant case, the lien, to my mind, subsists so long as the debt is there and the lien does not get extinguished, because the debt becomes statute barred. The lien subsists and continues, so long as the debt is not extinguished and the debt and the lien can both be enforced, if such enforcement is possible or permissible by any other method than by filing a suit in a Court of Law. The authorities cited from the bar to which I have already referred, to my mind, support the view that I take. 33. Section 28 of the Limitation Act has, in my opinion, no application in the instant case. The said section applies only when the suit is one for possession of propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55 in Article 285 in Halsbury's Laws of England, Third Edition, Vol. 24, relied on by the learned counsel for the plaintiff is, in my opinion, of no avail to the plaintiff in the instant case. The said statement of law is based on the provisions of the English Limitation Act and is applicable to a case of a mere equitable charge only. The nature and extent of any lien created by the Articles of Association of the company, will depend necessarily on the provisions contained therein. In cases it may constitute a mere equitable charge and in cases, it may partake of the nature of an equitable charge but may not constitute a mere equitable charge only. In the instant case, the lien created by the articles of the defendant company, cannot be equated to a mere equitable charge only and cannot be said to constitute an equitable charge only. The lien in the instant case is very much broader in its scope and effect. In Article 369 at page 205 of Halsbury's Laws of England, Third Edition, Vol. 24 under head -- Cases where remedy barred and not right , it is stated -- Except in the cases previously mentioned, the Limitation Act 1939 only takes away the remedies by action or by se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in Court when the debt is barred by limitation, the said lien continues and may be enforced otherwise than by an action in Court, if such enforcement is otherwise possible or permissible. I am, therefore, of the opinion that the lien created on the shares under the Articles of Association of the defendant company did not cease to exist or become enforceable, as soon as the debt in respect of which the lien was created, became barred by limitation. The contention of the plaintiff on this aspect must therefore be negatived. 37. The next contention that has been raised on behalf of the plaintiff in this regard is that the lien was not duly enforced and could not be enforced as no proper notice as contemplated under the Articles had been served on the plaintiff company. The only grievance that is made in this connection is that in the notice the exact amount has not been indicated and the notice had made a claim of ₹ 1,10,000/- with interest on the said sum. In the facts of this case, this contention of the plaintiff, to my mind appears to be without any basis or foundation. Article 36 which provides for the necessary notice for the enforcement of such lien lays down tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company instead of raising any objection to the notice on any such ground completely denied the liability. The plaintiff company in the first instance had pleaded repayment of the loan and finally pleaded repayment or limitation. In view of the attitude of the plaintiff company, the plaintiff company in the facts of the instant case did not or could not suffer any prejudice, as the exact amount bad not been stated in the notice. I am, therefore, of the opinion that this contention of the plaintiff fails. It may incidentally be observed that if there was even any defect in any such notice, a bona fide purchaser for value of the shares sold in enforcement of such lien without any notice or knowledge of such defect will not be prejudiced, in any way by reason of any such defect in the notice. 38. The next contention that has been raised on this aspect on behalf of the plaintiff is that the defendant company had no right to forfeit the shares of the plaintiff for non-payment of the debt or liability and forfeiture of the said shares of the defendant company for enforcing the lien and effecting the sale is unauthorised, unwarranted and illegal. The learned counsel for the plaintiff h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly be set out -- Affidavit. -- I, Sohanlal Murarka, a Director of Diamond Sugar Mills Ltd., Solemnly affirm and say as follows:-- 1. I say that on the 21st day of May, 1957 the 25,000 shares bearing No. ........ standing in the name of Unity Co. Ltd., of the face value of ₹ 2,50,000/- were forfeited pursuant to the resolution dated 21st May, 1957 and notice of forfeiture dated 27th June, 1956, was served upon the said Unity Co. Ltd. 2. I further say that in place of the shares forfeited new share scripts in lieu thereof have been issued and the same have been sold and registered in the company's books in the name of the purchasers of the respective shares bearing their respective names in respective scripts. 3. That the statements contained in all the following paragraphs are true to my knowledge. Sohanlal Murarka. Relying on this affidavit of Sohanlal Murarka, the learned counsel contends that the said affidavit clearly indicates that the shares of the plaintiff company were forfeited and after forfeiture new share scripts in lieu thereof have been issued and the same have been sold and registered in the company's books in the name of the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the defendant company had forfeited the shares of the plaintiff company in enforcement of the lien. The learned counsel further contends that in the oral evidence also the forfeiture is admitted and the learned counsel has drawn my particular attention to the evidence of Gopikissen Agarwal in question 31 where Gopikissen Agarwalla has stated Diamond Sugar had to get some money from Unity Co. When Diamond Sugar did not get their money back, the shares belonging to Unity Co., issued by Diamond Sugar were forfeited by Diamond Sugar and were sold to us; so, we have been added as defendant. The learned counsel contends that the purchasers themselves had also knowledge of the fact that the shares had been forfeited. The learned counsel argues that on the basis of these facts there cannot be any question that the defendant company forfeited the shares of the plaintiff company in enforcement of the lien and the fact that the defendant, company did forfeit the shares of the plaintiff company is beyond question. The learned counsel submits that the forfeiture of the shares of the plaintiff company by the defendant company in enforcement of the lien is clearly illegal and ultra vires th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . II at pages 1139-1140). The word 'forfeit' is there described at page 1139 to mean inter alia This word means not only an actual taking away of property on breach of a condition, but also the doing or suffering a thing which creates a liability to such a deprival. The word 'forfeiture' at pages 1140-1141 is described to mean inter alia as follows:-- (1) The proper signification of 'forfeiture', as appears from Cowel's Interpreter and Ducange, is 'a mulct or fine, a punishment for an offence'; and it is quite clear that it is used in that sense in a charter where the justices are empowered to punish delinquents by 'fines, rensoms, amerciaments, and forfeitures.' The term 'forfeit' is, indeed, ordinarily applied to the penalty of a bond with a condition, or to an estate held on condition; but the penalty of a bond when it is forfeited, or the estate itself, is never termed a 'forfeiture', even in common parlance; and it is, therefore, impossible to suppose that a recognisance with a condition broken could be intended to be described by such a term in a legal instrument. It is very true that in Fines Forfeit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares in accordance with the provisions in the Articles. The learned counsel refers to the correspondence which passed after the service of the notice dated 27th June, 1956. These Letters (at pages 3 to 8 of Ex. A) have been exhibited and relying on the correspondence, the learned counsel has argued that there cannot be any manner of doubt that the defendant company intended to enforce the lien by sale of the shares of the plaintiff company in accordance with the provisions of the Articles of Association and the plaintiff company clearly and perfectly understood the said intention of the defendant company. The learned counsel points out that the evidence on record, namely, the oral testimony of Kedharnath Dutta and Gopikissen Agarwal and the agreement between the defendant company and the purchasers contained in the letters dated the 18th of May, 1957 and 19th of May 1957 which have been exhibited in this suit (being Exts. 13 and 14), clearly indicate that the defendant company was trying to enforce the lien by effecting a sale of the shares and had in fact entered into an agreement for sale of the shares to the purchasers. The learned counsel argues that the resolution of 21st May, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the defendant company in enforcement of the lien. There is no particular magic in the words 'forfeit' and 'forfeiture' which, as already noted, are used in different senses in different contexts. In the Articles of the defendant company these words have been used to convey a particular meaning and have a definite import and connotation. If the defendant company had purported to forfeit the shares of the plaintiff company in enforcement of the lien, such forfeiture would clearly and undoubtedly be illegal and bad. It will be bad and illegal as there is no power in the defendant company to forfeit the shares in enforcement of its lien; and further any forfeiture of the shares in enforcement of the lien will be a clog on the equity of redemption. Forfeiture under the Articles of any company otherwise than for non-payment of calls, is not generally illegal or bad and may not necessarily involve a reduction in the share capital or trafficking in shares; but forfeiture in enforcement of a lien, whenever it amounts to a clog on the equity of redemption, is bad and illegal and will not be upheld. The position in law, to my mind, appears to be settled and is well establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable without any deduction or allowance for the value of the shares at the time of forfeiture. Article 35 provides for the company's lien on the shares. Article 36 provides for enforcement of the lien by sale of the shares by the Directors and also provides for notice required to be given to the member before effecting any sale in enforcement of the lien. Article 37 provides that nett proceeds of any such sale shall be applied in or towards satisfaction of the debts, liabilities or engagements, and the residue (if any) paid to such members, his heirs, Executors, Administrators, Committee, Curator, or other representatives. In the instant case the resolution which was passed by the company on the 21st June, 1956, clearly indicates that the company resolved to enforce the lien by sale of the shares of the plaintiff company. This resolution is the basis or foundation of the subsequent steps that have been taken in the matter. The notice dated 27th June, 1956 that was given by the defendant company to the plaintiff company is clearly a notice of the defendant's intention to enforce the lien by sale of the shares of the plaintiff company. The said notice is certainly not a not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allotment and this statement could only be possible in view of the earlier agreement for sale in enforcement of the lien and would not be possible if the said shares were going to be forfeited by that resolution as there could not be any arrangement for sale or allotment till the shares had been forfeited. The fact that by the very same resolution the name of the plaintiff company was being expunged and the names of the purchasers were being entered in the register of members of the defendant company, suggests, to my mind, that the sale of the said shares in enforcement of the lien which would result in the extinction of the rights of the plaintiff company in the said shares and would result in the purchasers acquiring the said rights as members of the defendant company, was being brought about and was being made effective. The fact that there was no forfeiture of the shares of the plaintiff company in enforcement of the lien, is, in my opinion, conclusively proved by the fact that the plaintiff company had been given full credit in respect of the sale proceeds realised as a result of the sale of the said shares. If it was a case of forfeiture of the shares of the plaintiff compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rfeited the shares of the plaintiff in endorsement of its lien, therefore, fails and must be negatived. The transaction itself proves best the nature of it and the declarations of Sohanlal Murarka in his affidavits cannot change or alter the character thereof and do not affect the real nature of the transaction. 45. I have to note that the learned counsel on behalf of the plaintiff company had suggested that the resolution of the 21st June, 1956 and the letters evidencing the agreements between the defendant company and the purchasers are not genuine documents and these documents have been fabricated for the purpose of this suit. I am unable to accept this contention and I am satisfied that these documents are genuine documents and they have not been fabricated for the purpose of this suit. The notice dated the 27th June, 1956 sent by the defendant company to the plaintiff company is an admitted document and the said notice appears to be quite consistent and in keeping with the resolution of the 21st June, 1956. Simply because the resolution appears to be at the very last page of the Minute Book, I cannot come to the conclusion that the said resolution had been put in subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the answer to which depends on the findings of Issue Nos. 2 (a) and 2 (b). On these issues I have already held that the defendant company had a lien on the 25,000 shares of the plaintiff company and that the defendant company was competent to enforce the said Ken, although the claim of the defendant company had become barred by limitation and that the defendant company duly sought to enforce the lien by sale of the said shares of the plaintiff. In view of my aforesaid findings, I have to hold in answer to this Issue No. 2 (c), that, subject to the question of validity of the sale which I shall consider when I discuss Issue No. 5, the exercise of the right of lien by the defendant company is valid and binding on the plaintiff company and is not void and inoperative. 49. It will be convenient at this stage to consider the question of the validity of the sale and I therefore propose to take up Issue No. 5 before considering the Issues Nos. 3 and 4. There are two issues in Issue No. 5, but as both the issues relate to the validity and binding nature of the sale and as practically the same arguments have been advanced with regard to the said issues, I propose to consider these issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feree is brought on the Share Register of the company. He contends that in the instant case the sale by the defendant company of the shares of the plaintiff company in enforcement of the lien is and must be a sale on behalf of the plaintiff itself and it is not a case of sale or allotment of any shares belonging to the defendant company; and it is his contention that no such sale could be effected unless a proper instrument of transfer duly executed along with the share-scripts had been made over to the purchaser. The learned counsel strongly relies on the decision of Mallick, J., in the case of Albert Judah Judah v. Rampada Gupta, and has placed particular reliance on the following observations at p. 745 (para 97). -- It is next argued that on a true construction, the sale of shares by the company in enforcement of lien is excluded from the operation of Section 34 of the Act. The section does not apply to cases of sale when the company itself is selling the shares. The company being itself the seller is bound to register the shares and if the company does not, the purchaser can compel the company to register the shares 1 agree that the section does not contemplate cases of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made over to the purchasers along with the proper instrument of transfer duly stamped and executed. In substance it is the argument of the learned counsel for the plaintiff company that the defendant company could not effect any sale of the shares of the plaintiff in enforcement of the lien, as the share certificates remained in the possession of the plaintiff company and there could not be any possible compliance with the requirements of Section 108 of the Companies Act. It has been contended that the provisions contained in Section 108 of the Companies Act are mandatory and in support of the contention reference has been made to the decision in the case of Coronation Tea Co. Ltd., and also to the decision in the case of Sm. Hemlata Saha v. Stadmed Pvt. Ltd., . It has, therefore, been submitted that there has been no valid sale of the shares of the plaintiff company and no title to the shares of the plaintiff company has passed to the purchasers. 53. It has next been contended by the learned counsel for the plaintiff company that there has been no valid sale of the shares on the plaintiff, as the purported sale is illegal being in violation of the provisions contained in Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not the purchasers at all, as they have not paid any consideration for the purchase, there cannot be any question of the purchasers being bona fide purchasers for valuable consideration. It is further argued that in any event the purchasers did not act bona fide in the matter. The learned counsel argues that the transaction was of an unusual nature and the purchasers were put on enquiry. The learned counsel submits that the evidence on record discloses only certain talks with Sohanlal Murarka and has not established any proper or reasonable enquiry or any enquiry at all on the part of the purchasers. He contends that no bona fide purchasers after having made reasonable enquiry would enter into the transaction. It is the contention of the learned counsel that a proper enquiry by any bona fide purchaser would satisfy him that there was no valid claim against the plaintiff company in respect of which the lien could be enforced and in any event the company was not in a position to sell the shares to pass any proper title to any purchaser in enforcement of the lien without coming to Court. The learned counsel argues that the purchasers are deemed to know the law and the provisions of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shares in enforcement of the lien and in view of the particular provisions in the Articles, it is not necessary for the defendant company to come to Court to seek enforcement of the lien and the defendant company was perfectly competent to effect the sale in exercise of the said powers in enforcement of the lien without coming to Court. He has submitted that the procedure with regard to the sale is also laid down and contained in the Articles which bind the plaintiff company; and it is his submission that the defendant company has effected the sale in compliance with the provisions of the Articles and the sale is perfectly valid and binding on the plaintiff company. The learned counsel has drawn my attention to the following passage at pages 443 and 444 in Palmer's Company Law (20th Edition) -- Cessor of membership. -- A person may cease to be member of a Company -- (1) By transferring his shares to another person. In such case the transferor ceases to be a member so soon as the transferee is registered, but not before. After registration the transferor is still liable to be placed on the B list of contributories as a past member, if the company is wound up within a y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel that such provisions are necessary as the sale or transfer of a share in a company, because of the nature of its property and interest, also concerns the company. The argument is that a sale of shares, like sale of any other goods or chattel, takes place as soon as the property in the share is transferred to the seller and the validity of the sale or transfer does not depend on the registration of the transfer by the company. It is argued that registration by the company is only a recognition of the transfer or sale and there must be a sale or transfer before there can be any question of registration of such transfer by the company; and it is further argued that there may be a perfectly valid sale, even if there be no registration of the transfer or even if the company refuses to recognise a transfer and to register the same. The learned counsel points out that in any such case of nonregistration of the transfer by the company, sale is not affected, although the purchaser may not be in a position to assert or exercise his rights as the share-holder of the company, and although the seller may still be regarded by the company to be its member, such seller after the sale be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the learned counsel for the plaintiff and quoted earlier, the learned counsel for the defendant company has submitted that the said decision and the observations were made in the peculiar facts of that case and on the basis of the Articles of Association of that company and the said decision and observations are not of any assistance in the instant case. The learned counsel has further submitted that i the said observations of Mallick, J., are intended to lay down any general proposition of law, the same should not be followed. The learned counsel has argued that in the instant case the Articles are sufficiently wide to enable the company to make a valid sale of the shares in enforcement of the lien and the absence of any provision in the Articles similar to the provision in Regulation 11 (1) in Table A does not make any difference whatsoever. The learned counsel contends that in any event the power to sell in enforcement of the lien being there in the company, any defect in the mode of sale will amount to an irregularity in the manner of exercise of such power and will not affect or vitiate the sale. The learned counsel has referred to and relied on the following passages at Far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be aided, and so will an appointment by will made under a power to appoint only by deed. But no aid will be given to an appointment by irrevocable deed made under a power to appoint only by will, or to an appointment which would result, in a fraud on the power or aid a breach of trust. Moreover, no aid will be given to the exercise by will of a power of revocation by deed if it is clear that a deed is of the essence, as where the original power of appointment was by will or deed and on its exercise a power to revoke by deed only was reserved. Nor will the Court aid a lease containing unusual covenants granted under a power to lease with usual covenants, or a lease granted without consent under a power to lease with consent, or a sale of land reserving timber made under a power not authorising such a reservation, or a sale of land reserving the minerals under a power not authorising such a reservation. 519. Persons who may claim relief. Equity aids the defective execution of a power only in favour of persons who stand in a particular relationship to the donee (and not the creator) of the power. Relief is granted in the same cases as those in which the Court supplied a surrende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to Article 35 of the Articles of Association which runs thus: An entry in the Minute Book of the Directors of the Company of the forfeiture of any shares or that any shares have been sold to satisfy a lien of the Company shall be sufficient evidence as against all persons entitled to such shares were properly forfeited or sold and such entry and the receipt of the Company for the price of such shares shall constitute a good title to such shares. The Directors may cause the name of the purchaser to be entered in the register as a member of the Company in respect of the shares sold to the purchaser and the purchaser shall not be bound to see to the regularity of the proceedings or to the application of the purchase money. The remedy of the former holder of such shares and of any person claiming under or through him shall be against the Company exclusively and in damages only.' It is clear from this that if shares which have been even invalidly forfeited are sold by the Company, the only remedy of the former holder of such shares would be to claim damages from the Company. 59. The learned counsel has contended that it is not open to the plaintiff to raise any question as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ues of the said firm can never be said to be giving any financial assistance within the meaning of Section 77 of the Companies Act. The learned counsel contends that the evidence on record clearly establishes due payment by the purchasers oE the purchase price of the said shares and the fact that payment was made by the purchasers out of the money received from the defendant company in payment of the dues of the firm of Kashiram Kanhaiyalal, is of no consequence and does not establish that no consideration was paid by the purchasers of the said shares. 61. The learned counsel for the purchaser defendants has submitted that in view of the pleadings in the suit, it is not open to the plaintiff company to raise any question of illegality or invalidity of the sale. The learned counsel argues that the question of illegality and invalidity of the sale sought to be raised and argued on behalf of the plaintiff company on the basis of the provisions contained in Section 108 and 77 of the Companies Act, is not a pure question of law. It is his argument that the illegality contended for by the learned counsel on behalf of the plaintiff involves questions of fact and there cannot be any que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rise to any such case at the trial. The learned counsel comments that in the plaint the plaintiff originally made a definite case that there has been no sale of the shares in fact and alleged sale, if any, is mala fide and the price of ₹ 5/- per share is grossly inadequate; and at the time of the amendment of the plaint when the purchasers were impleaded and brought on record, the plaintiff made the only further case that forfeiture of the shares of the plaintiff company was illegal and ultra vires and as the forfeiture was illegal and ultra vires, the pur chasers derived no title to the shares and such a sale is not binding on the plaintiff company. It is the contention of the learned counsel that in view of the allegation made in the plaint and the scope of the suit, the plaintiff company was illegal and ultra vires and as the forfeiture was illegal and ultra vires, the purchasers derived no title to the shares and such a sale is not binding on the plaintiff company. It is the contention of the learned counsel that in view of the allegation made in the plaint and the scope of the suit, the plaintiff company cannot raise the question of illegality of the transaction on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -per share, the firm of Kashiram Kanhaiyalal had insisted on payment of its dues and the purchasers were not willing to invest money on the shares, unless the firm of Kashiram Kanhaiyalal had received payment of its dues from the defendant company and its sister concern, Bharat Agency Ltd. It is the contention of the learned counsel that the evidence establishes that during the negotiations for sale of the shares, the arrangement was that the defendant company would pay to the firm of Kashiram Kanhaiyalal the sum of ₹ 1,25,000/- in repayment of the dues of the said firm from the defendant company and its sister concern and the said shares would be purchased with the said sum of ₹ 1,25,000/- and the said arrangement was arrived at in the interest of both the parties to enable the defendant company to sell the shares @ ₹ 5/- per share and also to enable the said firm of Kashiram Kanhaiyalal to receive payment of its dues from the defendant company and its sister concern. The learned counsel further contends that the evidence on record, viz., the oral testimony of Gopikissen Agarwal and the Books of Account of the firm of Kashiram Kanhaiyalal, clearly establish that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,000/- in payment of its legitimate dues from the defendant company and its sister concern and the claim of the said firm against the company was satisfied to that extent and although the consideration money for the purchase of the. said shares was paid out of the said sum of ₹ 1,25,000/- received from the defendant company it was undoubtedly payment of real consideration and was paid out of the money lawfully belonging to the said firm of Kashiram Kanhaiyalal and it cannot be said to be a case of payment made by the defendant company. The learned counsel submits that there cannot be any question that the purchasers are purchasers for a valuable consideration and the learned counsel further submits that the purchasers are bona fide purchasers for a valuable consideration. The learned counsel has argued that Gopikissen Agarwal in his evidence has clearly explained as to why and under what circumstances they purchased the shares and has also stated in his evidence the discussions he had with Sohanlal Murarka and has also stated that the purchasers had no knowledge that the shares belonged to the plaintiff company. It is the argument of the learned counsel that the evidence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and no such case has been or could be made. The learned counsel submits that in the facts of the case, it is well established that the purchasers are bona fide purchasers of a valuable consideration and the title of the purchasers to the shares cannot under any circumstances be affected. 62. The lien in the instant case has been created by the agreement contained in the Articles of Association of the defendant company. The nature, extent, scope and effect of the lien will, therefore, have to be determined with reference to the Articles of the Company. While discussing Issue No. 2, I have earlier held that the lien created by the Articles in the instant case, cannot be equated to a mere equitable charge and the lien is wider in its extent, scope and effect. Express and specific power has been conferred on the company by Article 36 to sell the shares in enforcement of the lien and by Article 37, to apply the sale proceeds in satisfaction of the debt. The Articles, to my mind, clearly and unequivocally express the intention that the company, by itself, is competent to enforce the lien by sale of the shares which are subject to such lien and to apply the sale proceeds in satisfactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shares is intended to be transferred to the buyer. The intention to pass the property does not depend on any particular form or mode of transfer and has to be gathered from the facts of each particular case. It may be useful to illustrate the position by an example. Suppose, A, the registered holder of certain specified shares in a company, executes a document selling, transferring and conveying his entire right, title and interest in his said shares in the company for a good consideration in favour of B. The consideration and particulars of shares are all mentioned in the document and the intention is unequivocally and clearly expressed in the document, transferring the property in the said shares to the buyer for the consideration received. For some reason or other, the share certificates are made over to the purchaser and no other instrument of transfer is executed. In such case there can-not be any doubt, in my opinion, that a valid sale of the shares has taken place and the buyer has acquired a good title to the shares, although the buyer may not be in a position to have his name registered with the company as the holder of the said shares. It is well known that shares alon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and register the transfer, so that the transferee may become a member of the company and enjoy the full benefits of the transfer as member of the company. In the case of any involuntary or forced sale or transfer of share of any member, the provisions of the said Section 108 cannot be made applicable for the simple reason that the member whose shares are being dealt with perforce against his will, will not execute the deed of transfer and will not make over possession of the share certificates which will in the normal course remain in the custody and possession of the member. In the case of any forced sale through Court, such sales or transfers are effected in accordance with the decrees and orders of Court and such transfers are to be registered without any conformity or compliance with the requirements of Section 108 of the Companies Act, On this aspect reference be made to the decision of the Madras High Court in the case of T. A. K. Mohideen Pichai Taraganar v. Tinnevelly Mills Co. Ltd., AIR 1928 Mad 571 and to the decision of a Division Bench of this Court in the case of Mahadeo Lal Agarwala v. New Darjeeling Union Tea Co. Ltd., . 64. For involuntary or forced sale of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les does not depend on the will or consent of the member. As and when occasion arises, the company can exercise such powers conferred by the Articles in accordance with the provisions contained therein, whether any member is agreeable or not. The fact that the company derives the power and authority by virtue of the agreement contained in the Articles, does not, in my opinion, constitute the company an agent of the member in the matter of effecting the sale and the sale effected by the company in enforcement of the lien in accordance with the provisions in its Articles, does not depend on the consent and is not effected with any consent of the member concerned. A sale by the company in enforcement of its lien under the provisions contained in the Articles has to be effected and can be effected on the basis of the provisions contained in the Articles and in accordance therewith, irrespective of any question of the consent or readiness on the part of the member concerned. Such sales can be effected, and in fact are mostly effected, in spite of protest and objections of the member. Section 108 of the Companies Act, 1956, in my opinion, is not intended to apply to any sale or transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd for easier and speedier enforcement of the duties and obligations of its members. These provisions are not unreasonable and they do not, in my view, contravene any law. These provisions, to my mind, are very necessary and desirable for the smooth and effective functioning of any company and for this reason, these provisions are usually incorporated in the Articles of almost every company. Any person who becomes a member of a company, the Articles of which make such provisions, agree to be bound and are bound by the same. The company accepts any such person as member on the basis of the said provisions and is entitled to expect that all its members will comply with the same. In my opinion, it will not be just and proper to 'put any such construction on Section 108 of the Act, of 1956 which will have the effect of rendering any sale or transfer of any share of its member made by the company in enforcement of its lien in accordance with the provisions contained in its Articles, illegal and void and thereby rendering such Articles completely ineffective and nugatory. The Court, in my opinion, should normally be inclined to up-hold the validity of the Articles of any company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IR 1928 Mad 571 at p. 577, with which I respectfully agree, may be usefully quoted -- It seems to me that there is no obligation on a Court of Law so to construe a clause as would lead to a clear absurdity which could not possibly be regarded as contemplated by the legislating authority or agency. On the other hand, that construction alone should be adopted which is in consonance with common sense, which does not lead to absurd results or enormous practical difficulties. The passage at page 443 of Palmer's Company Law (20th Edn.) to the effect that 'a person may cease to be a member of a company by his share being sold by the company under some provisions in its Articles (e. g. for enforcing a lien) and by the purchaser being registered as holder in his place,' relied on by the learned counsel for the defendant company, supports, to my mind, the view that I have taken. The observations of Mallick J. in the case of Albert Judah, relied on by the learned counsel for the plaintiff company and quoted earlier by me in this judgment, appear to be not in accordance with the view taken by me. The said observations are to be read, in my opinion, in the light of the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the register and Article 18 provides for issue of a new certificate to the purchaser in case of such sales. The sale of a share is brought about by and has the effect of extinguishing the right, title and interest of the member whose share is sold, and transferring the same to the purchaser to whom the shares are sold. The right, title and interest of the member is extinguished by expunging his name from the register of the company and the said right, title and interest are conveyed and transferred to the purchaser by registering the transfer in his favour and by bringing his name on the register of the company and by issue of new share certificates in his favour. The company in the instant case has sold the share in enforcement of its lien in accordance with its Articles. The company has extinguished the right, title and interest of the plaintiff company in the said shares by expunging the name of the plaintiff company from the register and the company has conveyed and transferred the said interest to the purchaser by registering the transfer in their favour and by causing their names to be entered in the register of the company and the company has also issu-ed new share certif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. It may be apt in this connection to refer to the following passage at page 432 of Palmer's Company Precedents (17th Edn.) -- Where the company threatens to sell without justification, the existence of this clause renders it expedient for the share-holder to apply for an injunction before the sale is effected; for after sale it will be difficult, if not impossible to recover the shares. The observations of Mudholkar, J., in the case of AIR 1951 Nag 266 at p. 268 and quoted earlier, support, to my mind the view that I take. 68. In the facts of the present case I am satisfied that the purchasers acted bona fide and they are bona fide purchasers of the shares for valuable consideration. It is to be noted that there is no allegation of fraud, collusion, conspiracy or benami in the plaint. Gopikissen Agarwal who has given evidence on behalf of the purchasers has stated in details as to why and under what circumstances, the purchasers agreed to purchase and purchased the shares in question. He has stated that the purchasers had no knowledge at the time of their purchase as to who were the owners of the shares and he has also stated how the entire consideration money was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sirable effect of putting premium on dishonesty and encouraging dishonest dealings on the part of unscrupulous directors and officers af any company, as it may enable any unscrupulous and dishonest director or officer to defraud the company by advancing large sums of money to its nominees by way of financial assistance which the company may not be able to recover because of the illegality of the transaction and the Director or officer concerned who swindles the company in the aforesaid manner gets away by paying the fine provided in Section 77(4). The decision of the English Court in the cases of 1936 Ch. 544 and (1946) 1 All E. R. 519 on similar provisions in the English Companies Act, relied on by the learned counsel for the defendant purchasers, clearly support, to my mind, the view that the transaction itself is not rendered invalid. 69. A sale by a company in enforcement of its lien should not be considered, in my opinion to be an unusual transaction in the sense that it puts the purchaser on any particular enquiry. Such a sale by a company is, undoubtedly, not a transaction of frequent occurrence; but every company in its own interest and in the interest of efficient admin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violation of Section 108 and Section 77 of the Companies Act or of any of the relevant facts which give an indication of any such case. To allow the plaintiff to raise and agitate these questions or illegality for alleged non-compliance with the provisions of Section 108 and Section 77 of the Companies Act, 1956 without any pleading on the basis of some evidence adduced with regard to other matters in issue in the suit, will not be legal or just and will be prejudicial to a fair trial and the cause of justice. As, however, arguments have been addressed at length from the bar on these questions I have considered it fit and desirable to deal with all the contentions raised as to the illegality of the sale for alleged non-compliance with the provisions contained in Section 108 and Section 77 of the Companies Act, although I am of the opinion that the plaintiff company is not entitled to raise and agitate these questions at the trial for lack of necessary pleadings. 71. For the reasons indicated, I must therefore, hold that the purchasers are bona fide purchasers for a valuable consideration and that the shares were validly sold to and purchased by the purchasers for valuable consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to the decision in the case of Young v. Ladies Imperial Club Ltd., (1920) 2 KB 523 and also to the decision in the case of Gray v. Allison, (1909) 25 TLR 531 in support of his contention that the conduct of the plaintiff does not debar a plaintiff from the legal remedy that the plaintiff may be entitled to in any action. 75. As in view of my findings on the principal issues in this suit, the plaintiff is not entitled to any relief in the instant case, it is not necessary for me to consider the question whether the plaintiff would have been disentitled to any such relief to which the plaintiff might have been entitled because of its conduct and it is not necessary to discuss the authorities cited from the bar on this aspect. Even if I had held that there was any irregularity in the sale effected by the defendant company and the plaintiff was entitled to claim any damages from the defendant company in consequence thereof, I would have been unable to grant any relief to the plaintiff company, as there is no evidence as to any such damage which might have been suffered by the plaintiff. 76. In the result, the suit fails and Is dismissed. As the defendant company has failed t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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