1993 (8) TMI 310 - DSC - Companies Law

Issues Involved:
1. Ownership of 10 lakh units of the Unit Trust of India (UTI).
2. Nature of the transaction between the petitioners and the second respondent.
3. Rights of the third respondent over 4 lakh units allegedly sold to them.
4. Legal implications of a sale without notice.
5. Application of the Sale of Goods Act and Indian Contract Act to the transaction.
6. Estoppel and the rights of bona fide purchasers.
7. Interest payable on the amount due and the period for which it is payable.

Detailed Analysis:

1. Ownership of 10 lakh units of the Unit Trust of India (UTI):
The petitioners sought a declaration of ownership over 10 lakh units of UTI. The units were pledged with the second respondent as security for payment of amounts expended on discounting three bills of exchange. The second respondent admitted the pledge and the petitioners maintained that the second respondent participated only as a financier.

2. Nature of the transaction between the petitioners and the second respondent:
The petitioners drew three bills of exchange for valuable consideration, accepted by Varinder Agro Chemicals Ltd., and discounted with the second respondent. The 10 lakh units of UTI were pledged as security for these transactions. The second respondent was not engaged as a share, stock, or security broker but acted solely as a financier.

3. Rights of the third respondent over 4 lakh units allegedly sold to them:
Out of the 10 lakh units, 4 lakh units were in possession of the third respondent, who claimed they were sold by the second respondent. The main question was whether the 4 lakh units were sold or merely sub-pledged. The court left the factual determination of sale open, focusing instead on whether a bona fide purchaser could acquire rights against the true owner.

4. Legal implications of a sale without notice:
The court emphasized that under Section 176 of the Indian Contract Act, a pawnee can sell pledged goods only after giving reasonable notice of sale. Any sale without notice is void, and the purchaser acquires no better title than the pawnee. The third respondent could only step into the shoes of the second respondent, who held the units as a pawnee.

5. Application of the Sale of Goods Act and Indian Contract Act to the transaction:
Shares are considered movable property under Indian law and are classified as goods under the Sale of Goods Act. The provisions of the Sale of Goods Act and the Indian Contract Act apply to the sale and pledge of shares. The doctrine of "nemo dat quod non habet" (no one can give what they do not have) applies, subject to exceptions in Section 27 of the Sale of Goods Act.

6. Estoppel and the rights of bona fide purchasers:
The third respondent argued that the petitioners were estopped from denying the second respondent's authority to sell due to the delivery of blank transfer forms. However, the court held that merely handing over share certificates and blank transfer forms does not estop the owner from asserting their title unless the shares were handed over for sale. The petitioners had only pledged the shares, not authorized their sale.

7. Interest payable on the amount due and the period for which it is payable:
The petitioners contended they were willing to repay but the second respondent could not return all units. The court held that the petitioners must pay interest on the amount due, as they had the use of the money. Interest was to be calculated at the contractual rate until the loan period ended and at commercial rates thereafter.

Conclusion:
The court concluded that the petitioners were entitled to redeem the entire 10 lakh units, including the 4 lakh units in possession of the third respondent. The third respondent only acquired the rights of a pawnee and not ownership. The petitioners were required to pay interest on the amount due, and the final order would include the modalities for redemption and interest calculation. The question of whether there was a sale of the 4 lakh units was left undecided, as it did not affect the petitioners' right to redeem.

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