1922 (11) TMI 1 - HC - Companies Law

Summary

Issues Involved:
1. Refusal of transfer of shares by directors.
2. Plaintiffs' request for mandatory injunction for voting and proxy.
3. Trust relationship between the defendant and plaintiffs regarding shares.
4. Transferability and trust of shares under Indian law.
5. Right to vote as a property right.
6. Compliance with company articles and statutory provisions.
7. Injunction and trustee obligations.

Detailed Analysis:

1. Refusal of Transfer of Shares by Directors:
The plaintiffs, a private limited company, purchased shares of David Mills Co., Ltd. and sought to transfer these shares to their nominees. However, the directors refused to accept the transfers. The plaintiffs aimed to alter the articles of association to limit the directors' discretion to become registered shareholders.

2. Plaintiffs' Request for Mandatory Injunction for Voting and Proxy:
The plaintiffs sought a mandatory injunction requiring the defendant to vote according to their wishes and sign a proxy form in their favor. The court recognized this request based on the principle that the defendant, as the registered holder, must act for the benefit of the plaintiffs who hold the beneficial interest.

3. Trust Relationship Between the Defendant and Plaintiffs Regarding Shares:
The plaintiffs argued that the defendant is a trustee of the shares for them. The court confirmed this under Section 94 of the Indian Trusts Act, 1882, stating that the defendant, holding the legal title, must act for the benefit of the plaintiffs who hold the beneficial interest. The court referenced English law, specifically Hardoon v. Belilios, to support this conclusion.

4. Transferability and Trust of Shares Under Indian Law:
The court addressed the contention that a share could not be the subject of a trust, countering that Section 33 of the Indian Companies Act implies that shares can be held in trust. The shares in question, despite restrictions in the articles of association, are capable of equitable assignment and thus can be the subject of a trust.

5. Right to Vote as a Property Right:
The court emphasized that the right to vote is a property right annexed to the shares and is transferable or assignable with the share. The defendant, as a trustee, is obligated to comply with the plaintiffs' directions regarding voting. The court cited several cases, including Evans v. Wood and Shepherd v. Gillespie, to illustrate that the transferor must act as directed by the transferee.

6. Compliance with Company Articles and Statutory Provisions:
The court rejected the argument that controlling the vote of the shareholder would render Section 33 of the Indian Companies Act and Article 94 of the articles of association nugatory. It clarified that these provisions are administrative and do not invalidate the trust of shares. The plaintiffs, having taken the shares subject to the articles of association, retain the statutory right to alter them.

7. Injunction and Trustee Obligations:
The court affirmed the plaintiffs' right to a mandatory injunction under Section 61 of the Indian Trusts Act to compel the defendant to perform specific acts, including signing a proxy. The court dismissed hypothetical concerns about the trustee's position if holding other shares, noting that the defendant currently holds no shares in his own right. The court ordered a restrictive injunction to prevent the defendant from attending company meetings and a mandatory injunction requiring him to sign a proxy for the plaintiffs.

Conclusion:
The court ruled in favor of the plaintiffs, recognizing the trust relationship and the plaintiffs' rights as beneficiaries. The defendant was ordered to comply with the plaintiffs' directions regarding voting and proxy, and the plaintiffs were awarded the costs of the suit.