1949 (3) TMI 38 - HC - Companies Law

Summary

Issues Involved:
1. Whether Reddy was a trustee for the purchaser of the shares.
2. Whether Reddy had the right to apply for additional shares after initially applying for 40 shares.
3. Whether a proper requisition was made by the purchaser upon the trustee (Reddy).
4. Whether the receiver's application for shares was valid.
5. The entitlement of the purchaser to damages due to Reddy's actions.

Detailed Analysis:

1. Whether Reddy was a Trustee for the Purchaser of the Shares:
The court established that a shareholder who has sold his shares but remains on the company register is a constructive trustee for the purchaser. This trust extends beyond dividends and voting rights to any rights or accretions attached to the shares. The court noted that Reddy, having sold his shares but still listed as a shareholder, was a trustee for the purchaser, Sir Padampat Singhania, and was obligated to carry out the purchaser's directions regarding the shares.

2. Whether Reddy had the Right to Apply for Additional Shares After Initially Applying for 40 Shares:
The court examined Section 105-C of the Companies Act, which mandates that new shares must be offered to existing shareholders in proportion to their holdings. The court concluded that Reddy's right to apply for the additional shares continued until the expiration of the time limit specified in the company's offer, which was 10th March 1945. Reddy's application for 40 shares on 21st February did not negate his right to apply for the remaining shares before the deadline. Thus, Reddy retained the right to apply for the additional shares, making him a trustee for the purchaser in respect of those rights.

3. Whether a Proper Requisition was Made by the Purchaser Upon the Trustee (Reddy):
The court evaluated the requisition made by Messrs. Craigie Blunt & Caroe on 28th February 1945. It was determined that the requisition asking Reddy to apply for the shares and providing an indemnity against any liability was proper. The court found that Reddy's refusal to comply, based on his misunderstanding of his obligations and his insistence on knowing the true purchaser, was unjustified. The court held that the requisition was proper and Reddy was obligated to comply.

4. Whether the Receiver's Application for Shares was Valid:
The court found that the receiver's application for shares was invalid. The receiver, not being a shareholder, could not apply for shares in his own name. The court noted that the company was justified in refusing the receiver's application as it would have required the company to recognize a trust, which it was not bound to do under Section 33 of the Companies Act. The court emphasized that the proper procedure was not followed, and the receiver's suit was dismissed.

5. The Entitlement of the Purchaser to Damages Due to Reddy's Actions:
The court concluded that Reddy was liable for damages to the purchaser, Sir Padampat Singhania, for failing to apply for the additional shares as directed. The court set aside the trial judge's decree and ordered an inquiry into the damages owed to the purchaser. The Commissioner for taking accounts was directed to determine the damages and report back to the court.

Conclusion:
The appeals were partially allowed. The receiver's suit was dismissed, and the purchaser's suit was modified to grant damages instead of the original relief sought. The court ordered an inquiry into the damages due to the purchaser, with costs and further directions reserved.