1964 (11) TMI 123 - HC - Companies Law

Issues Involved:
1. Maintainability of the application under Section 398 of the Companies Act, 1956.
2. Determination of whether the appellants held one-tenth of the issued share capital.
3. Payment of sums due on shares and its impact on the application.
4. Effect of Income Tax arrears and notices under Section 46(5-A) of the Income Tax Act on dividends.
5. Interpretation of the lien on shares under the Articles of Association.
6. Whether the lien extends to all shares or only sufficient shares to meet the liability.
7. Waiver of lien upon transfer of shares.
8. Necessity of accounting to ascertain the amount due.

Detailed Analysis:

1. Maintainability of the Application under Section 398 of the Companies Act, 1956:
The appeal was filed against the order of the Single Judge dismissing the application under Section 398 on the grounds of non-maintainability due to the provisions of Section 399. The Single Judge opined that the appellants did not hold one-tenth of the issued share capital and had not paid sums due on their shares. The High Court held that the appellants did hold not less than one-tenth of the issued share capital based on a prior decision.

2. Determination of Whether the Appellants Held One-Tenth of the Issued Share Capital:
The total issued share capital of the company was Rs. 12,61,500, and the value of the shares registered in the names of the appellants was Rs. 2,29,500. The court confirmed that the appellants held the requisite one-tenth of the issued share capital.

3. Payment of Sums Due on Shares and Its Impact on the Application:
The court examined whether the appellants had paid all sums due on their shares. The respondents claimed that Rs. 14,413.39 was due from the appellants. The court recorded additional evidence and found that the amounts due from the appellants totaled Rs. 18,093.98. Despite adjustments for certain amounts, the court concluded that a sum of Rs. 4,223.51 was still due from the appellants.

4. Effect of Income Tax Arrears and Notices under Section 46(5-A) of the Income Tax Act on Dividends:
The court considered the effect of notices issued under Section 46(5-A) of the Income Tax Act, which required the company to pay the Income Tax Officer any money due to the appellants. The court held that the dividend was not payable to the appellants and could not be adjusted towards any amount due from them.

5. Interpretation of the Lien on Shares under the Articles of Association:
The court examined Articles 12 to 14 of the Articles of Association, which provided the company with a first and paramount lien on all shares registered in the name of each member. The lien extended to all dividends declared in respect of such shares. The court held that the company's lien amounted to an equitable charge on the shares.

6. Whether the Lien Extends to All Shares or Only Sufficient Shares to Meet the Liability:
The court rejected the contention that the lien should only extend to sufficient shares to meet the liability. It held that the lien extended to all shares registered in the name of the appellants, whether solely or jointly with others.

7. Waiver of Lien upon Transfer of Shares:
The court considered the argument that the company waived its lien upon the transfer and registration of shares in the appellants' names. The court held that the lien extended to all shares registered in the appellants' names, including new shares, and was not waived by the transfer.

8. Necessity of Accounting to Ascertain the Amount Due:
The court addressed the argument that the amount due could not be ascertained without accounting. It held that the liability existed and was enforceable, even if the exact amount could only be determined after accounting. The proviso to Section 399 covered liabilities that were legally recoverable, irrespective of whether the exact amount had been determined.

Conclusion:
The court concluded that the appellants were indebted to the company, and the company's lien extended to all shares held by the appellants. The appellants had not paid all sums due on their shares, and thus, their application under Section 398 was not maintainable. The appeal was dismissed with costs.

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