1933 (4) TMI 12 - HC - Companies Law

Summary

Issues:
1. Whether the surplus of a company in liquidation should be distributed among registered shareholders only.
2. Whether the company's lien on shares for debts owed by members prevails over third-party pledges.
3. Determining if the company had knowledge of shares being pledged by a member.
4. Assessing the impact of a member's position within the company on the company's knowledge.
5. Application of the law of principal and agent in cases of notice.
6. Legal implications of a member pledging shares after the company goes into liquidation.
7. Resolving disputes regarding the distribution of surplus among shareholders.

Analysis:
The judgment addresses a dispute involving the distribution of surplus by the liquidator of a company in liquidation among shareholders. The liquidator intended to distribute the surplus among registered shareholders, but five applicants claimed shares held as security for loans advanced to a member. The company asserted a lien on the shares for debts owed by the member, challenging the rights of the applicants. The court examined the company's lien on shares and the impact of third-party pledges. It was established that the company loses its lien if aware of the share pledge, leading to the distribution of the debt owed before the pledge among other shareholders.

The court analyzed the significance of the member's position within the company, emphasizing that the member, being the Managing Director, acted as an agent of the company. Drawing on English law precedent, the court held that notice to the member in such a position constitutes notice to the company, barring exceptional circumstances like fraud. Consequently, the company was deemed to have knowledge of the share pledge, affecting the distribution of the surplus. The court ruled that debts owed by the member before the company's knowledge of the pledge would be distributed among other shareholders.

Furthermore, the judgment addressed specific applications, dismissing one due to the share pledge occurring after the company's liquidation without court permission. Another application involving a compromise between a member and a firm regarding pledged shares was resolved, allowing the surplus to be paid to the member. The court emphasized the return of share certificates to all parties involved, concluding the distribution process and resolving related disputes effectively.