1933 (11) TMI 15 - HC - Companies Law

Summary

Issues:
Rectification of share register ownership between Seth Bir Chand and debenture holders of Agra United Mills Co., Ltd.

Analysis:
The case involved a dispute over the ownership of shares in a company between Seth Bir Chand and the debenture holders of Agra United Mills Co., Ltd. The debenture holders claimed ownership based on a trust deed executed in 1923, charging the shares to them. Seth Bir Chand, on the other hand, acquired the shares through a decree in his favor against Agra United Mills Co., Ltd. The key question was determining the rightful owner of the shares.

The debenture holders argued that Seth Bir Chand's purchase of the shares was subject to their charge, and he had full knowledge of their claim when acquiring the shares. They contended that Seth Bir Chand could not have a higher title than the original owners, Agra United Mills Co., Ltd. On the other hand, Seth Bir Chand raised two points in his defense. Firstly, he argued that the transfer of shares to the debenture holders after the winding-up order was void under section 227(2) of the Companies Act. Secondly, he claimed that the shares were part of a floating charge, allowing the company to deal with them before the winding-up.

Regarding the interpretation of section 227(2) of the Companies Act, the court held that the provision does not automatically render transfers void but allows the court discretion to validate transactions. In this case, since the debenture holders' rights accrued before the winding-up order, there was no reason to deny the validity of Seth Bir Chand's purchase. Additionally, the court noted that the debenture holders' intervention in 1927 effectively prevented the company from dealing with the shares, supporting their claim of ownership.

Ultimately, the court ruled in favor of the debenture holders, ordering the shares to be registered in their name. The court also clarified that the fee for transferring ownership must be paid, and the debenture holders were entitled to the total number of shares in possession of Agra United Mills Co., Ltd. Costs were awarded to the successful applicant, and the decree was contingent on the payment of proper stamp duty.

In conclusion, the judgment resolved the dispute over share ownership in favor of the debenture holders based on the trust deed and the timing of transactions, highlighting the legal principles governing transfers during company liquidation and the rights of secured creditors in such cases.