1934 (2) TMI 16 - HC - Companies Law

Summary

Issues Involved:
1. Entitlement of P. & O. Bank to the 5000 shares covered by the equitable mortgage.
2. Right of the company to set off Ramjee Callianjee's debt against his shares.
3. Applicability of the company's Articles of Association, particularly Articles 20 and 28.
4. Status of the Bank as a contributory.
5. Right of the company to refuse to register the transfer of shares under Article 28.
6. Priority of claims between the company and the Bank.

Issue-wise Detailed Analysis:

1. Entitlement of P. & O. Bank to the 5000 shares covered by the equitable mortgage:
The P. & O. Bank, as equitable mortgagees, applied to the liquidator for the 5000 shares covered by the equitable mortgage. The Official Liquidator contended that the Bank was not entitled to be paid the value of those shares because the company was entitled to set off these shares of Ramjee Callianjee against the Rs. 36,000 owing to the company by Ramjee Callianjee. The trial Judge allowed the Bank's claim because the equitable assignment was prior in date to the liquidation. The case was argued as if it were in the Court of first instance, and the point raised was of considerable importance.

2. Right of the company to set off Ramjee Callianjee's debt against his shares:
The company argued that under Article 28 of the articles of association, they could refuse to register the transfer of shares while the shareholder executing the transfer was indebted to the company. Ramjee Callianjee's indebtedness of Rs. 36,000 was not in respect of his shares but on an entirely independent account. The company contended that the Bank was not entitled to be paid the value of the shares because the company had a right to set off the debt against the shares.

3. Applicability of the company's Articles of Association, particularly Articles 20 and 28:
Article 20 gives the company a first and paramount lien upon all shares other than fully paid-up shares registered in the name of each member. It was conceded that the company could not claim a lien on Ramjee Callianjee's fully paid-up shares under Article 20. Article 22 states that the company shall not be bound to recognize any equitable interest in shares other than that of a registered holder. Article 28 gives the Board power to refuse to register or acknowledge any transfer of shares while the shareholder executing the transfer is indebted to the company on any account whatsoever.

4. Status of the Bank as a contributory:
The Bank was not considered a contributory because the transfer of shares to them by Ramjee Callianjee was never registered, and no application for registration was made. The argument was that the Bank could not be recognized as owners unless they were registered as such. The proceedings were an adjustment of the rights of the contributories, but the Bank was not a contributory because they were not the registered holders of the shares.

5. Right of the company to refuse to register the transfer of shares under Article 28:
The company contended that under Article 28, they could refuse to register the transfer of shares because Ramjee Callianjee was indebted to them. The respondents argued that the company's right to refuse to register the transfer was only valid if the company had a first and paramount lien upon the shares. The case of Ex parte Harrison, In re Cannock and Rugeley Colliery Company was relied upon to support the company's contention that they could refuse to register the transfer if the transferor was indebted to the company.

6. Priority of claims between the company and the Bank:
The judgment concluded that the company could not refuse to register the transfer of shares to the Bank because they had no lien on fully paid-up shares under Article 20. The right to refuse to register a transfer under Article 28 was interpreted as being dependent on the existence of a lien. Since the company had no lien on fully paid-up shares, they could not refuse to register the transfer based on the indebtedness of Ramjee Callianjee. Therefore, the Bank was entitled to have the transfer of the shares registered and their claim to them recognized.

Conclusion:
The appeal was dismissed with costs, and the trial Judge's decision that the Bank was entitled to the shares was upheld. The Official Liquidator was allowed to take his costs out of the estate as provided for in Order 6 Rule 19 of the High Court Fees Rules 1933.