1952 (2) TMI 13 - HC - Companies Law

Shares Power, to issue of at discount, Shares warrants and entries in register of members, Directors - Power of and Winding up Overriding preferential payments

Summary

Issues Involved:
1. Entitlement to a prior charge over certain shares.
2. Validity of the pledge by the plaintiff.
3. Defendant company's claim of a prior charge.
4. Defendant company's lien under Article 39 of its articles of association.
5. Priority between the defendant company's lien and the plaintiff's pledge.
6. Notice of the pledge to the defendant company.
7. Waiver of the defendant company's lien.

Issue-wise Detailed Analysis:

1. Entitlement to a Prior Charge Over Certain Shares:
The primary issue in this suit is whether the plaintiff or defendant 3 (the defendant company) is entitled to a prior charge over certain shares belonging to defendant 2. The plaintiff claims a prior charge based on a pledge, while the defendant company asserts a prior charge under an agreement and its articles of association.

2. Validity of the Pledge by the Plaintiff:
The plaintiff proved the promissory note and the guarantee, and produced the share scrips and transfers, which were blank except for the signatures of Hemmad and a witness. The court held that this condition of the transfers did not invalidate the pledge. It was established that the plaintiff became a pledgee of the shares in or about November 1947, as simple delivery of possession was sufficient to create a pledge.

3. Defendant Company's Claim of a Prior Charge:
The defendant company claimed a prior charge over the shares based on an agreement with Pandit Shirali & Co. for advancing large sums of money. However, the court found that there was only an agreement by Hemmad to pledge the shares but no actual pledge, as the share scrips were lying with the plaintiff and had not been delivered to the defendant company. Therefore, the defendant company could not establish a right to the shares that would be binding on the plaintiff.

4. Defendant Company's Lien Under Article 39 of its Articles of Association:
The defendant company contended that it had a lien on the shares under Article 39 of its articles of association, which provided a first and paramount lien upon all shares registered in the name of each member for his debts, liabilities, and engagements to the company. The court held that the debt due from Hemmad on the guarantee was covered by the lien under Article 39, as it constituted a debt arising out of the company relationship.

5. Priority Between the Defendant Company's Lien and the Plaintiff's Pledge:
The court referred to Bradford Banking Co. Ltd. v. Briggs Son & Co. Ltd., which established that the priority of a lien over a pledge depends on notice. Since the plaintiff did not give notice of the pledge to the defendant company, the lien in favor of the defendant company was not impaired and covered all moneys due by Hemmad under the guarantee, whether they became due before or after the pledge to the plaintiff.

6. Notice of the Pledge to the Defendant Company:
The plaintiff argued that notice of the pledge had been given to one of the directors of the defendant company. However, no such notice was pleaded or evidenced. The court also found that Hemmad's knowledge of the pledge could not be imputed to the defendant company, as he was not acting as a director of the company when he made the pledge.

7. Waiver of the Defendant Company's Lien:
The plaintiff contended that the defendant company had waived its lien by entering into the agreement for pledge with Hemmad in February 1949. The court held that a contractual lien may be waived, but in this case, there was only an agreement to pledge, which had never been carried out. Therefore, there was no executed contract giving up the lien, nor any conduct creating an estoppel against the exercise of the rights under the lien.

Conclusion:
The court decreed Rs. 43,000 with interest and costs against defendants 1 and 2, and declared that the plaintiff is a pledgee of the shares mentioned in the plaint. However, the pledge will rank in priority after the lien in favor of defendant 3. The shares may be sold by the Official Receiver, and out of the sale proceeds, defendant 3 will be paid Rs. 42,435-0-11. Any balance left will be paid to the plaintiff in satisfaction of the decree against defendants 1 and 2.