1959 (12) TMI 15 - HC - Companies Law

Summary

Issues Involved:
1. Whether the transfer of shares in favor of defendants Nos. 2 to 12 is illegal and ultra vires for the reasons given in paragraphs 5 to 7 of the plaint, if so, its effect?
2. Is the suit within time?
3. Whether the plaintiff is estopped by his conduct from suing?
4. Relief?

Issue-wise Detailed Analysis:

1. Legality and Ultra Vires Nature of Share Transfers:
The primary issue examined was whether the transfers of shares to Jarnail Singh and Behari Lal were illegal and ultra vires the articles of association of Moga Transport Company (Private) Limited. The trial court, affirmed by the single judge, had decreed that these transfers were indeed illegal. The plaintiff contended that a single joint holder cannot be deemed a shareholder and a member of the company within the meaning of article 8(a) of the articles of association. The court examined the relevant articles of the company and regulations of Table A of the First Schedule to the Indian Companies Act, 1913. The court found that joint holders are members of the company and can exercise rights individually. It was held that there is no statutory ban or prohibition in the articles of association preventing a transfer of shares to a joint holder in his individual capacity. Therefore, the transfers were not illegal.

2. Suit Within Time:
This issue was not elaborated upon in the judgment, implying that it was either not contested or found to be within the prescribed time limits for filing the suit.

3. Estoppel by Conduct:
Similarly, this issue was not discussed in detail, suggesting that the plaintiff's conduct did not estop him from suing.

4. Relief:
The court concluded that the impugned transfers were not tainted with any illegality and suffered from no flaw or lacuna. Consequently, the Letters Patent appeal was allowed, and the plaintiff's suit was dismissed with costs. The judgment emphasized that placing a narrow construction on article 8(a) would impose unreasonable restraints on the alienation of property and would be contrary to the principles of public policy.

Conclusion:
The court allowed the appeal, overturning the previous judgments, and dismissed the plaintiff's suit. This decision was based on the interpretation that joint holders of shares are members of the company and can individually be transferees of shares, provided the total number of members does not exceed fifty, as stipulated by the Indian Companies Act, 1913.