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TMI Blog1941 (12) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... hich case the Bank would have no right in law to proceed against him with reference to these shares and that his liability to pay the uncalled share capital had ceased to exist. On behalf of Kothari Sons an affidavit has been filed that they put through the transaction solely as brokers, that they sold the shares to the Bank with the bona fide belief that the order was placed by the said Bank on behalf of some undisclosed principal, that the shares must in law be deemed to be purchased by the Bank and that any liability in respect thereof ceased to exist. They also raised a further contention that the transaction was entered into by them on the representation of the officers of the Bank through its Securities Department that it was purchase made by the Bank on behalf of certain customers of the Bank and that therefore the transaction was perfectly legal and proper. But it is now admitted that as a fact the purchase was by the Bank for itself and not on behalf of a customer. Application No. 3078 of 1939 is by H.C. Kothari one of the partners of Kothari Sons to have their name removed from the share register in respect of ten shares on the ground that he sold the said shares on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1862 is utterly inconsistent with the notion that the company can be registered as a member of itself; and (3) the transaction would be invalid by reason of its being a dimunition of the capital of the company. In Hope v. International Financial Society [1876] 4 Ch. D. 327, at p. 335 , James, L.J., took a similar view. He observed that "either this is a purchase of shares in the sense of trafficking in shares, which is a purchase not authorised by the memorandum of association, or it is an extinguishment of the shares and therefore a reduction of the capital of the company." The reasons given as aforesaid by both these learned Judges were accepted by the House of Lords in the leading case of Trevor v. Whitworth [1888] 12 Assessee-company 409 , which may be said to have finally settled the law on the point. In that case a limited company was incorporated under the Companies Act of 1862 and the object stated in the memorandum of association was to acquire and carry on the business of flannel manufacturers and any other businesses which the company might consider to be in any way conducive or auxiliary thereto or proper to be carried on in connection therewith. Though th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the Master of Rolls pointed out in In re Dronfield Silkstone Coal Co. [1881] 17 Ch. D. 76 , it is inconsistent with the essential nature of a company that it should become a member of itself. It cannot be registered as a shareholder to the effect of becoming debtor to itself for calls or being placed on the list of contributories in its own liquidation." In spite of the concession made by Venkatarama Sastri I have dealt with this matter at length in order to deal with an argument of his pressed with some insistence based on a passage in Halsbury's Laws of England, namely: "A company's contracts are governed by the law of the country in which they are made and by the company's own constitution and not by the law of the country under which the company is incorporated, a contract made in a country under whose law it is valid being held good by the Courts of a country under whose law it would, if made there, be invalid." (Vide Volume 6, page 261). Relying on this passage Mr. Venkatarama Sastri argued that the 'company's own constitution' referred to in the said passage is the memorandum of association and if there is no prohibition in the memorandum of association, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares no matter where, a member who has sold the shares to the company cannot b removed from the register because the purchase must be deemed to have been not validly made as it is ultra vires of the company. In Bellerby v. Rolland and Marwood's Steamship Co., Ltd., [1902] 2 Ch. 14 where a shareholder surrendered shares in consideration of the company releasing the shareholder from further liability in respect thereof it was held to be a purchase of the shares by the company and therefore illegal and null and void. On this principle it was held that a shareholder who sold the shares and whose name was removed from the register was entitled to be restored to the register 7 years after the transaction. The passage in Halsbury's Laws of England on which Mr, Venkatarama Sastri relied does not deal with a transaction of purchase by a company of its own shares but only with contracts entered into by the company in the ordinary course of its business. The case relied on for the proposition stated in the passage is Branley v. The South Eastern Railway Co. 142 ER 1066. This case does not support the contention of Mr. Venkatarama Sastri. It only decides the general propositi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in all things to the law of that country himself becomes subject to the law of that country, and to the articles or constitutions of that company construed and interpreted according to the law of that country in all things and as to all matters and all questions existing or arising in relatin to or connected with the acts and affairs and the rights and liabilities of such company and its members severally and collectively." It is thus clear that before a person who is a shareholder on the register of the company can get himself removed and another person can come in his stead, both must conform to the regulations of the company. In Dulaney v. Merry Son [1901] 1 QB 536, at p. 542 Channell, J., observed thus: "Of course registered stock, such as Consols, can only be transferred according to the regulations under which the register is kept, but this . . . . .seems to depend on the special nature of the property." A shareholder as a member of the company has certain corporate rights and is subject to certain corporate liabilities. Only a person who is on the register is in the full sense of the word owner of the shares: (vide Maneckji Pesionji Bharucha v. Wadilal Sar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Henry Ayer case ( supra ) a sale of certain property though it was in excess of the powers contained in the Charter incorporating it was held to pass properly though the Crown might take advantage of it as a forfeiture of the Charter. Peterson, J., observes similarly in Jenkin case ( supra ), at page 398: "And even if the Charter expressly prohibits a particular act the corporation can at common law do the act." To a similar effect are the observations of Bowen, L.J., in Baroness Wenlock case ( supra ) at page 685. Both Mr. Venkatarama Sastri and Mr. Krishnaswatni relied on Cree v. Somervail [1879] 4 AC 548 . It seems to me that the observations of Lord Blackburn in that case are definitely against the contention of Mr. Venkatarama Sastri. At page 666 the learned Lord observed thus: "The case of Ashbury Ry. Co. v. Riche [1875] LR 7 HL 653 , in this House determines that the true construction of the Companies Act, 1862, is that the companies incorporated under it are authorised to treat in the manner authorised by the memorandum of association and in no other and that it is not only beyond the authority of the managing body to enter into any contract beyon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Everest and Strode on Estoppel, 3rd Edn. p. 309, in such a case the remedy if at all can only be against the officers who made the representation on the faith of which the contracts were entered into. I shall however go into the question whether in fact there is ground for such an estoppel even as a fact. No plea of estoppel as such was taken. Mr. Venkatarama Sastri admitted that it was so but bis contention is that paragraphs 6 and 7 of the affidavit of Mr. Nara-yanachari filed on behalf of his clients are enough to arise the plea. I have already referred to the fact that Mr. Venkatarama Sastri has conceded that no specific representation by any officer of the Bank or any specific representation that the purchase was being made on behalf of a constituent was made and this concession, Mr. Venkatarama Sastri said, would apply to all the purchases made by his client in respect of all the shares sold by him to the bank which are the subject matter of several applications now pending. What is relied on is a tacit or implied representation. The relevant allegations in paragraph 6 of the affidavit filed in Application No. 2964 of 1939 run thus: "I beg to state that the Travancore Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tence did not make him think in any particular way. This is how the witness deposed: "Q. By merely starting the department it did not make you think that it would be only for the clients? A. No. Q. It did not make any difference in the activities of the Bank? A. No, except it further confirmed my belief that it was only buying and selling for the clients. Q. The existence of the securities department did not make you think in any particular way? A. No." Thus what was alleged in paragraph 6 as the basis on which the estoppel is found goes. Then he fell back upon the nature of his dealings with the Bank before 1937 and after. He says that the Bank was purchasing its shares from 1935 and in all the transactions effected until 1938 no complaint was received that it was not for customers. In answer to a question as to the extent of such transactions he said that it might be hundreds but he did not produce any accounts to show what the extent of those transactions were, though he admitted that he did look into the accounts before he came into the witness box. The transactions which are in dispute cover a period of three or four months from March to the middle of June 1938. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the market report showed that the price of a fifty rupees share (Rs. 25 partly paid up) was only Rs. 20-8-0 he was purchasing for the Bank at Rs. 22 80 and Rs. 23-4 0. He admitted that the Bank was very often asking him to purchase at maximum price and during the period in question orders to buy were given every day and that he had a fairly large number of transactions and frequently. He also admitted that during that period though the Bank was purchasing a large number of shares he could not remember whether he sold any shares to any constituent or any friend. He did not produce any accounts showing that he did so. He further admitted that there is such a thing as rigging the market by a company when it is threatened with financial embarrassment though he states that to his knowledge it was not done. Though the Bank was purchasing such a large number of shares at fairly high prices, he did not consider it necessary to enquire whether the Bank was purchasing for its customers or for itself and whether it was doing so in order to avoid a collapse though it did strike him as queer that the Bank should go on purchasing these shares at the price. He also admitted that such a large nu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his constituents he clearly admitted that all the purchases were for the bank and therefore the liability in respect of these purchases must be held to have been extinguished. There is no trace of any suggestion in the said letter that they sold the shares to the Bank in the belief that it was purchasing for its constituents as now stated in the affidavit filed on their behalf. It is unnecessary for me to dilate on his evidence any further. I do not believe him when he says that he did not know that the Bank was purchasing the shares for itself. On a consideration of the entire evidence, I have no hesitation in coming to the conclusion that Kothari Sons were aware that the Bank was purchasing for itself its own shares through them in order to avoid the inconvenient consequences of the run on the Bank and the possible collapse. It is not therefore open to Messrs Kothari Sons to rely on any plea of estoppel. I therefore hold that there has been no valid transfer of the shares by the sale to the Bank. In the result, so far as Application No. 3078 of 1939 is concerned, H.C. Kothari must be considered to remain in law as the owner of the shares and his name cannot be directed to b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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