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TMI Blog1952 (2) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... t 3 in this suit. The plaintiff claims the amount of the promissory note against the debtor and the guarantor and also the enforcement of the pledge by the guarantor. He has proved the promissory note and the guarantee and is, therefore, entitled to the money decree claimed against Pandit Shirali Co. and Hemmad. The difficulty arises with regard to the other part of the plaintiff's claim, namely, his enforcement of the pledge. This claim is opposed by defendant 3, the Orient Movietone Corporation Ltd. I will call this defendant, the defendant company. It says that it has a prior charge over the shares. This question of priority was the principal point argued in this case. The defendant company also denied that the plaintiff had any pledge. As I have said, the plaintiff proved the pledge and produced the share scrips and transfers. These transfers are, however, completely blank except for the signatures of Hemmad and of a witness who attested Hemmad's signatures thereon. It does not seem to me that this condition of the transfers makes the pledge invalid and I did not understand learned counsel for the defendant company to contend seriously that it was so. It is well settled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment by Hemmad to pledge the shares but no actual pledge. Such agreement to pay, to my mind, is of no avail. It does not result in an actual pledge as the scrips were not delivered in terms of the agreement. There is no evidence of any agreement creating a charge on the shares without a pledge. The result is that the defendant company cannot establish that in February, 1949, it acquired any right to the shares which would have been binding on the plaintiff. It is also clear that, even if it had acquired any rights then, such rights must, on the facts proved, have been of a kind which would have ranked in priority after the pledge in the plaintiff's favour because the plaintiff's rights accrued earlier and no equity has been established entitling the defendant company to supersede the plaintiff. The defendant company then contends that it has, in any event, a lien on the shares under Article 39 of its articles of association. That article is in these terms: "The company shall have a first and paramount lien upon all the shares registered in the name of each member (whether solely or jointly with others) and upon the proceeds of sale thereof for his debts, liabilities, and engage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship. The judicial decisions on which Das J. based his view are decisions of English Courts on the corresponding section of the English Companies Act which is in the same terms as the section in the Indian statute. The extent of the contractual force given to the articles by the statute has always been and still is a question which cannot be regarded as fully settled. This is recognised in those judicial decisions themselves. One of the authorities, which Das J. called to his aid, is a passage in Halsbury's Laws of England (1932 Edition), Vol. V, Article 256, at p. 142. That passage, as in the case before Das J., is concerned with the binding force of the articles as a contract between the members inter se. I am concerned with the binding force of the articles as between a member and the company. This position is considered in Article 255 at p. 140 of the volume in Halsbury's Laws of England already referred. It is there stated: "The articles constitute a contract between the company and a member in respect of his rights and liabilities as a shareholder, and the company may sue a member and a member may sue a company to enforce and restrain breaches of the regulations contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im on the guarantee. I have already said that the shares were pledged to the plaintiff in or about November 1947 and Hemmad's guarantee to the defendant company was in February 1949. The question then arises, who has the priority, the defendant company under its lien or the plaintiff under its pledge? On this point Bradford Banking Co. Ltd. v. Briggs Son Co. Ltd., is again an authority. There Easby had pledged the shares with the Bradford Banking Co. Ltd. as security for the balance due and to become due on his current account with the banking company. The banking company had given notice of the pledge to Briggs Son and Co. Ltd., who replied that Easby was indebted to them and, under their articles, they had a first and paramount lien on the shares. A question arose as to who had the priority and it was held that Briggs Son Co. Ltd. had priority in respect of the money that had become due to it before the Bradford Banking Co. Ltd. had given notice of the pledge but not in respect of the moneys that became due to it subsequent to the notice. It was held that the service of the notice decided the question of priority. Lord Blackburn put the matter thus at page 36: "The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management of the company's affairs. The company had under its articles a lien on the shares held by Debi Dutt. But Debi Dutt pledged the shares with another person to secure advances received by him from that person. The question arose, whether the lien or the pledge had the priority. It was held, following Rainford v. James Keith Blackwan Co. Ltd., that notice to the directors even in their personal capacity was notice to the company. It was also held that as the director was the agent of the company notice to him was notice to the company and the only exception was where the agent was acting in fraud of the principal. With regard to the last proposition, I think, it states the law too broadly. The correct proposition may be gathered from Bowstead on Agency (10th Edn.) Article 110, page 222, and it is that knowledge acquired by an agent otherwise than in the course of his employment on the principal's behalf is not imputed to the principal. In pledging the shares to the plaintiff, Hemmad was not obviously acting as the director of the defendant company and his knowledge of the pledge was, therefore, not the knowledge of the defendant company. Now, coming to Rainford v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it, to the pledgee. This case, therefore, turned on the fact that those who made the bargain on behalf of the company, had notice of the plaintiff's rights. When, in making the bargain, they acted as agents of the company and had notice of the plaintiff's rights, the notice must, of course, be imputed to the company. The facts in the present case are different. The agreement of guarantee by Hemmad was made on behalf of the company by its directors other than Hemmad. Such directors had no knowledge of the pledge by Hemmad and Hemmad's knowledge of the pledge cannot be imputed to the defendant company, for such knowledge was not received by Hemmad as agent of the company. In making the pledge he was in fact acting for himself and not the company. The Allahabad case may be justified by reason of the special provision in the articles of the company there concerned, making Debi Dutt, in substance, the sole director of the company. In the case before me there is no such provision. I am unable, therefore, to agree that In re Union Indian Sugar Mills Co. Ltd., covers the present case. It was then said that the defendant company had waived its lien because it entered into the agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to accept performance in a different mode from that contracted for if the new arrangement is in fact carried out, the obligation of the other party under the contract is discharged to the extent to which the promisee has waived his rights." It is true that if a person having a contractual lien creating an equitable charge in his favour accepts a pledge of the goods over which he has the lien, the lien disappears by waiver, for the pledge is a higher security than the equitable charge and the acceptance of it implies an intention to give up the lower security. As is stated in the passage just read from Halsbury, in order to have this effect the pledge must have been created, or to put it in the language of that passage, "the new arrangement must in fact be carried out." Now, in the present case there was only an agreement to pledge which had never been carried out. The pledge had never in fact been made in terms of the agreement to make it. It cannot be said that a mere agreement to take a pledge amounts to a waiver of the existing lien. There is in such a case no executed contract giving up the lien nor any conduct creating an estoppel against the exercise of the rights und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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