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TMI Blog1966 (12) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... restoring his name as the owner of 100 shares bearing distinctive Nos. 54164 to 54263, comprised in share scrip No.1331, or in the alternative to direct the appellant to pay to the respondent a sum of Rs, 5,000 as damages. The appellant-company (hereinafter referred to as "the company") was registered as a public limited company under the provisions of the Indian Companies Act. The authorised share capital of the company is Rs.1,00,00,000 divided into one lakh ordinary shares of Rs. 50 each and one lakh 4% cumulative preference shares of Rs. 50 each. On July 7, 1944, one hundred ordinary shares of the company bearing Nos. 54164 to 54263 were allotted to Lakshmi Insurance Company Ltd., Lahore. A sum of Rs. 25 was payable on each share on allotment, so that a total of Rs. 2,500 was paid on the 100 shares, and a share certificate No. 1331 was issued by the company in favour of the allottee on that date. On March 14, 1946, the insurance company paid a sum of Rs. 1,250 being the first call of Rs. 12-8-0 per share, and the same was duly endorsed on the share certificate. On June 19, 1946, the shareholder transferred the said shares in favour of one Haji Gaffar Haji Latif Saya of Nande ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forged transfer the cancelled share certificate No. 1331 was got transferred in his name, on December 14, 1948. This transfer was approved and signed by the third transferee, a representative of the then managing agents, and counter-signed by N. S. Chenoy, one of the directors. This transfer was a fraudulent transfer, though the company was unable to say who had practised this fraud on them. Inasmuch as the transfer was a fraudulent one, the second transferee could not obtain any title to the share and had no right to the same. The 100 shares represented by the cancelled certificate were included in a transfer deed lodged by the third transferee for transfer of 215 shares in his name, which was approved by the third transferee himself and countersigned by N. S. Chenoy, one of the directors and subsequently the same 215 shares out of which 100 shares are represented by the cancelled share certificate, were transferred in the name of the respondent from the third transferee, which was approved by S. M. Hosain, a representative of the then managing agents of the company and countersigned by N. S. Chenoy. The company averred that the mistake and fraud practised on it was subsequently d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sufficient cause to do so, which in this case it had. In support of this contention that the directors have power to rectify the register where the court can under similar circumstances direct rectification, he cited Smith v. Brown [1896] AC 614 (PC) [1893] 1. Ch. D. 618 . He further contends relying on In re Ottos Kopje Diamond Mines Limited [1893] 1. Ch. D. 618, that no damages can be awarded without directing rectification. On the other hand, Smt. Jayashri Sarathy contends that on the evidence adduced in this case the company has failed to substantiate the foundation of the argument that the company is justified in cancelling the share certificate on the ground of fraud, mistake or misrepresentation. Secondly, assuming that the company had substantiated that argument, it is estopped from challenging the transfer which it has made notwithstanding the fact that this defect has been pointed out at the time. Consequently, the company not having established by positive evidence that the respondent had knowledge of the illegality or fraud, the respondent could not be made to suffer. The passage of Lindley L. J. in Ottos Kopje's case ( supra ) that no damages can be award ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he third transferee, and found that those signatures did not tally. But even here the second transferee's specimen signature was not before him. Be that as it may, the company has however established that it has issued the split certificates before the second transfer of the share certificate No. 1331 which is said to have been cancelled. In these circumstances, the question is whether the court could have awarded damages without rectification, and, if so, what is the measure of damages. But before we consider this question, it is necessary to examine the nature of the shares and their transferability under the Companies Act. Section 28 of the Companies Act provides that the shares or other interest of any member in a company shall be moveable property, transferable in a manner provided by the articles of the company and that each share in a company having a share capital shall be distinguished by its appropriate number. It is well to remember that a share is not a sum of money, but is an interest measured by a sum of money. It is unnecessary to consider what is the right in these shares; but they are certainly moveable property. Section 29 states that a certificate issued under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be capable, of being easily transferred; and the legislature has made provision by 25 26 Vict. c. 89 s. 25, that the company shall keep a register of the members, and when the capital is divided into shares, each share is to be distinguished by a number, and the shares held by each member is to be specified, and the dates at which each person's name was entered on the register .... And the first thing the company would have to do when a transfer was tendered to them, would be to inquire into its validity; but a company may be deceived, and induced, as the company were in the present case, without any negligence, to receive as genuine a forged transfer. They accordingly made an alteration in the register, and made it in fact inaccurate by putting the names of Stocken and Goldner on the register as the holders of particular shares, when in fact they were not so." Referring to section 31 of the Companies Act (corresponding to section 29 of the Indian Companies Act) the learned judge further stated : "If they (the company) have been deceived and the statement is not perfectly true, they may not be guilty of negligence, but the company and no one else have power to inquire i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ordered to pay him the damages suffered by him by reason of their refusal to register him as a shareholder; or in the alternative that the company might be ordered to pay him the highest market value of the shares since the tender of the documents in the 6th April, 1892. One of the articles of association of the company says that "all instruments of transfer shall be deposited with the company, and (if required) reasonable evidence shall be given to prove the title of the transferee, and thereupon the secretary shall register such transferee as a member." When the matter came up before Stirling J., the learned judge held that no order for rectification could be made but that the case was governed by the decision in In re Bahia and San Francisco Railway Company s case ( supra ) the certificate purporting to be a certificate that Gardner was the owner of the specific shares, the numbers of which were given. Accordingly, he directed an inquiry as to what damages had been substained by Goode in consequence of inability of the company to register him as the transferee of the shares. The chief clerk accordingly assessed the damages according to the value of the shares on that day, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause it must be borne in mind that damages without rectification cannot be obtained by a summons under section 35 of the Act of 1862 instead of by an action at law." It is contended by Smt. Jayashri Sarathy that the above statement of Lindley L.J. was a general one and was in fact made obiter in that case. Strictly speaking, under section 35 of the English Companies Act, corresponding to section 38(1) and (2) of the Indian Companies Act, damages can only be ordered if the court orders rectification of the register. Where rectification is refused, there is no question of any damages being awarded by the company under that section. No doubt in Balkis Consolidated Company's case ( supra ) it was an action at law brought to recover damages and was not an application under section 35 of the English Companies Act, while in In re Bahia and San Francisco Railway Company's case ( supra ) the court had under section 35 ordered to restore T's name to the register and only on a case stated the question of damages arose. It is, therefore, clear that it is only after rectification that the question of awarding damages would arise. The observations of Lindley L.J. were made in a case wher ..... X X X X Extracts X X X X X X X X Extracts X X X X
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