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TMI Blog1971 (11) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... 1947, decided by the resolution evidenced by item No. 8 in exhibit D-29( g ) minutes of the meeting of its board of directors to make a call of Rs. 25, on every share on 2nd of January, 1948, the amount being payable on or before 31st January, 1948. The Alwaye company committed default in the payment of the call money. The defendant by resolution No. 9( a ) in the meeting of the board of directors evidenced by exhibit D-29( a ) decided to make the final call of Rs. 25 payable on or before 31st of December, 1948. The Alwaye company committed default in the payment of this amount also. It is the case of the defendant that resolution No. 7 was passed by the directors in the meeting held on October 23, 1948, evidenced by exhibit D-29( e ) forfeiting the shares of the Alwaye company for the default in the payment of the first call amount. The Alwaye company went into voluntary liquidation on June 22, 1949. The case of the plaintiff is for amounts due to the plaintiff from the Alwaye company. The plaintiff passed the resolution, exhibit P-2, offering to take the assets both movable and immovable of the Alwaye company in satisfaction of their claim for Rs. 4,75,000. Exhibit P-2 resoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as closed. It is seen that thereafter besides paying Rs. 20,000 the plaintiff did not pay the interest as demanded. It is also seen that the plaintiff did not also produce any deed to evidence the transfer of shares in their favour. It is seen from exhibit P-14 that the forfeited shares were sold by the defendant-company in the year 1960. The suit is therefore filed by the plaintiff for recovery of Rs. 90,000 being the damages sustained by the plaintiff because of the wrongful sale of the 900 shares in the name of the Alwaye company. The plaint was subsequently amended to declare that the forfeiture of the shares in the name of the Alwaye company by the defendant is invalid and they were the property of the plaintiff when they were sold in 1960. The plaintiff therefore alleged that the sale by the defendant is unlawful and is a wrongful conversion of the shares belonging to the plaintiff and on that ground the defendant is liable for the plaint claim of Rs. 90,000. It was contended by the defendant that the forfeiture of shares is valid in view of the default on the part of the plaintiff to pay the interest due and also to produce the transfer deed, the defendant did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintiff. On October 11, 1949, there is a credit entry of Rs. 4,40,903-9-3 under the heading "By conveyance assets". Exhibit P-23 dated February 26, 1950, is the sale deed executed by V. R. Annamalai, liquidator of the Alwaye company, in favour of the plaintiff in respect of the immovable properties of they Alwaye company for Rs. 2,50,000. Though there is a reference to exhibit P-23 by the learned judge, it was admitted before us that it was not relevant as it does not deal with the movable properties belonging to the Alwaye company. What is the other conveyance referred to in exhibit P-4( a ) has not been explained. It is, therefore, clear that exhibit P-23 cannot confer any title in favour of the plaintiff in respect of the shares of the defendant held by the Alwaye company. Counsel for the plaintiff, therefore, relied on exhibits P-2 to P-6 to establish title of the plaintiff to the shares in question. Exhibit P-3 is only the note of the manager of the plaintiff to the directors and exhibit P-2 resolution passed by the plaintiff only authorised to make an offer to the Alwaye company for purchasing its assets. The date when the offer was made and accepted by the Alwaye company i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer of the shares of the company by an instrument in writing in the usual common from or in such form as may be prescribed by the directors from time to time. In such circumstances, transfer of shares can no doubt be effected by blank transfers also. But so far as the defendant is concerned, the company recognises no person except those whose names are on the register of members of the company. The blank transfer of shares may give rise to certain equities between the transferor and the transferee but the latter on the basis of such blank transfer can have no cause of action against the company excepting for the rectification of the share register for registering the shares in the transferee's name. Since this aspect was argued very elaborately before us, we shall examine this question with reference to the decisions placed before us. In Buckley on the Companies Acts, thirteenth edition, at page 608, the learned author says: ". . . . where the articles of association do not require a deed, but permit transfers to be made by 'instrument in writing,' a transfer in blank carries to the person whose name is subsequently filled in as transferee, not only the equitable, but also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feree with an equitable ownership, are not sufficient to make the transferee a full owner, since the legal interest vis-a-vis the company still outstands in the transferor ; so much so, that the company credits the dividends only to the transferor and also calls upon him to make payment of any unpaid capital which may be needed." In Arjun Prasad v. Central Bank of India AIR 1956 Pat. 32 Das J. observed at page 37 : "It is clear, however, that all the decisions are really one way, namely, that as between the parties to the transaction and where the right of no third parties is involved, a registered shareholder by duly executing a transfer in blank and by handing over the share certificate to his creditor by way of security transmits his title to the shares, both legal and equitable, and the transferee can fill up the blank and ask for the registration of his name in the books of the company without the risk of his right being defeated by the registered owner or by any other person deriving title from the registered owner." Thus it is clear that a transferee of shares under blank transfer whose name is not registered in the books of the company is not the legal owner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plain legal effect of this recognised practice is, that the transferor who executes the transfer in blank confers on the holder of the documents for the time being an authority to fill in the name of the transferee; and each successive holder for the time being, when the documents pass through several hands, passes on this authority. The holders must of course be bona fide holders for value without notice." It thus follows that so long as the plaintiff has not filled their name as the transferee in exhibit P-5 they only remain the holder without intending to become the transferee. It was argued that so long as the plaintiff has not completed exhibit P-5 by incorporating their name as the transferee in exhibit P-5 there is no question of their getting any title over the shares. There seems to be substance in this contention. We, therefore, hold that by virtue of exhibit P-5 the plaintiff cannot exercise any rights as a shareholder against the defendant and canvass the validity of the forfeiture resolution. At this stage it is necessary to note an argument of counsel for the defendant. Learned counsel contended that on the date of the transfer of shares by the Alwaye company to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent cause. The plaintiff in the case before us has admitted in the plaint that the forfeited shares were also sold by the company in the year 1960. This is also proved by exhibit P-14. It is the case of the plaintiff that in view of article 54 of exhibit D-10 the rights of the purchaser of the forfeited shares from the company will not be affected by any irregularity or invalidity in the proceedings towards forfeiture of the shares. The only right available to the shareholder will be for damages against the company. If the blank transfer was subsequent to the sale of the shares by the defendant the plaintiff cannot have any cause of action at all against the company. It is here that the date on which exhibit P-5 was handed over to the plaintiff becomes important and it has not been clarified by the plaintiff. In spite of the demands of the defendant the plaintiff did not forward exhibits P-5 and P-6 to the defendant before suit. Even if the Alwaye company has got the right to treat the forfeiture void and to treat themselves as member of the defendant it is necessary for the plaintiff on the basis of exhibit P-5 to get substituted as a member in the registers of the defendant by an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce as aforesaid shall not be complied with, every or any share in respect of which the notice has been given may at any time thereafter, before payment of all calls or instalments, interest and expenses due in respect thereof, be forfeited by a resolution of the directors to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited shares and not actually paid before the forfeiture. 45. When any share shall have been so forfeited, notice of the forfeiture shall be given to the member in whose name it stood immediately prior to the forfeiture, or to his legal personal representative or to the person entitled to the share by transmission, by writing sent to the registered address of such member, or of such representative or person, through the post or by messenger or, if there be no such representative of such person then by way of advertisement and an entry of the forfeiture with the date thereof shall forthwith be made in the register ; the provisions of this article are however directory only and no forfeiture shall in any manner be invalidated by any omission or neglect to give such notice or to make such entry as aforesaid." According to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t A sub-joined, informing them that if payment of the amount due from them together with the interest from the date on which the money became due at the rate of 6% per annum up to the date of payment is not received at the company's registered offices on or before the 30th November, 1948, shares standing in their names will stand forfeited." According to the defendant, because of the default of payment on November 30, 1948, by the Alwaye company their shares have been forfeited. In view of the words "will stand forfeited" in exhibit D-29( e ) counsel for the defendant contended that no separate resolution as is enjoined by article 44 of the company of exhibit D-10 is necessary. Counsel for the plaintiff attacked the validity of exhibit D-29( e ) as a resolution of forfeiture on three grounds. The first is that the defendants themselves did not treat the said resolution as one such. (2) The said resolution in accordance with its terms is incapable of being construed as a resolution of forfeiture and (3) exhibit D-29( e ) itself does not purport to be a resolution of forfeiture. It is necessary to consider these objections. We shall examine the plea whether exhibit D-29( e ) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o consult legal advisers for the issue of article 45 notices. Legal advice may be necessary if at all only for the issue of notices under article 43 to avoid any forfeiture being invalidated by a defaulting shareholder because of the non-compliance with the provisions in exhibit D-10 or in the Companies Act. Resolution No. 9 in exhibit D-29( f ) for issue of notices of forfeiture to defaulting shareholders who have not paid the first call amount up to date (underlining is ours) is a significant pointer to the conclusion that on the date of exhibit D-29( f ) there was no forfeiture of shares in respect of which the first call money was remaining unpaid. There is also no justification to accept the plea of defendant's counsel that the words "up to date" in resolution No. 9 in exhibit D-29( f ) only mean till October 23, 1948, the date of exhibit D-29( e ) resolution. The notice, exhibit D-37, dated 26th/31st October, 1949, issued by the defendant to Alwaye company will conclude this point. It will be useful to extract the relevant portion in exhibit D-37 which is to the following effect : "With reference to our forfeiture notice No. 1964 dated November 1, 1948, in respect of 900 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with the terms of article 43 of exhibit D-10. It does not appear that prior to exhibit D-29( e ) the board of directors or any officer of the company authorised in that behalf issued a notice in terms of article 43 to the defaulting shareholders. Article 43 provides that it should state, among other things, that in the event of non-payment at or before the time and at the place or places so appointed the share in respect of which the call, instalment, interest, or expenses are owing, will be liable to be forfeited. It is only after the default is committed to comply with the notice that the right to forfeit the shares arises and it is not possible for the defendant to pass a resolution of forfeiture in anticipation of any default. It has been held that provisions relating to forfeiture of shares on default of the shareholders will have to be strictly complied with. We do not think it necessary to cite authorities in support of this proposition. We are, therefore, satisfied that it is rot possible to combine articles 42 and 44. The second submission of counsel for plaintiff has to be accepted. We shall now consider the third submission on behalf of the plaintiff that exhibit D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares by way of damages on account of wrongful conversion of those shares by sale to strangers in the year 1960. It was on 18th September, 1950, that the plaintiff wrote to the defendant requesting them to give an opportunity to the plaintiff to pay the call monies due on 900 shares and waive the forfeiture. Exhibit D-18 is the reply given by the defendant to the plaintiff which stated that the directors would be agreeable to waive the forfeiture of the shares provided (1) the plaintiff produce before the defendant the transfer deed conferring title deeds to the shares on them, (2) on deposit with the defendant Rs. 25,000 immediately, and (3) the balance of Rs. 20,000 together with the interest at 5% from the dates on which calls were due up to date of payment within a month after the first payment. Resolution No. M( b ) passed by the board of directors of the defendant in the meeting held on August 8, 1951, embodies the conditions. The resolution is contained in exhibit D-29( a ) and ( b ). The said resolution reads: "Resolved that the forfeiture of the shares be annulled as per article No. 50 of the articles of association of the company and the shares be transferred to the name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efendant as money belonging to the plaintiff having been paid in pursuance of the contract. The contract did not provide for the discharge of the liability of the Alwaye company by the defendant. If the conditions in the contract are complied with by the plaintiff then on receipt of the amount mentioned therein the shares in the name of the Alwaye company will have to be transferred to the plaintiff by the defendant. The plaintiff did not agree to pay Rs. 45,000 towards the discharge of the liability of the Alwaye company outstanding to the defendant on the date of the forfeiture of the shares. Thus the plea of the defendant that the payment of Rs. 45,000 by the planitiff was towards the discharge of the liability of the Alwaye company to the defendant cannot be accepted. Counsel for the defendant then pointed out that even assuming that the payment of Rs. 45,000 was towards the performance of the contract entered into by the parties since the plaintiff was a defaulter in carrying out the terms thereof, the plaintiff is not entitled to claim back the sum of Rs. 45,000. We do not find any merit in this submission. When the plaintiff committed default in the performance of the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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