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TMI Blog1927 (11) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... e remedy only by such procedure and not by separate suit. The principle would undoubtedly appear to be that if the new enactment is such that certain new rights Unknown previously to law are created by the now statute and certain remedies are provided for the infringement of such rights, it must logically follow that it was the clear intention of the legislature that such remedies should be enforced only in the manner and by following the procedure, indicated. No doubt it is open to the legislature even in other cases to take away any subsisting general right of suit and provide a special remedy instead, but it must be done by express provision and such a general right is incapable of being taken away merely by implication. 3. The argument of Mr. Alladi Krishna-swami Ayyar, the learned vakil for the respondents, with reference to this question was that Section 38, Companies Act, provides for an application for rectification of the register of shares whenever the name of any person is fraudulently or without sufficient cause entered in or omitted from the register. It does no doubt appear that the expression omitted without sufficient cause in this section has received a wide a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for the. purpose of carrying on any other business. It is clear that the scope of the Act is. regulative and it is concerned only with making provisions in respect of rights and obligations which would have existed apart from the Act. In all such cases the true principle is that though remedies are provided in the enactment, the general right of suit cannot be considered as taken away merely by reason of such provision and except by express enactment. The objection, therefore, that the appellant-plaintiff had no right of suit must be overruled. 7. Apart from this objection of a preliminary nature, two contentions were advanced on behalf of the respondent to. show that the plaintiff was not entitled to the relief prayed for, to an order for the registration of the shares. But before dealing with those objections it may be useful to see how Mr. Varadachari, the learned vakil for the appellant, put forward his case. Such shares in a company, although the company may be registered under the Act, are, in the eye of the law, merely shares in a partnership. No doubt the legal interest is evidenced by a document, the share certificate. Such an interest, therefore, is property in the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar authority for the proposition that in the absence of anything in the Articles of Association forbidding the same a sale by Court of shares held by a member has the effect of transferring the shares to the purchaser. The argument, therefore, of Mr. Varadachariar is correct, that, if the contention should be that on a sale by the Court the shares do not pass to the purchaser, the burden is on those who put forward such contention to establish the same by reference to some provision in the Memorandum or Articles of Association of the company. 12. As already observed, the contention of Mr. Alladi Krishnaswami Ayyar, with regard to this matter, was twofold: the first was that on a sale by the Court, what takes place is a mere, transfer of the shares and that under Article 20 it is provided that the shares in the company shall be transferred by endorsement on the certificate in such form as shall from time to time be approved by the managers, that Article 23 provides that the company may, without assigning any reason therefore decline to register any transfer of shares and that Clause (c) of Article 26 also gives the company the power by a resolution passed at the general meeting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Article 28. That article is the first under the heading of shares transmission. Mr. Alladi Krishnaswami Ayyar contended that as that article applied to cases of transmission of shares and as it is provided in that article that the executors or administrators of a deceased member shall be the only members recognised by the company as having any title to the shares of such member, the plaintiff was not entitled to require the company to register the shares in his name unless and until he produces letters of administration to the estate of the deceased or establishes his rights as executor of the last will and testament of the deceased member. 16. Mr. Varadachariar at one stage put forward the contention that Article 29 provided for the case of any person becoming entitled to shares in any other way than by transfer and that, therefore, the plain' tiff, as being a person who claimed to have become entitled to the shares other than by a transfer inter vivos was a person clearly entitled to have his name registered on furnishing satisfactory evidence of his title. But Article 29, as was pointed out by Mr. Alladi Krishnaswami Iyer, indicates merely the procedure to be follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle would prevent the Official Assignee from successfully claiming any title in respect of the shares. Again if a sale of the shares by the Court should take place during the lifetime of the shareholder himself, and the shareholder should die thereafter, but before the transferee is registered the same result may follow. It is difficult to believe that the legislature itself by framing a provision in that way intended to produce such absurd results. It was on these considerations I was prompted to examine more carefully into the wording of that article. 21. There are three matters to be considered with regard to the provision in Article 28. It first states that no one shall be recognized, and the provision is as having any title to the shares of a deceased member and the concluding direction is other than his executor or administrator. As the rule speaks of a deceased member and as the rule is clearly inapplicable to a case where somebody's name has been substituted as the shareholder in the place of the deceased member, it follows that the rule is applicable only to a stage at which the registered member is dead and no one has been substituted as member in his place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is the executor or the administrator. 23. But such could not possibly have been the intention of the article; it is, therefore, necessary to examine the language of the article further to arrive at the proper construction thereof. The word used in the article is recognized. Recognised for what purpose is the question. The article speaks of persons being recognised as having any title to the shares of a deceased member. Any title to the shares of a deceased member can only be on the footing that the deceased member had the property in the shares at his death, as otherwise they could not be the shares of a deceased member. A title to the said shares can be set up on the ground of a person having succeeded thereto on the death of the deceased member, succeeded either on intestacy or under his will. Therefore it is clear that when the article speaks of persons claiming title to the shares of a deceased member it could be referring to persons who claim to have succeeded to the shares on the death of a deceased member. It is for this purpose that the article provides that in the case of persons claiming to have succeeded to the shares of a member on his death the only persons rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a deceased member, the transferee of the shares should either obtain letters of administration to the estate of the deceased, or get probate or else must forgo the shares and lose them? It is also difficult to understand how such an endorsee or transferee can either get probate or letters of administration. 26. Let us take again the case of a receiver appointed by the Court in respect of the shares. If the member in whose name the shares stood should die, and the article should be construed in the manner contended for, it must follow that the receiver cannot get himself recognised as entitled to deal with the shares or get even any dividends payable in respect thereof. It seems to me that there is no obligation oh a Court of law so' to construe a clause as would lead to a clear absurdity which could not possibly be regarded as contemplated by the legislating authority or agency. On the other hand, that construction alone should be adopted which is in consonance with common-sense, which does not lead to absurd results or; enormous practical difficulties. 27. In the present case there were three shares Nos. 207, 208 and 4738, held by the deceased P.O. Nallasivan Pillai in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of a case as this should give? Undoubtedly only the sale certificate and the order for delivery. In the case of a sale by Court the sale certificate is the instrument by which the property is transmitted. There is no question on the correspondence in this case of the company not having regarded the proof of title as sufficient. The defence of the company in the suit is only to the effect that in the absence of an actual transfer of the shares either by the deceased or even by the Court the plaintiff can have no right to the shares and that in any case the first defendant company has a discretion to refuse to recognise any transfer of the share. 30. This last contention is based on Article 23 of the company which is as follows: The company may, without assigning any reason therefor, decline to register any transfer of shares or to register any person as a member under Clause 26 in respect of shares upon which the company has a lien by virtue of Clause 36 hereof. 31. There is also the Sub-clause (c) of Article 26 which is as follows: The company may, by a resolution passed at a general meeting, decline to register any transfer without assigning or being bound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry. 'In this connexion we may also consider the provisions of Rule 79 of the same order. In Clause 3 it is provided that where the property sold is a share in a corporation the delivery thereof shall be made by a written order of the Court prohibiting the person in whose name the share may be standing from making any transfer of the share to any person except the purchaser or receiving payment of or making any dividend thereon and the manager, secretary or other proper officer of the corporation from permitting such transfer or from making any such payment to any person except the purchaser. 35. It is significant that this rule speaks of the issue of such a written prohibitory order as constituting the delivery of the shares. It is also significant that under Clause 2, Rule 77 of the same order, on payment of the purchase money by the purchaser and the grant of a receipt thereof by the person holding the auction it is provided that the sale shall become absolute. There is, therefore, no force in 'this contention also. 36. I may in this connexion refer to the case of Manilal Brijlal Shah v. The Gordhan Spinning and Manufacturing Co. [1917] 41 Bom. 76 , where the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deceased member the provision as to the executors and administrators alone being recognised has no application. 41. Both the lower Courts were, therefore, clearly wrong in the view taken by them on both the points. 42. The appeals, therefore, must be allowed and the decree of both the lower Courts dismissing the plaintiff's action must be set aside. Instead there will be a decree in favour of the plaintiffs declaring their right to the respective shares in question and directing the first defendant company to register the shares in the names of the plaintiffs. There should also be decrees in favour of the plaintiffs for the dividends in respect of the shares. The lower Courts have not ascertained the amounts of the dividends payable. If the parties are unable to agree as to this the matter will have to be remanded to the Court of first instance for the purpose of ascertaining and decreeing the same. The costs of the plaintiffs-appellants throughout will be paid by the respondents. 43. The memoranda of objections were not pressed and are dismissed with costs. Ananthakrishna Ayyar, J. - The main question for decision in these eases is whether the plaintiffs are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Companies-Act in general and the Articles of Association in particular regarding transfer of shares, and consequently the plaintiffs were not entitled either to the registry of shares in their names or to the dividends appurtenant thereto. The company also stated that, in view of the provisions investing the directors with. discretionary power to allow or refuse registry of transfer of shares, the plaintiffs were not entitled to the reliefs prayed for (para. 10 of the written statement) that the conduct of the plaintiff in instituting this, suit is not bona fide in that he has not proceeded: firstly, as required by law with an application under Order 21, Rule 80, against defendants 2,. 3 and 4; secondly, as required by law with a. regular suit against defendants 2, 3 and for execution of a document of transfer; and thirdly, in that he has impleaded defendants 2,. 3 and 4 only as pro forma defendants without; claiming any reliefs against them: (Para. 11.) 46. Defendants 2, 3 and contended that they were minors during the proceedings in suit No. 391 of 1919, instituted against them by the creditors of their father, that they were not properly represented by the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaintiffs was to apply to the District Court under Section 38, Companies Act, for rectification of the company's register, that the District Court alone had jurisdiction, and that the present suits instituted in the District Munsif's Court were unsustainable. 'The District Munsif overruled this contention, holding that the mere fact that an enactment gave a summary remedy in certain cases would not constitute a bar to a regular suit. The case Sree Mahant Kishore Dasee v. Coimbatore Spinning and Weaving Co. [1903] 26 Mad. 79 was a suit for rectification of the register. In Rameshchandra Mitter v. Jogini Mohan Chatterjee [1920] 47 Cal. 901 their Lordships observed that if a case was complicated, an action should be brought. 51. The learned District Judge has not noticed this point in his judgment. I am clear that the District Munsif was right in his view regarding the maintainability of the suits. In Rameshchandra v. Jogini Mohan [1920] 47 Cal. 901 it was held by Mookerjee and Fletcher, JJ., that in a simple case where an immediate rectification is essential, it may be desirable to apply under the section, but if the case is at all complicated, an action shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsed the decision of the Master of the Rolls and directed the registers to be rectified and the transferee recognised as the owner of the shares. In the course of the judgment it was observed at p. 27 as follows: I apprehend the shares are transferable by virtue of the statute and that the province of the articles is to point out the mode in which they shall be transferred and the limitations (if any) to which a shareholder shall be subjected before he can transfer. The only question then is: Is there anything to restrain the exercise of this right of transfer in the present case.... I think...the shares are at once transferable under the statute unless something is found to the contrary in the Articles of Association. 55. See also Lindlar's case: In re Discoverers Finance Corporation Ltd. [1910] 1 Ch. D. 312 (317). The Companies Act accordingly provides by Section 28 that the shares in a company shall be transferable in manner provided by the articles of the company. Under Section 21 of the Act the Memorandum and Articles of Association of the company shall be considered as covenants entered into on the part of each member, his heirs and legal representatives to o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hushanam v. Ramachandra Rao AIR 1923 Madras 241 relied on by the lower Courts are not really against the view I am inclined to take. In the case reported in Manilal Brijlal v. Gordhan Spinning Manufacturing Co. [1917] 41 Bom. 76 it does not appear that there-were two sets of rules: one for transfer and the other for transmission of shares as we have here in the present case. The rules in the Bombay case evidently gave the company liberty; without showing, any cause, to refuse to transfer any shares (to get them entered) in the names of other persons. There being evidently in the Articles of Association of that company only one set of rules,, the Court held that the rules governed all cases of transfer; that is, transfer by operation of law also. The question in Nagabhushanam v. Ramachandra Rao AIR 1923 Madras 241 was, which of two company purchasers had a better title to the shares, an auction purchaser of the shares or a transferee under a deed signed only by one of the parties where the rules required that transfer should be by deed executed by both the transferrer and the transferee. The company was not a party to the litigation and the observation of the learned Jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out letters of administration ceases. The estate has no further title to the said shares and consequently the administrator could not have any title to the same. It is only when the shares remain part of the estate that the question of administration and the taking out of letters of administration in respect of the same could arise. Otherwise anomalous results would follow. In this case, having regard to the Court sale of these shares in execution of the decree in O.S. 391 of 1919, to which the only persons interested, defendants 2, 3 and 4, were parties, and having regard to the finding of both the lower Courts in the present litigation that the decree in O.S. 391 of 1919, and the Court sale in execution of that decree and purchase by the plaintiff in Court auction are all valid and binding on defendants 2, 3 and 4, it seems to me that these shares have ceased to belong to the estate of the deceased Nallasivam Pillai and consequently no letters of administration would seem to be necessary in the circumstances of this case. Further, it was urged by Mr. S. Varadachariar, the learned vakil for the appellant, that there is no provision of law under which letters of administration cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in which the right to them was acquired by the petitioners in O.P. 109 of 1925, namely, 27th March 1920. 63. Here again the orders were passed on 19th February 1926 after the decision of the lower appellate Court and before the second appeals were filed. The sons of Nallasivam Pillai (present defendants 2 3 and 4) were parties to the said orders as also the present defendants 1 (Tinnevelly Mills and Co. Ltd.) The sons of Nallasivam Pillai have preferred Civil Misc. Appeals 312 and 313 of 1926 against the orders passed by the District Judge granting certificates to the plaintiffs in these suits in respect of these shares in question and they are also posted before us for final disposal. 64. Having regard to what has been stated above, it seems to me that none of the grounds mentioned by the lower Courts are sufficient to warrant the dismissal of the suits. 65. I have not thought it necessary to consider in great detail the argument urged by the learned vakil for the appellant that Rules 28, 29 and 30 should bread together; that Rule 28 gives a right to the company to recognise executors and administrators in the first instance as persons having prima facie title to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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