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TMI Blog1954 (11) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 8,83,000/- and odd. At the time of the deposit, Messrs. Arjun Prasad and Lala Gurusharan Lal the two ladies executed transfers in blank in favour of the Central Bank. On 16-5-1951 there was an application for winding up, and on, 14-11-51 was an order for winding up of the Gaya Sugar Mills, Limited. On 29-7-1952, the Central Bank of India, Limited, wrote to Lala Gurusharan Lal to the effect that the latter had an overdraft account amounting to ₹ 6,10,885/- up to 10-6-1952, and against the said overdraft account the Bank held as security a number of shares of various companies, the market value of which was not sufficient to cover the said overdraft; the Bank, therefore, called upon Lala Gurusharan Lal to liquidate the overdraft account, and added that if the overdraft amount together with interest up to date was nut paid on or before 11-8-1952, the, Bank would proceed at their option to sell the shares held by them as security. Sometimes in July, 1952, Mr. Arjun Prasad made an application for the approval of a scheme of re construction of the Company. This application was heard on 6-10-1953 and an order was passed for calling meetings of the share-holde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rusharan Lal asked the Central Bank of India to allow him to act as a proxy for the Central Bank so that the scheme of reconstruction might be approved at the meeting of the share-holders to be held within a few days of the writing of the letter. The Central Bank of India did not appoint Lala Gurusharan Lal as their proxy. Then, on 9-11-1953 Mr. Arjun Prasad filed an application supported by an affidavit of that date a supplementary affidavit dated 10-11-1953. In this application, Mr. Arjun Prasad said that the shares in question were merely fledged with the Central Bank of India the Bank had 'no legal interest or right in the shares' apart from their right as a pledge, and the property in the shares still vested in him, his father, mother and wife; there-lore, the Bank was not the owner of the shares in question had no right to get themselves registered in respect of the shares. Mr. Arjun Prasad substantially asked for the following reliefs: (1) an order of injunction restraining the Central Bank from exercising any vote as a shareholder of the Caya Sugar Mills, Limited on the strength of the shares in question; and (2) Setting aside the order dated 7-8-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action was a mere pledge and the Central Bank had no legal title as a mortgagee' in respect of the chares. He has contended that a mere execution of blank transfers and a deposit of the share certificates with the Central Bank of India, Limited did not create a legal mortgage in favour of the Central Bank; he contended that in essence the transaction was a mere pledging of the shares as security, and, at the highest it may amount to an equitable mortgage. He has also contended that the transfers were in blank when originally made and such blank transfers were ineffective to pass title; he has submitted that a pledge or mortgagee cannot perfect the imperfect transfer by filling in the blank transfer, unless specially authorised to do so by the pledger or mortgagor, though such authority may be conferred by subsequent ratification. He has further submitted that in the case of a bona fide transferee for value to whom a transfer had been intended from the very outset, the authority to fill in the blank transfers may be implied and he can fill in the blank transfers at any subsequent date to perfect the transfer; but in such a case when the blank transfer is filled in, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e conveys the whole legal interest in the chattels; a pledge or pawn conveys only a special property, leaving the general property in the pledger or pawnor; the pledgee or pawnee never has the absolute ownership of the goods, but has a special property in them coupled with a power of selling and transferring them to a purchaser on default of payment at the stipulated time, if' any, or at a reasonable time after demand and non-payment if no time for payment is agreed upon . 7. The question now is what is the true nature and effect of the transaction entered into by the petitioners through Lala Curusharan Lal with the Central Bank of India, Limited. I have no doubt in my mind that in its true nature and effect the transaction was a mortgage. The position with regard to the commercial practice or mercantile usage in cases of this nature has been thus explained in Palmer's Company Law (Nineteenth Edition) at page 113: Upon a sale or mortgage of shares, the transferor very commonly signs and hands over what is called a blank transfer (i.e. a transfer signed by the transferor, but with a, blank for the name of the transferee), the intention being that the purchaser or mort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o anybody, but it appears to me that some of the afore said statements in the rejoinder petition are statements culled from same English and Indian decisions, without perhaps appreciating very clearly the con text in which they were made. I agree with my learned brother, Ramaswami J. that the statements made in the rejoinder petition should not be read in isolation; rather the statements should be taken as a whole. In some of the English decisions dealing with the question of a deposit of shares with blank transfers, the words 'pledge' and 'mortgage' have 'been used in the alternative; that may perhaps be accounted for by the circumstance that according to English law shares are choses in action, which cannot be pledged as goods but may be the subject of an equitable mortgage which creates a charge on the property but does not pass a legal estate; Fry J. said, however, in -- 'France v. Clark' (1883) 22 Ch.D. 830 that he saw no reason why the principle which applies to a pledge of physical chattels should not equally apply to a pledge of a chose in action. But as was pointed out by the Court of Appeal in -- 'France v. Clark' (1884) 26 Ch.D. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the right of the third person to stand, in the shoes of the person in whose favour the share certificates were originally deposited as security for 150/- was never in dispute. The decision, therefore, does not lay down any such proposition that when a debtor delivers to his creditor a blank transfer by way of security, the original creditor must rave a special or express authority, to enable him to fill up the blank in order to perfect his title. On the contrary; the decision accepts as correctly the proposition that the original creditor can perfect his title by filling up the blank, 10. Mr. Sen also replied on the decision in - The Colonial Bank v. Frederick Whinney' (1886) 11 A.C. 426 . That was a case in which the Company was subject to the Companies Clauses Consolidation (Scotland) Act, 1840, Section 14 whereof required the transfer of any share to be by deed. A registered holder of the Company deposited with his bank his share certificates together with a blank transfer executed by himself as security for advances the bank. Lord Blackburn said: The certificates of the shares were deposited with the Colonial Bank as a security for advances made to the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act the Legislature must have associated shares with the share certificate which is marketable. Otherwise, it is difficult to see how shares can be goods and the subject of pledge, the essence of which is delivery. To say that there can only be a pledge of shares when the share certificate is accompanied by a deed of transfer is making the transaction something more than a pledge, as we have already pointed out. We think that, when a person delivers a share certificate, to another to be held by him as security, there is under the law of India a pledge which he can enforce, but unless the pledge at the time of the deposit secures a deed of transfer which lie can use in case of necessity or obtains one from his debtor at a later stage, He must have recourse to the Court when he wishes to enforce his security. I do not take this last observation of his Lordship as meaning that when at the time of the deposit a deed of transfer is also taken, the transaction must still be a pledge and the deed of transfer merely relieves the creditor from taking recourse to the Court when he wishes to enforce the security. Whether the deed of transfer creates a mortgage or not will depend on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares which he had made over to the Central Bank of India by way of security were his own property and no one else was interested directly or indirectly in them, even though some of the shares bore the names of third parties as transferors. If the blank transfer deeds were intended merely as a pledge, then Mr. Arjun Prasad, his mother and his wife would not have written the letters which they did to the Central Bank of India, Limited. In (1890) 15 A.C. 267 certain certificates of shares in a New York company were transferable in person or by attorney on the books of the company only on the surrender cancellation of the certificate by an indorsement thereof; the indorsement was in the form of a transfer for value received, blank in the names of the transferor and transferee, with a power of attorney in blank to any out the transfer. On the death of the owner of the snares his executors obtained probate of his will, in order that the shares might be registered in their own names signed as executors the transfers on the bank of each certificate, without filling up the blanks, and sent the certificates to their broker, who fraudulently deposited the certificates with a fran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been duly executed by the registered owner of the shares, the name of the transferee being left blank, delivery of the certificate in that condition by him or by his authority, transmits his title to the shares both legal and equitable................. Notwithstanding his having parted with the certificate and transfer, the original transferor, who is entered as owner in the certificate and register, continues to be the only share-holder recognised by the Company as entitled to vote and draw dividends in respect of the shares, until the transferee or holder for the time being obtains registration in his own name. It would, therefore, be more accurate to say that such delivery passes, not the property of the shares, but a title, legal and equitable, which will enable the holder to vest himself with the shares without risk of his right being defeated by any other person deriving 'title from the registered owner , These observations perhaps go a little further than what was laid down in (1884) 26 Ch.D. 257; and in -- 'Fox v. Martin' (1895) 64 LJCh. 473 the interesting question was mooted if the decision of the House of Lords referred to above partly overruled 'Fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in a limited company had been deposited by way of security was entitled to foreclosure or whether his only remedy was sale. Cozens-Hardy J. said: Now, it ,is plain that a pledge is in a very different position from an ordinary mortgagee. He has only a special property in the thing pledged. He may obtain a sale, but he cannot obtain foreclosure. I do not think that this is properly a case of pledge. A share is a chose in action. The certificate is merely evidence of title and whatever may be the result of the deposit of a bearer bond, such as that which Sir George Jessel dealt with in --'Carter v. Wake', (1877) 4 Ch.D. 605 I think I cannot treat the plaintiff as a mere pledgee. The deposit of the certificate by way of security for the debt, which is admitted, seems to me to amount to an equitable mortgage, or in other words, to an agreement to execute a transfer of the shares by way of mortgage . I have already observed that the position in India is somewhat different where shares are goods and therefore pledgeable. There can be a pledge of shares in India, and there can also be a mortgage of shares; whether it is one or the other will depend on the intention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the intervention of the Court, if after proper notice the mortgagor fails to repay the mortgage money ................ No particular-formality is necessary in India for the creation of a security on moveable property a parole mortgage of goods is valid . There are several decisions in support of the observations made above, and his Lordship Ramaswami, I has referred to some of them in his judgment. Mr. Sen has not seriously contended before us that there can be no mortgage of moveables in India. It is, therefore, unnecessary to pursue the matter further except to state that the question has been dealt with in his usual erudite manner by the late Dr. Rashbehary Ghose in his Tagore Law Lectures on the Law of Mortgage in India, pages 112 to 114 and 342 to 344. 14. Having regard to all the circumstances in which Lala Gurusharan Lal made over the share certificates to the Central Bank of India, Limited with transfer deeds in blank and the subsequent conduct of the parties, I find that Lala Gurusharan Lal undoubtedly intended to transfer the shares to the Central Bank of India, Limited with authority to the Bank to fill up the blanks whenever necessary. The object and meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to certain centres of commerce The Transfer of Property Act applies to immovable property. Assuming but without deciding, that a transaction of the kind which we have under consideration here is an equitable mortgage of moveable property at its inception, I do not think that the appellants stand on any better footing. The Bank had the right to perfect their title by filling up the blank transfers, and this they did before they asked for registration. They, therefore, had a completely valid legal title at the time when they asked for registration, and neither the registered owner of the shares nor any person deriving title from the registered owner, could defeat the right of the Bank. In view of our finding that the transaction was in its true character and legal effect a mortgage, it is unnecessary to consider if the appellants would stand on any better footing if the transaction were treated as a pledge and the Bank had the right to sell the thing pledged on giving the pawner reasonable notice of the sale. In the case under our consideration, the Bank did give notice to Lala Gurusharan Lal by their letter dated 29-7-1952. But be that as it may, it is, I think, clearly estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made except on strong grounds. In 'Bir Chand v. John Bros' AIR 1934 All 161 (P), 'the argument that sub-section (2) of Section 227 means that every transfer of shares without the previous sanction of the Court is void was not accepted. His Lordship said: I do not think that the section can bear this construction. If the Legislature had meant that a transfer of shares without previous sanction should be void, it was perfectly easy for the Legislature so to enact In my opinion, the plain reading of the section means that it is within the jurisdiction of the Court at any time after the transfer of the shares to order that the transaction is a good transaction and shall stand . We have held on an investigation of the facts and circumstances that the transaction in favour of the Bank was a good transaction. That being the position, up question of vacating or recalling the order of Imam, J. ex debito justitiae' or on the ground that it was made ex parte can arise, whatever be our power to set aside an ex parte order on an appeal or rehearing preferred under Section 202, Companies Act. 18. In our opinion the order of his Lordship imam, J. (as he then was) dat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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