9911796707
TMI Blog1949 (3) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... , who was shown as the purchaser of these shares. The company some time thereafter decided on increasing its capital. Sanction for such increase was applied for, to the Central Government on 8th January 1945, under Rule 94A, Defence of India Rules, and the Government granted its sanction on 16th February 1945. On 21st February 1945, the company resolved upon increasing its capital by issuing 4596 shares of ₹ 100 each at a premium of ₹ 75 per share. On the existing shares only ₹ 25 per share were called up, and the company also decided that the new shares should be offered to the existing shareholders in the proportion of 4 new shares to every 5 shares held by the shareholders. Pursuant to that resolution letters were issued to the various shareholders, and a letter was also issued to Reddy informing him that as a holder of 534 shares he was entitled to 427 new shares and one fractional certificate. The letter was written to Reddy because the purchasers from Reddy had not got their names registered in the books of the company as the shareholders of these shares. On the same day Reddy applied for 40 shares out of 427 offered to him. It may be pointed out that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of their letter Messrs. Craigie Blunt Caroe draw the attention of Reddy to the effect that in their opinion the issue of further capital by the company was illegal and the requisitions that were being made were without prejudice to that contention. On 3rd March 1945, Messrs. Hindustan Commercial Bank, Ltd., followed up the demand made by Messrs. Craigie Blunt Caroe by offering to pay to Reddy a sum of ₹ 100 per share when these shares were allotted to him. On 3rd March 1945, Reddy replied to Messrs. Craigie Blunt Caroe, pointing out to them that he had no objection to give them the renunciation form duly signed in favour of the real and true purchaser of these shares and he wanted to be satisfied who the real and true purchasers were by the transfer forms in their possession being produced for his satisfaction, but be went on to say that he was under no obligation to comply with the requisition with regard to the sending of Form A: the only obligation which he accepted was to sign the renunciation form in favour of the true purchasers. On that Sir Padampat filed Suit no. 366 of 1945 against Reddy for the following reliefs. He wanted the defendant Reddy to be ordered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the plaintiff the 384 shares and to put the name of the plaintiff in the share register of the company for the said shares and the register of shareholders of the defendant company be rectified by putting the said shares in the name of the plaintiff. The learned Judge, in substance, decreed both Sir Padampat's suit, being suit No. 366 of 1945 and also the Receiver's suit being suit No. 786 of 1948. It is from this decree and judgment of the learned Judge that both Reddy and the Bombay Life Assurance Co., Ltd., have come in appeal before us. 3. The first contention raised by Sir Jamshedji is that there is no evidence on the record to show that Sir Padampat Singhania was the purchaser of these shares from Reddy and that Reddy had knowledge that Sir Padampat was the purchaser and that he was the cestui que trust for whom he was the trustee. The only oral evidence led before the learned Judge was the evidence of Gupta to whom the shares were sold by the constituted attorney of Reddy, Mr. Bhaidas Gulabdas. In his evidence Gupta said that Bhaidas Gulabdas knew from the conversation which he had with Mehta, Basri and himself that these shares were being purchased for and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sir Padampat was taking in its affairs. Sir Jamshedji is right when he points out that the learned Judge was in error in thinking Reddy must have been a party to this resolution when there is no evidence of that fact on the record. But the learned Judge is right when he takes the view that even if Reddy was not present at the meeting, being a director, the circular letter having been issued to all the share holders as far back as September 1944, he must have known that the party of Sir Padampat Singhania and the party of Maneklal, another director, were fighting out the issue as to who should dominate over the destinies of this life assurance company. The importance of this question lies in considering whether a proper requisition was made by Messrs. Craigie Blunt Caroe on 28th February 1945, when they called upon Reddy to carry out certain requisitions. But before I deal with that aspect of the case it is necessary to consider what is the position in law with regard to a share-holder who acquires rights to an issue of new shares qua the person to whom he has sold his shares. 4. It is well established that a share-holder who has sold his shares and continues to be on the regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y right in respect of which Reddy was a trustee for his purchaser was the right of transferring to him the letter of renunciation. The more substantive and the more positive right was actually to obtain the shares to which Reddy was entitled by reason of his holding and to hold those shares as a trustee for the plaintiff. 5. The further contention that is urged by Sir Jamshedji is that as soon as Reddy applied for 40 shares in form A, his right to apply for any more shares came to an end and, therefore, he could not be a trustee for applying for the further shares in favour of his beneficiaries, because he himself did not possess that right. Now, as to what the rights of a shareholder and what the rights of a company are when there is a new issue of shares is to be determined by a true interpretation of Section 105-C, Companies Act. This is a new section which has been introduced into our Act, and there is no parallel to be found in the English Companies Act. Section 105-C makes it incumbent upon the directors when they decide upon increasing the capital of the company to offer the further shares to be issued by them to the members in proportion to the existing shares held by ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in my opinion, if Reddy were to exercise his right to renounce the shares, and Sir Jamshedji concedes that that right he had right up to 10th March in exercising that right he would really be accepting the shares offered to him. It is only by accepting the shares that he could deal with them in the manner indicated by the circular of the company, and if he decided to decline to accept the balance of the sharers, then, in my opinion, his right to renounce them would also be lost, because his attitude would be that he did not want anything to do with the additional shares offered by the company. But if once it is conceded that his right to renounce continued till 10th March and that he had not exercised that right till that date, then it is clear that by his letter of 21st February Reddy was merely exercising his right with regard to a part of the shares offered to him. With regard to the balance he did not give any intimation to the company and if he did not give any intimation to the company, I fail to see why Reddy's right was confined to merely exercising the right to renounce the balance of the shares. If he had not declined to accept these shares, he had as much right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to indemnify Reddy against any and every liability which he would incur by applying for these partly paid shares. But Sir Jamshedji says that by applying for these shares in his own name the liability upon Reddy was not merely to pay for these shares which Messrs. Craigie Blunt Caroe agreed to pay for on behalf of their clients, but there was also the further contingent liability to pay calls, because they were partly paid shares. But by this letter, Messrs. Craigie Blunt Caroe informed the defendant that they undertook to give the defendant a complete and absolute indemnity. 7. Sir Jamshedji relies on the attitude taken up by his client and has contended that he took up the right attitude by enquiring as to who the real beneficiary was and to be satisfied by the production of the relative transfer forms. Now, if this had been the only attitude of Mr. Reddy, much might have been said in his favour. But unfortunately in this very letter Reddy clearly declined any liability or obligation upon him to apply for these shares on behalf of his beneficiary. Whether he knew that his purchaser was Sir Padampat or not, as the learned Judge has held, or whether there is force in Sir Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the last date for receiving applications for the new shares was 10th March; that Sir Padampat filed the suit on 9th March and something had to be done before the limit fixed by the notice expired, and the only thing that could be done was by the appointment of a receiver by the learned Judge and for the application made by the receiver for allotting the shares to him. Now, with respect to the learned Judge, this was not the proper way to get over this difficulty. The receiver was not a share-holder and he was not applying on behalf of Reddy. There was no application by a shareholder for the issue of new shares before the time fixed by the notice. We cannot look upon the application made by the Receiver as having been made on behalf of the defendant. The receiver does not say in his application that the defendant has got anything to do with the application, and the company was justified in rejecting that application, and the order of the learned Judge made in the receiver's suit cannot be sustained. What the learned Judge has done is that he has ordered the company to register the receiver as a share-holder and allot the shares to him and then he has directed the receiver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by giving to the receiver a relief which he has not asked for. 9. The result, therefore, will be that, as far as the receiver's suit is concerned, the appeal will be allowed with costs and the order of the learned trial Judge set aside and the suit dismissed with costs. 10. With regard to Sir Padampat's suit (suit No. 366 of 1945), as we hold that Reddy was a trustee in respect of the shares in question, that the requisition made upon him by the plaintiff was a proper requisition and that Reddy was in error in refusing to carry out the requisition, Sir Padampat would be entitled to some relief. He cannot be entitled to the main relief which he asked for, namely, that the defendant should execute the application form A, because the time limit for that has passed and no relief could be obtained by the defendant applying to the company because the company has no proper application before it to issue new shares. But Reddy is certainly liable to the plaintiff in damages. What the nature and quantum of those damages are is a matter which will have to be determined, as the learned Judge himself has reserved this issue in the event of the receiver in the receiver's suit n ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
