M.C. Chagla, C.J.
1. These two appeals arise from a common judgment given by Mr. Justice Bhagwati, and a few facts must be stated in order to appreciate what the real contentions between the parties were. One P.V. Reddy, who was a director of the Bombay Life Assurance Co., Ltd., held 534 shares on which Rs. 25 per share had been paid up, and there was an uncalled for liability of Rs. 75 on each share. On July 25, 1944, Reddy sold through his constituted attorney Bhaidas Gulabdas 484 out of these shares, retaining for himself 50 shares which, it might be mentioned, were necessary to be held by a director as qualifying shares. Reddy executed 5 blank transfer forms in respect of these 484 shares-4 for 100 shares each and 1 for 84 shares. These blank transfer forms were ultimately filled in in the name of Sir Padampat Singhania, 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 January 8, 1945, under Rule 94A of the Defence of India Rules, and the Government granted its sanction on February 16, 1945. On February 21, 1945, the company resolved upon increasing its capital by issuing 4596 shares of Rs. 100 each at a premium of Rs. 75 per share. On the existing shares only Rs. 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 company in its letter enclosed form A which was intended to be used by the shareholders who applied for new shares and also another form B intended as a letter of renunciation to be used by the shareholder who wanted to renounce the shares allotted to him to any other person. Reddy made no use of this letter of renunciation and he contented himself with applying for only 40 shares. On February 23, 1945, Reddy received a letter from one Mehta and one Bharatiya calling upon him to forward to them the circular letter received by Reddy from the company dated February 21, 1945, with the forms annexed thereto duly signed by him so as to enable Mehta and Bharatiya to apply for the shares which were allotted to Reddy. Mehta and Bharatiya stated in this letter that so long as Reddy continued to be the holder of these shares on the company's register, he held the shares as trustees for Mehta and Bharatiya. Mehta and Bharatiya did not enlighten Reddy how Reddy was constituted trustee for them. On February 28, 1945, Messrs. Craigie Blunt & Caroe wrote a letter on behalf of their clients, J.M. Mehta, Sir Padampat Singhania, Lala Kailaspat Singhania and N.K. Bharatiya and others calling upon Reddy to apply for the additional shares and fractional certificate which had been issued to Reddy and asking him that when the shares were allotted to him he should hold the shares on behalf of Craigie Blunt & Caroe's clients, and also intimating to him that when this was done the Hindustan Commercial Bank, Ltd., would pay Reddy a sum of Rs. 100 for every share allotted to him. The implication of this demand was that Reddy was first to apply for the shares, spend his own money and then the amount expended by him would be refunded by Sir Padampat and others, but in the next paragraph Craigie Blunt & Caroe made another requisition and that was that if Reddy so preferred he could send the form of application A duly signed by him as well as the renunciation form B as also the fractional certificate to Bharatiya so as to reach him before March 7, 1945, who would then forward the application to the company on behalf of the defendant Reddy along with the necessary remittance. Messrs Craigie Blunt & Caroe also agreed on behalf of their clients to indemnify Reddy against any and every liability which he would incur by applying for these partly paid shares. In the early part 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 March 3, 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 Rs. 100 per share when these shares were allotted to him. On March 3, 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 he 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 sign and deliver to the plaintiff the application form A annexed to the circular letter; he wanted the defendant, to be ordered, upon receiving the certificates of the new shares, to hand over the same as also the fractional certificates to the plaintiff together with the relative transfer forms in blank duly signed by him; he applied for appointment of a receiver and he also subsequently, by an amendment, asked for damages in the alternative in the sum of Rs. 7,29,600. On the game day Sir Padampat applied for a receiver, and Mr. Justice Bhagwati made an order appointing the Court Receiver receiver of the application form and letter of renunciation and of the rights, if any, of the defendant in the 484 shares of the Bombay Life Assurance Co., Ltd. The receiver then wrote a letter to the company on March 10, 1945, formally intimating to the company that he was applying for and requesting the company to allot to him 384 new shares of Rs. 100 each of the company upon the terms of the company's letter; and he therein agreed to accept the same. I may point out here that the proper number of shares to which Reddy was entitled was 387 and not 384 but through some arithmetical error the plaint says that Reddy was entitled to 384 shares and the receiver's application is based on that basis.
2. The receiver also remitted a sum of Rs. 38,400 for payment in respect of these shares at Rs. 100 per share. He then requested the company to put his name on the register of members in respect of the shares so allotted. He also sent along with this application another letter in which he set out the history of the litigation; how he came to be appointed a receiver and what his powers were and he added that as stated in his application he had to request the company, as Court Receiver, High Court, Bombay, and Receiver in suit No. 366 of 1945, to register his name as such in the register of the company in respect of the shares allotted to him. The company replied to this letter on April 30, 1945, stating that Reddy had accepted the company's offer only to the extent of 40 shares and the offer as regards the balance had lapsed, and they returned the sum of Rs. 38,400 sent by the receiver. The receiver thereupon filed suit No. 786 of 1948 against the Bombay Life Assurance Company, Ltd., praying that the defendant company should be ordered and decreed to allot 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 on behalf of Sir Padampat Singhania. Now, Sir Jamshedji says that if Bhaidas Gulabdas had this knowledge, this knowledge cannot be imputed to his principal Reddy. In law a principal is only bound by the knowledge of his agent provided that that knowledge is on a material point and the knowledge is such that the Court would draw the inference that the agent was bound to communicate the knowledge acquired by him to his principal. Sir Jamshedji is right when he says that when a shareholder sells his shares through a broker, he is not in any way interested to know to whom the shares are sold. He is not likely to make that enquiry of the broker and the broker is not likely to tell his constituent to whom the shares have been sold. The holder of the share is only interested in the price which he obtains. But we are dealing with a case that is not the case of an ordinary shareholder selling his shares in the open market. This transaction of a very large holding was effected by a private treaty and not in the open market. As a matter of fact Bhaidas sold to Gupta as many as 667 shares by this transaction and out of this number 484 shares belonged to Reddy, and it would not be a very far-fetched inference to draw that Reddy as the director of the Bombay Life Assurance Co., Ltd., would like to know from his constituted attorney as to who was the party who was acquiring such a large holding of the shares of the company. The learned Judge has also taken into consideration the background of this litigation. It seems that some time in July 1944 about the time that Reddy sold these shares to Gupta Sir Padampat Singhania suddenly made up his mind, for reasons best known to him, to acquire as large an interest as possible in the Bombay Life Assurance Co., Ltd., and for that purpose from July 1944 he started buying as many shares as he could get through various agents of his, and in September 1944 a meeting of the board of directors was convened, and the Chairman drew attention to the serious situation that had arisen with a view to get control of the management of the company. The meeting resolved that a circular should be issued to the various shareholders acquainting them with the real facts. The learned Judge takes the view that Reddy must have been present at this meeting and must have known what, was happening with regard to. the affairs of the company and the interest that 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 shareholders 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 February 28, 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 shareholder who acquires rights to an issue of new shares quae the person to whom he has sold his shares.
4. It is well established that a shareholder who has sold his shares and continues to Be on the register of the company is a constructive trustee for the purchaser of these shares with regard to the dividends that he receives on the shares and that he is also bound to carry out the directions of the purchaser with regard to any voting that might take place at any meeting of the company. In my opinion, the shareholder is not only a trustee with regard to these two specific rights, but he is also a trustee with regard to any other right that may attach to the shares which he has sold to the purchaser. In respect of any accretion to the shares by way of bonus or any right which the company may confer upon the holder of shares which he has sold the shareholder is in law constituted a trustee for his cestui que trust, the purchaser. Sir Jamshedji has argued that Reddy was ready and willing to execute the necessary renunciation form in favour of his purchaser and according to Sir Jamshedji that is the only right which the purchaser had against Reddy. Now, it is necessary to understand and appreciate the very vital distinction between a letter of renunciation and an application for shares by the shareholder himself. If the shareholder were to apply for shares in respect of these shares which he had already sold, he would be put on the register of the company, and he would be a trustee for his purchaser in respect of the dividends that he would receive on these shares. In the case of his executing a letter of renunciation, the position would be different because in the circular letter which the company issued offering the shares to Reddy it was made perfectly clear that the directors reserved the right in their absolute and uncontrolled discretion to accept or refuse any application for shares made by a person in whose favour Reddy might renounce his rights to the whole or any of the shares which he was entitled to have allotted to him in terms of the letter. Therefore, if Reddy executed the letter of renunciation in favour of the plaintiff, the plaintiff's right was by no means as certain and positive as his right would be if Reddy applied for the shares in his own name, because having sent this letter he may never get the company to recognise him as a shareholder, and if the company refused to recognise him as a shareholder, the letter of renunciation would be nothing else that a scrap of paper, and, therefore, it would not be correct to say that the only 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 light 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 of the Indian 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 each member, and such an offer is to be made by a notice specifying the number of shares to which the member is entitled and limiting the time within which the offer, if not accepted, was to be deemed to be declined. In this case, the time limited was March 10, 1945. The section goes on to provide that after the expiration of such time or on receipt of an intimation from the member to whom such notice is given that he declines to accept the shares offered, the directors may dispose of the same in such manner as they think most beneficial to the company. Therefore, there is a statutory obligation upon the company not to deal with the shares offered to a member unless the time fixed in the notice has expired. The exception to this is when the member intimates to the company that he has declined to accept the shares offered. If the company receives such intimation, then the company need not wait till the time fixed in the notice expires. But it is important to note that the statutory right given to the shareholder to acquire the new shares continues till the time limited has expired and that right can only be lost if he declines to accept the shares prior to the expiry of the time limit. Now, it is clear that in order that a shareholder should lose his right, he must decline to accept all the shares offered to him. He must make it clear to the company that although he is entitled to a certain number of shares by virtue of a new issue being offered, he does not propose to accept any of the shares offered by the company. Sir Jamshedji's contention is that once an offer is made, it must be accepted either in part or in whole at one and the same time, and according to Sir Jamshedji when Reddy informed the company on February 21, 1945, that he accepted 40 shares out of the 427 shares offered to him, he had declined to accept the remaining shares offered to him. In my opinion, that contention is not well founded. In the first place, there is no definite specific intimation by Reddy to the company that he declines to accept the offer with regard to the balance of the shares. In this letter he is only dealing with the 40 shares which he had accepted. He says nothing about what he proposes to do with regard to the balance of the shares offered. Further, the circular letter of the company gives the right to Reddy to renounce the other shares which he has not accepted. Now, 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 March 10, 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 shares, 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 March 10, and that he had not exercised that right till that date, then it is clear that by his letter of February 21 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 apply for the shares before March 10 as to renounce it. Sir Jamshedji points out that in the circular letter the company informs Reddy that he could have more letters of renunciation, namely form B, but the circular does not say that he could have more than one letter in form A, and from this Sir Jamshedji wants us to draw the inference that as far as the application for shares goes it can only be made once in the form A. Apart from the fact that there is no clear intimation in this circular to Reddy that he could not apply for shares in more than one application, we refuse to countenance the suggestion that the company could by any letter of its restrict the statutory right given to the shareholders under Section 105C to apply for all the shares allowed to him till the time limit stated in the notice had expired. Therefore, in my opinion, Reddy had the right to apply for the balance of the shares, namely 387, till March 10, notwithstanding the fact that he had applied for 40 shares on February 21. If he had that right, then, in our opinion, he became a trustee in respect of that right for his beneficiary, the purchaser, namely, Sir Padampat Singhania, and if he was a trustee, it was incumbent upon him to carry out his trust and to acquire that right for his beneficiary provided a proper requisition was made by the beneficiary upon the trustee. If that be the correct position in law, then the only question that remains to be considered is whether a proper requisition was made by the beneficiary upon the trustee to carry out the trust.
6. Now, clearly neither the learned Judge nor the Advocate General relies upon the letter dated February 23 from Mehta and Bharatiya as constituting a proper requisition. The Advocate General also states that the first requisition contained in the letter of Messrs. Craigie Blunt & Caroe of February 28 asking Reddy to buy all these shares and then get the money from the Hindustan Commercial Bank, Ltd., was also not the correct position, and that there was no obligation on the trustee to invest his own money in order to get a right for the beneficiary, but he strongly relies upon the requisition contained in the paragraph thereafter of Messrs. Craigie Blunt & Caroe's letter, and in that requisition Messrs. Craigie Blunt & Caroe require Reddy to send the form of application A duly signed by him, and they undertook 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 abosolute 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 Jamshedji's contention that Messrs. Craigie Blunt & Caroe referred to the purchasers as' Sir Padampat & others, the fact remains that Reddy did not Accept his liability as a trustee and then agreed to discharge that liability provided he was sastisfied as to who his purchaser was. He only wanted to be satisfied about his purchaser in order to send him the letter of renunciation. That was the only question on which he wanted to be satisfied. In view of the attitude taken up by Reddy the plaintiff had no other course open to him except to file the suit, and therefore, in our opinion, the learned Judge was right when he came to the conclusion that the plaintiff was entitled to the relief he had claimed.
8. When we come to the other suit, the receiver's suit, in our opinion, the requisition made by the receiver upon the company was unjustifiable. Whatever the background may be by reason of the fact that Reddy belonged to Maneklal's group which was a rival group to the group of Sir Padampat, one must clearly bear in mind the fact that the company is an entirely different entity from its directors and there can be no question of collusion between Reddy and the company, and the plaint makes no such allegation. In this suit the receiver asks that the company be ordered to allot to him the 384 shares in question and put his name on the register of shareholders. Now, the new shares were offered to existing shareholders in proportion to the shares held by them. The receiver was not a shareholder and he could not apply to be registered as a holder of new shares in his own name. There was no application by an existing shareholder as such, and the company would be justified in refusing to enter his name on the register. If he wanted to be registered as a receiver in respect of these shares to which the defendant Reddy was entitled, very serious difficulties came in his way, because under Section 33 of the Indian Companies Act, the company was not bound to take notice of any trust, express, implied or constructive, and if the company registered B.K. Desai, Receiver, as a shareholder, it would be taking notice of the trust because Mr. Desai would be holding as a receiver, that is, trustee, for the shareholder, and therefore the company was also justified in refusing to register B.K. Desai, Receiver, as a shareholder. It is pointed out to us that the difficulty was that the last date for receiving applications for the new shares was March 10; that Sir Padampat filed the suit on March 9 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 shareholder 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 shareholder and allot the shares to him and then he has directed the receiver to transfer the shares to the plaintiff after signing the relative transfer forms. Now, with great respect to the learned Judge, I fail to understand how the Court can possibly compel the company to put on its register a person who is a complete stranger and who has nothing whatever to do with the company. Issue of fresh shares can only be made under Section 105C to a person who is already a shareholder of the company, but, says the Advocate General, in the interest of justice we ought not to allow the rights of the plaintiff to be defeated and we should therefore alter the form of the decree by directing that the company should put the defendant on its register and allot the shares to the defendant and then order the denfendant to transfer these shares to the plaintiff. Now, we are not at all sure that any interests of justice are involved in this appeal. As pointed out by me in another appeal, where the same parties were before me and where I went in detail into the financial adventures undertaken by the plaintiff, I do not think that the plaintiff is entitled to any special consideration at the hands of this Court. If he has any legal rights, of course, he is entitled to them. Now, I fail to see why we should convert this suit filed by the Receiver for rectification of the register of the company by having his name inserted as a shareholder into an entirely different suit by which he would get the relief which he had never prayed for in the suit, because what the Advocate General wants is not that the receiver but that the defendant be put on the register of shareholders. Apart from that, as Sir Jamshedji rightly points out, if the application made by the Receiver is not a proper application, the an important statutory right has accrued to the company, and that statutory right is that on the expiry of the time limit, the company is entitled to dispose of the shares not applied for in such manner as it thinks most beneficial to the company. Therefore, if we do not give relief to the receiver in the receiver's suit with regard to the shares for which no proper application was made, the directors of the company would be entitled to dispose of the shares in a manner most beneficial to the company. That is a very important right which is in the interests of the company, its shareholders and policyholders, and we see no reason why we should defeat that right 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 not being able to obtain share certificates in respect of the 384 shares of the new issue in question, and directed that it should be tried later.
11. We would, therefore, set aside the decree as passed by the learned Judge in favour of the plaintiff and we will pass a decree in favour of the plaintiff to the effect that he is entitled to damages by reason of Reddy not having applied for shares when directed by the plaintiff and that an enquiry as to what the damages are should be held by the Commissioner for taking accounts, and the Commissioner should report to us what those damages are. Costs of this appeal, and further costs and further directions reserved. Costs of the suit before the trial Court also reserved.