1. The liquidator of the Union Indian Sugar Mills Co., Ltd. (in liquidation) has at his disposal a surplus after paying all the creditors of the company. It therefore became his duty to divide this pro rata among the share-holders. He naturally proposed to divide this money among, those share-holders whose names appear upon the register of share-holders. The five applicants before me today however are not registered shareholders. They claim to hold the shares of one Lala Debi Datt, as security for loans advanced to him. As security for those loans they took the share certificates and blank transfers. These transactions took place sometime before the company went into liquidation. The mortgagees of the shares never took any steps to notify the company officially or to have their names registered as share-holders. They claim however that as Lala Debi Datt, was the Managing Director of the company and as he himself personally pledged these shares to them, the company must therefore be said to have had notice of the pledging of the shares and that thereafter the company had no lien upon the shares in question. The liquidator claims that Lala Debi Datt was indebted to the company for a large sum of money that under the articles of association the company has a lien upon all the shares of mem-. bers for debts owing by the members to the company, and that therefore that share of the surplus which would be due to Lala Debi Datt should not be distributed to the mortgagees of the shares, but should be distributed among the other share-holders.
2. The law upon this point is clear. A company has a lien upon the shares of its members for debts owing by the members to itself. If however a member pledges his shares to some third party as a security for a loan, and the company has notice of the transaction, the company loses its hen for all debts owing by that member to the company subsequent to the knowledge of the company of the transaction. The question therefore arises in this case whether the knowledge of Debi Datt of the transaction of the pledging of these shares was the knowledge of the company. If it was, then only that amount of the debt owing by Debi Datt to the company before the pledging of the shares would be distributable among the other shareholders. On the other hand, if the knowledge of Debi Datt was not the knowledge of the company, then the whole amount which would go ordinarily to the applicants would be distributable among the other share-holders. It is necessary to sec in this case who Debi Datt was. It appears that Debi Datt was clearly the most Important man in this company. He was the Managing Director, and under Article 90, of the Articles of Association, it was provided that:
Lala Debi Datt shall be the permanent Managing Director of the company under those articles, until such time as the said Lala Debi Datt resigns the office of his own accord; ho shall have all powers exercisable by the Directors of the company, either in managment of the affairs of the company or in raising or borrowing any sum or sums of money for the purpose of the company and ho shall not be subject to retirement either by rotation or otherwise.
3. It will thus be seen that peculiar and extensive powers were given to Lala Debi Datt by the Articles of Association. He was by no means an ordinary Managing Director. Further there is no doubt that he had knowledge of his own transaction in pledging the shares. Under circumstances somewhat similar to these this point of law has been considered in England, in Rainford v. James Kethi and Black-wan Co., Ltd. (1905) 2 Ch. 147. It was there held that where three Directors had notice of a charge upon shares in their private or personal capacity that was good notice to the company. Debi Datt in this case had the powers of the whole Board delegated to him, and therefore this authority is applicable. In my opinion, the proposition might also be stated under the ordinary law of principal and agent. Notice to an agent is undoubtedly notice to the principal, and therefore notice to the company's agent would be notice to the company itself. The only exception to this rule would be when the agent is acting in fraud of his principal. Now in this case there is no doubt that Lala Debi Datt in his peculiar position must be held to be the agent of the company. There is equally no doubt that he had notice of the transaction in question. It must therefore be held that the company too had notice. This being the case, the lien of the company upon the shares of Lala Debi Datt for any debt due to the company by Lala Debi Datt goes after the date of knowledge of the charge upon the shares. The result will be that such money as Lala Debi Datt owed to the company in each case before the company had knowledge of the particular charge will be divided by the liquidator among the share-holders other than the share-holder who holds that particular charge upon the shares provided the money-owing to the company has not subsequently been paid by Lala Debi Datt. The mortgagees of these shares propose to apply to the Court to have their names registered as the shareholders of the shares that are charged to them in place of Lala Debi Datt's name. When that is done and the Court has ordered accordingly the liquidator will pay to these share-holders their pro rata share of the surplus.
4. There is one further point to be noted. One of these applications, that of Gulab Rai Govind Ram, must be dismissed. The pledging transaction was carried out by Lala Debi Datt after the company went into liquidation. Section 22, Companies Act, therefore applies, and the permission of the Court not having been obtained for transfer of the shares, this application must fail. With regard to the application of Mt. Mori the shares in her name were pledged to the firm Bilas Rai Mangal Chand. By compromise however between Mt. Mori and the firm, the firm have agreed to allow the pro rata share of the surplus due on these shares to be paid to Mt. Mori. The liquidator will pay that amount accordingly. The share certificates will be returned to all the parties.