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Travancore Electro Chemical Industries Ltd. Vs. Alagappa Textiles (Cochin) Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKerala High Court
Decided On
Case NumberA.S. No. 18 of 1966
Judge
Reported in[1972]42CompCas569(Ker)
ActsCompanies Act, 1956 - Sections 82 and 155; Companies Act, 1862 - Sections 16
AppellantTravancore Electro Chemical Industries Ltd.
RespondentAlagappa Textiles (Cochin) Ltd.
Appellant Advocate P.K. Subramania Iyer and; C.S. Ananthakrishna Iyer, Advs.
Respondent Advocate P.K. Kurien, Adv.
DispositionAppeal partly dismissed
Cases ReferredIn Colonial Bank v. Hepworth
Excerpt:
company - share - sections 82 and 155 of companies act, 1956 and section 16 of companies act, 1862 - defaulter shareholder's share forfeited and sold - shareholder had paid certain amount to avoid forfeiture but failed to pay interest - damages caused to company by breach of contract by share-holder not a ground to retain sum of money advanced by him - cause of action arose on date of sale of said shares to third party - computing limitation period from said date renders suit fall within limitation period - company directed to return illegally retained money. - - the said note recommended that in view of the interest of the plaintiff in the alwaye company the former should purchase the assets of the latter company for a sum of rs. observed at page 37 :it is clear, however, that all.....t.s. krishnamoorthy iyer, j. 1. the defendant in o. s. no. 23 of 1962 on the file of the sub-court, kottayam, is the appellant. the plaintiff's claim is for recovery of rs. 90,000 with future interest thereon at the rate of 6% per annum. the plaint is based on the following facts.2. the defendant is the travancore electro chemical industries ltd., which is a public limited company having its registered office at chinga-vanam, kottayam. alagappa textiles ltd., alwaye, hereinafter referred to as the ' alwaye company ', was a shareholder in the defendant owning 900 shares of the face value of rs. 100 each. the alwaye company had at the time of allotment paid rs. 50 per share. the defendant-company on december 9, 1947, decided by the resolution evidenced by item no. 8 in exhibit d-29(g).....
Judgment:

T.S. Krishnamoorthy Iyer, J.

1. The defendant in O. S. No. 23 of 1962 on the file of the Sub-Court, Kottayam, is the appellant. The plaintiff's claim is for recovery of Rs. 90,000 with future interest thereon at the rate of 6% per annum. The plaint is based on the following facts.

2. The defendant is the Travancore Electro Chemical Industries Ltd., which is a public limited company having its registered office at Chinga-vanam, Kottayam. Alagappa Textiles Ltd., Alwaye, hereinafter referred to as the ' Alwaye company ', was a shareholder in the defendant owning 900 shares of the face value of Rs. 100 each. The Alwaye company had at the time of allotment paid Rs. 50 per share. The defendant-company on December 9, 1947, decided by the resolution evidenced by item No. 8 in exhibit D-29(g) minutes of the meeting of its board of directors to make a call of Rs. 25, on every share on 2nd of January, 1948, the amount being payable on or before 31st January, 1948. The Alwaye company committed default in the payment of the call money. The defendant by resolution No. 9(a) in the meeting of the board of directors evidenced by exhibit D-29(a) decided to make the final call of Rs. 25 payable on or before 31st of December, 1948. The Alwaye company committed default in the pay-. ment of this amount also.

3. It is the case of the defendant that resolution No. 7 was passed by the directors in the meeting held on October 23, 1948, evidenced by exhibit D-29(e) forfeiting the shares of the Alwaye company for the default in the payment of the first call amount. The Alwaye company went into voluntary liquidation on June 22, 1949. The case of the plaintiff is for amounts due to the plaintiff from the Alwaye company. The plaintiff passed the resolution, exhibit P-2, offering to take the assets both movable and immovable of the Alwaye company in satisfaction of their claim for Rs. 4,75,000. Exhibit P-2 resolution is dated 23rd June, 1949. The voluntary liquidator of the Alwaye company transferred the immovable assets of the Alwaye company to the plaintiff by exhibit P-23 dated February 28, 1950. There is no deed evidencing the transfer of the movable properties of the Alwaye company in favour of the plaintiff. The plaintiff claims to have become the transferee of the 900 shares because of exhibit P-5 blank transfer signed by the voluntary liquidator of the Alwaye company and handed over to the plaintiff along with exhibit P-6, the share script issued to the Alwaye company by the defendant. The plaintiff wrote exhibit D-9 letter dated 18th of September, 1950, to the defendant informing them about the transfer of exhibit P-6 in their favour and requesting the defendant to waive the forfeiture of the shares agreeing to pay the sum of Rs. 45,000 being the arrears of call monies due from the Alwaye company. The defendant by exhibit P-7 dated 16th November, 1950, expressed its willingness to waive the forfeiture on the plaintiff paying Rs. 45,000 together with interest at 5% from the due date within the time stipulated therein and on production of the transfer deed to prove the transfer of shares in their favour. The Alwaye company (sic plaintiff) along with their letter dated December 3, 1950, sent a cheque for Rs. 25,000 towards payment for waiving the forfeiture. In pursuance to the terms of exhibit P-7 the plaintiff is bound to pay the balance of Rs. 20,000 and interest within a period of one month from December 3, 1950. The defendant, therefore, while acknowledging the receipt of Rs. 25,000 wrote exhibit D-16 to the plaintiff reminding them about the terms of exhibit P-7 and also requesting them to produce the transfer deed or any other document in original to prove about the transfer of the shares by the Alwaye company in their favour. The plaintiff did not comply with the terms of exhibit D-16. The defendant, therefore, wrote exhibit P-10, copy being exhibit D-14, for expediting the matter. The reminder, exhibit P-ll, dated February 16, 1951, copy being exhibit D-13, sent by the defendant to the plaintiff did not have any effect. The defendant, therefore, sent exhibit P-12 dated 13th March, 1951, copy being exhibit D-12, informing the plaintiff that, if the conditions are not complied with within a week's time from the date of exhibit D-12, the matter would be treated as closed. It is seen that thereafter besides paying Rs. 20,000 the plaintiff did not pay the interest as demanded. It is also seen that the plaintiff did not also produce any deed to evidence the transfer of shares in their favour. It is seen from exhibit P-14 that the forfeited shares were sold by the defendant-company in the year 1960. The suit is therefore filed by the plaintiff for recovery of Rs. 90,000 being the damages sustained by the plaintiff because of the wrongful sale of the 900 shares in the name of the Alwaye company.

4. The plaint was subsequently amended to declare that the forfeiture of the shares in the name of the Alwaye company by the defendant is invalid and they were the property of the plaintiff when they were sold in 1960. The plaintiff therefore alleged that the sale by the defendant is unlawful and is a wrongful conversion of the shares belonging to the plaintiff and on that ground the defendant is liable for the plaint claim of Rs. 90,000.

5. It was contended by the defendant that the forfeiture of shares is valid in view of the default on the part of the plaintiff to pay the interest due and also to produce the transfer deed, the defendant did not waive the forfeiture, the plaintiff is a defaulter in the performance of the contract, the plaintiff has no locus standi to impeach the forfeiture of the shares which stood in the name of the Alwaye company and the suit is barred by limitation.

6. The learned judge found that the forfeiture of the shares of the Alwaye company is invalid, that the plaintiff is competent to question the same, that since the defendant has sold the 900 shares the remedy of the plaintiff is only to a decree for damages for Rs. 90,000 and that the suit is not barred by limitation. The learned judge, therefore, granted a decree in favour of the plaintiff for the plaint amount after deducting Rs. 6,328-6-11 being the interest on the call monies due on the date of suit. This appeal is filed by the defendant against the decree of the court below.

7. The points argued before us are : (1) The plaintiff has no locus standi to impeach the resolution passed by the defendant forfeiting the shares held by the Alwaye company. (2) The forfeiture of the shares of the Alwaye company by the defendant is valid. (3) Even if the forfeiture resolution is invalid the plaintiff is not entitled to claim the sum of Rs. 45,000 paid by them, and (4) The suit is barred by limitation.

8. Point No. 1. The claim of Rs. 90,000 as damages is on the ground that the plaintiff acquired the title to the 900 shares which the Alwaye company held with the defendant. This was sought to be established by relying on exhibits P-2, P-3, P-4, P-4(a), P-5 and P-6. It is admitted that the Alwaye company went into voluntary liquidation by the resolution dated June 22, 1949. Exhibit P-3 dated 23rd June, 1949, is the note submitted by the manager of the plaintiff to its directors. The said note recommended that in view of the interest of the plaintiff in the Alwaye company the former should purchase the assets of the latter company for a sum of Rs. 4,75,000. Exhibit P-2 is the minutes of the meeting of the directors of the plaintiff held on 23rd June, 1949. In the said meeting a resolution was passed on the basis of exhibit P-3 to purchase the assets of the Alwaye company for Rs. 4,75,000. Exhibit P-4 is the general ledger of the plaintiff-company for the year 1949 and exhibit P-4(a) (page 286) is the account of the plaintiff in the name of the Alwaye company. In our view, exhibit P-4(a) does not in any way help the plaintiff. On October 11, 1949, there is a credit entry of Rs. 4,40,903-9-3 under the heading ' By conveyance assets '. Exhibit P-23 dated February 26, 1950, is the sale deed executed by V. R. Annamalai, liquidator of the Alwaye company, in favour of the plaintiff in respect of the immovable properties of the Alwaye company for Rs. 2,50,000. Though there is a reference to exhibit P-23 by the learned judge, it was admitted before us that it was not relevant as it does not deal with the movable properties belonging to the Alwaye company. What is the other conveyance referred to in exhibit P-4(a) has not been explained. It is, therefore, clear that exhibit P-23 cannot confer any title in favour of the plaintiff in respect of the shares of the defendant held by the Alwaye company.

9. Counsel for the plaintiff, therefore, relied on exhibits P-2 to P-6 to establish title of the plaintiff to the shares in question. Exhibit P-3 is only the note of the manager of the plaintiff to the directors and exhibit P-2 resolution passed by the plaintiff only authorised to make an offer to the Alwaye company for purchasing its assets. The date when the offer was made and accepted by the Alwaye company is not in evidence. Exhibit P-4(a) also does not throw any light on this matter. Counsel, therefore, relied on exhibits P-5 and P-6. Exhibit P-5 is a blank transfer alleged to have been signed by the voluntary liquidator on behalf of the Alwaye company. Exhibit P-6 is the share certificate in respect of 900 shares issued by the defendant to the Alwaye company which is alleged to have been handed over to the plaintiff along with exhibit P-5. The submission on behalf of the plaintiff was that the plaintiff has acquired title to the shares on the basis of exhibits P-5 and P-6 and thus the plaintiff is competent to attack the validity of the forfeiture of shares by the defendant. Counsel for the defendant contended that the forfeiture of the shares owned by the Alwaye company was on October 23, 1948, and since the offer put forward on behalf of the plaintiff to purchase the assets of the Alwaye company was only on June 23, 1949, the plaintiff is not competent to impeach the forfeiture. According to counsel for the plaintiff, if the forfeiture of the shares by the defendant is invalid, it is open to the Alwaye company to effect a transfer of the shares even subsequent to October 23, 1948, and it is equally competent for the plaintiff to attack the validity of the forfeiture. It is, therefore, necessary to examine in some detail these rival contentions.

10. First of all we will examine the legal effect of exhibits P-5 and P-6. Exhibit P-6 is the share certificate in respect of the 900 shares issued by the defendant in favour of the Alwaye company. Exhibit P-5 is the blank transfer form alleged to have been signed by the liquidator Annamalai. There is no date in exhibit P-5. The name of the transferor is not mentioned therein. As we already indicated, even if exhibit P-5 is genuine, it could have been handed over only subsequent to the forfeiture of the shares by the defendant. Though the defendant repeatedly called upon the plaintiff to produce the transfer deed, it was not done. It is, therefore, very doubtful whether exhibit P-5 was given to the plaintiff by the Alwaye company then. Section 82 of the Companies Act, 1956, provides that the shares of any member in a company shall be movable property, transferable in the manner provided by the articles of the company. Article 57 ofexhibit D-10, which is the memorandum and articles of the defendant, enables the transfer of the shares of the company by an instrument in writing in the usual common from or in such form as may be prescribed by the directors from time to time. In such circumstances, transfer of shares can no doubt be effected by blank transfers also. But so far as the defendant is concerned, the company recognises no person except those whose names are on the register of members of the company. The blank transfer of shares may give rise to certain equities between the transferor and the transferee but the latter on the basis of such blank transfer can have no cause of action against the company excepting for the rectification of the share register for registering the shares in the transferee's name. Since this aspect was argued very elaborately before us, we shall examine this question with reference to the decisions placed before us.

11. In Buckley on the Companies Acts, thirteenth edition, at page 608, the learned author says :

'..... where the articles of association do not require a deed, but permit transfers to be made by ' instrument in writing,' a transfer in blank carries to the person whose name is subsequently filled in as transferee, not only the equitable, but also the legal interest--meaning, it is conceived, the legal right to call upon the company to register the transfer. For there is no legal title to the shares until registration ; or at any rate until all necessary conditions have been fulfilled to give the transferee as between himself and the company a present absolute and unconditional right to have the transfer registered. '

12. Under Article 57 of exhibit D-10 no deed is required for the transfer of shares. Shares can be transferred by an instrument in writing. Article 58 provides that the transferor shall be deemed to remain the holder of his share until the name of the transferee is entered in the register of members in respect thereof. The said article also provides that every instrument of transfer shall be signed by the transferor and the transferee and in the case of a share held by two or more joint holders or to be transferred to the joint names of two or more transferees by all such joint-holders or by all such joint-transferees, as the case may be. It is, therefore, clear that no rights can arise in favour of a transferee as between him and the company until his name is registered as a shareholder in the books of the company. When once the transfer is completed and recognised by the company it relates back to the time when the transfer was first made. The legal position emerging from the transfer as between the transferor and the transferee before the latter is recognised as a shareholder by the company is stated thus by Hidayatullah J. in Howrah Trading Co. v. Commissioner of Income-tax, [1959] 29 Comp. Cas. 282 ; 36 I.T.R. 215 ; [1959] Supp. 2 S.C.R. 448 (S.C.):

'During the period that the transfer exists between the transferor and the transferee without emerging as a binding document upon the company, equities exist between them, but not between the transferee and the company. The transferee can call upon the transferor to attend the meeting, vote according to his directions, sign documents in relation to the issuance of fresh capital, call for emergent meetings and, inter alia, also compel the transferor to pay such dividend as he may have received. See E. D. Sassoon and Co. Ltd. v. R. A. Patch, [1943] 45 Bom. L.R. 46 (Bom.) approved in Mathalone v. Bombay Life Assurance Co. Ltd., [19541 24 Comp. Cas. 1 ; [1954] S.C.R.117 ; A.I.R. 1953 S.C. 385 But these rights though they, no doubt, clothe the transferee with an equitable ownership, are not sufficient to make the transferee a full owner, since the legal interest vis-a-vis the company still outstands in the transferor ; so much so, that the company credits the dividends only to the transferor and also calls upon him to make payment of any unpaid capital which may be needed.'

13. In Arjun Prasad v. Central Bank of India, A.I.R. 1956 Pat. 32Das J. observed at page 37 :

' It is clear, however, that all the decisions are really one way, namely, that as between the parties to the transaction and where the right of no third parties is involved, a registered shareholder by duly executing a transfer in blank and by handing over the share certificate to his creditor by way of security transmits his title to the shares, both legal and equitable, and the transferee can fill up the blank and ask for the registration of his name in the books of the company without the risk of his right being defeated by the registered owner or by any other person deriving title from the registered owner.'

14. Thus it is clear that a transferee of shares under blank transfer whose name is not registered in the books of the company is not the legal owner of the shares. Farwell J. in Borland's Trustee v. Steel Bros, and Co. Ltd., [1901] 1 Ch. 279, 288 (Ch.D.) dealing with a share, observed :

' 'A share', observed the learned judge, 'is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se in accordance with Section 16, Companies Act, 1862. The contract contained in the articles of association is one of the original incidents of the share. A share is not a sum of money settled in the way suggested, but is an interest measured by a sum of money and made up of various rights contained in the contract, including the right to a sum of money of a more or less amount.'

15. It is thus clear that a transferee who has not obtained registration of his name with the company has no right as against the company and the company does not deal with him.

16. The plaintiff, therefore, on the basis of exhibits P-5 and P-6 has no right to impeach the forfeiture of the shares of the Alwaye company by the defendant without being registered as the owner of the shares in the books of the defendant.

17. Counsel for the defendant contended that the plaintiff by exhibit P-5 has not obtained title to the shares for the reason that the names of the transferor and the transferee have not been entered therein. Exhibit P-5 contains the signature of Annamalai, who is the liquidator of the Alwaye company. Though there is nothing in exhibit P-5 to prove that Annamalai is the liquidator of the Alwaye company, this is clear from exhibit P-23. Exhibit P-5 also does not indicate that Annamalai has signed in his capacity as the liquidator of the Alwaye company. The column against the transferor has been left blank. In Colonial Bank v. Hepworth, [1887] 36 Ch.D. 36, 44 (Ch.D.) Chitty J. observed :

'According to a practice which has extensively prevailed and has been recognised and acted upon by the company, the transferor signs the transfer and power of attorney without filling in the names of the transferee and attorney ; and these blank transfers readily pass on the market from hand to hand by delivery only until the documents reach the hands of some holder who desires to be registered. His name is then filled in by himself or on his behalf .....

The plain legal effect of this recognised practice is, that the transferor who executes the transfer in blank confers on the holder of the documents for the time being an authority to fill in the name of the transferee ; and each successive holder for the time being, when the documents piss through several hands, passes on this authority. The holders must of course be bona fide holders for value without notice.'

18. It thus follows that so long as the plaintiff has not filled their name as the transferee in exhibit P-5 they only remain the holder without intending to become the transferee. It was argued that so long as the plaintiff has not completed exhibit P-5 by incorporating their name as the transferee in exhibit P-5 there is no question of their getting any title over the shares. There seems to be substance in this contention. We, therefore, hold that by virtue of exhibit P-5 the plaintiff cannot exercise any rights as a shareholder against the defendent aud canvass the validity of the forfeiture resolution.

19. At this stage it is necessary to note an argument of counsel for the defendant. Learned counsel contended that on the date of the transfer ofshares by the Alwaye company to the plaintiff, exhibit P-6 shares have already been forfeited by the defendant. As a result of the forfeiture, Alwaye company ceased to be the owner of the shares and they have no transferable interest or title in them for executing exhibit P-5 in favotir of the plaintiff. Exhibit P-5 does not contain any date. There is also no evidence as to when it was executed. The forfeiture of the shares, according to the defendant, is on October 23, 1948. Even though exhibit P-5 is not dated in viaw of exhibit P-2 resolution dated June 23, 1949, even the offer for the purchase of shares by the plaintiff to the Alwaye company was only long subsequent to October 23, 1948. It is, therefore, clear that the purported transfer is only after the forfeiture of the shares by the defendant.

20. Counsel for the plaintiff contended, if the forfeiture of the shares was not in conformity with exhibit D-10, articles of association, there is legally no forfeiture and it was competent for the Alwaye company to transfer the shares even subsequent to October 23, 1948. It is also significant that the plaintiff did not in spite of the demand for that purpose by the defendant produce exhibit P-5 to show that there was even a blank transfer by the Alwaye company to the plaintiff. Forfeiture of shares in violation of articles of association may be invalid as between the company and the shareholder whose shares have been forfeited. When once the shares are forfeited by the company the forfeiture involves the extinction of all the interests of the shareholder therein except those rights in the shares which are saved by the articles of association. This is clear from Article 48 of exhibit D-10. The effect of Article 48 read with Article 45 is the removal of the membership of the holder of the shares from the registers of. the company. So long as he has not taken any steps to get his name restored in the books of the company and thereby established that he continues to be the member according to the register of the company it is not possible for him to transfer the shares or it is not open to a transferee subsequent to the forfeiture of the transferred shares to ignore the said forfeiture and contend that the entire proceedings are void. Section 155 of the Companies Act itself provides for rectification of the register at the instance of a person whose name has been omitted therefrom without sufficient cause. The plaintiff in the case before us has admitted in the plaint that the forfeited shares were also sold by the company in the year 1960. This is also proved by exhibit P-14. It is the case of the plaintiff that in view of Article 54 of exhibit D-10 the rights of the purchaser of the forfeited shares from the company will not be affected by any irregularity or invalidity in the proceedings towards forfeiture of the shares. The only right available to the shareholder will be for damages against the company. If the blank transfer was subsequent to the sale of the shares by the defendant the plaintiff cannot have any cause of action at all against the company. It is here that the date on which exhibit P-5 was handed over to the plaintiff becomes important and it has not been clarified by the plaintiff. In spite of the demands of the defendant the plaintiff did not forward exhibits P-5 and P-6 to the defendant before suit. Even if the Alwaye company has got the right to treat the forfeiture void and to treat themselves as member of the defendant it is necessary for the plaintiff on the basis of exhibit P-5 to get substituted as a member in the registers of the defendant by an application under Section 155 of the Companies Act, Probably in view of the plea of the plaintiff that the forfeiture is void, it may be open to the plaintiff to get the right as a member declared in the suit itself. There is no such prayer in the suit. The plaintiff is, therefore, not entitled to claim damages on the ground that they are damnified by the forfeiture of the shares. In order to claim a relief by way of damages it is necessary for tbe plaintiff to get their right as a member of the defendant declared. It is only then that they can sustain a cause of action for damages against the defendant.

21. The second point relates to the validity of the forfeiture of the shares of the Alwaye company by the defendant. The relevant articles contained in exhibit D-10 are Articles 42 to 45. They read as follows :

' 42. If any member fails to pay money due from him in respect of any call made or instalment due on any share, or any sum which by the terms of issue of any shares become payable at a fixed time, whether on account of the amount of the share, or by way of premium, on or before the day appointed for payment of the same, or any such extension thereof, as aforesaid, or any interest due on such call or instalment, or. any expenses that may have been incurred thereon, the directors or any person authorised by them for that purpose may, at any time thereafter during such time as such money remains unpaid, give notice to such member or his legal personal representative, or the person entitled to the share by transmission, by writing sent to the registered address of such member or of such representative or person (if any) through the post or by messenger, or if there be no such representative or person, then by way of advertisement requiring him to pay the money payable in respect of such share, together with such interest and expenses.

43. The notice shall name a day (not earlier than the expiration of fourteen days from the date of the notice) and a place or places, on or before and at which such call or instalment or such interest or expenses as aforesaid are to be paid, and the notice shall also state that, in the event of non-payment at or before the time and at the place or places so appointed, the share in respect of which the call, instalment, interest, or expenses are owing, will be liable to be forfeited.

44. If the requisition of any such notice as aforesaid shall not be complied with, every or any share in respect of which the notice has been given may at any time thereafter, before payment of all calls or instalments, interest and expenses due in respect thereof, be forfeited by a resolution of the directors to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited shares and not actually paid before the forfeiture.

45. When any share shall have been so forfeited, notice of the forfeiture shall be given to the member in whose name it stood immediately prior to the forfeiture, or to his legal personal representative or to the person entitled to the share by transmission, by writing sent to the registered address of such member, or of such representative or person, through the post or by messenger or, if there be no such representative of such person then by way of advertisement and an entry of the forfeiture with the date thereof shall forthwith be made in the register ; the provisions of this article are however directory only and no forfeiture shall in any manner be invalidated by any omission or neglect to give such notice or to make such entry as aforesaid. '

22. According to counsel for the defendant exhibit D-29(e) dated October 23, 1948, is the resolution forfeiting the shares of the Alwaye company by the defendant. Resolution No. 8 in exhibit D-29(g), minutes of the meeting of the board of directors of the defendant dated 9th of December, 1947, authorises the managing agents of the defendant-company to take steps under the articles of association to make the first call of Rs. 25 on 2nd of January, 1948, payable on or before 31st January, 1948. The validity of the resolution making the first call was not challenged before us. The plaintiff have in the plaint contended that exhibit D-29(e) is not valid and apart from attacking specifically the validity of the said resolution it is also pleaded that the forfeiture of the shares is invalid. The forfeiture is generally attacked as invalid. Before considering the question whether exhibit D-29(e) is sufficient under the articles of association to effect a forfeiture of the shares of the Alwaye company it is necessary to mention that the defendant did not treat exhibit D-29(e) as the resolution affecting the forfeiture of the shares. The defendant has not in the pleadings precisely stated that the forfeiture was as a result of exhibit D-29(e). The plea of counsel for the defendant is that exhibit D-29(e) resolution combined the ingredients mentioned in Articles 42 and 44 of the articles and memorandum of association evidenced by exhibit D-10, There was a lot of discussion at the bar as to the legal effect of the resolution in exhibit D-29(e). Before considering this question it will be advantageous to note the conditions in Articles 42 to 44 of exhibit D-10. When a member commits default in the payment of the call money Article 42 enjoins the issuance of a notice to him to pay the call money. Article 43 stipulates that the said notice, among other things, should indicate that in the event of non-payment of the amounts mentioned in the notice as required therein the share in respect of which the amount is owing will be liable to be forfeited. Article 44 enables the company to forfeit the shares only in the event of non-compliance with such notice. Now we shall extract the relevant resolution in exhibit D-29(e). It reads :

' Regarding the first call money due from some of the company's shareholders, it was resolved that notices be issued to the shareholders as per list A sub-joined, informing them that if payment of the amount due from them together with the interest from the date on which the money became due at the rate of 6% per annum up to the date of payment is not received at the company's registered offices on or before the 30th November, 1948, shares standing in their names will stand forfeited.'

23. According to the defendant, because of the default of payment on November 30, 1948, by the Alwaye company their shares have been forfeited. Jn view of the words ' will stand forfeited' in exhibit D-29(e) counsel for the defendant contended that no separate resolution as is enjoined by Article 44 of the company of exhibit D-10 is necessary. Counsel for the plaintiff attacked the validity of exhibit D-29(e) as a resolution of forfeiture on three grounds. The first is that the defendants themselves did not treat the said resolution as one such. (2) The said resolution in accordance with its terms is incapable of being construed as a resolution of forfeiture and (3) exhibit D-29(e) itself does not purport to be a resolution of forfeiture. It is necessary to consider these objections.

24. We shall examine the plea whether exhibit D-29(e) was intended and passed by the defendant as a resolution forfeiting the shares. Exhibit D-45 is the notice issued by the defendant to the Alwaye company in pursuance of exhibit D-29(e). The relevant portion of exhibit D-45 reads :

' We now write to inform you that the directors require you to pay the sum of Rs. 22,500 together with interest thereon at the rate of 6% per annum from 31st January, 1948, till the date of payment on or before 30th November, 1948, and that in the event of non-receipt of the said call money and interest thereon, on or before the said date at the registered office of the company the shares in respect of which such call money is due will stand forfeited.'

25. Exhibit D-29(f) contains the minutes of the proceedings of the board of directors of the defendant in the meeting held on 29th September, 1949. In the said meeting the resolutions passed in exhibit D-29(e) were considered and confirmed. Resolution No. 9 in exhibit D-29(f) is in these terms :

' It was resolved that the managing agents be authorised to consult the legal advisers and to issue final notices of forfeiture in cases of defaulting shareholders who have not paid the first call amount up to date and who have, been served with proper notices as per the board's resolution dated October 23, 1948, in that respect.'

26. On the basis of the above resolution counsel for the plaintiff pointed out that the final notice of forfeiture contemplated in the above resolution are the notices mentioned in Article 43 and if the defendant had treated exhibit D-29(e) as the resolution of forfeiture there was no necessity to make any reference to the payment of the call money up to date of the resolution in exhibit D-29(f). On the other hand, the interpretation given by defendant's counsel was that the issuance of final notices of forfeiture contemplated in resolution No. 9 in exhibit D-29(f) are the notices referred to in Article 44. It was also pointed out that the defaulting shareholders who have not paid the first call amount up to date referred to in exhibit D-29(f) can only mean those who defaulted to comply with exhibit D-29(e) resolution. It is rather difficult to accept the interpretation given by defendant's counsel. If exhibit D-29(e) was intended or treated as the resolution of forfeiture in conformity with the requirements of Article 44 there was no necessity at all to consult legal advisers for the issue of Article 45 notices. Legal advice may be necessary if at all only for the issue of notices under Article 43 to avoid any forfeiture being invalidated by a defaulting shareholder because of the non-compliance with the provisions in exhibit D-10 or in the Companies Act. Resolution No. 9 in exhibit D-29(f) for issue of notices of forfeiture to defaulting shareholders who have not paid the first call amount up to date (underlining is ours*) is a significant pointer to the conclusion that on the date of exhibit D-29(f) there was no forfeiture of shares in respect of which the first call money was remaining unpaid. There is also no justification to accept the plea of defendant's counsel that the words 'up to date' in resolution No. 9 in exhibit D-29(f) only mean till October 23, 1948, the date of exhibit D-29(e) resolution. The notice, exhibit D-37, dated 26th/31st October, 1949, issued by the defendant to Alwaye company will cocclude this point. It will be useful to extract the relevant portion in exhibit D-37 which is to the following effect :

' With reference to our forfeiture notice No. 1964 dated November 1, 1948, in respect of 900 ordinary shares of this company standing in your name we regret to state that the amount due on the shares was not received by the company as per the notice and the directors therefore have by their resolution dated September 29, 1949, forfeited the said 900 ordinary shares.'

27. It is thus obvious that the defendant did not treat the resolution in exhibit D-29(e) as the resolution forfeiting the shares. The reference in exhibit D-37 is to resolution No, 9 in exhibit D-29(f). It is necessary to point out at this stage that the resolution in exhibit D-29(f) cannot be construed as a resolution of forfeiture as it has authorised only the issue of the necessary notices. Counsel for the defendant realising the difficulty to contend that resolution No. 9 in exhibit D-29(f) amounts to a forfeiture was of course compelled to rely on exhibit D-29(e) as the relevant resolution for the purpose. We do not think that we can entertain the plea especially because the defendant-company itself did not intend the said resolution as one such. In exhibit D-38 dated March 28, 1950, notice issued by the defendant to the Alwaye company, it has been repeated that the 900 ordinary shares in the name of the Alwaye company were forfeited by the resolution dated September 29, 1949, passed by the defendant's board of directors. Here again the reference is obviously to exhibit D-29(f),

28. The plaintiff had, by their letter dated 18th of September, 1950, requested the defendant to give them an opportunity to pay the call monies due on 900 shares of the Alwaye company and waive the forfeiture. This request was considered by the board of directors of the defendant in the meeting held on 8th August, 1951. Exhibits D-29(a) 3nd (b) are proceedings of the meeting and resolution No. Il(b) deals with the matter. The said resolution also refers to exhibit D-29(f) as the resolution forfeiting the shares of the defaulting shareholders.

29. We shall now take up the second submission of plaintiff's counsel that exhibit D-29(a) is incapable of being construed as the resolution of forfeiture. The right of the defendant to forfeit the share of a defaulting shareholder has to be exercised under Article 44 of exhibit D-10. Before the exercise of such power a notice in terms of Article 42 of exhibit D-10 has to be issued to the defaulting shareholder and the said notice has to be in accordance with the terms of Article 43 of exhibit D-10. It does not appear that prior to exhibit D-29(e) the board of directors or any officer of the company authorised in that behalf issued a notice in terms of Article 43 to the defaulting shareholders. Article 43 provides that it should state, among other things, that in the event of non-payment at or before the time and at the place or places so appointed the share in respect of which the call, instalment, interest, or expenses are owing, will be liable to be forfeited. It is only after the default is committed to comply with the notice that the right to forfeit the shares arises and it is not possible for the defendant to pass a resolution of forfeiture in anticipation of any default. It has been held that provisions relating to forfeiture of shares on default of the shareholders will have to be strictly complied with. We do not think it necessary to cite authorities in support of this proposition. We are, therefore, satisfied that it is not possible to combine Articles 42 and 44. The second submission of counsel for plaintiff has to be accepted.

30. We shall now consider the third submission on behalf of the plaintiff that exhibit D-29(e) does not amount to a resolution forfeiting the shares of the Alwaye company. Even at the risk of repetition we shall extract the resolution once again :

' Regarding the first call money due from some of the company's shareholders, it was resolved that notices be issued to the shareholders as per list A subjoined, informing them that if payment of the amount due from them together with the interest from the date on which the money became due at the rate of 6% per annum up to the date of payment is not received at the company's registered offices on or before the 30th November, 1948, shares standing in their names will stand forfeited.'

31. A plain reading of the above shows that it related only to the contents of the notice to be issued by the officers of the company. One of the matters to be stated in the notice was that on account of any default in complying with the terms of the notics the shares will be forfeited. This does not amount to a resolution forfeiting the shares of the company. When the intention is to inform the shareholders that the shares will be forfeited if the amount is not paid, further action is necessary to forfeit the shares after the expiry of the date mentioned in the notices. Further, a reading of Articles 42, 43 and 44 will show that the default to pay the amount on the last date will not automatically entail forfeiture. If even after the last date in the notice and before forfeiture the defaulting shareholder pays the amount due no forfeiture is possible. We, therefore, find that exhibit D-29(e) is not a resolution forfeiting the shares but only authorises the officers of the defendant to issue the notice in terms of Article 43 of exhibit D-10. Exhibit D-29(e) was not also treated as a resolution of forfeiture by the defendant. The expression ' informing ' in the above resolution only indicates what should be the contents of the notice to be issued and not an action on the part of the board of directors forfeiting the shares.

32. We shall now consider the third contention raised, namely, whether the plaintiff is entitled to get back the sum of Rs. 45,000 paid by them to the defendant to waive the forfeiture of 900 shares standing in the name of the Alwaye company. In view of our finding that the plaintiff has no title to the shares as against the defendant they cannot have any cause of action to recover the value of 900 shares by way of damages on account of wrongful conversion of those shares by sale to strangers in the year 1960. It was on 18th September, 1950, that the plaintiff wrote to the defendant requesting them to give an opportunity to the plaintiff to pay the call monies due on 900 shares and waive the forfeiture. Exhibit D-18 is the reply given by the defendant to the plaintiff which stated that the directors would be agreeable to waive the forfeiture of the shares provided (1) the plaintiff produce before the defendant the transfer deed conferring title deeds to the shares on them, (2) on deposit with the defendant Rs. 25,000 immediately, and (3) the balance of Rs. 20,000 together with the interest at 5% from the dates on which calls were due up to date of payment within a month after the first payment. Resolution No. 11(b) passed by the board of directors of the defendant in the meeting held on August 8, 1951, embodies the conditions. The resolution is contained in exhibit D-29(a) and (b). The said resolution reads :

' Resolved that the forfeiture of the shares be annulled as per article No. 50 of the articles of association of the company and the shares be transferred to the name of Alagappa Textiles (Cochin) Ltd., provided (1) the necessary transfer deed from Messrs. Alagappa Textiles Ltd., Alwaye, or any other document in original showing that the assets of Messrs. Alagappa Textiles Ltd., Alwaye, have been taken over by Messrs. Alagappa Textiles (Cochin) Ltd. is received by the company, (2) also that Messrs. Alagappa Textiles (Cochin) Ltd. deposit with the company immediately Rs. 25,000 as part payment of the call monies due and agree to pay the balance of call monies together with interest thereon at the rate of 5% within a month.'

33. It is the common case that the plaintiff after paying the first instalment of Rs. 25,000 paid the second instalment of Rs. 20,000 on various dates after the expiry of the period fixed by the defendant. The plaintiff did not pay the interest due as required and did not also produce the evidence of transfer. The plaintiff, therefore, is a defaulter in complying with the conditions stipulated by the defendant for waiving the forfeiture. Counsel for the defendant contended that even though the shares of the Alwaye company have been forfeited by the defendant still under the terms of Article 47 of exhibit D-10, the Alwaye company is liable to pay all monies due at the time of the forfeiture and, therefore, the defendant is entitled to realise the sum of Rs. 45,000 from the Alwaye company. This submission of counsel for the defendant cannot be disputed. But he further contended that the sum of Rs. 45,000 paid by the plaintiff was in discharge of tho liability of the Alwaye company towards call monies due on the date of the forfeiture and the said amount has been appropriated by the defendant towards the debt and the plaintiff, therefore, is not entitled to claim the same. However ingenious this argument may be, it has no substance. The payment of Rs. 45,000 by the plaintiff to the defendant was in pursuance of the contract entered into between them for waiving the forfeiture. Though the plaintiff has no locus standi legally to apply for waiving the forfeiture of shares, yet the defendant was agreeable to do so if the plaintiff satisfied the conditions imposed by the defendant for that purpose. It is true that the plaintiff was a defaulter in the performance of those conditions and it was open to the defendant to rescind the contract. Until the rescission of the contract the money has to be kept by the defendant as money belonging to the plaintiff having been paid in pursuance of the contract. The contract did not provide for the discharge of the liability of the Alwaye company by the defendant. If the conditions in the contract are complied with by the plaintiff then on receipt of the amount mentioned therein the shares in the name of the Alwaye company will have to be transferred to the plaintiff by the defendant. The plaintiff did not agred to pay Rs. 45,000 towards the discharge of the liability of the Alwaye company outstanding to the defendant on the date of the forfeiture of the shares. Thus the plea of the defendant that the payment of Rs. 45,000 by the planitiff was towards the discharge of the liability of the Alwaye company to the defendant cannot be accepted.

34. Counsel for the defendant then pointed out that even assuming that the payment of Rs. 45,000 was towards the performance of the contract entered into by the parties since the plaintiff was a defaulter in carrying out the terms thereof, the plaintiff is not entitled to claim back the sum of Rs. 45,000. We do not find any merit in this submission. When the plaintiff committed default in the performance of the contract and when it was rescinded by the defendant, the latter is bound to return the sum of Rs, 45,000. The defendant is no doubt entitled to claim damages, if any, on account of the breach of the plaintiff. There is no claim for damages by the defendant. We do not find any legal basis for the defendant's claim to retain the sum of Rs. 45,000.

35. The next submission of defendant's counsel on this point was that the right of the plaintiff to get back Rs. 45,000 even if maintainable is barred by limitation. By exhibit D-24 dated October 14, 1953, by the defendant to the plaintiff the latter was requested to pay Rs. 6,328-6-11 being the interest due on the call monies to enable them to place the matter before the board of directors for waiving the forfeiture. Thereafter, nothing happened until the sale of the forfeited shares by the defendant in 1960. The suit was instituted in 1962 within three years of the same. Subsequent to exhibit D-24 there is absolutely nothing to show that the contract was rescinded by the defendant. The evidence as well as the conduct of the parties show that the time limit fixed in the resolution passed by the defendant-company for the payment of the amount for waiving the forfeiture was waived by the defendant. Until the date of the sale of the forfeited shares the plaintiff could have legitimately thought that if they would pay the balance of interest and produce the transfer deed the defendant would waive the forfeiture. Thus they are justified in treating the contract as subsisting. The cause of action for the return of the amount paid by the plaintiff can arise only after the contract was rescinded by the sale of the shares to a third party. The suit having been filed within three years thereof is not barred by limitation.

36. It is necessary to note one further argument on the part of the defendant's counsel. It was stated that the plaintiff's remedy is for a declaration that they are the owners of the shares with the purchaser on the party array. We do not think that this remedy is available in view of Article 54 of exhibit D-10. Their claim, if at all, lies only in damages.

37. It, therefore, follows that the decree passed by the learned judge cannot be sustained to its full extent. The plaintiff in view of our finding is only entitled to the return of the sum of Rs. 45,000 with interest at the rate of 5% from the date of suit. We do not think that the omission of a specific separate prayer for the return of Rs. 45,000 by the plaintiff in the plaint should deter us from granting them a decree for the return of that sum. The claim for recovery of Rs. 90,000 by way of damages is a larger relief and there is no legal bar in our allowing the plaintiff a decree for Rs, 45,000. The plaintiff is not entitled to any other relief.

38. We, therefore, set aside the decree and judgment of the court below and pass a decree in favour of the plaintiff against the defendant for recovery of the sum of Rs. 45,000 with interest thereon at the rate of 5% per annum from the date of suit till date of recovery. The appeal is allowed to the above extent and dismissed otherwise. The parties will bear their costs throughout.


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