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A.M.P. Arunachalam Vs. A.R. Krishnamurthy and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany;Property
CourtChennai High Court
Decided On
Case NumberAppeal Nos. 141 of 1973 and 51 of 1975
Judge
Reported in[1979]49CompCas662(Mad)
ActsCompanies Act, 1956 - Sections 108; Indian Sale of Goods Act, 1930 - Sections 2(2), 2(4), 2(7) and 36(3); Transfer of Property Act, 1882 - Sections 130 and 137
AppellantA.M.P. Arunachalam
RespondentA.R. Krishnamurthy and ors.
Appellant AdvocateT. Raghavan, Adv.
Respondent AdvocateHabibullah Badsha, ;A.S. Chandrasekar and ;N.V. Balasubramaniam, Advs., ;T. Dulipsingh, Adv. for ;King & Partridge, ;P. Narasimhan and ;S.K. Ramamurthy, Advs.
DispositionPetition dismissed
Cases ReferredVasudev v. Pranlal
Excerpt:
property - pledge - section 36 (3) of indian sale of goods act, 1930 - where shares are pledged, only manner in which delivery of such goods is possible is by constructive delivery - constructive delivery can only be by transferor unequivocally expressing intention in writing to pledgees to hand over shares to purchaser after receiving monies due and payable to him and contemporaneously putting transferee or purchaser on notice of having so expressed himself - section 36 (3) would not bar sale of shares which are subject-matter of valid pledge by executing blank transfer form accompanied by letter in writing to pledgee directing him to deliver possession of shares to purchaser who is also at or about same time put on notice to obtain delivery. - - a-15) were handed over by the raja.....a.r. krishnamurthy, j. 1. the second plaintiff in o.s. no. 7000 of 1969 is the appellant in a. s. no. 141 of 1973. the 6th defendant in o.s. no. 658 of 1970, who is the 9th defendant in o. s. no. 7000 of 1969, is the appellant in a. s. no. 51 of 1975. original suit no. 7000 of 1969, on the file of the city civil court, madras, was a suit for declaration, redemption and for injunction. original suit no. 658 of 1970 is a suit for enforcing a pledge of shares in an incorporated company by a sale thereof in a manner known to law. both these suits were tried together and it was understood that the array of parties in o.s. no. 7000 of 1969 may be referred to in the course of the judgment for purposes of convenience. 2. the late raja of ramnad held 5,000 shares in the third defendant-company......
Judgment:

A.R. Krishnamurthy, J.

1. The second plaintiff in O.S. No. 7000 of 1969 is the appellant in A. S. No. 141 of 1973. The 6th defendant in O.S. No. 658 of 1970, who is the 9th defendant in O. S. No. 7000 of 1969, is the appellant in A. S. No. 51 of 1975. Original Suit No. 7000 of 1969, on the file of the City Civil Court, Madras, was a suit for declaration, redemption and for injunction. Original Suit No. 658 of 1970 is a suit for enforcing a pledge of shares in an incorporated company by a sale thereof in a manner known to law. Both these suits were tried together and it was understood that the array of parties in O.S. No. 7000 of 1969 may be referred to in the course of the judgment for purposes of convenience.

2. The late Raja of Ramnad held 5,000 shares in the third defendant-company. Under Ex. B-1, the late Raja borrowed a sum of Ra. 25,000 on the pledge of such shares as above and the pledge is evidenced by a letter Ex. B-2, which bears the same date as the promissory note, Ex. B-1, namely. January 25, 1960. Under Ex. B-3, the said loan was renewed. On the same security, the Raja further borrowed a sum of Rs. 10,000 under Ex. B-4, and under Ex. B-5, the shares were received as security for the additional borrowings also. It is common ground that on the date when the shares were pledged with the intention of creating a security for the borrowings made, the blank transfer forms exhibited as Ex. B-31 (Ex. A-15) were handed over by the Raja to defendants 1 and 2. As the Raja failed to repay the amounts borrowed, there was a notice of demand for payment by the creditors. Apparently finding that he could not pay off the debts, the Raja bargained with the plaintiff to sell the shares to the 1st plaintiff for a sum of Rs. 50,000 with a direction to the first plaintiff to discharge the debts due to defendants 1 and 2 out of the said sale consideration and pay the balance thereof to him. The transaction of sale is evidenced by a series of letters. Under Ex. A-16, the Raja confirms the sale of the 5,000 shares in favour of the first plaintiff whose legal representatives are the 2nd and 3rd plaintiffs and who are brought on record after his demise. The Raja admits receipt of the consideration of Rs. 50,000 in the following manner :

(a) Rs. 12,398 by cheque on the Indian Bank Ltd., Thyagarayanagar ;

(b) The balance of Rs. 37,602 to be paid to defendants 1 and 2 in full and complete discharge of the amounts due to them under the loans set out above and towards which they were holding the 5,000 shares in the third defendant-company as security.

3. Not only does the Raja say that he has sold the shares to the first plaintiff in Ex. A-16, he would also confirm that, he has addressed a letterto defendants 1 and 2 to receive a sum of Rs. 37,602 and expressly authorised the first plaintiff to receive back from defendants 1 and 2 the share certificates and the blank transfer forms. On the same day, Ex. A-1 dated December 19, 1966, is written by the Raja to his creditors who had a pledge over the shares. He acknowledges therein the borrowing and the deposit of the shares in Sri Krishna Tiles & Potteries (Madras) Private Ltd. together with the transfer form and requests them to receive the balance of Rs. 37,602 and irrevocably authorises them to deliver the share certificates together with the transfer forms and other discharged instruments to the 1st plaintiff. In order to more fully confirm the sale, he would add in Ex. A-1 that as per the agreement between himself and the purchaser of the shares (the 1st plaintiff), he is to receive the dividend warrants for the year ending 30th June, 1966, and, therefore, requested defendants 1 and 2 to send the relative dividend warrants to him. Under Ex. A-2 which is again of the date December 19, 1966, the first plaintiff wrote to defendants 1 and 2 referring to the sale of shares by the late Raja and confirmed that he had a meeting with the defendants I and 2 and sought to tender the sum of Rs. 37,602 to them and requested for the delivery of the share certificates to him (as per completed sale of such shares) as per the information given to them by the Raja himself. The first plaintiff also made it clear in Ex. A-2 that he was always ready and willing to pay the amount and asked defendants 1 and 2 to fix up a time as to when he could see them to complete the transaction. In the first instance, the stand of defendants 1 and 2 was that they had title to the shares and that the sale of such shares by the Raja to the first plaintiff was invalid. This is seen from Exs. A-3 and A-4. But this was later given up. Consequent upon the attitude of defendants 1 and 2, the first plaintiff wrote a letter, Ex. A-5, enclosing the amount due and payable to them as pledgees of the 5,000 shares and called upon defendants 1 and 2 to send the share certificates together with the transfer form and other documents duly discharged. This letter was refused by the defendants. Finally under Ex. A-12 dated 27th January, 1967, the first plaintiff once again called upon defendants 1 and 2 to respect their obligations. For a second time, the defendants J and 2 took up again the stand that they were the owners which for purposes of completion was reiterated, is not the present stand of defendants 1 and 2. In the trial and before us the only stand taken up is that they are the pledgees and quite in consonance with the latter stand taken by them, they have instituted O.S. No. 658 of 1970, to enforce the pledge on the securities and for other ancillary reliefs. Even at this stage, the Raja who was being notified from time to time by the first plaintiff of the attitude of defendants 1 and 2, confirms the sale as it is seen from Ex. A-17 dated 30th January, 1967. In this letter, he informs the first plaintiff that he has paid interest on his borrowing to defendants 1 and 2 up to January 24, 1967, and requested the first plaintiff to pay the principal amount of Rs. 36,000 and wanted the first plaintiff not to pay anything more by way of interest.

4. In the above circumstances, the first plaintiff came to court seeking for three distinct reliefs. Firstly, for a declaration that he has title over the shares and they belong to Mm and for a direction to defendants 1 and 2 to accept the sum due and payable to them as and towards the pledge of the shares by the Raja and hand over the related documents such as the share certificates, blank transfer form, etc., and, thirdly, for a direction as against the 3rd defendant to register the shares in the books of the company. As the Raja died in March, 1967, before the filing of the suit, defendants 4 to 20 were impleaded in the suit as his legal representatives.

5. In the written statement filed by defendants 1 and 2, they would admit that the 5,000 shares were handed over to them by the late Raja as security for the sums advanced by them and that they hold the shares as pledgees. They would seek for a dismissal of the suit and would say that the title to the shares had passed on to defendants 4 to 20 only. The third defendant's case is that the plaintiffs can seek a relief against the company only if a valid transfer form signed by the registered owner and the transferee is submitted to the company and that even in such a situation the directors of the company have a discretion either to receive or refuse the same and, therefore, resisted the relief for mandatory injunction sought for by the plaintiffs. Some of the legal representatives of the Raja support the plaintiffs and some others remained ex parte.

6. As already stated, O.S. No. 658 of 1970 is by the creditors, namely, by defendants 1 and 2 for the enforcement of the pledge for which possibly there could be no defence at all as would be seen hereafter. The following issues were framed :

(1) Whether the plaintiffs are the owners of the 5,000 shares in question

(2) Whether the defendants 1 and 2 are not bound to deliver the share certificates to the plaintiffs after receiving a sum of Rs. 37,747.21

(3) Whether the 3rd defendant-company is not bound to effect the transfer of the said shares from the name of late Raja of Ramand to the name of the plaintiffs

(4) Whether the defendants 1 and 2 are liable to pay to the plaintiffs the costs of the suit

(5) To what reliefs are the parties entitled to

Issues in O.S. No. 658 of 2970 :

(1) Is the 18th defendant the absolute owner of the 5,000 equity shares in Sri Krishna Tiles and Potteries (Madras) Private Ltd., and was the title to those shares legally and validly transferred to him

(2) Is the 18th defendant entitled to redeem the 5,000 shares in question by making a payment to the plaintiffs

(3) Is not the 18th defendant bound to pay the interest on the amounts due by the late Raja of Ramnad in respect of the suit promissory notes

7. The learned trial judge was of the view that the plaintiffs cannot be said to be the owners of the 5,000 shares in question and, therefore, they are not entitled to redeem the pledge in favour of defendants 1 and 2 and that the right of redemption still remains with the legal representatives of the Raja. He found that in the course of the correspondence and in the light of the events that transpired, the plaintiffs did tender the principal amount due to defendants 1 and 2 as and under the pledge of the shares and that such tender war on December 19, 1976. Ultimately, he was of the view that there has been no transmission of the shares in any manner in favour of the first plaintiff or his legal representatives, the second and third plaintiffs and dismissed O.S. No. 7000 of 1969. But while granting a decree in O.S. No. 658 of 1970, he granted the prayer by the plaintiffs therein without adverting to his earlier finding that defendants 1 and 2 are not entitled to interest on the principal amount on and after December 19, 1966, when they refused to receive the amount, though tendered by the first plaintiff.

8. Mr. Raghavan, learned counsel for the appellant in A.S. No. 141 of 1973, while stating that the shares in a company could be the subject-matter of a pledge arid that sale of such pledged shares could be effected under the practice and the accepted norm in such situations would contend that the lower court was wrong in having held that the plaintiffs did not acquire any right in the shares. He would also contend that the plaintiffs did acquire a right to get into the register of the company on the foot of the completed transaction of sale entered into between them and the late Raja. Reliance is rightly placed upon Exs. A-16, A-15, A-1 and A-2 to show that there was such a completed transaction and that by reason of the correspondence already referred to, the right to get themselves transferred as owners of the shares in the books of the third defendant-company has become absolute and that in consequence defendants 1 and 2 are liable to accept the principal amount due to them under the pledge and hand over the instruments of debt duly cancelled as also the share certificates and the blank transfer forms to enable the plaintiffs to further their rights and obtain a substitution of their names to that of the Raja in the books of the third defendant-company. But in all fairness, Mr. Raghavan would say that in this suit, he cannot secure the relief of a mandatory injunction as against the third defendant-company to amend the registers by substituting their (plaintiffs') names as he has not even approached them with theshare certificates, the blank transfer forms and such other instruments and orders under the company law as are necessary in the eye of law which would prompt an incorporated company to consider such applications for transfer and act legally thereon. Contending contra, Mr. Dulipsingh appearing for some of the legal representatives of the Raja, to wit, respondents 8 and 9 would say that there was no valid transfer or transmission of the shares or any light annexed thereto in favour of the plaintiffs at any time and after referring to the provisions of the Companies Act and the Sale of Goods Act, he would vehemently contend that there is in praesenti no light in the plaintiffs to seek for a declaration that they have secured a right over the shares, whatever may be the quality of such right, and for a mandatory injunction directing defendants 1 and 2 to receive the principal amount from them and hand over the share certificates as also blank forms of transfer to enable them to further their rights in the share certificates. The other legal representatives of the Raja are not opposing the plaintiffs' right to obtain the declaration as prayed for before us.

9. Though at one stage, defendants 1 and 2 would take up the position that they had title to the shares, yet at a later stage they expressly gave it up and in fact asserted their right over the shares only as pledgees and claimed that the said shares were held by them as security for the repayment of monies due by the Raja of Ramnad. This being the factual position, it is easy to conceive that defendants 1 and 2 always admitted the title of the Raja over the stock and shares and never disputed it. It is in such a conspectus of admitted facts that the contention of Mr. Dulipsingh that as no delivery of the stock was possible since they were in the possession of a third party, there was no sale at all under the common law has to be considered. He refers to Section 36(3) of the Sale of Goods Act (hereinafter referred to as ' the Act ') which reads :

' Where the goods at the time of sale are in the possession of a third person, there is no delivery by seller to buyer unless and until such third person acknowledges to the buyer that he holds the goods on his behalf.'

10. It is said that there was no delivery of the shares as there was no acknowledgment by defendants 1 and 2 to the effect that they were holding the shares on behalf of the plaintiffs after the Raja has written Ex, A-16, etc. In order to appreciate the contention, the correct legal position has to be understood.

11. Under the Sale of Goods Act ' goods' means: ' every kind of movable property other than actionable claims and money ; and includes stock and shares, etc.' This inclusive definition in Section 2(7) of the Act is a clear departure from the definition of ' goods ' in the English Act. The definition in the Indian Act is wider, for, the word ' goods' in the English Act does not expressly include ' stock and shares ' which meansthey would not be goods according to the English Act. The exhaustive definition of ' goods ' in the Indian Act makes it clear that even stock and shares can be treated as ' goods ' and dealt with as such. The next question which arises for consideration is what is possession.

12. Apart from the well-known concept that a person is said to possess goods when he is in de facto possession or physical control thereof, we have other theories which are accepted in the law merchant as equable to possession in the eye of law. Such possession may be legal possession or a right to have legal possession. The accepted canon of law is that possession follows title. This understanding of the expression ' possession ' would stand in the forefront, if there is any ambiguity in a given case as to the person who could be said to be in possession of the goods. If, therefore, the title in the goods is traceable to a particular person, then possession would follow such title. In the instant case, as already stated by us, the accepted case of defendants 1 and 2 is that the shares belonged to the Raja and that they were in possession of the same as pledgees. Possession sometimes is interpreted and understood as an indivisible right and law imports a rule by which legal possession is always with the person who has title to the goods. This by itself is sufficient to hold that the legal possession or the right to possess or to have legal possession was with the Raja at or about the time when the Raja bargained for the sale of the shares with the plaintiffs.

13. The so called doctrine of double possession referred to in Section 36(3) of the Act has to be understood in the pale of normal general principles relating to possession. Merely because physical possession is with a third party, it would/not automatically follow that the person who is entitled to legal possession could be deprived of his right to deal with such goods until he secures the co-operation of that third person by securing an acknowledgment or attornment to the buyer that he holds the goods on his (the buyer's) behalf. When once a person who has a right to possess the goods or has the right to have legal possession of such goods, asserts and manifests his intention to deal with such goods as owner thereof, then the other person to whom he sells such goods in assertion of such possession and who is specifically authorised to obtain possession of the goods, should be deemed in the eye of law, to be in possession of the goods, though physical possession of the same may be with a third party.

14. In order to appreciate the above conclusion, it would also be necessary to bear in mind the definition of documents of title to goods in Section 2(4) of the Sale of Goods Act. The Legislature adopted a broader definition of ' documents of title ' unlike that in the English Act and has carved out an exception to the intendment of the rule in the earlier part of Section 36(3) of the Act. The proviso to Section 36(3) of the Act says that ' nothing in the section shall affect the operation of the issue or transfer of any documents of title to the goods'. 'The document of title to goods' has been denned in Section 2(4) of the Act thus :

' ' document of title to goods' , includes a bill of lading, dock-warrant, warehouse keeper's certificate, warfinger's certificate, railway receipt, warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented.'

15. This is an inclusive definition. It includes any document used in the ordinary course of business as proof of the possession or control of goods or purporting to authorise, either by endorsement or by delivery the possessor of the document to receive the goods thereby represented.

16. We have already seen that ' goods ' include ' stock and shares '. Therefore, if shares could be transferred by issuing a document whereby the seller purports to asser-t his title to the goods and authorises the buyer to receive such goods represented thereby,--may be from a third party,--yet it would operate as a valid delivery of such goods notwithstanding the non-co-operation of the person in physical possession of the goods by refusing to attorn or acknowledge to the buyer that he holds the goods on his behalf. We are unable, therefore, to agree with the contention of Mr. Dulipsingh that in the instant case, there could be no delivery of the goods at all because the shares were in the possession of a third party. As each case has to be decided on its relative merits, it appears to us that by reason of the issuance of the blank transfer forms, which is one of the accredited methods under the law merchant by which shares could be transferred by one to the other, by the mere fact that such goods or shares were in the possession of the defendants 1 and 2 at the time of their sale by the Raja to the plaintiffs there could be no delivery at all, is not an acceptable proposition. As pointed out by Sri Fredrick Pollock, ' delivery ' means ' a voluntary dispossession in favour of another '. In all cases, 'the essence of delivery is that the delivery by some apt and manifest act puts the deliverance in the same position of control over the thing either directly or through a custodian, which he himself holds immediately before the Act'. In the instant case, the manner in which the Raja held legal possession of the goods was through defendants 1 and 2. The present attitude of defendants 1 and 2 is that it was the Raja who owned the goods or the shares. Therefore, they were in qualified possession of the stock for the purpose of enforcing their security. But the right to possess the shares had been always with the Raja. Exs. A-16, A-1 and A-2 confirm the position. The Raja aptly and manifestly exhibited his intention to put the plaintiffs in possession of theshares. This would mean that there was a voluntary dispossession of the goods by the Raja in favour of the plaintiff and under Section 2(2) of the Indian Sale of Goods Act, there has been delivery by a voluntary transfer of possession of goods by the Raja to the plaintiff. This reasonably leads to the conclusion that there was a delivery of the goods and the possession of the same passed in the eye of law to the plaintiffs.

17. Alternatively respondents Nos. 8 and 11 would rely upon certain other provisions of the Sale of Goods Act and of the Transfer of Property Act to sustain their contention. Laying an accent upon the duties of the seller in the course of performance of the contract of sale, it is suggested that the primary duty of the seller under Section 31 of the Sale of Goods Act is to deliver the goods and as it cannot be said that there was such delivery as is contemplated under the abovesaid section, the sale is incomplete. We have, to some extent, touched upon the importance of a blank transfer in the case of sale of shares which is included in the definition of ' goods ' under the Sale of Goods Act. It is not disputed by Mr. Dulipsingh that a blank transfer form is one of the accepted modes used for the purpose of sale of shares. When confronted with this difficulty, he would refer to Section 82 of the Companies Act which provides that the shares in a company shall be movable property transferable in the manner provided by the articles of association of the company. In so far as the articles of association of the company before us in question is concerned, there is nothing which prohibits the issuance of a blank transfer form contemporaneous with the sale of shares so as to make such a sale normally complete not only in accordance with law, but in accordance with the articles of association of the company. Realising again this difficulty Section 130 of the Transfer of Property Act is invoked. No doubt under Section 130 of the Transfer of Property Act, the transfer of an actionable claim shall be effected only by the execution of an instrument in writing signed by the transferor and shall be complete and effectual upon the execution of such instrument. But it should not be forgotten that Section 137 of the Transfer of Property Act makes it clear that the other provisions in Chap. VIII commencing from Sections 130 to 136 do not apply to stocks, shares, or debentures or instruments which are for the time being by law or custom negotiable or mercantile documents of title to goods. In Kisnhunni Elaya Nayar v. Krishna Pattar [1942] 12 Comp Cas 180 ; ILR 1943 Mad 115; AIR 1943 Mad 74, the well-known practice of shares being the subject-matter of a valid pledge by a mere deposit of a share certificate unaccompanied by deed of transfer has been recognised. The question, therefore, in the instant case, has to be considered in the light of such accepted practice. If such shares could be pledged by its owner without an instrument, then a method by which he could sell those pledged shares could also be comprehended. Therefore, it becomes necessary toharmonise all the legal provisions in the Companies Act, in the Transfer of Property Act and the Sale of Goods Act and find a solution as to how best the title to get, into the register of shares of a company can be obtained, when such shares are pledged with a third party, but sold by the owner.

18. In R. Subba. Naidu v. CGT : [1969]73ITR794(Mad) , the question arose whether there was a completed gift of the shares by the father to the daughter which operated with full force between the assessed and his daughter, notwithstanding that vis-a-vis the company, he continued to be the holder of the shares in the absence of registration of the transfer in the company's book. One of us, who was a party to the above Division Bench decision, whilst attempting to harmonise the provisions of the Transfer of Property Act and the Companies Act, observed that the transfer of the interest in the shares from the transferor to the transferee is independent of the requirement of its registration for the purposes of the Companies Act, as, without an anterior transfer, there can be no question of applying for registration of it. In all such matters, the guiding principle is whether the transferor, as donor or as seller, has done everything in his power to divest himself of title to his shares. So long as the substance of the transaction is demonstrative and clear and is not susceptible to any ambiguity, then the form or method, (unless otherwise provided by any statute) by which the gift or transfer was made ought not to loom very large, in so far as common law is concerned, for a court to conclude about the validity of the transfer of the title or property in the shares to the donee or the purchaser, if the divestiture of title is complete. The only fact that certain formalities have to be gone into under the provisions of the Companies Act so as to vest a further marketable title in such shares in the purchaser would not be a bar (sic) to conclude that there has not been a valid transfer of title under the normal law of the State by the holder of the shares to the purchaser of such shares. The principle in : [1969]73ITR794(Mad) (R. Subba Naidu v. CGT) referred to above, has been approved by the Supreme Court in Vasudev Ramchandra Shelat v. Pranlal Jayanand Thaker : [1975]1SCR534 . The Supreme Court in the above case approved of the well-known dicta of the Privy Council in what is commonly known as Bharucha's case, AIR 1926 PC 38 (M. P. Bharucha v. W. Sarabhai & Co.). The following passage from the speech of the House of Lords was approved by the Supreme Court 45 Comp Cas 43 (also AIR 1926 PC 38 :

' But, further, there seems to their Lordships a good deal of confusion arising from, the prominence given to the fact that the full property in shares in a company is only in the registered holder. That is quite true. It is true that what Bharucha had was not the perfected right of property, which he would have had if he had been the registered holder of the shareswhich he was selling. The company is entitled to deal with the shareholder who is on the register, and only a person who is on the register is in the full sense of the word owner of the share. But the title to get on the register consists in the possession of a certificate, together with a transfer signed by the registered holder. This is what Bharucha had. He had the certificates and the blank transfers, signed by the registered holders. It would be an upset of all stock exchange transactions if it were suggested that a broker who sold shares by general description did not implement his bargain by supplying the buyer with certificates and blank transfers, signed by the registered holders of theshares described. Bharucha sold what he had got. He could sell no more. He sold what in England would have been choses in action and he delivered choses in action. But in India, by the terms of the Indian Contract Act, these choses in action are goods. By the definition of goods as every kind of movable property it is clear that not only registered shares, but also this class of choses in action, are goods. Hence equitable considerations not applicable to goods do not apply to shares in India.'

19. Further, the Supreme Court observed that a distinction ought to be made between the title to get on the register and the full property in the shares in a company. They approved of the rule that one could get a title to get on the register by mere delivery of the shares with a required intention of the share certificate and blank form signed by the transferor. The second phase of the doctrine set out above whereby the purchaser acquires full property in the shares in the company applies only if the transferee gets his name in the register of the company in the place of the transferor. The principle, therefore, appears to be that such a division or dichotomy of rights in shares is a well recognised one and the right, which the transferee acquires by acquiring the title in the shares in the normal mercantile form by delivery accompanied by a blank transfer form, vests in him an enforceable right therein so long as there is nothing in the articles of association which prevent such transactions. In the instant case, it is not contended that there is any such article which prevented the Raja from transferring the shares in the manner he did. But what is repeatedly urged is that there is no instrument of transfer and the physical delivery of the shares has not been effected. Here again we have pointed out, the delivery which is thought of and referred to in such situations is such delivery as the goods are capable of. In a case, where the shares are pledged, the only manner in which delivery of such goods is possible, is constructive delivery. Such constructive delivery can only be by the transferor unequivocally expressing an intention in writing to the pledgees to hand over the shares to the purchaser after receiving the monies due and payable to him and contemporaneously putting the transfereeor purchaser on notice of his having so expressed himself. This has been done in this case, as is seen from Exs. A-16, A-1 and A-2. On a consideration of the facts of this case and after giving our considerable thought over the legal contentions raised, we are of the view that Section 36(3) of the Sale of Goods Act would not bar the sale of shares which are the subject-matter of a valid pledge by executing a blank transfer form accompanied by a letter in writing addressed to the pledgee directing him to deliver possession of the shares to the purchaser who is also at or about the same time put on notice of such a direction to obtain delivery. It is in these peculiar circumstances that the blank transfer form could be understood as a mercantile document. It is also pertinent to observe that the other legal heirs of the Raja are not taking up the stand taken by respondents Nos. 8 and 11.

20. The last contention of Mr. Dulipsingh is that until the company recognised the transfer, the property in the shares cannot be said to have passed to the purchaser. This is a matter between the appellant and the company with which respondents Nos. 1 and 11 as legal representatives of the Raja, are not concerned. We shall presently advert to this aspect while considering the issue as between the plaintiffs and the company. But in so far as respondents Nos. 8 and 11 are concerned, it is not open to them to urge that the appellants are not entitled to get their names registered in the books of the company. We shall advert to this aspect with reference to the specific provisions under the Companies Act, namely, Section 108 of the said Act.

21. The only other point that remains for consideration is whether the plaintiffs are debarred from seeking the declaration as to their qualified right as above and whether their right to redeem the pledge from the defendants 1 and 2 is in any way barred by the provisions of the Companies Act.

22. That the plaintiffs cannot compel the third defendant to substitute their names and cause an amendment in the register of members by reason of themselves having secured a right to enter into such a register is practically conceded by Mr. Raghavan. The position is now made very clear by the decision of the Supreme Court in Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185. Chief Justice, Ray, speaking for the Bench, held that the provisions contained in Section 108 of the Companies Act are mandatory. Section 108 of the Companies Act deals with transfer of shares and says that such transfer ought not to be registered except on compliance with the prescribed guidelines and norms set in that section. It is unnecessary for us to consider in detail the said section for the purpose of this case, as, it is not even the plaintiffs' case that there is evidence on record to show that they are equipped with all such necessary data to compel thethird defendant to register the transfer. As the Supreme Court said the company shall not register until the provisions in Section 108 of the Companies Act which are mandatory, are satisfied. As Section 108 of the Companies Act contains rules and norms which are mandatory the plaintiffs who are yet to perform this part of their obligation, cannot seek for the relief of a mandatory injunction to compel the third defendant to register the shares. It is for them to seek such a relief after fully complying with the prescriptions laid down in Section 108 of the Companies Act. But this cannot be taken advantage of by respondents 8 and 11. Their father has sold the shares in a manner known to law and common, to the practice prevailing and as pointed out by the Supreme Court in Vasudev v. Pranlal [1975] 45 Comp CaS 43 ; AIR 1973 SC 1728 and an pointed out by us earlier, the plaintiffs undoubtedly obtained the title to get on the register, though there is time enough for them to obtain a full property right in the shares after complying with the mandatory provisions in the Companies Act.

23. In the above circumstances, the plaintiffs could only be entitled to a declaration that the second plaintiff is the owner of the 5,000 shares, the description of which is given in the plaint, in the Krishna Tiles & Potteries (Madras) Private Ltd., the third defendant herein and also for a direction as against defendants 1 and 2 to receive from the second plaintiff, the sum of Rs. 37,747.21 and deliver over to him the share certificates with the relevant transfer forms and other instruments duly cancelled- The plaintiffs would not be entitled to a mandatory injunction compelling the third defendant-company to effect the transfer of the said shares and recognize the transmission as the plaintiffs have to still comply with the mandatory provisions of Section 108 of the Companies Act. The appeal A.S. No. 141 of 1973 is, therefore, allowed in part and there will be no order as to costs.

24. As regards A.S. No. 51 of 1975, the lower court was right in having decreed the suit. Practically there is no demur to it by any party before us. The appellant, the 6th defendant, has come in appeal because the learned trial judge has decreed the suit in full as prayed for. It is rightly pointed out that the lower court did find in issue No. 3 in O.S. No. 658 of 1970 that the amount payable to defendants 1 and 2 was validly tendered. After having so found on that issue and once the position that there was a valid tender of the amount is not even disputed, it follows that the trial court should have decreed the suit only for the principal amount and not as prayed for. On this contention of Mr. Narasimhan, learned counsel for the appellant in A.S. No. 51 of 1975, there could be no controversy at all. The judgment of the trial court is, therefore, modified to this extent that there shall be a decree in O.S. No. 658 of 1970 for a sum of Rs. 37,747.21 as against defendants 1 to 17 in that suit.

25. In view of our finding in A.S. No. 141 of 1973, it follows that, defendants 1 and 2 are only obliged to receive the amount from the plaintiffs and they cannot seek enforcement of the pledge once over as against the heirs of Raja, namely, defendants 1 to 17 in O.S. No. 658 of 1970. As the suits were heard together it appears to us that the relief granted in favour of the plaintiffs in O.S. No. 7000 of 1969 (A.S. No. 141 of 1973) would foe sufficient for the disposal of these two appeals. But in any event if the plaintiffs fail to redeem the pledge as directed in A.S. No. 141 of 1973, then defendants 1 and 2 would he entitled to a decree together with proportionate costs as against defendants 1 to 17 in O.S. No. 658 of 1970. O.S. No. 658 of 1970 is dismissed as against the defendants 18 to 20 in that suit but without costs. Each party to bear their respective costs in these two appeals.


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