Corporate lien over shares cannot be used to auction and transfer fully paid shares without express contractual authority.
A corporate lien over fully paid shares, absent an express power in the articles or contract, operates only as a right of retention and does not authorise unilateral sale by auction. The company could not show any contractual basis, such as a lease deed or other written arrangement, to recover alleged rental dues through the shareholder's shares. Its auction and transfer process, carried out without the shareholder's consent and without an authorised procedure, was therefore invalid. Restoration of the shareholding and rectification of the register of members followed, with restraint on further dealings in the shares without consent.
Issues: (i) Whether the company could exercise paramount lien and sell the shares of a shareholder for recovery of dues; (ii) whether any contractual basis existed for recovering alleged rental dues by auctioning the shares; (iii) whether the company followed due process in auctioning and allotting the shares to a third party.
Issue (i): Whether the company could exercise paramount lien and sell the shares of a shareholder for recovery of dues.
Analysis: The Articles of Association excluded the relevant model regulation and allowed lien only to the limited extent provided by the articles. Shares were treated as movable property and as goods for the purpose of lien, but lien was understood as a right of retention and not a right of sale. In the absence of any express procedural provision authorising sale of fully paid shares, the company could not unilaterally convert lien into a power of auction and sale.
Conclusion: The company had no right to sell the shareholder's shares for recovery of dues.
Issue (ii): Whether any contractual basis existed for recovering alleged rental dues by auctioning the shares.
Analysis: No lease deed or other contractual instrument was produced to establish a landlord-tenant arrangement or to justify recovery of rental arrears through the shareholding. The alleged dues were not supported by a written agreement, and the company did not establish any valid contractual foundation for the recovery method adopted.
Conclusion: No contractual basis existed to auction the shares for alleged rental dues.
Issue (iii): Whether the company followed due process in auctioning and allotting the shares to a third party.
Analysis: The company proceeded to auction and transfer the shares without the shareholder's consent, without the original share certificate and transfer forms being properly acted upon, and without an authorised procedure in the articles. Such unilateral action was held to be contrary to law and unsupported by the company's internal framework.
Conclusion: Due process was not followed and the auction and allotment were invalid.
Final Conclusion: The shareholder was entitled to restoration of her shareholding and rectification of the register of members, and the company was restrained from dealing with the shares without consent.
Ratio Decidendi: A corporate lien, absent an express contractual or articles-based power of sale, confers only a right of retention and cannot be used to unilaterally auction and transfer a shareholder's fully paid shares.
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