Equitable charge over shares bars oppression relief until shareholder debts secured on the shares are paid.

For the proviso to section 399 of the Companies Act, 1956, sums recoverable against a shareholder's shares can bar relief under sections 397 and 398 until they are paid. Dividend amounts attached under income-tax recovery proceedings could not be treated as money due to the shareholders once the company was bound to pay the Income-tax Officer. The company's first and paramount lien on the shares was treated as creating an equitable charge, so the outstanding liability remained a sum due on the shares. Accordingly, a member could not invoke oppression or mismanagement relief without first discharging those sums.

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Issues: (i) Whether amounts payable by the shareholders to the company and recoverable against the shares, together with dividend amounts attached under income-tax recovery proceedings, constituted sums due on the shares so as to attract the bar under the proviso to section 399 of the Companies Act, 1956; (ii) whether the company's lien under the articles amounted to an equitable charge over all shares in the shareholders' names and, if so, whether the applicants could invoke section 398 of the Companies Act, 1956 without first paying those sums.

Issue (i): Whether amounts payable by the shareholders to the company and recoverable against the shares, together with dividend amounts attached under income-tax recovery proceedings, constituted sums due on the shares so as to attract the bar under the proviso to section 399 of the Companies Act, 1956.

Analysis: A notice under section 46(5-A) of the Income-tax Act required amounts due to the assessees to be paid over to the Income-tax Officer, and after such notice the company could not validly pay the dividend to the shareholders. The dividend could not therefore be treated as money due to them or be adjusted in their favour. The amounts owing on the shareholders' own accounts were proved on the evidence, and the liability existed even though final accounting had not been completed. The expression "other sums due on their shares" in the proviso to section 399 was construed broadly to include sums recoverable against the shares where the liability was enforceable.

Conclusion: The dividend could not be credited to the shareholders, and the outstanding liabilities were sums due on the shares for the purposes of section 399.

Issue (ii): Whether the company's lien under the articles amounted to an equitable charge over all shares in the shareholders' names and, if so, whether the applicants could invoke section 398 of the Companies Act, 1956 without first paying those sums.

Analysis: The articles gave the company a first and paramount lien on all shares standing in the shareholders' names and authorized sale of the shares for realization of the debt. That lien was treated as more than a bare right of retention and as creating an equitable charge. Where the shares themselves could be sold for recovery of the amount due, the debt was a sum due on the shares. The lien extended to all shares registered in the members' names, and the fact that the face value of the shares exceeded the liability did not affect the statutory bar. Since the liability had not been discharged, the restriction in section 399 continued to operate.

Conclusion: The company had an equitable charge over all the relevant shares, and the applicants were barred from maintaining the section 398 application until the sums due on their shares were paid.

Final Conclusion: The appeal failed because the applicants had not paid all sums due on their shares, and their application under section 398 was therefore not maintainable.

Ratio Decidendi: For the purposes of the proviso to section 399 of the Companies Act, 1956, a shareholder is barred from relief under sections 397 and 398 so long as sums recoverable against his shares remain unpaid, including liabilities secured by a company lien amounting to an equitable charge.

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