Share lien does not create a power of sale over fully paid-up shares without express article-based authority.
A company cannot convert a lien over fully paid-up shares into a power of sale unless its articles expressly and lawfully permit that remedy. Here, the articles allowed only retention of shares and dividends, not unilateral sale, and the company could not rely on model articles excluded by its own constitution. No contractual basis was shown for treating the occupants as tenants or for recovering alleged rental dues through auction. The auction and third-party allotment were therefore contrary to the articles and the share-transfer framework, leading to rectification of the register, restoration of the applicants' shareholding, restraint on further transfer or sale without consent, and costs.
Issues: Whether the company could sell a shareholder's fully paid-up shares by exercising paramount lien for recovery of dues; whether any contractual basis existed for recovering alleged rental dues by auctioning the shares; and whether the shares were auctioned and allotted to a third party in accordance with due process.
Issue (i): Whether the company could sell a shareholder's fully paid-up shares by exercising paramount lien for recovery of dues.
Analysis: The articles of association recognised only a lien for recovery of dues and extended it to dividends, but did not provide any procedure enabling sale of shares. The model articles relied on by the company could not be imported when the relevant article in the company's articles excluded the corresponding regulation. Shares were treated as movable property and, at the highest, the company's right was limited to retention analogous to an unpaid seller's lien. A lien is only a right of retention and does not by itself confer a power of sale.
Conclusion: The company had no authority to unilaterally sell the fully paid-up shares for recovery of dues.
Issue (ii): Whether any contractual basis existed for recovering alleged rental dues by auctioning the shares.
Analysis: No lease or rental agreement was produced to show a contractual foundation for treating the occupiers as tenants or for fastening rental liability in the manner asserted by the company. In the absence of a written and enforceable contractual arrangement, the unilateral recovery action lacked evidentiary and legal support. The asserted benami or tax-related objections were not substantiated by any valid authority or notice affecting the present dispute.
Conclusion: No contractual basis was established for auctioning the shares to recover alleged rental dues.
Issue (iii): Whether the shares were auctioned and allotted to a third party in accordance with due process.
Analysis: The company's articles were silent on any sale procedure for enforcing lien, and the shares were auctioned without the consent of the shareholders and without compliance with the requirements governing transfer of shares. The unilateral sale and allotment were therefore inconsistent with the company's own articles and the statutory framework governing share transfers and rectification of the register.
Conclusion: The auction and allotment were not carried out in accordance with due process.
Final Conclusion: The register of members was ordered to be rectified, the applicants' shareholding was restored, the company was restrained from further transfer or sale of the disputed shares without consent, and costs were awarded to the applicants.
Ratio Decidendi: A company cannot, in the absence of an express and lawful power in its articles, convert a lien into a power of sale and dispose of fully paid-up shares unilaterally to recover dues.
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AI Drafter ✕
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