Company lien over shares confers retention only; unilateral auction and transfer to recover dues are invalid without contractual authority.

A company's lien over fully paid-up shares, where the articles do not provide a sale mechanism, gives only a right of retention and not authority to auction or transfer the shares to recover dues. In the absence of a proved contractual basis for recovering alleged rental arrears through shares, the unilateral sale could not be justified. Because the articles also did not prescribe a lawful auction procedure and the transfer was effected without consent or compliance with share transfer requirements, the auction and allotment to a third party were invalid. The register of members was ordered corrected by restoring the shareholding, and further transfer or sale without express consent was restrained.

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Issues: (i) Whether the company could sell a shareholder's fully paid-up shares by exercising lien to recover dues; (ii) Whether there was any contractual basis to recover rental dues by auctioning the shares; (iii) Whether the auction and allotment of the shares to a third party followed due process.

Issue (i): Whether the company could sell a shareholder's fully paid-up shares by exercising lien to recover dues?

Analysis: The Articles of Association only recognised a lien for recovery of dues and did not provide any procedure for sale of shares. A lien, as understood in the law relating to movable property and unpaid seller's rights, is a right of retention and not a power of sale. Shares were treated as movable property, but that did not enlarge the company's lien into an authority to auction or transfer the shares unilaterally.

Conclusion: The company had no right to sell the shareholder's fully paid-up shares by exercising lien.

Issue (ii): Whether there was any contractual basis to recover rental dues by auctioning the shares?

Analysis: No lease deed or other contractual document was produced to show a binding rental arrangement authorising recovery of alleged rent arrears through shares. In the absence of a written agreement or other proved contractual basis, the company's unilateral act could not be justified.

Conclusion: There was no contractual basis to recover rental dues by auctioning the shares.

Issue (iii): Whether the auction and allotment of the shares to a third party followed due process?

Analysis: The company's articles did not prescribe any lawful procedure for such auction, and the shares were dealt with without the shareholder's consent and without compliance with the statutory requirements governing transfer of shares. The action was therefore not supported by due process.

Conclusion: The auction and allotment of the shares to a third party did not follow due process and were invalid.

Final Conclusion: The register of members was ordered to be corrected by restoring the petitioner's shareholding, and the company was restrained from transferring or selling the petitioner's shares without express consent.

Ratio Decidendi: A company's lien over shares, where no sale procedure is provided by the articles, confers only a right of retention and cannot be used to unilaterally auction or transfer a shareholder's fully paid-up shares to recover dues.

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