Company lien over shares survives delay, while execution sale of its own shares is void under company law principles

A company could not validly acquire its own shares through execution from its funds, so the execution sale was treated as a nullity. At the same time, the company's articles and Table A regulations supported a lien on the shares, and that lien continued so long as the underlying debt remained unpaid. Notice defects and other irregularities in the sale proceedings did not defeat the purchaser's title under the governing regulations, and the lapse of more than twelve years did not extinguish the debt or the lien. On that basis, the later sale by the company was treated as valid.

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Issues: Whether the execution sale of the company's own shares was void, and whether the company retained a valid lien enabling it to sell the shares notwithstanding lapse of time and procedural objections.

Analysis: The applicable law was held to be section 55(1) of the Indian Companies Act, 1913 together with regulation 8 of Table A in the First Schedule, as the later Companies Act had not yet come into force when the relevant sales occurred. Regulation 8 prohibited the use of company funds for purchasing its own shares, and the judgment-debt represented by the decree was treated as part of the company's funds or assets. On that basis, the execution purchase of the shares was held to be a nullity, since a company cannot become a member of itself. As to the later sale by the company, the articles of association read with regulations 9 to 11 supported the company's lien on the shares. Although notice to the legal representatives was required, any irregularity in the sale proceedings did not affect the purchaser's title under regulation 11. The lapse of more than twelve years did not extinguish the debt, and therefore did not destroy the lien.

Conclusion: The execution sale was void, but the company's later sale of the shares was valid; the challenge to the sale therefore failed.

Final Conclusion: The appeal succeeded and the suit was dismissed, with the company's title and lien over the shares upheld.

Ratio Decidendi: A company cannot validly purchase its own shares out of its funds, but where its articles create a lien on shares, that lien continues so long as the underlying debt subsists, and a purchaser's title is protected against irregularities in the sale proceedings by the governing table regulations.

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