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of <h1>Bank's Paramount Lien Prevails Over Equitable Mortgage on Shares</h1> <h3>Canara Bank Ltd. Versus Thribhuvandas Jatha Bhai</h3> The High Court of Travancore-Cochin ruled in favor of the plaintiff bank in a dispute over a paramount lien on shares held by the first defendant. The ... Shares – Power, to issue of at discount Issues: Paramount lien claimed by the plaintiff bank over shares held by the first defendant in a lawsuit for money due, priority of lien between plaintiff and third defendant, interpretation of article 36 of the bank's articles of association, effect of notice on lien availability, cause of action for the suit.Analysis:The High Court of Travancore-Cochin considered the issue of the paramount lien claimed by the plaintiff bank over shares held by the first defendant in a lawsuit for money due. The lower court had found in favor of the third defendant, stating that the shares were offered for sale without notice of any lien, and that the third defendant, in possession of the shares, had a prior charge over that of the plaintiff. The High Court found this disposal unsatisfactory as it did not address the key points at hand.The court analyzed article 36 of the bank's articles of association, which provided for a first charge and paramount lien on shares of each member for debts and liabilities. The court cited Palmer's Company Law, emphasizing that such a provision is effective and cannot be nullified by market transactions, share payment status, or lack of share custody. The focus was on the availability of the lien post-notice for transactions subsequent to receiving notice.The third defendant had informed the bank of an equitable mortgage on the shares, to which the bank replied recognizing the lien but subject to their paramount lien. The court examined the total amount claimed in the suit, noting that the claim in respect of the overdraft arose after the notice given by the third defendant. As the claim for priority was confined to other heads of claim, the court did not delve into the effect of the notice, Indian Companies Act, or exemption clause in the articles of association.Ultimately, the court held that the bank was entitled to succeed on the basis of article 36 for the two heads of claim in question, deciding in favor of the plaintiff. The appeal was allowed without costs, based on the entitlement to priority as per the bank's articles of association.This judgment clarifies the interpretation and application of a paramount lien under the articles of association of a bank, emphasizing the effectiveness of such liens and their priority in debt recovery proceedings. The court's analysis underscores the importance of notice in determining the availability of the lien for subsequent transactions and highlights the legal principles governing lien enforcement and priority disputes in corporate law.
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