TaxTMI 
TaxTMI 
TaxTMI 
1982 (10) TMI 189
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.... sale on September 13, 1956, of the ninety shares then held by P.K. Mohammed, in auction in favour of the second defendant and the impact of Exts. A-1, and A-2 on those shares, and (ii) the claim relating to thirty-three shares originally held by P.O. Kamaludin, husband of the first plaintiff and father of the second plaintiff, on the demise of Kamaludin on February 16, 1957, and the impact of the sale of the shares in auction for the debts of Kamaludin. The facts relevant for the two questions pressed before this court in the second appeal may briefly be stated as follows : The first defendant is a private limited company incorporated in the year 1953. Its share capital as in 1957, consisted of 183 fully paid-up shares of Rs. 180 each, 33 shares held by Kamaludin, 90 shares by P.K. Mohammed and 60 shares by A.S. Sankunny. The shares of P.K. Mohammed were sold in auction on September 13, 1956. They were purchased by the second defendant and duly transferred in his name. That the second defendant is his nephew is an admitted fact. That he was a dependant of P.K. Mohammed and without any means of his own is the allegation of the plaintiffs. The transfer of shares, according to them,....
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....the defendants. The contentions are more or less similar. It was stated that. P.K. Mohammed owed a liability-amounting to Rs. 4,100-12-4 to the company for which his 90 shares had been hypothecated. The company by resolution dated July 23, 1956, desired to recover the amount by the sale of the shares. Notice was issued to P.K. Mohammed on July 13, 1956, demanding the amount. The demand not having been complied with, despite issue of even subsequent notices on August 22, 1956, and September 10, 1956, the shares were sold in auction and were consequently transferred in the name of the auction-purchaser, the second defendant. Similarly, an amount of Rs. 3,559.28 was due from Kamaludin when he died on February 16, 1957. This amount was resolved to be realised from the legal heirs. Registered notice was issued to the first plaintiff, she being the widow of the late Kamaludin and the guardian of the second plaintiff. Notice was also issued to another heir, Ummacha, the mother of Kamaludin. Despite the clear intimation about the proposal to auction the shares in default of payment of the dues in respect of which the company had a paramount lien, the amount was defaulted. The shares were a....
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....fendant in the written statement about the circumstances under which Ext. A-2 agreement was executed, The letter, Ext. B-2, dated April 2, 1956, found to be a genuine letter, despite the contention to the contrary by the plaintiff, was found to be. one which cuts at the root of the plaintiffs' case of benami in so far as it "discloses the existing debt". The indebtedness of P.K. Mohammed had been established by Ext. B-13 and Ext. B-14 as also the account books, Ext. B-18 series. The books of the company containing resolutions, Ext. B-21 and B-21(a), were also relied on to support the finding of the trial court, The trial court could not find anything in the letters, Exts. A-7 to A-14, covering the period, June 3, 1963, to November 1, 1963, relied on by the plaintiffs, to show that P.K. Mohammed played a prominent role in the affairs of the company or to indicate that he continued to be a shareholder of the company or that the transfer was benami. The explanation of the second defendant as D.W. 1 that such letters were written by defendants Nos. 2 and 3 out of respect for P.K. Mohammed and taking into account his past services, appealed to the trial court. It observed : "The mere ....
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....observations of the Supreme Court in Kanji Manji v. Trustees of the Port of Bombay, AIR 1963 SC 468. It further held that the right of the second plaintiff was restricted to a claim for damages even in case it is found that there was no notice for the sale of the shares. According to the trial court, that circumstance would not render the sale void. In the light of the above findings, the trial court held that the plaintiffs could not impeach the sale of Kamaludin's shares either. The suit was accordingly dismissed but without any order as to costs. The plaintiffs preferred an appeal. Each of the defendants filed separate memorandum of cross-objections as regards the adverse findings recorded against them. However, before the court below, arguments were confined to matters covered by issues Nos. 4, 6 and 7. The claim of the first plaintiff as an heir of late P.K. Mohammed was not pressed before that court. In relation to the 90 shares, arguments were confined to the legal effect of Exts. A-1 and A-2. In relation to the 33 shares, the contention related to the non-issue of notice and the sale being void on that account. The nature of the contentions raised by the respondents-defend....
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....entence : "Ample safeguards are provided in the CPC and the rules regarding court sales and a private right of sale exercised by a company cannot be equated to court sale." In that view of the matter, it took the view that the sale must be deemed to be one without proper notice. It, however, entered a finding that it would have been sufficient if the notice had been issued to the mother as a next friend of the minor, even if the mother was not a legal guardian of the minor under the Mohamedan law. The contention that the notices, Exts. A-6 and A-5, were bad to the extent they did not specify the particulars of sale as regards the time, place and amount due, was also rejected by the lower appellate court. The shares having been found to be sold without proper notice, the court below further held that the provision in Ext. B-8, the memorandum and articles of association, particularly clauses 11 to 13, thereof, and the provision which expressly stipulates that shares sold and purchased in the exercise of lien, will not be affected by any irregularity or invalidity in the proceedings, did not avail the defendants, inasmuch as the heirs of Kamaludin did not find a place in Ext. B-26 s....
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.... a limited company. The learned judge observed (at p. 412 of [1915] 1 Ch): "What I have to consider is whether the rule is applicable to the case of dividends derived by a shareholder from shares in a limited company. I can see no reason why it should not be. Dividends arising from a share in a limited company are the fruit of the share, and, therefore, a gift unlimited in time of the dividends on a share in a company is as much a gift of the share as a gift of the income of a sum of Consols is a gift of the sum itself." It must, however, be remembered that the rule is one of construction. The words which the court had to consider in the above case were to the following effect (at p. 408 of [1915] 1 Ch): "I ........... leave one-fifth share of the net profits in all my commercial undertakings........to Charles Maurice,........" As would be revealed from the summary occurring at page 411 of the report, the contention was : "The true meaning of the testator, judged by the surrounding circumstances, was that the plaintiff should do his best to get back all moneys sunk by the testator in these companies, whether in the form of shares, debentures or loans, and that he should be ent....
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.... every week. If at the end of the year, it is found to be short of the amount due to her, the balance has to be made good. If, on the other hand, party No. 2 has been in receipt of excess amount, that has to be refunded to the first party. These provisions normally could not have any place in a document by which the corpus of the shares is, for once and all,' parted in favour of party No. 2. If the least doubt be lurking in the mind, that is completely removed by a crucial and categoric provision which follows thereafter. It reads : "Is also mutually agreed that apart from the amount referred to above, there is no further claim or right whatever either between themselves or over the company...". That the first party does not have any semblance of rights over the shares or in the company is thus made explicit. An agreement where-under a specified share in the annual dividend is parted with, cannot with justification, be equated to the assignment of the shares themselves. It is not as though the simple process of a transfer of shares, and the concomitant procedure under the Companies Act and under the articles of association in relation to such transfer of shares, were not known ei....
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....mphasise that the intention of the parties has to be gathered from the document and other attendant circumstances having a bearing on the interpretation of the document. The decision in Mannox's case [1872] LR 14 Eq Cas 456 has placed some reliance on the provisions of section 28 of the Wills Act and the impact of such a provision on a devise of rents and profits. We are not concerned with such a situation in the present case. The general principles, as noted by the court below, is one which was not taken exception to even by counsel for the respondents. The question is one of application. The basic fact, however, is that in all such cases, the question was one of construction of a will or gift, as the case may be. The construction placed on Ext. A-2 by the court below, according to me, is a correct one. Even if another view is possible, that does not justify interference in second appeal. The provisions are so clear and clinching that it is difficult to conceive of a different construction, In the view that I have taken it has become unnecessary to consider whether Warrington J. was justified in taking the view that an unlimited gift of the dividend would tantamount to the gift....
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....(b)to receive a copy of every balance-sheet (and of the documents annexed thereto) which is to be laid before the general meeting ; (c)to receive a copy of the memorandum and the articles ; (d)to inspect and obtain copies of the minutes of general meetings ; (e) inspect copies of directors' service contracts ; (f)to inspect the various registers to be maintained by the company without charge." The author continued: "Apart from those principal and ancillary rights which a share carries, the shareholder is further entitled to the numerous corporate and individual membership rights which the constitution of the company or the Acts themselves give him ; examples of these rights are: (a)to petition the court for the winding up of the company ; (b)to petition for the alternative remedy." And the matter is summed up in the following words : "To sum up: The holding of a share in a company limited by shares generally carries the right to receive a proportion of the profits of the company and of its assets in the winding up, and all other benefits of membership, combined with an obligation to contribute to its liabilities, all measured by a certain sum of money which is the nominal....
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....ghts of a pawnee when the pawner makes default in the payment of debt. Under that section, a notice is a condition precedent for a lawful sale. The right of the pawner to redeem the goods may be available even against a third person to whom the goods pledged have been transferred under an unlawful or unauthorised sale. It is in this context that the proper tender of the amount due on the pledge becomes relevant. The first of the propositions laid down by Chagla J. in Official Assignee, Bombay v. Madholal Sindhu, AIR 1947 Bom. 217 (on which reliance had been placed by the lower appellate court also) reads : "(i) that although the pledgee may sell the goods unauthorisedly or unlawfully, the contract of pledge is not put an end to and the pledgor does not become entitled to the possession of the goods pledged without tendering the amount due on the pledge ; or, in other words, without seeking to redeem the pledge." (emphasis supplied) If there is no proper tender of the amount due on the pledge, the only right of the pledgor in respect of an unlawful or unauthorised sale is in tort or for damages actually sustained by him. Admittedly there has not been any tender of the amount due o....
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....h stood in the name of Kamaludin was specifically referred to. It was stated : "Since the amount due to the company was not paid by the legal heirs of late Sri Kamaludin, the company was constrained to sell the said shares in exercise of the rights of lien in accordance with the articles of association after giving notice to the legal heirs. Thus, you will note that the legal heirs have no claim whatsoever in any of the shares of the company or against the company in any manner." (emphasis supplied). The company offered to give copies of the share register on receipt of the requisite charge. A lawyer's notice was issued on behalf of the second plaintiff on December 9, 1970. What was alleged therein was a fraudulent relationship relating to the sale of shares held by Kamaludin. After referring to the stand of the company as disclosed in the letter, Ex. B-24, dated November 21, 1970, the lawyer's notice only stated : "The stand taken by the company is untenable and the transfer of the shares of late P.O. Kamaluddin has not been done legally..........." It is significant that no contention was taken about the absence of a notice to the second plaintiff as a legal heir. The deman....
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.... the shares by the company in 1957. To accede to such a request at this stage, to my mind, will result in a deflection of the course of justice. What the second plaintiff relies on is a technical plea of the absence of a notice to him, at a time when he was a minor, even when his own parent, namely, the mother and his paternal grandmother, had been intimated about the existence of the liability and the proposal of the company to sell the shares in exercise of the right of lien the company had over such shares. Such a technical plea is effectively met with a non-compliance with the condition precedent in relation to the recovery of shares on an offer to tender the amount due, in the light of the well-established principles of law. The result is that justice works itself out by declining to interfere with the judgments and decrees of the courts below. A similar technical contention was urged in F. Nanak Chand Ramkishan Das v. Lal Chand Ganeshi Lal, AIR 1958 Punj. 222. After observing that there was some force in the contention based on section 176 of the Indian Contract Act, 1872, the High Court observed (at p. 227): "..................but it is no use pursuing the matter any furth....
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....ereof should govern the matter. If that be so, it is clear from the provisions of Ex. B-8 (vide article 12) that any irregularity in the sale will not vitiate the same. I am inclined to take the view that the proceedings in relation to the exercise of a lien of a company over its shares should be governed by the provisions of the Companies Act and the memorandum and articles of association and should not be controlled by the general provisions of the Indian Contract Act, 1872. In that view of the matter also, section 176 would be excluded from the present case. If that be so, Ex. B-8 would hold the field and the sale of the shares would not be open to challenge in view of the express provision contained in article 12 reading : "The purchaser shall be registered as the holder of the shares thus sold and he shall not be bound to see to the application of the purchase money nor shall his title to the shares so purchased by him be affected by any irregularity or invalidity in the proceedings in reference to the sale." (emphasis supplied) For yet another reason, section 176 of the Indian Contract Act, 1872, may have no application to the facts of the case. Section 176 applies to a pa....