Balkrishan Gupta & Ors Vs.
Swadeshi Polytex Ltd. & ANR [1985] INSC 22 (12 February 1985)
VENKATARAMIAH, E.S. (J) VENKATARAMIAH, E.S.
(J) MUKHARJI, SABYASACHI (J)
CITATION: 1985 AIR 520 1985 SCR (2) 854 1985
SCC (2) 167 1985 SCALE (1)236
CITATOR INFO:
RF 1988 SC 782 (8,19,54)
ACT:
Companies Act, 1956-Sections 41, 87, 137, 150
and 169- Member/ share-holder of a company-Meaning of-When does a person cease
to be a member/shareholder-Rights and Privileges of a shareholder when a
Receiver appointed in respect of the shares-Scope of-Sections 182A, 149 of the
U.P. Land Revenue Act 1901 and s. 51 and Order XL of P.C.
U.P. Land Revenue Act 1901, ss. 182A, 149 and
s. 51 and order XL of C.P C.-Appointment of Receiver in respect of
shares-Attachment and Pledge of shares-Whether it deprives the shareholder of
its title or right to vote and other privileges-Whether ownership of shares
vests in the Receiver-A charging order and order of attachment- Distinction
between.
Industrial (Development and Regulation) Act
1951, s. 18AA(1) (a)- Order of Central Government taking over management of
shareholder-company- Whether deprives the share-holder company of its right to
vote in respect of shares.
Indian Contract Act 1972-Sections 172 and
178A-Pledge and mortgage-Distinction between.
HEADNOTE:
Section 169 (1) of the Companies Act provides
that the Board of directors of a company shall, on the requisition of such
number of members of the company as is specified in sub-section (4), forthwith
proceed duly to call an extraordinary general meeting of the company,
Sub-section 4(a) says that the number of members entitled to requisition a
meeting in regard to any matter shall be in the case of a company having a
share capital, such number of them as held at the date of the deposit of the
requisition, not less than one-tenth of such of the paid up capital of the
company as at that date carries the right of voting in regard to that matter.
The Swadeshi Cotton Mills Company Ltd. (for
short, the Cotton Mills Company), had 10 lakhs shares out of 39,00,000 shares
of Rs. 10/- each in the respondent Swadeshi Polytex Ltd. (for short, the
Polytex Company). On 855 27th October, 1977, the Collector of Kanpur passed an
order under s. 182A A of the U.P. Land Revenue Act 1901 (for short, the Land
Revenue Act, road with s. 5 of the U.P.
Government Electrical Undertakings (Dues
Recovery Act 1958 appointing a Receiver in respect of the Cotton Mills Company,
since it could not meet the wage bill, the dues of the U.P. Electricity Board
and several other monetary claims against it from about 1975-76 on account of a
serious set back in its financial position. By the said order, he empowered the
Receiver to seize 1 lakh of shares of the Polytex Company and to pledge them in
favour of the State Government of Uttar Pradesh against a loan for the purpose
of meeting the dues payable to the employees of the Cotton Mills Company. He
made a further order under s. 14g of the Land Revenue Act read with s. 5 of the
U.P. Government Electrical Undertakings (Dues Recovery) Act 1958 attaching the
remaining 9 lakhs shares of the Polytex Company held by Cotton Mills Company
and empowering the Receiver to seize them. Pursuant to the Orders of the
Collector, the Receiver seized 10 lakhs shares held by the Cotton Mills Company
and pledged 3-5 lakhs shares in favour of the Government of U.P.
and kept the remaining 6.5 lakhs shares with
him.
The Cotton Mills Company and four others
share-holders who together held 10,01,950 shares of Rs. 10 each in the Polytex
Company sent a notice to the Polytex Company under s. 169 of the Act requiring
the Board of Directors of Polytex Company to consider and pass certain
resolutions regarding removal of its Managing Director and three directors and
appointment of some other persons in their place. Pursuant to such
requisitions, the directors of the Polytex Company resolved to hold the
extraordinary meeting on March 28, 1984. However, the meeting could not be
held, since some of the share holders had obtained temporary injunctions
restraining the holding of the meeting. The matter ultimately came up before
the Supreme Court in Special Leave Petitions when it directed the High Court to
make an order for holding the meeting notwithstanding any order of injunction
etc. issued by any other court or authority in India. Accordingly, the meeting
was filed for 14th August 1984. But, in the meanwhile, appellant No. 1 moved an
application before the High Court, in an appeal already pending between the
Cotton Mills Company and the Polytex company questioning the right of the
requisitionists to issue notice under s. 169 of the Act to call the
extraordinary general meeting. The High Court dismissed the application Hence
this appeal by Special Leave.
The appellants contended that: (1) Since a
Receiver had been appoint-ed by the Collector in respect of the shares held by
the Cotton Mills Company and they had also been attached, the shares held by
the Cotton Mills Company could not be taken into consideration for determining
the required qualification to issue the notice under s 169 of the Act
requisitioning the extraordinary general meeting and that if those shares were
omitted from consideration then the shares held by the other requisitionists
would not be sufficient to issue the said notice. In other words the
extraordinary general meeting had not been validly called since the Cotton
Mills Company had 856 ceased to enjoy the privileges of a member of the Polytex
Company by reason of the appointment of a Receiver by the Collector of Kanpur
in respect of the ten lakhs shares in the POLYTEX Company held by the Cotton
Mills Company, the attachment of the 9 lakhs shares out of the said 10 lakhs
and also the pledge of 3,50,000 shares out of the said 10 lakhs shares with the
Government of Uttar Pradesh as security for the loans advanced by it; (ii) The
order OF the Collector being an order in the nature of a charging order;
the Receiver had obtained an equitable right
in the shares in question and there being no other legal or equitable right
which would prevail over it, the Cotton Mills Company had lost its right to the
shares; and (iii) By virtue of an order made by the Central Government on April
13, 1978 under
8. 18AA (1) (a) of the Industrial
(Development & Regulation) Act 1951 taking over the management of Swadeshi
Cotton Mills along with its five other industrial units, the Cotton Mills
Company had lost the right to exercise its voting rights in respect of the
shares in question.
Dismissing the appeal, ^
HELD: 1. (i) In the Act, the expressions 'a
member', 'a share. holder' or 'holder of a share' are used as synonyms to
indicate the person who is recognised by a company as its owner for its
purposes. What does ownership of a share connote ? Ownership in its most
comprehensive signification says Salmond, 'denotes the relation between a
person and any right that is vested in him. That which a man owns in this sense
is a right'. The right of ownership comprises benefits like claims liberties,
powers, immunities and privileges and burdens like duties, liabilities, disabilities.
Whatever advantages a man may have as a result of the ownership of a right may
be curtailed by the disadvantages in the form of burdens attached to it. As
observed by Dias, an owner may be divested of his claims etc. arising from the
right owned to such an extent that he may be left with no immediate practical
benefit. He remain the owner nonetheless because his interest will outlast that
of other persons in the thing owned. The owner possesses that right which
ultimately enables him to enjoy all rights in the thing owned by attracting
towards himself those rights in the thing owned which for the time being belong
to others, by getting rid of the corresponding p73 burdens. [871 D-F]
1. (ii) Section 41 of the Act defines the
expression "member" of a company. Subject to s. 42 of the Act, a
company or a body corporate may also become a member. When once a person
becomes a member, he is entitled to exercise all the rights of a member until
he ceases to be a member in accordance with the provisions of the Act. A
persons ceases to be a member by transferring his share to another person, by
transmission of his share by operation of law, by forfeiture of share, by
death, or by any other reason known to law. A person who is a shareholder of a
company has many rights under the Act. Some of them, are: (i) the right to vote
at all meetings Section 87. (ii) the right to requisition an extraordinary
general meeting of the company or to be a joint requisitionists (Section 169),
(iii) the 857 right to receive notice of a general meeting (Section 172).
(iv) the right to A appoint proxy and inspect
proxy register (Section 176), (v) in the case of a body corporate which is a
member, the right to appoint a representative to attend a general meeting on
its behalf (Section 181) and (vi) the right to require the company to circulate
his resolution (Section 188). Therefore, it is clear from the relevant
provisions of the Act which are referred to above that a member can participate
and exercise his vote at the meetings of a company in accordance with the Act
and the articles of association of the company. [875 G, 876 A, 878 A-B,]
2. (i) Section 150 of the Act requires every
company to keep a register of members containing the names, address and the
occupation, IF any, of each member and other particulars mentioned therein. The
privileges of a member can be exercised by only that person whose name is
entered in the Register of Members. A Receiver whose name is not entered in the
Register of Members cannot exercise any of these rights unless in a proceeding
to which the Company concerned is a party an order is made authorising him to
do so. Even where the holder of a share whose name is entered in the Register
of Members hands over his shares with blank transfer forms duly signed, the
transferee would not be able to claim the rights of a member as against the
company concerned until his names is entered in the Register of Members. [875
D, 880 D-13, 881 G] Mathalone v. Bombay Life Assurance Co. Ltd., [1954] S.C.R.
117 and Messers Howrah Trading Co. Ltd. v. The Commisioner of Income-tax,
Calcutta, [1959] Supp. 2 S.C.R.
448, followed.
In re: Wala Wynaad Indian Gold Mining
Company, [18821 21 Ch. D. 849, Kurapati Venkata Mallayya & Anr. v.
Thondeput Ramaswami & Co. & Anr. [1963] Supp. 2 S.C.R 995 and Jagat
Tarini Dasi v. Naba Gopal Chaki, [1907] I.L.R. 34 Cal. 305, referred to.
Wise v. Landsdell, [1921] 1 Ch. 420 and
Morgan & Anr. v. Gray &: Ors., [1953] 1 Ch. 83 at p.87, relied upon.
2, (ii) A perusal of the provisions of s.182A
of the Land Revenue Act shows that there is no provisions in it which states
that on the appointment of a Person as a receiver the property in respect of
which he is so appointed vests in him similar to the provision in s.l7 of the
Presidency Towns Insolvency Act, 1909 where on the making of an order of
adjudication the property of the insolvent wherever situate would vest in the
official assignee, or in s.28(2) of the Provincial Insolvency Act, 1920 which
states that on the making of an order of adjudication, the whole of the
property of the insolvent would vest in the court or in the official Receiver.
Sub-section (4) of section 182A of the Land Revenue Act provides that Rules 2
to 4 of Order XL of the Code of Civil Procedure 1908 shall apply in relation to
a Receiver appointed under that section. A Receiver appointed under order XL of
the Code of Civil Procedure only holds the property committed to 858 his
control under the order of the court but the property does not vest in him. A
receiver appointed by a court or authority in respect of a property holds it
for the benefit of the true owner subject to the orders that may be made by
such court or authority. Under s.51 of the Code of Civil Procedure, 1908 a
Receiver may be appointed by a civil court on the application of a
decree-holder in execution of a decree for purposes of realising the
decree-debt. This is only a mode of equitable relief granted ordinarily when
other modes of realisation of the decretal amount are impracticable. A Receiver
appointed under that section will be able to realise the amounts due from a
garnishee and his powers are akin to the powers of a Receiver appointed under
Order 40 Rule I of the Code of Civil Procedure, 1908. But be would not have any
beneficial interest in the assets of the judgment debtor. He collects the debts
not as his own but as an officer of the court. Thus whatever may be the other
powers of a Receiver dealing with the property which is custodia legis while in
his custody, he is not to be construed as either an assignee or beneficial
owner of such property. [880 A, 887 H, 888 A-B, 882 H]
2. (iii) Section 137 of the Act provides that
if any person obtains an order for the appointment of a Receiver of, or of a
person to manage, the property of a company, or if any person appoints such
Receiver and any powers contained in any instrument he shall within thirty days
from the date of the passing of the order of the making of the appointment
under the said powers, give notice of the fact to the Registrar; and the
Registrar shall on payment of the prescribed fee, enter the fact in the
register of charges maintained under s.130 of the Act. It is not clear in the
instant case whether any entry had been made in the register of charges of the
order of appointment of Receiver. Even granting that such an entry had been
made, it would not have the effect of taking away the right of the Cotton Mills
Company to exercise the right to vote in respect of the shares in question.
[884 C-E]
3. There is no substance in the argument
based on ss.153B, 187B and 187C of the Act. Section 153 of the Act states that
no notice of any trust, express implied or constructive, shall be entered in
the register of members or of debenture holders. Section 153B of the Act
requires that notwithstanding anything contained in s.153 where any shares in,
or debentures of a company are held in trust by any person, the trustee shall,
make a declaration to the public trustee. Section 187B of the Act provides that
save as otherwise provided in s.153B but notwithstanding anything contained in
any other provisions of the Act or any other law or any contract, memorandum or
articles, where any shares in a company are held in trust by a person as trustee,
the rights and powers (including the right to vote by proxy) exercise able at
any meeting of the company or at any meeting of any class of members of the
company by the trustee as a member of the company cease to be exercisable by
the trustee as such member and become exercisable by the public trustee.
Section 187C of the Act makes it incumbent
upon a person whose name is entered in the Register of Members of a company but
who does not hold the beneficial interest in the share in question in such form
as may be prescribed specifying the name and other particulars of the persons
who holds the beneficial interest in such share. The Companies (Declaration of
beneficial Interest in shares) Rules, 1975 are made in this connection. It is
obvious from the foregoing that none of the provisions referred A to above has
any bearing on the question before this Court. Thus, more appointment of a
Receiver in respect of certain shares of a company without more cannot,
therefore, deprive the holder of the shares whose name is entered in the
Register of Members of the Company the right to vote at the meeting of the
company or to issue a notice under s.169 of the Act. 1884 F-H, 885 A-C]
4. Under Rule 76 of Order 21 of the Code of
Civil Procedure, 1908, the shares in a Corporation which are attached may be
sold through a broker. In the alternative such shares may be sold in public
auction under Rule 77 thereof. On such sale either under Rule 76 or under Rule
77 the purchases acquires title. Until such sale is effected, all other rights
of the judgment debtor remain unaffected even if the shares may have been
seized by the officer of the court under Rule 43 of Order 21 of the Code of
Civil Procedure, 1908 for the purpose of effecting the attachment, or through a
Receiver or though an order in terms of Rule 46 of Order 21 of the Code of
Civil Procedure may have been served on the judgment-debtor or on the company
concerned.
The consequence of attachment of certain
shares of a company held by a shareholder for purposes of sale in a proceeding
under s.149 of the Land Revenue Act is more or less the same. The effect of an
order of attachment is what s.l49 of the Land Revenue Act itself says. Such
attachment is made according to the law in force for the time being for the attachment
and sale of movable property under the decree of a civil court [886 B-C, 885 D]
5. (i) It is to be Doted that a charging
order under the English Law is not the same as an attachment of property or
appointment of a Receiver under the Land Revenue Act.
Charging Orders under the English Law are
made under order 50 of the English Supreme Court Practice under which the
English court may for the purpose of enforcing a judgment or order of that
court under which a debtor is required to pay a sum of money to a creditor make
an order imposing on any such property of the debtor as may be specified in the
order, a charge for securing the payment of any money due or to become due
under the judgment or order. Such an order is referred to as the 'charging order'.
A charging order on the property or assets of the debtor is one of the modes of
enforcement of a judgment or order for the payment of money to the creditor. It
is, however, not a direct mode of enforcement in the sense that the creditor
can immediately proceed to recover the fruits of his judgment, but it is rather
an Indirect mode of enforcement in the sense that it provides the creditor with
security, in whole or in part, over the property of the debtor. It makes the
creditor secured creditor who having obtained his charging order must proceed,
as may be necessary according to the nature of the property charged, to enforce
his charge in order to obtain the actual proceeds of his charge to satisfy his
judgment, in whole or in part. Subject to the other provisions of law a charge
imposed by a charging order will have effect and will be enforceable in the
same court and in the same manner as an equitable mortgage created by the
debtor by writing under his hand. An order of attachment cannot, therefore, have
the effect of depriving the holder of the shares of his title to the shares
Therefore, the attachment of the shares in the Polytex Company held by the
Cotton 860 Mills Company had not deprived the Cotton Mills Company of its right
to vote at the meeting or to issue the notice under s.169 of the Act.
[887 B-F, 888 C] Hawks v. Mc Arthur &
Ors. [l9SIl 1 All E.R. 22, inapplicable.
5. (ii) The fact that 3,50,000 shares have
been pledged in favor of the Government of Uttar Pradesh also would not make
any difference. Sections 172 to 178-A of the Indian Contract Act, 1872 deal
with the contract of pledge.
A pawn is not exactly a mortgage. The two
ingredients of a pawn are: "(1) that it is essential to the contract of
pawn that the property pledged should be actually or constructively delivered
to the pawnee and (2) a pawnee has only a special property in the pledge but
the general property therein remains in the pawner and wholly reverts to him on
discharge of the debt. A pawn therefore is a security where by contract a
deposit of goods is made as security for a debt- The right to property vests in
the pledged only so far as is necessary to secure the debt. The pawner however
has a right to redeem the property pledged until the sale.
Under s.116 of the Indian Contract Act, 1872
if the pawnor makes default in payment of the debt, or performance, at the
stipulated time, of the promise, in respect of which the goods were pledged,
the pawnee may bring a suit against the pawnor upon the debt or promise, and
retain the goods pledged as a collateral security, or he may sell the thing
pledged, on giving the pawnor reasonable notice of the sale- In the case of a
pledge, however, the legal title to the goods pledged would not vest in the
pawnee. the pawnee has only a special property. A pawnee has no right of
foreclosure since he never had absolute ownership at law and his equitable title
cannot exceed what is specifically granted by law. In this sense, a pledge
differs from a mortgage in view of the foregoing the pawnee in the instant case
i.e. the Government of Uttar Pradesh could not be treated as the holder of the
shares pledged Fin its favour.
The Cotton Mills Company continued to be the
member of the Polytex Company in respect of the said shares and could exercise
its right under s.l69 of the Act. [888 D-H, 889 A.Cl Lallan Prasad v. Rahmat
Ali & Anr., [1967] 2 S.C.R. 233 pp. 238-239 Bank of Bihar v. State of Bihar
& Ors., [1971] Supp. S.C.R. 299 and Swadeshi Cotton Mills v. Union of
India, [1981] 2 S.C.R. 533. refereed to.
6. There is no substance in the contention
that on the passing of an order by the Central Government under s 18A (1) (a)
of the Industries (Development and Regulation) Act, 1951 taking over the
management of the Cotton Mills Company alongwith its five other industrial
units, the Cotton Mills Company lost its right to exercise its voting rights
861 in respect of the shares in question. What was taken over under the above A
said orders was the management of the six industrial units referred to therein
and not all the rights of the Cotton Mills Company. The shares belong to the
company and the orders referred to above cannot have any effect on them. Hence
the passing of the orders under s.l8AA (1) (a) of the Industries (Development
and Regulation) Act, 1951 has no effect of the voting rights of the Cotton
Mills Company. [889 B-H, 890 A]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 4803 of 1984 From the Judgment and Order dated 7.8.84 of the Allahabad High
Court in Civil Misc. Application No. 10968 of 84 & S.A. No. 2182.
K.K. Venugopal, R N. Karanjawala & Mrs.
Manik Karanjawala for the appellant.
R.Parasaran, Attorney General of India. K S. Cooper,
Csril S. Shroff', S. S. Shroff and S. A. Shroff for the respondents.
Ashok Desai, Anil Diwan Pinaki Mishra and
Praveen Kumar for respondent No. 1,. Dr. Y. S. Chitale, V.D. Mehta V. A. Bobde,
S Swarup K.J. John for respondent No. 2. Soli J. Sorabjee, Y. D. Mehta, S-
Swarup and K, J. John for respondents Nos. 6-8. Anil Dewan, R. Karanjawala,
Mrs. Manik Karanjawala and Arun Jetly for the Intervenor.
Miss Bina Gupta for the Intervenor.
T S. Krishnamurthi and Vineet Kumar for the
Intervenor.
The Judgment of the Court was delivered by
862 VENKATARAMIAH, J. This appeal by special leave is filed against the order
dated August 7, 1984 passed by the High Court of Allahabad in Civil Misc.
Application No. 10968 of 1984 in Special Appeal No. 2 of 1982 on its file. The
dispute involved in this case relates to the validity of an extraordinary
general meeting of the Swadeshi Polytex Ltd.
(hereinafter referred to as 'the Polytex
Company'), a company governed by the Companies Act, 1956 (hereinafter referred
to as 'the Act') held pursuant to a notice dated February 11, 1984 issued under
section 169 of the Act by some of its members.
The controlling interest in the Swadeshi
Cotton Mills Company Ltd. (hereinafter referred to as 'the Cotton Mills
Company') which is also governed by the Act was acquired by Mangturam Jaipuria
and his family in 1946.
Sitaram Jaipuria is the adopted son of
Mangturam Jaipuria.
After his adoption Mangturam Jaipuria got a
natural son, Rajaram. In or about the year 1964, Sitaram Jaipuria became the
Chairman and Managing Director of the Cotton Mills Company. In 1970, the
Jaipuria family decided to promote another company and accordingly the Polytex
Company was established. In 1970, Rajaram became the Managing Director of the
Cotton Mills Company and Sitaram continued as its Chairman. Sitaram became the
Chairman and Managing Director of the newly established Polytex Company in
which the Cotton Mills Company had acquired 10 lakhs shares of Rs. 10 each.
From about 1975-76 on account of a very
serious set back in its financial position the Cotton Mills Company could not
meet the wage bill, the dues of the U.P. Electricity Board and several other
monetary claims against it. There were serious labour troubles in its factory
and its work virtually became paralysed. The total liability of the Cotton
Mills Company was in the order of Rs. 2 34 crores in the year 1977. On October
27, 1977, the Collector of Kanpur passed an order under section 128-A of the
U.P. Land Revenue Act, 1901 (hereinafter referred to as 'the Land Revenue Act'
read with section 5 of the Uttar Pradesh Government Electrical Undertakings
(Dues Recovery) Act, 1958 appointing a Receiver in respect of the Cotton Mills
Company for a period of six months with various powers specified therein and in
particular to seize I lakh of shares of the Polytex Company of the face value
of Rs 10 lakhs held by the Cotton Mills Company and to pledge them in favour of
the State Government of Uttar Pradesh against a loan for the purpose of meeting
the dues payable to the employees of the Cotton Mills Company and he made a
further order under section 149 of the Land Revenue Act read with section 5 of
the U. P.
Government Electrical Undertakings (Dues
Recovery) Act, 1958 863 attaching the remaining 9 lakhs shares of the Polytex
Company held by the Cotton Mills Company and empowering the receiver to seize
them Both the order appointing the Receiver and the order attaching 9 lakhs
shares were incorporated in the same document, the relevant part of which read
thus:
ORDER "Whereas electricity dues are
payable by M/s Swadeshi Cotton Mills Co. Ltd., Kanpur, to the U.P.
State Electricity Board and recovery
certificates for the amount enumerated below have been received for realisation
of the dues above mentioned from the said consumer:
Recovery certificates dated 29.9.76,
31.12.76, 16 12.76, 29.12.76, 16.7.76, 17.9.76 and 3.10.77 1,06,22,423.17 Less
amount paid 19,00,000.00 Balance 87,22,423.17 Add: Collection charges
10,62,242.31 TOTAL RECOVERABLE 97,84,665.48 And whereas, for the expeditious
recovery of the dues outstanding as above, without affecting adversely the
running of the mills, it is just and proper that a Receiver be appointed over
the mills at Kanpur, belonging to M/s Swadeshi Cotton Mills Co. Ltd.
Now, therefore, I, K.K. Baksi, Collector,
Kanpur, in exercise of the power under sub-section (1) of section 182-A of U.P.
Land Revenue Act of 1901 read with section 5 of U.P. Government Electrical
Undertakings (Dues Recovery) Act, 1958, do hereby appoint Shri L.N.
Batra, A.D.M. Kanpur as Receiver of the said
mills belonging to M/s Swadeshi Cotton Mills Co. Ltd., for a period of six
months with immediate effect and direct that the Receiver shall exercise the
following powers:
1. The Receiver shall exercise supervision
over the sales of products of the said mills and the disbursement of receipts
from day to day.
2. That the receiver shall ensure that the
receipts of the said mills are, after the payment of labour dues and 864 other
essentials for the running of the Mill, appropriated towards recoverable
arrears against M/s Swadeshi Cotton Mills Co. Ltd. as Land Revenue.
3. That the receiver shall, if necessary, for
the running of the said mills borrow money from State Government or other
financial institutions and other appropriate arrangement in this behalf for the
repayment of the amount and the recovery thereof as arrears of land revenue.
4. That the Receiver shall seize the shares
held by M/s. Swadeshi Cotton Mills Co. Ltd., of M/s.
Swadeshi Polytex Ltd. Of the face value of
Rs. 10 lacs (Ten lacs) and shall be competent to pledge, the same by way of
security for the borrowings referred to above.
5. That the Receiver shall be competent also
to make payment to the Punjab National Bank against the guarantee dated
16.12.1976 and relieve the State Government of its liabilities thereunder
correspondingly.
6. That in the event of Guarantee furnished
by the State Government in favour of Punjab National Bank dated. 16.12.76.
being invoked, the Receiver shall be competent to make the payment to the State
Government against the liability accruing therefrom
7. That the Receiver shall have access to all
books of accounts. ledger, cash books, Stock books and all other documents kept
or maintained by M/s Swadeshi Cotton Mills Co. Ltd. in course of business.
8. That the Receiver shall be competent for
the reasons to be recorded also to put a restraint against any transaction
being entered into by M/s. Swadeshi Cotton Mills Co. Ltd., involving the
business and assets of the mills and which are not in the interest thereof or
may be detrimental to the same in his opinion.
9. That the Receiver shall have all powers
incidental or ancillary for Carrying out of the functions and the powers
referred to above.
10. That subject to the above and to any
directions that I may, hereafter issue from time to time,the 865 present
management of the said mills shall continue to run A the mill and business.
In view of the urgency the order is being
made expert with the direction, however, that a notice to show cause shall
issue to M/s. Swadeshi Cotton Mills Company Ltd.
for November 15, 1977.
And further, in exercise of the power under
section 149 of U.P. Land Revenue Act 1901 read with section 5 of U.P. Government
Electrical Undertakings (Dues Recovery) Act of 1958, I hereby direct attachment
and sale of shares held by M/s. Swadeshi Cotton Mills Co. Ltd. in M/s. Swadeshi
Polytex of the face value of Rs. 90 lacs (Ninety lacs) and hereby empower the
Receiver to seize the same.
Sd/- K.K. Baksi Dated : Kanpur Collector,
kanpur October 27, 1977." On the same date i.e. On October 27, 1977 the
Receiver pledged 1 lakh of shares as per the order of the Collector in favour
of the Government of Uttar Pradesh against a loan of Rs. 13.5 Lakhs. i he
Receiver also took possession of 9 Lakhs shares as per the order made under
section 149 of the Land Revenue Act. Subsequently the Receiver pledged on
November 9, 1977, 1 lakh shares out of the above 9 lakhs shares in favour of
the Government of Utter Pradesh against a loan of Rs. 15 lakhs and on January
4, 1977, 1.5 lakhs shares against a further loan- Thus out of the 10 lakhs
shares of the Polytex Company of the face value of Rs. 1 crore held by the
Cotton Mills Company, 3.5 Lakhs shares stood pledged in favour of the
Government of Uttar Pradesh and the remaining 6.5 lakhs shares of the face
value of Rs. 65 lakhs remained with the Receiver.
The events which have led to this appeal are,
however, these: In the year 1976, the Cotton Mills Company filed a petition
under sections 397 and 398 of the Act against the Polytex Company alleging
oppression and mismanagement of the Polytex Company by Sitaram Jaipuria and
other directors of the Polytex Company in Company Petition No. 20 of 1976 on the
file of the Allahabad High Court. That petition was dismissed by the Company
Judge of the High Court on April 19, 1982. Against his decision an appeal was
filed by the Cotton Mills Company in August, 1982 in Special Appeal No. 2 866
of 1982 before the Division Bench of the High Court. That appeal is still
pending. On February 11, 1981, the Cotton Mills Company and four others,
namely, Rajaram Jaipuria, Mahabir Prasad Dalmia, Siyaram Sharma and K.B.
Agarwal who together held 10, 01, 950 shares of the value of Rs. 10 each sent a
notice to the Polytex Company which was received by it on February 15, 1984
under section 169 of the Act requiring the Board of Directors of the Polytex
Company to call an extraordinary general meeting of the Polytex Company to consider
and, if thought fit, to pass with or without modification the following as
ordinary resolutions:
"1. "RESOLVED that the appointment
of Shri Sitaram Jaipuria as Managing Director of Swadeshi Polytex Ltd., be and
is hereby terminated prior to the expiry of his term, in exercise of the powers
conferred by Article 110 of the Articles of Association of the Company."
2. "RESOLVED further that Shri Sitaram
Jaipuria be and is hereby removed from the office of Director and consequently
from the office of the Managing Director of the Swadeshi Polytex Ltd."
3. "RESOLVED further that resolution
passed at the 13th Annual General Meeting of Swadeshi Polytex Ltd. in respect
of item 7 "Special Business" of the Notice dated 31st January, 1983
of the said 13th Annual General Meeting for the remuneration of Shri Sitaram
Jaipuria as Managing Director be and is hereby rescinded".
4. "RESOLVED that Shri Ashok Jaipuria be
and is hereby removed from the office of Director of Swadeshi Polytex
Ltd."
5. "RESOLVED that in the vacancy caused
by the a removal of Shri Ashok Jaipuria, Shri Sitaram Singhania, be and is
hereby appointed as a Director of Swadeshi Polytex Ltd. and in respect of whose
appointment special notices have been received from some members indicating
their intention to appoint Shri Sitaram Singhania as a Director of the
Company." 867
6. "RESOLVED that Shri B.M. Kaul be and
is hereby removed from the office of Director of Swadeshi Polytex
Limited."
7. "RESOLVED that in the vacancy caused
by the removal of Shri B.M. Kaul, Dr. Rajaram Jaipuria be and is hereby
appointed as a Director of Swadeshi Polytex Ltd. and in respect of whose
appointment special notices have been received from some members indicating
their intention to appoint Dr.
Rajaram Jaipuria as a Director of the
Company."
8. "RESOLVED that Shri P.B. Menon be and
is here removed from the office of Director of Swadeshi Polytex Ltd."
9. "RESOLVED that in the vacancy caused
by the removal of Shri P.B. Menon, Shri R-D. Thapar, be and is hereby appointed
as a Director of Swadeshi Polytex Ltd., and in respect of whose appointment
special notices have been received from some members indicating their intention
to appoint Shri D.R. Thapar as a Director of the Company." " The
requisitionists of the meeting also asked the Polytex Company to treat the said
notice as a special notice under section 284 (2) and (5) read with section 190
of the Act for appointment of Sitaram Singhania, Rajaram Jaipuria and R.D.
Thapar in place of Ashok Jaipuria, B.M. Kaul (who was also the Chairman of the
Cotton Mills Company) and P.B.
Menon respectively as directors of the
Polytex Company. They enclosed an explanatory statement as required by section
173 of the Act to the notice containing reasons for moving the aforeaid
resolutions. On receipt of the notice, an emergent meeting of the Directors of
the Polytex Company was held on February 23, 1984 to consider the above said
notice issued under section 169 of the Act. the following is the material part
of the minutes of the said meeting:
"REQUISITION NOTICE" The Board was
informed that a notice had been received at the Registered Office of the
Company on 15th February 1984 from Swadeshi Cotton Mills Co. Ltd.
868 (SCM) and four other shareholders
requestioning an Extraordinary General Meeting of the Company under Section 169
of the Companies Act, 1956.
The requisition notice received from SCM was
read before the Board. The Board considered the motives behind the requisition
and took serious note of the false and baseless allegations made in the
explanatory note enclosed to the notice of requisition. The Secretary pointed
out few technical defects in the requisition notice. The draft notice and the
explanatory statement was placed before the meeting. The same was perused and
discussed and the following resolutions were passed:
"RESOLVED that an Extraordinary General
Meeting of the Company, pursuant to the requisition received by the Company on
15th February, 1984 under Section 169 of the Companies Act 1956 from Swadeshi
Cotton Mills Co. Ltd. & others be held at the Registered Office of the
Company on Wednesday, the 28th March 1984 at 10.30 A.M." "RESOLVED
further that the Secretary be and is hereby authorised to issue notice for
convening the aforesaid meeting, as per draft placed before the Board and
initialed by the Chairman for the purposes of indentification and to take such
other steps as may be required in this regard." The Board was of the view
that the financial institutions should be informed of this development and the
directors who wish to make their representation to the shareholders may be
requested to do so. The Secretory was directed to take necessary steps in this
regard." The Board of Directors also prepared and circulated an
explanatory statement pursuant to section 173 of the Act along with the notice
issued to the shareholders calling the extraordinary general meeting to be held
on March 28, 1984.
The requisitionists of the meeting filed an
application before the Division Bench in special Appeal No. 2 of 1982 for
appointing a Chairman of the meeting. S. Jagannathan who was a member of the
Board of Directors as the nominee of I.F.C.I. was appointed as the chairman of
the meeting by the Division Bench on March 23, 1984. The meeting was, however,
adjour.
869 ned as a shareholder had obtained an
order of temporary injunction A restraining the holding of the meeting in a
suit filed by him at the court of the Munsif,Alipore (West Bengal). When the
requistionists applied to the High Court of Allahabad to fix a fresh date of
the meeting, the High Court declined to do so by its order dated May 22, 1984
because the temporary injunction order had been issued by a court not
subordinate to it. It appears that another shareholder applied for injunction
in a suit filed in the Civil Judge's court at Gwalior and a third shareholder
moved the City Civil Court, Madras for a similar relief. Then the requisitionists
filed two special Leave Petitions before this Court against the order of the
Allahabad High Court passed the following order on the said petitions which
were numbered as Civil Appeals Nos. 2597-98 of 1984:
"Special league granted.
The High Court of Allahabad shall make a
fresh order directing the holding of the meeting of the Company and that
meeting shall be held in accordance with the order of the High Court
notwithstanding any order of injunction etc. issued by any other court or
authority in India or to be issued hereafter. If any person has any grievance
about the holding of the meeting he shall approach the High Court of Allahabad
for appropriate directions. If the requisitionists or the Company wish to held
the meeting early they may approach the vacation Judge of the High Court of
Allahabad who has all the powers- of the Company Judge to make fresh orders.
The appeals are disposed of accordingly." Again on July 4, 1984 a further
order was passed by this Court as follows:
"Mr. Sorabjee and Mr. Mridul state that
the extra- ordinary general meeting may be called on any day to be fixed by the
High Court in the second week of August, 1984. They also state that the venue
of the meeting shall be determined by the Chairman, Shri Jagannathan, appointed
by the High Court. No further orders are necessary on prayer b and c in the
application dated 25th June, 19 i-l made before the Allahabad High Court by the
petitioner." Accordingly the meeting W3S fixed to be held on August 14,
1984. Since there was a motion for the adjournment of the meeting 870 this
Court was again approached by the parties by an application for a further
direction which was disposed of on September 4, 1984. In the meanwhile the
appellant No. I Balkrishan Gupta had filed an application before the High Court
of Allahabad in Special Appeal No. 2 of 1982 questioning the right of the
requisitionists issue notice under section 169 of the Act to call the
extraordinary general meeting. His contention was that since a Receiver had
been appointed by the Collector in respect of the shares held by the Cotton
Mills Company and they had also been attached, the shares held by the Cotton
Mills Company could not be taken into consideration for determining the
required qualification to issue the notice under section 169 of the Act
requisitioning the extraordinary general meeting and that if those shares were
omitted from consideration then the shares held by the other requisitionists
would not be sufficient to issue the said notice. That application was dismissed
by the High Court by its order dated August 7, 1984. This appeal by special
leave is filed against the said order of the High Court. In this appeal this
Court passed the following order on September 14, 1984:
"All the learned counsel for the parties
in this petition agree that the meeting which is now adjourned to 24.9.84
should be held on that day and the agenda of the meeting should be discussed
and voted upon. We make an order accordingly. The result of the voting shall be
reported to this Court by the Chairman within one week after it is ascertained
The resolutions passed at the meeting shall not come into effect until further
orders by this Court. The matter may be listed in the third week of October,
1984." After the report submitted by the Chairman of the meeting was
received by this Court, this Court passed a further order on October, 12, 1984
which reads as follows:
"The report of the Chairman of the
extraordinary general meeting which has been submitted to this Court in a
sealed cover is - opened and perused by the Court. The report states that all
the resolutions other than the resolution for adjournment have been lost. The
photostat copies of the report along with the enclosures may be made avail able
to the parties at their expense. List the matter on 29.10.1984 before this
Bench." After the above order was passed, the Industrial Development Bank
of India and the Industrial Finance Corporation of India WHO 871 were aggrieved
by the result of the counting of votes given on the taking of poll at the
meeting filed applications before this Court questioning the correctness of'
the report of the Chairman as regards the result of the meeting- They contended
that the Chairman had wrongly rejected the votes cast on their behalf and if
these votes had been taken into consideration the resolutions would have been
duly passed.
Some shareholders who were opposed of the
removal of the sitting Directors also filed an application for being impleaded.
All these applications were allowed on November 19, 1984 and all parties agreed
that the validity of the meeting and of its result reported to the court should
be decided by this Court- During the hearing a writ petition filed in the High
Court of Bombay was also withdrawn to this Court for being heard along with
these cases. At the conclusion of the hearing of the above cases, the parties
filed a compromise petition requesting the Court to make an order in terms
thereof. On the basis of the said compromise the Court passed an order on
February 1, 1985, the material part of which reads thus:
1. The Board of Directors of Swadeshi Polytex
Ltd.
(hereinafter referred to as 'SPL') shall be
re-constituted pending the holding of the next Annual General Meeting of SPL as
under:
(a) Four nominees of Financial Institutions
(including one to be selected and communicated by IDBI/ IFCI to SPL) including
the representative of the U.P. State Industrial Development Corporation.
(b) Four nominees of Shri Sitaram Jaipuria
(herein after referred to as 'SRJ') including SRJ.
(c) Four nominees of Dr. Rajaram
Jaipuria(herein after referred to as 'RRJ'') including RRJ.
All nominations under sub-clauses (b) and (c)
above shall be made by February 9, 1985. Nominations under sub- clause (a)
(except the nominee of the U. P. State Industrial Corporation) shall be made
within ten days of the date of this order. The re-constituted Board shall start
functioning from February I 1, 1985. The Secretary of SPL is directed to
convene the re-constituted Board meeting within 15 days of the order.
872 2(a) SRJ and RRJ shall designate one
nominee each out of their respective nominees directors as Executive Directors.
The said Executive Directors shall jointly carry on the management of SPL and
will have all the powers of the Managing Director and control of finance. If
any difference of opinion arises it shall be referred to the Board of
Directors.
2 (b) All committees of the Board shall stand
dissolved.
3. SRJ shall continue as the Managing
Director of the Company and he voluntarily undertakes not to exercise any
powers or functions of the Managing Director till his re election at the next
Annual General Meeting of SPL.
4. SRJ will continue to be the Chairman of
the Company and as such will preside over the Board meetings of SPL. He
voluntarily undertakes not to have any second or casting vote.
5. All minutes of the Board meetings shall be
prepared by a nominee of the Financial Institutions and shall be signed by the
Chairman,
6. The next Annual General Meeting of the SPL
shall be called and held on May 15, 1985. Th, Chairman of the said Annual
General Meeting shall be appointed by this Court.
7. All the Members of the re-constituted
Board appointed pursuant to clause 1 above (excluding nominees mentioned in
clause 1 (a) ) including non- rotational Directors i. e. SRJ and/or Shri F. R.
Beshania shall resign and a new Board shall
be elected at the said Annual General Meeting. All shareholders of SPL
(including SRJ and RRJ shall be entitled to propose names of any persons for
appointment as Directors of SPL at the said Annual General Meeting. Members of
the re-constituted Board may if they so desire seek re- election at the said
Annual General Meeting.
8. All pending matters before this Court
including the Transfer Case No. I of 1985 and all Civil Misc. Petitions in
Civil Appeal No. 4803 of 1984 save and except Civil 873 Appeal No. 4803 of 1984
(Balkrishan Gupta & Ors. v.
Swadeshi Polytex Ltd & Ors.) shall stand
withdrawn and all questions raised in all such withdrawn proceedings are
expressly left open. All allegations against the Financial Institutions, the
Chairman of the IDBI and the Government in Transfer Case No. 1 of 1985 and
Civil Misc. Petitions Nos.
39900 of 1984 and 340 of 1985 shall stand
withdrawn.
9. Votes cast by the Financial Institutions
at the next Annual General Meeting of SPL to be held on May 15, 1985 shall not
be questioned by the parties hereto an any ground.
10. The Civil Appeal No. 4803 of 1984
(Balkrishan Gupta & Ors. v. Swadeshi Polytex Ltd. & Ors.) shall be
disposed of on merits.
11. Notice of Board meeting to all members of
the re-constituted Board shall be sent by Registered Post Acknowledgment due.
12. It shall be open to the Board of
Directors if it so chooses to review any delegation of powers.
13. There shall be no disciplinary action by
way of victimization of any employee.
14. SRJ shall obtain the resignation of the
present members of the Board of Directors (excluding the nominees of Financial
Institutions).
15. Liberty is reserved to the parties to
apply to this Court.
The undertakings that have to be filed in
accordance with the above order shall be filed in this Court within one week
from today. The next Annual General Meeting which is ordered to be held on May
15. 1985 shall be held notwithstanding any order, direction or injunction of
any other Court in India. The parties are at liberty to apply to this Court for
nominating a Chairman for the next Annual General Meeting.
Judgment in Civil Appeal No. 4803 of 1984 is
reserved.
All the other cases referred to above stand
disposed of 874 in terms of this order." The parties, however, requested
the Court to decide the question relating to the right of the Cotton Mills
Company to join as a requisitionist of a meeting under section 169 of the Act
or to vote at a meeting of the company since it was likely that one or the
other member might raise it as an issue at the next meeting. We shall,
therefore, proceed to decide the said question by this judgment.
The principal ground urged on behalf of the
appellants is that the extraordinary general meeting had not been validly
called since the Cotton Mills Company had ceased to enjoy the privileges of a
member of the Polytex Company by reason of the appointment of a Receiver by the
Collector of Kanpur in respect of the ten lakhs shares in the Polytex Company
held by the Cotton Mills Company, the attachment of the 9 lakhs shares out of
the said 10 lakhs shares and also the pledge of 3,50,000 shares out of the said
10 lakhs shares with the Government of Uttar Pradesh as security for the loans
advanced by it. The total paid-up equity share capital of the Polytex Company
is Rs. 3,90,00,000 (39,00,000 shares of Rs. 10 each) and it is not disputed
that if the 10 lakhs shares held by the Cotton Mills Company are omitted from consideration,
the remaining requisitionists would not have sufficient voting strength to
issue a notice under section 169 of the Act. The appellants contend that the
Cotton Mills Company could not, therefore, join the other requisitionists in
issuing the notice under section 169 of the Act calling upon the Polytex
Company to call the extraordinary general meeting and without the support of
the shares held by the Cotton Mills Company, the remaining requisitionists
would not have been eligible to requisition the meeting. The material part of
section 169 r.f the Act reads:
"Calling of extraordinary general
meeting on requisition.- 169. (1) The Board of directors of a company shall, on
the requisition of such member or members of the company as is specified in
sub-section (4), forthwith proceed duty to call an extraordinary general
meeting of the company.
(2) The requisition shall set out the matters
for the consideration of which the meeting is to be called, shall be signed by
the requisitionists, and shall be deposited at the registered office of the
company.
875 (3) The requisition may consist of
several documents in like form, each signed by one or more requisitionits.
(4) The number of members entitled to
requisition a meeting in regard to any matter shall be:
(a) in the case of a company having a share
capital. such number of them as held at the date of the deposit of the
requisition, not less than one-tenth of such of the paid up capital of the
company as at that date carries the right of voting in regard to that matter;..
" We have already referred to the order of the Collector appointing the
Receiver in respect of the shares in question, attaching them and ordering that
3,50,000 shares be pledged in favour of the Government of Uttar Pradesh.
Section 150 of the Act requires every company
to keep a register of members containing the names, address and the occupation,
if any, of each member and other particulars mentioned therein. Section 153 of
the Act provides that no notice of any trust, express, implied or constructive,
shall be entered on the register of members. Section 153B of the Act, however,
provides that notwithstanding anything contained in section 153, where any
shares in a company are held in trust by any person, he (the trustee) shall within
such time and in such form as may be prescribed make a declaration to the
public trustee appointed under section 153A of the Act in accordance with and
subject to the rest of the provisions of section 153B of the Act.
It is clear from the relevant provisions of
the Act which are referred to hereafter that a member can participate and
exercise his vote at the meetings of a company in accordance with the Act and
the articles of association of the company. Section 41 of the Act defines the
expression "member" of a company. The subscribers of the memorandum
of association of a company shall be deemed to have agreed to become members of
the company and on its registration shall be entered as members in its register
of members. A subscriber of the memorandum is liable as the holder of shares
which he has undertaken to subscribe for.
Any other person who agrees to become a
member of a company and whose name is entered in its register of members shall
be a member of the company. In his case the two conditions namely that there is
an agreement to become a member and that his name is entered in the register of
876 members of the company are cumulative. Both the conditions have to be
satisfied to enable him to exercise the rights of a member. Subject to section
42 of the Act, a company or a body corporate may also become a member. When
once a person becomes a member, he is entitled to exercise all the rights of a
member until he ceases to be a member in accordance with the provisions of the
Act. The voting rights of a member of a company are governed by section 87 of
the Act.
Section 87 of the Act says that subject to
the provisions of section 89 and sub-section (2) of section 92 of the Act every
member of a company limited by shares and holding any equity share capital
therein shall have a right to vote, in respect of such capital, on every
resolution placed before the company and his voting right on a poll shall be in
proportion to his share of the paid-up equity capital of the company.
Regulations 8 and 86 (a) of the Articles of the PolYtex Company read:
"8. Save as herein otherwise provided,
the Company shall be entitled to treat the registered holder of any share as
the absolute owner thereof and accordingly shall not, except as ordered by a
court of competent jurisdiction or as by law required, be bound to recognise
any trust, be-nami or equitable or other claim to or interest in any such share
or any fractional part of such share on the part of any other person whether or
not it shall have express or other notice thereof.
86. (a) On show of hands every holder of
Equity shares entitled to vote and present in person or by proxy shall have one
vote and upon a poll every holder of equity shares entitled to vote and present
in person or by proxy shall have one vote for every Equity share held by
him." A person ceases to be a member by transferring his share to another
person, by transmission of his share by operation of law, by forefeiture of
share, by death, or by any other reason known to law. In the case before us therefore
three points arise for consideration at this stage.
They are:
(i) Whether by reason of the appointment of
the Receiver under the Land Revenue Act in respect of the shares of the Polytex
Company held by the Cotton Mills 877 Company, the Cotton Mills Company had
ceased to have the rights of a member under section 169 of the Act ? (ii)
Whether by the attachment of the shares under section 149 of the Land Revenue
Act, the Cotton Mills Company suffered any diminution or curtailment in its
rights as a shareholder in respect of the shares so attached ? (iii) Whether by
the pledge of certain shares, the Cotton Mills Company suffered any such
diminution or curtailment ? In the Act, the expressions 'a member', 'a share
holder' or 'holder of a share' are used as synonyms to indicate the person who
is recognised by a company as its owner for its purposes. What does ownership
of a share connote? 'Ownership in it most comprehensive signification;
says Salmond, 'denotes the relation between a
person and any right that is vested in him. That which a man owns in this sense
is a right. The right of ownership comprises benefits like claims, liberties,
powers, immunities and privileges and burdens like duties, l abilities,
disabilities. Whatever advantages a man may have as a result of the ownership
of a right may be curtailed by the disadvantages, in the form of burdens
attached to it. As observed by Dias, an owner may be divested of his claims
etc. arising from the right owned to such an extent that he may be left with no
immediate practical benefit. He remains the owner nonetheless because his
interest will outlast that of other persons in the thing owned. The owner
possesses that right which ultimately enables him to enjoy all rights in the
thing owned by attracting towards himself those rights in the thing owned which
for the time being belong to others, by getting rid of the corresponding
burdens. An owner of a land may get rid of the interest of a mortgagee in it by
redeeming the mortgage, may get physical possession of land by terminating a
lease and may get rid of an attachment by discharging the debt for which it is
attached. A Receiver appointed by a court or authority in respect of a property
holds it for the benefit of the true owner subject to the orders that may be
made by such court or authority. the different kinds of rights of ownership
flowing from the ownership of a right depend upon the nature of the right
owned. A person who is a shareholder of a company has many rights under the
Act. Some 878 of them, with which we are concerned in this appeal principally,
are (i) the right to vote at all meetings (Section 87), (i;) the right to
requisition an extraordinary general meeting of the company or to be a joint
requisitionist (Section 169), (iii) the right to receive notice of a general
meeting (Section 172), (iv) the right to appoint proxy and inspect proxy
registers (Section 176), (V) in the case of a body corporate which is a member,
the right to appoint a representative to attend a general meeting on its behalf
(Section 187) and (vi) the right to require the company to circulate his
resolution (Section 188). The question for consideration is when does a
shareholder cease to be entitled to exercise any of these rights ? Section
182-A of the Land Revenue Act which provides for the appointment of a Receiver
in respect of the assets of a defaulter who is liable to pay an arrear of
revenue or any other sum recoverable as an arrear of revenue reads thus:
"182-A. Appointment of Receiver-(1)
Notwithstanding anything in this Act, when an arrear of revenue or any other
sum recoverable as an arrear of revenue is due, the Collector may, in addition
to or instead of any of the processes hereinbefore specified, by order- (a)
Appoint, for such period as he may deem fit, a Receiver of any movable or
immovable property of the defaulter:
(b) Remove any person from the possession or
ousted of the property:
(c) Commit the same to the possession,
custody or management of the Receiver;
(d) Confer upon the receiver all such powers,
as to bringing and defending suits and for the realisation, management,
protection, preservation and improvement of the property, the collection of the
rents and profits thereof, the application and disposal of such rents and
profits, and the execution of documents, as the defaulter himself has or such
of those powers as the Collector thinks fit.
(2) Nothing in this Section shall authorise
the Collector to remove from the possession or custody of property any person
whom the defaulter has not a present right to remove.
879 (3) The Collector may from time to time
extend the A duration of appointment of the Receiver.
(3-A) No order under sub-section (1) or sub-
section (3) shall be made except after giving notice to the defaulter to show
cause, and after considering any representations that may be received by the
Collector in response to such notice:
Provided that an interim order under sub-
section (1) or sub-section (3) may be made at any time before or after the
issue of such notice:
Provided further that where an interim order
is made before the issue of such notice the order shall stand vacated if no
notice is issued within two weeks from the date of the interim order.
(4) The provisions of Rules 2 to 4 of Order
XL, contained in the First Schedule to the Code of Civil Procedure, 1908, shall
apply in relation to a Receiver appointed under this section as they apply in
relation to a Receiver appointed under this section as they apply in relation
to a Receiver appointed under the Code with the substitution of references to
the Collector for references to the Court." Section 149 of the Land
Revenue Act which provides for the attachment and sale of movable property
belonging to a defaulter reads thus:- "149. Attachment and sale of movable
property- I`he Collector may, whether the defaulter has been arrested or not,
attach and sell his movable property.
Every attachment and sale ordered under this
section shall be made, according to the law in force for the time being for the
attachment and sale of movable property under the decree of a Civil Court. In
addition to the particulars mentioned in clauses (a) to (c) of the proviso to
Section 60 of the Code of Civil Procedure, 1908 (Act V of 1908), articles set
aside exclusively for the use of religious endowments shall be exempted from
attachment and sale under this section. The costs of the attachment and sale
shall be added to the arrear of revenue, and shall be recoverable by the same
procedure." 880 We shall first consider the effect of appointment of a Receiver
in respect of the shares in question. A perusal of the provisions of section
182-A of the Land Revenue Act shows that there is no provision in it which
states that on the appointment of a person as a Receiver the property in
respect of which he is so appointed vests in him similar to the provision in
section 17 of the Presidency Towns Insolvency Act, 109 where on the making of
an order of adjudication the property of the insolvent wherever situate would
vest in the official assignee, or in section 28 (2) of the Provincial
Insolvency Act, 1920 which states that on the making of an order of
adjudication, the whole of the property of the insolvent would vest in the
court or in the Official Receiver. Sub-section (4) of section 182-A of the Land
Revenue Act provides that Rules 2 to 4 of Order XL of the Code of Civil
Procedure, 1908 shall apply in relation to a Receiver appointed under that
section. A Receiver appointed under Order XL of the Code of Civil Procedure
only holds the property committed to his control under the order of the court
but the property does not vest in him. The privileges of a member can be
exercised by only that person whose name is entered in the Register of Members.
A Receiver whose name is not entered in the Register of Members cannot exercise
any of those rights unless in a proceeding to which the company concerned is a
party and an order is made therein. In Mahathalone v. Bombay Life Assurance Co.
Ltd 1 it has been laid down clearly that a Receiver appointed by 3 court in
respect of certain shares which had not been duly entered in the Register of
Members of the company concerned as belonging to him could not acquire certain
newly issued shares which could be obtained by the members of the company. This
Court observed at page 143 thus:
"Mr. Pathak argued that the plaintiff
was entitled to reliefs A and B, both in his suit as well as in the receiver's
suit and that the receiver's suit was wrongly dismissed by the High Court. We
ate unable to agree. In our opinion, the High Court rightly held that the
receiver appointed in the suit of Sir Padampat could not acquire the newly
issued shares in his name.
that privilege was conferred by section 105
only on a person whose name was on the register of members. The receiver's name
admittedly was not in the register and the company was not bound to entertain
that application. Mr. Pathak argued that may be so but the ceiver was not
making an application in his individual (1) [1954] S.C.R. 117.
881 right but he had been armed by the court
with power to A apply in the right of the defendant Reddy. The fact how ever is
that the receiver made the application in his own name. Even if Mr. Pathak's
contention is right the company was no party to the suit filed by Sir Padampat
against Reddy and that being so, no order could be issued to the company in
that suit to recognize the receiver as a shareholder in place of Reddy."
Even where the holder of a share whose name is entered in the Register of
Members hands over his shares with blank transfer forms duly singed, the
transferee would not be able to claim the rights of a member as against the
company concerned until his name is entered in the Register of Members. This
Court in Messrs Howrah Trading Co. Ltd. v. The Commissioner of Income-tax,
Calcutta has observed at pages 453-454 thus:
"The position of a shareholder who gets
dividend when his name stands in the register of members of the company causes
no difficulty whatever.
But transfers of shares are common, and they
take place either by a fully executed document such as was contemplated by
Regulation 18 of Table A of the Indian Companies Act, 1913, or by what are
known as 'blank transfers'- In such blank Transfers, the name of the transferor
is entered, and the transfer deed signed by the transferor is handed over with
the share scrip to the transferee, who, if he so chooses, complete s the tarns
for by entering his name and then applying to the company to register his name
in place of the previous holder of the share. The company recognises no person
except one whose name is on the register of members, upon whom alone calls for
unpaid capital can be made and to whom only the dividend declared by the
company is legally payable. Of course, between the transferor and the
transferee, certain equities arise even on the execution and handing over of 'a
blank transfer', and among these equities is the right of the transferee to
claim the dividend declared and paid to the transferor who is treated as a
trustee on behalf of the transferee. These equities, however, do not touch the
company, and no claim by the transferee whose name is not in the register of
members can be made against the company, if the transferor retains the money in
his own hands and fails to pay it to him. (1) [1959] Supp. 2 S.C.R. 448- 882 A
Glance at the scheme of the Indian Companies Act,1913, shows that the words
"member", "shareholder" and "holder of a share"
have been used interchangeably in that Act. Indeed, the opinion of most of the
writers on t e subject is also the same. Buckley on the Companies Act, 12th
Edition, Page 803 has pointed out that the right of a transferee is only to
call upon the company to register his name and no more. No rights arise till
such registration takes place." In this case this Court followed the
dictum of Chitty, J. in re: Wala Wynaad Indian Gold Mining Company(1) which
emphasised that the entry of the name of person in the Register of Members was
an essential condition for exercising voting rights at the meeting of the
company concerned. In "Buckley on the Companies Acts" (14th Edn.),
Vol. I, page 972 it is stated thus:
"Company cannot enquire into beneficial
ownership- As between the shareholder and the company, the person entitled to
exercise the right of voting is the person legally entitled to the shares, the
member whose name is on the register." In Kurapati Venkata Mallayya &
Anr. v. Thondepu Ramaswami & Co. & Anr.(2) this Court had occasion to
consider the validity of a suit instituted by a Receiver to collect debts due
to a party to a suit in his own name. The Count upheld the right of the
Receiver to maintain the suit observing that a Receiver invested with full
powers to administer the property which is Custodian legis or who is expressly
authorised by the court to institute a suit for collection of debts was
entitled to institute a suit in his own name provided he did so in his capacity
as a Receiver.
But in the course of the said decision this
Court approved the decision of the Calcutta High Court in Jagat Tarini Dasi v.
Naba Gopal Chaki(') in which it had been stated: "On the whole, we are
disposed to take the view that, although a Receiver is not the assignee or
beneficial owner of the property entrusted to his care, it is an incomplete and
inaccurate statement of his relation to the property to say that he is merely
its custodian" (Underlining by us). Thus whatever may be the other powers
of a Receiver dealing with the property which is in custodian legis while in
his custody, he is not to be construed as either an assignee or beneficial
owner of such property.
(1) [1882] 21 Ch. D. 849.
(2) [1963] Supp. 2 S.C.R. 995.
(3) [1907] . 34 Cal. 305, 883 In Wise v.
Lansdell(1) it was held that in the case of a bankrupt A whose name was still
on the Register of Members of a company as between himself and the company, the
bankrupt, so long as his name remained on the register was entitled to vote in
respect of the shares, though as between himself and the mortgagees he could
vote only as they dictated. But the right to vote was held to be unimpaired as
long as his name appeared on the Register.
In a later case, Morgan & Anr. v. Gray
& Ors (2) after referring to the decision in Wise v. Lansdell (supra)
Danckwerts 1. Observed:
"It seems to me that, unless there is
some provision in the company's articles or in the Companies Act which empowers
me to say that the bankrupt is no longer a member of the company, and is,
therefore, unable to vote, expressly. I must come to the conclusion that the
bankrupt still remains a member as long as he is on the register,
notwithstanding that by taking appropriate steps under the appropriate
provisions the trustee in bankruptcy may be able to secure registration of
himself as the proprietor of the shares. Unless and until that is done, and as
long as the bankrupt remains on the register of the company, he remains a
member in respect of those shares and is entitled, as it seems to me, to
exercise the votes which are attribute able to that states, notwithstanding
that he has no longer any beneficial interest in the shares and that the
company is entitled to pay any dividends to his trustee in bankruptcy."
The following statement in Kerr on Receivers (13th Edn.) at page 310: "the
power of the company and its directors to deal with the property comprised in
the appointment (both property subject to a floating charge and property
subject to a fixed charge), except subject to the charge, are paralysed"
which was relied on by the appellants is not of much use to them. it only means
that the authority competent to appoint a Receiver may give directions
regarding the property It does not imply that the right of the company to
exercise the right to vote on the basis of the shares of another company held
by it at the meeting of such other company becomes automatically suspended.
Under section 51 of the Code of Civil
Procedure, 1908 a (1)[1921] I Ch. 420.
(2)[1953] I Ch. 83 at p. 87. 884 Receiver may
be appointed by a civil court on the application of a A decree-holder in
execution of a decree for purposes of realising the decree-debt. This is only a
mode of equitable relief granted ordinarily when other modes of realization Or
the decretal amount are impracticable. A Receiver appointed under that section
will be able to realise the amounts due from a garnishee and his powers are
taking to the powers of a Receiver appointed under Order 40 rule 1 of the Code
of Civil Procedure, 1908. But he would not have any beneficial interest in the
assets of the judgment-debtor. He collects the debts not as his own but as an
officer of the court.
We do not also find any substance in the
contention of the appellant based on section 137 of the Act. Section 137 of the
Act provides that if any person obtains an order for the appointment of a
Receiver of, or of a person to manage, the property of a company, or if any
person appoints such Receiver under any powers contained in any instrument he
shall, within thirty days from the date of the passing of the order or of the
making of the appointment under the said powers, give notice of the fact to the
Registrar, and the Registrar shall, on payment of the prescribed fee, enter the
fact in the register of charges maintained under section 130 of the Act. It is
not clear in this case whether any entry had been made in the register of
charges of the order Or appointment of Receiver in this case. Even granting
that such an entry had been made, it would not have the effect of taking away
the right of the Cotton Mills Company to exercise the right to vote in respect
of the shares in question. We do not also find any substance in the argument
based on sections 153B, 187B and 187C of the Act. Section 153 of the Act states
that no notice of any trust, express, implied or constructive, shall be entered
in the register of members or of debenture holders. Section 153B of the Act
requires that notwithstanding anything contained in section 153, well any
shares in, or debentures of, a company are held in trust by any person, the
trustee shall, make a declaration to the public trustee. Section 187B of the
Act provides that save as otherwise provided in section 153B but
notwithstanding anything contained in any other provisions of the Act or any
other law or any contract, memorandum or articles, where any shares in a company
are held in trust by a person as trustee, the rights and powers (including the
right to vote by proxy) exercisable at any matinee of' the company or at any
meeting of any class of members of the company by the trustee as a member of
the company cease to be exercisable by the trustee as such member and become
exercisable l-l by the public trustee. Section 187C of the Act makes it
incumbent 885 upon a person whose name is entered in the Register of Members of
a company but who does not hold the beneficial interest in the share in
question in such form as may be prescribed specifying the name and other
particulars of the person who holds the beneficial interest in such share. The
Companies (Declaration of Beneficial Interest in Shares) Rules, 1975 are made
in this connection. it is obvious from the foregoing that none of the
provisions referred to above has any bearing on the question before us.
Mere appointment of a Receiver in respect of
certain shares of a company without more cannot, therefore, deprive the holder
of the shares whose name is entered in the Register of Members of the company
the right to vote at the meetings of the company or to issue a notice under
section 169 of the Act.
The consequence of attachment of certain
shares of a company held by a shareholder for purposes of sale in a proceeding
under section 149 of the Land Revenue Act is more or less the same. The effect
of an order of attachment is what section 149 of the Land Revenue Act itself
says. Such attachment is made according to the law in force for the, time being
for the attachment and sale of movable property under the decree of a civil
court. Section 60 of the Code of Civil Procedure, 1908 says that except those
items of E property mentioned in its proviso, lands. houses, or other
buildings, goods money, banknotes, cheques, bills of exchange, hands,
promissory notes, Government securities, bonds or other securities of money,
debts, shares in a corporation and all other saleable property, movable or
immovable, belonging to a judgment-debtor, or over which, or the profits of
which, he has a disposing power which he may exercise for his own benefit,
whether the same be held in the name of the judgment-debtor, or by another
person in trust for him or on his behalf, is liable for attachment and sale in
execution of a decree against him. Section 64 of the Code of Civil Procedure,
1908 states that where an attachment of a property is made, any private
transfer or delivery of the property attached or of any interest therein and
any payment to the judgment-debtor of any debt, dividend or other monies
contrary to such attachment, shall be void as against all claims enforceable
under the attachment. What is forbidden under section 64 of the Code of Civil
Procedure is a private transfer by the judgment-debtor of the property attached
contrary to the attachment, that is, contrary to the claims of the decree
holder under the decree for realisation of which the attachment is effected. A
private transfer under section 64 of the Code of Civil Procedure is not
absolutely void, that is, void as against all the world but void only as
against the claims enforceable under the attachment. Until the property is
actually told, the judgment-debtor retains title in the property attached.
Under Rule 76 of Order 21 of the Code of Civil Procedure, 1908, the shares in a
Corporation which reattached may sold through a broker. In the alternative such
shares may be sold in public auction under Rule ?7 thereof. On such sale'
either under Rule 76 or under Rule 77, the purchaser acquires title. Until such
sale is effected, all other rights of the judgment-debtor remain unaffected
even if the shares may have been seized by the officer of the count under Rule
43 of Order 21 of the Code of Civil Procedure, 1908 for the purpose of
effecting the attachment, or through a Receiver or though an order in terms of
Rule 46 of Order 21 of the Code of Civil Procedure may have been served on the
judgment-debtor or on the company concerned.
On behalf of the appellants, relying upon the
decision in Hawks v. Mc. Arthur & Ors(1) it is contended that the order of
the Collector attaching the hare was in the nature of a charging order which
'deprived the Cotton Mills Company of its rights in them. Having carefully gone
through the said decision, we find that it has not much relevance to the case
In that case the Chairman and the Manager of a company had purchased certain
shares of the company held by one of its members in two separate lots after
paying consideration therefore contrary to Article 13 of the Company's Articles
of Association which granted a right of pre-emotion to all the other members in
respect of the shares in question.
Immediately after the said purchases were
made another member of the company obtained a money decree against the
transferor of the shares and also a charging order over the shares standing in
the name of the transferor but which had been sold earlier either to the
Chairman or the Manager. He claimed that since the transfer of the shares was
contrary to Article 13 of the company's Articles of Association, the transfer
was void and hence he was entitled to enforce the charging order against those
shares for realising his decretal amount. The Court negatived his claim holding
that notwithstanding the complete failure to comply with the company's articles
in regard 'to the procedure to be followed before shares could be transferred,
the transferees having paid to the transferor the full consideration for the
shares had obtained equitable rights therein and as their rights accrued
earlier than the equitable right (1)[1951] 1 A 11 E.R. 22 887 of the plaintiff
under the charging order, their rights must prevail over his claim. It was
argued before us that the order of the Collector being an order in the nature
of a charging order the Receiver had obtained an equitable right in the shares
in question and there being no other legal or equitable right which would
prevail over it, the Cotton Mills Company had lost its right to the shares The
statement of facts of the above decision itself shows that it has no bearing on
the case before us. it is to be noted that a charging order under the English
Law is not the same as an attachment of property or appointment of a Receiver
under the Land Revenue Act. We may here state that charging orders under the
English Law are made under Order 50 of the English Supreme Court Practice under
which the English court may for the purpose of enforcing a judgment or order of
that court under which a debtor is required to pay a sum of money to a
creditor, make an order imposing on any such property of the debtor as may be
specified in the order, a charge for securing the payment of any money due or
to become due under the judgment or order- Such an order is referred to as the
'charging order'. A charging order on the property or assets of the debtor is
one of the modes of enforcement of a judgment or order for the payment of money
to the creditor.
It is, however, not a direct mode of
enforcement in the sense that the creditor can immediately proceed to recover
the fruits of his judgment, but it is rather an indirect mode of enforcement in
the sense that it provides the creditor with security, in whole or in part,
over the property of the debtor. It makes the creditor a secured creditor who
having obtained his charging order must proceed, as may be necessary according
to the nature of the property charged, to enforce his charge in order to obtain
the actual proceeds of his charge to satisfy his judgment, in whole or in part.
Subject to the other p provisions of law, a charge imposed by a charging order
will have effect and will be enforceable in the same court and in the same
manner as an equitable mortgage created by the debtor by writing under his
hand. A short passage in Mull's Code of Civil Procedure (14th Edn), Vol. II at
page 1510 is instructive and it reads thus:
"There is no provision in the Code for
charging orders, but on the Original Side of the High Courts, which has
inherited the older jurisdiction of the Court of Chancery, it is the practice
in cases where it is considered undesirable to grant immediate execution to
make a charging order in the form made in the case of Kewny v. Attril (1886) 34
Ch. D. 34S. When the a8sets require nursing, the advantage of a 888 charging
order is that it enables the Court on the one hand to gain time and on the
other hand to protect the decree holder. It also avoids the confusion that
might ensue if the Court were to allow a direct attachment while it is
administering the assets of the partnership. The effect of a charging order is
to constitute the decree-holder a secured creditor although he undertakes to
deal with the charge subject to the further orders of the Court." An order
of attachment cannot, therefore, have the effect of depriving the holder of the
shares of his title to the shares. We are of the view that the attachment of
the shares in the Polytex Company held by the Cotton Mills Company had not
deprived the Cotton Mills Company of its right to vote at the meeting or to
issue the notice under section 169 of the Act The fact that 3,50,000 shares
have been pledged in favour of the Government of Uttar Pradesh also would not
make any difference Sections 172 to 178-A of the Indian Contract Act, 1872 deal
with the contract of pledge. A pawn is not exactly a mortgage. As observed by
this Court in Lallan Prasad v. Rahamat Ali & Anr.(l) the two ingredients of
a pawn are: "(1) that it is essential to the contract of pawn that the
property pledged should be actually or constructively delivered to the Pawnee
and (2) a Pawnee has only a special pore party in the pledge but the general
property therein remains in the pawner and woolly reverts to him on discharge
of the debt. A pawn therefore is a security, where, by contract a deposit of
goods is made as security for a debt. The right to property vests in the pledge
only so far as is necessary to secure the debt -.-The pawner however has a
right to redeem the property pledged until the sale." In Bank of Bihar v.
State of Bihar and Ors.
(2) also this Court has reiterated the above
legal position and held that the pawnee had a special property which was not of
ordinary nature on the goods pledged and so long as his claim was not satisfied
no other creditor of the pawner had any right to take away the goods or its
price. Beyond this no other right was recognised in a pawnee in the above
decision. Under section 176 of the Indian Contract Act, 1872 if the pawner
makes default in payment of the debt, or performance, at the stipulated time,
of the promise, in respect of which the goods were pledged, the pawnee may
bring a suit against the pawnor upon (1)[1967] 2 S.C.R. 233 at p. 238-239. (2)1971]
Supp, S.C.R. 299.
889 the debt or promise, and retain the goods
pledged as a collateral A security, or he may sell the thing pledged, on giving
the pawnor reasonable notice of the sale. in the case of a pledge, however, the
legal title to the goods pledged would not vest in the pawnee. The pawnee has
only a special property. A pawnee has no right of foreclosure since he never
had the absolute ownership at law and his equitable title cannot exceed what is
specifically granted by law. In this sense a pledge differs from a mortgage. In
view of the foregoing the pawnee in the instant case i. e. the Government of
Uttar Pradesh could not be treated as the holder of the shares pledged in its
favour. the Cotton Mills Company continued to be the member of the Polytex
Company in respect of the said shares and could exercise its rights under
section 169 of the Act.
It may be stated here that the Government of
Uttar Pradesh and the Collector who are parties to this appeal have not
questioned the correctness of the judgment of the High Court.
One other subsidiary contention urged on
behalf of the appellants relates to the effect of an order made by the Central
Government on April 13,1978 under section 18 AA (1)'(a) of the Industries
(Development and Regulation (Act, 1951 taking over the management of Sideshow
Cotton Mills along with five other industrial units belonging to the Cotton
Mills Company which was the subject matter of dispute in Sideshow Cotton Mills
v. Union of India(l) and the order of extensions passed by the Central
Government on November 26,1983 which is the subject matter of dispute in a case
now pending before this Court. It is urged on behalf of the appellants that on the
passing of the above said orders the Cotton Mills Company lost its right to
exercise its voting rights in respect of the shores in question. There is no
substance in this contention. What was taken over under the above said orders
was the management of the six industrial units referred to therein and not all
the rights of the Cotton Mills Company. The shares belong to the company and
the orders referred to above cannot have any effect on them.
The Department of Company Affairs, Government
of India rightly expressed its view in the letter written by C. Khushaldas,
Director in the Department of Company Affairs on April 9, 1979 to B. M. Kaul,
Chairman of the Cotton Mills Company that the voting rights in respect of these
shares continued to vest with the Cotton Mills Company and the manner in which
those voting rights were to be exercised was to be determined by the Board of
Directors (1) 11981]2 S.C.R.533 890 of the Cotton Mills Company. Hence the
passing of the orders under section 18AA (1) (a) of the Industries (Development
and Regulation) Act, 1951 has no effect on the voting rights of the Cotton
Mills Company.
It is also significant that the Directors of
the Polytex Company who what that a Receiver had been appointed in respect of
the shares in question, that they had been attached by the Collector, that a
part of them had also been pledged in favour of the Government of Uttar Pradesh
and that orders had been passed under section 18AA (1) (a) of the Industries
(Development and regulation) Act, 1951 taking over six industrial units of the
Cotton Mills Company did not question the validity of the notice. The Polytex
Company had in this case rightly treated the registered holder i.e.
the Cotton Mills Company as the owner of the
shares in question and to call the meeting in accordance with the notice issued
under section 169 of the Act. The appellant cannot, therefore, be allowed to
raise any dispute about the validity of the meeting on any of the grounds
referred to above.
In the result the appeal fails and it is
dismissed with costs. The costs of all the parties to the above appeal and
other connected cases shall, however, be borne by the Polytex Company.
Subject to the above order, the order passed
by this Court on February 1, 1985 shall remain in force.
M.L.A. Appeal dismissed.
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