Appellant: Balkrishan Gupta
Respondent: Swadeshi Polytex Ltd.
Citation: (1985) 58 Comp. Cas. 563
Decided by: Supreme Court
Judges: E. S. Venkataramiah and Sabyasachi Mukharji, JJ.
Topics Covered in this article
The Companies Act isolates the definition of the term the member into three classes. As indicated by Sec. 41 of the Companies Act, the three classes of members are:
- The people who have bought into the Memorandum of a company (MOA).
- Each and every other member who has concurred recorded as a hard copy to turn into a member from the organization and whose name has been entered in the Register of Members.
- Each member holding value share capital of an organization and whose names are recorded as beneficial proprietors in the storehouse records are considered as members from the concerned organization.
One of the ways of acquiring membership in a company is through Registration it implies the participation register which is kept by the Company at its chief office or by a properly named specialist of the Company presenting the name, address, the quantity of Units, and Capital Contributions of every Member of the Company, which will be altered occasionally as extra Units are given and as Units are moved as per this Agreement.
The present case is analysed by the court while conserving not only company law in mind but has also discussed different aspects of law like CPC and Indian Contract law along with jurisprudence in mind. The most important thing which was discussed by the court in the present case is the rights and duties of pawnor and pawnee.
- 10 lakh shares of Swadeshi Polytex Ltd. were held by Swadeshi Cotton Ltd. at face price of Rs 10 each.
- An order was passed by the Collector of Kanpur under Section 182 A of the UP-Land Revenue Act, 1958 was passed which is read along with Section 5 of UP Government Electrical Undertakings (Dues Recovery) Act, 1958
- This order by the Collector talks about the appointment of the Receiver for the Cotton Mills Company for a tenure of six months.
- This gave the Receiver to hold 1 lack of shares with face value of Rs. 10 of the Polytex Company which are held by the Cotton Mills Company and these shares are pledged under the name of UP Government asking for a loan with the reason to meet the needs of payable of the employees of the Company.
- Later under Section 149 of UP Land Revenue Act read along with Section 5 of UP Government Electrical Undertaking (Dues Recovery) Act another order was passed by the Collector in regards of the remaining 9 lack shares of the Polytex which are held by Mill, Receiver of the company has the right to seize those remaining shares.
- A notice was sent to Polytex under Section 169 of the Companies Act by Cotton Mill along with four other shareholders who held 10,01,1950 shares of face value of Rs. 10.
- Whether the decision of appointment of the Receiver in respect to the shares of Polytex Company has the right of a member under Section 169 of the Company Act?
- Whether the Cotton Mill suffered any kind of diminution or curtailment of right under Section 149 of Land Revenue Act?
- Whether The Cotton Mill Company suffered any diminution or curtailment because of the pledge of certain shares?
- Whether the order passed under Section 18 AA (1) (a) of the Industrial (Development and Regulation) Act, 1951 regarding mills belonging to Cotton Mill Company, the rights it lost its rights to exercise its voting rights in respect of the shares in the question?
In the present case the court has dismissed the appeal filed before the present case authority on the ground that a mere appointment of the Receiver by the Collector cannot deprive the Registered shareholder of the company from its rights to vote under Section 169 of the Companies Act.
Terms like ‘shareholder’, ‘member’ and ‘holder of share’ are used interchangeably in the Company law and mean the same. The Receiver is just appointed as the controller under the court order and cannot vest his right over the same.
As per the Companies Act, two terms “member”, “shareholder” or “holder of a share” are utilized as equivalent words or as synonyms to demonstrate a member who is perceived by a company as its proprietor with certain motive or purpose. It is said in jurisprudence by Salmond that “Ownership in its most comprehensive significance, “means the connection between an individual of a company and any right that is vested in his hands. That which a man possesses in this sense is a right”. The right of ownership contains benefits like claims, freedoms, power, immunities, and advantages and burdens like duties, liabilities, disabilities.Whatever gains someone has from having rights of the company, they can be limited by losses in the form of burdens involved along with the benefits given.
As seen by Dias, an owner of a company might be divested of his claims, and so on emerging from the right possessed so much that he might be left with no prompt viable advantage. He stays as the owner of the company in any case since his interest will outlive that of different people in the thing possessed. An owner of land may dispose of the interest of a mortgagee in it by recovering the home loan, may get actual ownership of land by ending a rent, and may dispose of a connection by releasing the obligation for which it is joined. A Receiver who is designated by a court or authority in regard to a property holds it to assist the genuine proprietor subject to the orders that might be made by such court or authority. The shareholder has been provided with a good set of rights under the Companies Act which he can practice in the course of his membership in a company. The question which the court should consider is: when does an investor stop being qualified to practice any of these rights?
Section 182 A of the Land Revenue Act talks about the appointment of the Receiver in cases of case of a defaulter who is liable to pay a sum of money for the area of revenue; and Section 149 of the mentioned Act which talks about the attachment and sale of a moveable property which belongs to the defaulter of the case are both important section which can help in analysing the above-mentioned question as in both this case a receiver is appointed. An examination of the provisions of Section 182-A of the Land Revenue Act shows that there is no explicit mention in the section which expresses that on the introduction of an individual as a Receiver of the property in regard of which he is so named vests in him. Sub-section (4) of Section 182-A of the mentioned Act gives that Rules 2 to 4 of Order 40 of the Code of Civil Procedure, 1908 will apply according to a Receiver delegated under the above-mentioned section. A Receiver delegated under Order 40 of the Code of Civil Procedure just holds the property focused on his control under the request for the court however the property doesn’t vest in him. The advantages of a part can be practiced by just that individual whose name is entered in the Register of Members. No other person can claim the rights which he is not entitled to claim as per the law.
A Receiver whose name isn’t entered in the Register of Members can’t practice any of those rights except if in a procedure to which the organization concerned is a gathering and a request is made in that. This point was made clear by the court authorities in the case of Mathalone v Bombay Life Assurance Co. Ltd. where the court held it clearly that a Receiver who is selected by a court in regard to a specific share which had not been appropriately entered in the Register of Members of the company worried as having a place with him couldn’t secure certain recently given shares which could be acquired by the individuals from the company.
Even in those situations where the name of the Receiver is mentioned in the Register of Members there lie certain restrictions, the transferee in this situation is not in the position to claim any kind of benefit or right which he can claim in concern till his name is registered. Similar point was given in the case of Howrah Trading Co. Ltd. v CIT  “…… 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……” Even it is seen in different books of Indian Company law that the term “Member’ and ‘shareholder’ is used simultaneously in the Act while relying on the opinion of most experts on the subject, it has been pointed out by the court authority in the said case that the right of a transferee is just to call upon the organization to enroll his name and no more. No rights emerge till such enlistment happens.
Following this statement, the court has further put emphasis on the other point where it has discussed about the voting right of the registered person, in the case of Wala Wynaad Indian Gold Mining Company along with the statement of the book Buckley on Companies Act (14th Ed.) that “Company cannot enquire into beneficial ownership.—As between the share-holder 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.”
Contrary to it court was also agreeing with the statement of the court in the case of Jagat Tarani Das v Naba Gopal Chaki that “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 relations to the property to say that he is merely its custodian.” Along these lines whatever might be different forces of a Receiver managing the property which is in custodia legis while in his guardianship, he isn’t to be understood as either an appointee or beneficial owner of such property.
Under Section 51 of the Code of Civil Procedure, 1908 a Receiver might be designated to any company by a common court on the utilization of a pronouncement holder in the execution of a decree for the purpose of understanding the announcement decree-debt. This is just a method of even-handed help allowed commonly when different methods of acknowledgment of the decretal sum are unrealistic. A Receiver selected under the above-stated section of CPC will actually want to understand the amount due from a garnishee and his forces are much the same as the forces of a Receiver named under Order 40 Rule 1 of the Code of Civil Procedure, 1908. However, he would not have any useful interest in the resources of the judgment-account holder. He gathers the obligations not as his own but rather as an official of the court.
A Simple arrangement of a Receiver in regard of specific portions of an organization without any more specification or rights, hence, be denied as the holder of the shares whose name is entered in the Register of Members of the organization the option to cast a ballot at the gatherings of the organization or to give a notification under Section 169 of the Act.
The way it is presented in the facts of the case that 3,50,000 shares have been vowed for the Government of Uttar Pradesh additionally would not have any effect. Section 172 to 178-A of the Indian Contract Act, 1872 provides provisions dealing with the agreement of promise. A pawn isn’t actually a mortgage. In the case of Lallan Prasad v Rahmat Ali two main ingredients dealing with the pawn were discussed by the court authorities:
“(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 pawnor 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 pledgee only so far as is necessary to secure the debt…. The pawnor however has a right to redeem the property pledged until the sale.”
Section 176 of the Contracts give certain rights to the pawnee where he can refund the amount through the object of the pawnor if he failed to make the payment. He himself is not the actual owner of the property which is given or kept under his control.
Taking into account the position in the present case the pawnee in the moment case the Government of Uttar Pradesh couldn’t be treated as the holder of the offers promised in support of its. The Cotton Mills Company kept on being an individual from the Polytex Company in regard to the said shares and could practice its privileges under Section 169 of the Act.
It is likewise stated as per the analysis done that the Directors of the Polytex Company who realized that a Receiver had been named in regard of the shares being referred to, that they had been appended by the Collector, that a piece of them had additionally been vowed for the Government of Uttar Pradesh and that orders had been passed under Section 18-AA(1)(a) of the Industries (Development and Regulation) Act, 1951 assuming control more than six modern units of the Cotton Mills Company didn’t scrutinize the legitimacy of the notification. The Polytex Company had for this situation appropriately treated the enlisted holder, the Cotton Mills Company as the owner of the shares being referred to and to assemble the conference as per the notification given under Section 169 of the Act. The appellants can’t, along these lines, be permitted to raise any question about the legitimacy of the gathering on any of the grounds alluded to above.
The present case is discussed in the continuation with the Lalithamba Bai case in the field of company law. This case talks about the importance of registration in the course of acquiring membership in a company and what all rights it gives to a registered member of the company.
Along with this the case also helps to understand the rights and obligation of pawnor and pawnee under the Indian Contact laws of India which is also important as that of the obligation of a member.
 Mathalone v Bombay Life Assurance Co. Ltd., AIR 1953 SC 385
 Howrah Trading Co. Ltd. v CIT, AIR 1959 SC 775
 Wala Wynaad Indian Gold Mining Company, (1882) 21 Ch D 849
 Jagat Tarani Das v Naba Gopal Chaki, ILR (1907) 34 Cal 305
 Lallan Prasad v Rahmat Ali, AIR 1967 SC 1322