RAMASWAMI GOUNDAR J. -
(1.) The suit and the application are filed by the plaintiffs, praying that their names be struck out and omitted in respect of 1,668 shares standing in their names in the register of shares of the first defendant, bank, namely. The Bank of Hindustan, Ltd. Subsequent to the filing of the suit, on a petition for winding up filed in August, 1948, a winding-up order was made in respect of that bank in April, 1950, and so, it is now represented by the official liquidators. The first plaintiff is Kowtha Suryanarayana Rao, and the second plaintiff is a private company called Indian Commerce & Industries Company, Ltd., of which the first plaintiff is the managing director. The first plaintiff became a director of the 1st defendant bank in 1942, and, from 1944 till May, 1945, he was its managing director with defendants 2 to 4 as the other directors of the bank. The first plaintiff was the holder, in his own right, of 2,508 shares in the first defendant bank, and the second plaintiff company was the holder of 610 shares. As I said, in May, 1945, the first plaintiff was the managing director of this bank, and defendants 2 to 4 were the other directors. The evidence of the first plaintiff shows that about that time, there were differences amongst them, as the other directors, defendants 2 to 4, were causing obstruction to his administration and wanted the management of the bank to be given over to them. They even went to the length of calling for a meeting of the directors and threatening the first plaintiff with dismissal. Thus, the evidence of the first plaintiff shows that he was virtually compelled to sell his shares in the first defendant bank and also resign his office as managing director. The evidence of the first plaintiff remains uncontradicted and I have no reasons to disbelieve that evidence. Accordingly, on 4th May, 1945, an agreement of sale, Ex. P1, was entered into between the first plaintiff on the one hand and the second defendant on the other, whereby the first plaintiff sold 3,118 shares owned by him and the second plaintiff company in the first defendant bank at the rate of Rs. 41-4-0 for each share. Out of the face-value of Rs. 90 per share, only Rs. 40 had been paid and the remaining Rs. 50 was the unpaid call amount in respect of each share. The agreement, Ex. P-1, also provided that the purchase money was to be paid by the fourth defendant who was to take delivery of the shares on payment of the amount, and that the first plaintiff was to give a blank transfer deed for such scrips separately. There was a further provision in the agreement that the first plaintiff was to tender his resignation as a director of the bank. This agreement was signed by the first plaintiff and the defendants 2 and 4. In consequence, and on the same date, the first plaintiff, by the letter, Ex. P-2, tendered his resignation as a director and chairman and managing director of the first defendant bank. The share certificates with blank transfers duly signed by the first plaintiff were handed over to the fourth defendant on behalf of the second defendant, and the fourth defendant paid the entire sale-price to the first plaintiff. It is a pity that the plaintiffs deposited the entire sale price into this very bank. It would appear that the fourth defendant paid the sale price and took delivery of the transfers and share certificates only as a financier of the second defendant as the latter had no money then, and therefore he had requested the fourth defendant to accommodate him. After payment, and by the letter, Ex. P-3, the fourth defendant intimated the second defendant that he had received the 3,118 shares from the plaintiffs and requested the second defendant to send him a cheque for the amount paid to the plaintiffs. That letter also shows that the fourth defendant had taken 500 of those shares. It may be mentioned that the fourth defendant is a partner of a firm called Mohamedally Sarafally & Co., and, in respect of those 500 shares, we find that the transfer in the company's register was effected in the name of that firm. Out of the remaining shares, the second defendant appears to have parted with 950 shares in favour of the third defendant and a change in the company's registry has been effected in his name. Thus, excluding the 950 shares transferred in the name of the third defendant, and the 500 shares transferred in the name of Mohamedally Sarafally & Co., the remaining 1,668 shares continued to remain in the names of the plaintiffs in the registers of the company. It may be mentioned that on the same date on which the plaintiffs parted with their shares in the first defendant bank, there was a meeting of the board of directors in which the second defendant was nominated as the managing director of the bank, the other directors being defendants 3 and 4. It may also be mentioned that the present suit and the application related to the said 1,668 shares which still remain in the registers of the company in the names of the plaintiffs without being changed over to their transferee, the second defendant.
(2.) In regard to those 1,668 shares, it would appear that the second defendant dealt with them in favour of the third defendant, either as a security for monies advanced by the third defendant, as he says, or by way of sale, for, on 19th May, 1945, the third defendant addressed the letter, Ex. P-6, to the secretary of the first defendant bank intimating that he held those 1,668 shares under blank transfer and claiming that the dividend payable on those shares for 1944 was to be paid to him, and that he was prepared to indemnify the bank against any claim. Accordingly, he received the dividend payable for 1944 on those shares and passed the indemnity letter, Ex. P-11, in favour of the bank in June, 1945. In respect of the dividend payable for 1945, the second defendant as the managing director of the bank, instructed the secretary of the bank by the letter, Ex. P-12, to send the dividend warrants to the third defendant. Thus, the undisputed fact is that, in respect of the 1,668 shares now in dispute, the third defendant had, on the instructions of the purchaser, received the dividends for the years 1944 and 1945. Then, in April 1947, the third defendant sold those and other shares-in all, 4,400 shares at the rate of Rs. 35-12-0 per share to the National Studios Ltd., Bombay, as shown by Exs. P-13, P-14 and P-15. It may be mentioned that the second defendant was himself the chairman of the board of directors of the National Studios, Ltd. The receipts Exs. P-16 series, would show that the shares were sold by the third defendant to National Studios Ltd., and the case of the third defendant is that he was dealing with those shares only on behalf of the second defendant, from whom large sums were owing to him. It is unnecessary to go into the question in what character the third defendant came into possession of the shares now in dispute. It is enough to state that there is no evidence to prove that he purchased those shares from the second defendant. It may well be that he was in possession of the shares as a security for the advances made by him and that only on behalf of the second defendant he sold those shares to the National Studios, Ltd. So far as the plaintiffs are concerned, their purchaser was the second defendant. Defendants 3 and 4 appear to have been impleaded as parties to these proceedings, because 950 and 500 of the plaintiffs' shares sold by them to the second defendant have been transferred in their respective names in the registers of the company; but the present proceedings have nothing to do with those shares, but relate only to the remaining 1,668 shares in respect of which the plaintiffs continue to be the registered holders in the bank's books. I should therefore think that there is no cause of action against defendants 3 and 4 and that they need not have been impleaded in these proceedings; and we have to consider the questions arising in these proceedings only in relation to the purchaser, the second defendant. No doubt, in his written statement, the second defendant has taken the plea that he never agreed to purchase the shares from the plaintiffs, but was acting only as an intermediary in these transactions which were really entered into between the plaintiffs on the one hand and defendants 3 and 4 on the other. But he has not chosen to lead any evidence on that point, and he has not examined even himself; nor was this case even put to the first plaintiff in his cross-examination. Though represented by a counsel, the second defendant took no active part in these proceedings.
(3.) It was unfortunate that though the plaintiffs had parted with their shares even as early as May, 1945, and had executed the necessary transfers in blank as required by the purchaser, the second defendant, and received the full sale price on his behalf from the fourth defendant, and, in consequence the first plaintiff also resigned his office of managing director and thereafter the plaintiffs had nothing to do with the bank, still their names continued in the registers of the company as the owners of the remaining 1,668 shares. The first plaintiff has given evidence, which stands uncontradicted, that, even on the date of the transfer, he phoned to the secretary of the bank that he sold away all his shares to the directors and tendered his resignation. He has also given evidence that the second defendant agreed to have the shares transferred in his own name as he was the managing director. It was apparently because of that assurance and also because the dividend warrants issued subsequently for the years 1944 and 1945 were not sent to the plaintiffs but to the third defendant that they were lulled into the belief that the transfer should have been effected in the registers of the company in the name of their purchaser, the second defendant, and therefore they did not take any effective steps to have the change of the registry effected. It is apparent that the second defendant, who undertook to have the registry transferred in his own name, defaulted to do so for reasons of his own in respect of these shares while he got the other 1,450 shares transferred in the names of defendants 3 and 4. It was only in October, 1947, when they received the demand notices, Exhibits P-17 and P-17(a), calling for payment of the unpaid share capital at the rate of Rs. 9 per share, that the plaintiffs appear to have realised the fact that their names still continued on the registers of the company in respect of the disputed shares. On receipt of that demand, the first plaintiff addressed the letter. Exhibit P-19, to the second defendant, pointing out to him that the call amount was not payable by him; and in December, 1947, the plaintiffs wrote to the secretary of the first defendant bank, by their letter, Exhibits P-20 and P-21, repudiating their liability for the call amount and informing him of the transfer of their shares to the second defendant and asking the bank to collect the amount from the owner of the shares. It will be seen that, till December, 1947, the plaintiffs who had parted with their shares even in May, 1945, did not take the necessary steps to have the shares transferred in the name of their purchaser the second defendant, in the registers of the company. Toward the end of December 1947, when the bank was on the verge of collapse, the first plaintiff appears to have become once again the managing director of this bank and thereafter he found it possible to have the name of the third defendant substituted in the place of the plaintiffs for these shares, but on a Judge's summons taken out by the third defendant under Section 38 of the Companies Act, this court held that the resolution of the board of directors changing the registry in the name of the third defendant was illegal and directed the deletion of the third defendant's name, with the result that the plaintiffs' name again got restored in the registers of the company in regard to 1,668 shares now in question.;