Case Law Companies Act Balkrishan Gupta And Ors Vs Swadeshi Polytex Ltd And Anr

Case Law Companies Act

Balkrishan Gupta And Ors Vs

Swadeshi Polytex Ltd And Anr

 

DATE OF JUDGMENT-12/02/1985

BENCH: VENKATARAMIAH, E.S. (J)

BENCH: 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 connec 859 tion. 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]

JUDGMENT: 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 attach- 886 ment 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. 891

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