Nadarajah v. H. Don Carolis & Sons, Ltd.
1936Present: Akbar and Koch JJ.
NADARAJAH v. H. DON CAROLIS & SONS, LTD.
156—D. C. (Inty.) Colombo.
Joint stock company—Application to register shares—Shares sold in execution
of mortgage decree—Right of Directors to register sale—Appeal—
Security for costs.
Where the articles of association of a joint stock company gave adiscretion to the directors to refuse to register a transfer of shares by ashareholder, who is indebted to the company,—
Held, that the directors were not entitled to refuse to register atransfer consequent on a forced sale of the shares.
Quaere, whether in appeal governed by section 110 of the Joint StockCompanies’ Ordinance the appellant is bound to give security forrespondents’ costs ?
Where the appellant has given security in cash but has failed to givenotice of security to the respondent the Supreme Court may grantrelief under section 2 of Ordinance No. 42 of 1921.
^^PPEAL from an order of the District Judge of Colombo.
N. K. Choksy (with him D. W. Fernando), for respondent, appellant.
H. V. Perera, for petitioner, respondent.
Cur. adv. vult.
AKBAR J.—Nadarajah v. H. Don Carolis & Sons, Ltd.
June 15, 1936. .Akbar J.—
This is an appeal under section 110 of the Joint Stock Companies'Ordinance, No. 4 of 1861, against the order of the District Judge madeunder section 32 of the same Ordinance, by which the Court allowed theapplication of the petitioner-respondent to have his name inserted as ashareholder in the register of the company of the respondent-appellant.
Mr. H. V. Perera, for the respondent, took the preliminary objectionthat this appeal was not properly constituted, because no notice had beengiven of the security offered for the due prosecution of the appeal asrequired by section 756 of the Civil Procedure Code.
We thought that this objection should not be upheld for severalreasons. In the first place when we looked at the facts we found thatas a matter of fact the appellant had deposited a sum of Rs. 100 in cashwhich had been secured by a bond. It is true that no formal notice wasgiven as required by section 756, but the section was amended by anaddition made by section 2 of Ordinance No. 42 of 1921 under whichthis Court is given a wide discretion to correct any mistake, omission,or defect on the part of an appellant in complying with the provisions ofthat section, if the Supreme Court should be of opinion that the respondenthas not been materially prejudiced, and relief may be granted on suchterms as it may deem just. Mr. Perera quoted a case of this Court,namely, Silva v. Gooneselcera1- It will be seen from that case that theomission was a gross one, because not only had the security bond not beensigned, but notice of appeal had not been given when the petition wasfiled on November 14, 1928, and the record remained in the DistrictCourt till May, 1929.. It seems to us that this case is a fit one in whichrelief should be granted under the amendment I have quoted above.
Apart from this, as Mr. Choksy has pointed out, these appeals areregulated by section 110 of the Joint Stock Companies’ Ordinance, andit is stated in that section that every appeal shall be brought andprosecuted in such manner and shall be subject to such regulationsas now exist, or shall be hereafter made by any rule or order of this Court.These are exactly the same words as appear in the Insolvency Ordinance,1853, section 6, and the Supreme Court in two cases, namely, the FullCourt decision in the case of In re Goonewardene' and the latter case ofDias v. Palaniappa Chettiar held that in Insolvency appeals there wereno Civil Appellate Rules regulating such appeals, and that in the formercase the appellant need not give security for costs of any appeal at alLFor these reasons we decided to hear the appeal.
As regards the main point raised in appeal, I think it could be decidedon a simple question. It appears that one C. Moonesinghe was theowner of 1,500 shares in the appellant company. He had mortgagedthese shares on July 18, 1929, of which mortgage apparently notice wasgiven by the proctor for the mortgagee (see documents Pi and P2).The mortgagee sued Moonesinghe on this bond and the shares were soldin execution in favour of one Suppiah Pillai, the document of transferbeing executed by the Secretary of the District Court. This was on
1 31 N. L. B. 185.• 34 N. L. B. 431.
* 34 N. L. B. 195.
AKBAR J.—Nadarajah v. H. Don Carolis & Sons, Ltd.
October 31, 1933, and on deed 728 dated November 6, 1933, SuppiahPillai sold, conveyed, and assigned these shares- to the respondent R. A.Nadarajah. On April 27, 1934, the proctor for Nadarajah wrote to thecompany, narrating the devolution of title of the shares to his client,and asking the company to register the name of Nadarajah as the holderof the shares in question. To this letter the Company wrote by letterP4 dated May 4, 1934, declining to transfer these shares under article 29of the articles of association of the company “ as the shareholder isindebted to the company
The learned Judge in his order has made a slight mistake in thinkingthat the petitioner-respondent Nadarajah was the original purchaserat the execution sale. As I have stated, the original purchaser wasSuppiah Pillai, and Nadarajah was a voluntary transferee from SuppiahPillai. This mistake however does not in our opinion affect the questionof law which has been raised on this aspect of the appeal, namely, whetherarticle 29 applies, and whether the directors had the discretion to refuseto register the name of Nadarajah as a shareholder.
We do not decide in this appeal the question whether the Companywas a creditor of S. Moonesinghe, nor whether the company had a lienon the shares belonging to S. Moonesinghe. The bare point of lawwe decide in this appeal is whether article 29 applies. It will be seen fromthe terms of that article that the board of directors has got “ a dis-cretion to decline to register any transfer of shares by a shareholderwho is indebted to the company, or upon whose shares the companyhas a lien or otherwise ”. It will be seen that in this case SuppiahPillai was not a transferee who derived his title on a transfer voluntarilyexecuted by the shareholder S. Moonesinghe on • the register of thecompany. This was a forced sale, and therefore article 29 cannot applyto the case of Suppiah Pillai. If it does not apply to the case of SuppiahPillai it cannot equally apply to his successor in title Nadarajah whogot all the right, title, and interest of Suppiah Pillai transferred to himby the sale. Apart from this, the word “shareholder” referred to inarticle 29 can only mean a shareholder on the books of the company, andtherefore it could only refer to a transfer effected by Moonesinghevoluntarily. This opinion of ours concludes the appeal on the mainpoint raised in the argument before us.
Mr. Choksy however raised another point, namely, that the petitioner-respondent had not complied with article 30 of the articles of association.That article requires that “ every instrument of transfer which is to beregistered in the books of the company should be left at the office of thecompany, accompanied by the certificate of the share to be transferred,together with evidence to prove the title of the transferee, and a fee ofRs. 2.50 to be paid to the company for the registration of every transfer.”Mr. Choksy argued that as the petitioner-respondent had not compliedwith the terms of this article the respondent was bound to fail in theseproceedings before us.
There are two objections to this argument. The first objection isto be found in the correspondence which passed between the companyand the respondent. When by letter P3 the proctor for the respondentasked that he be registered as the shareholder of the shares in question,
FERNANDO A.J.—Pedrick Appuhamy v. Bkman Singho.
the reply that was sent to him was, not that he had not complied witharticle 30, but that the director declined to register the transfer underarticle 29, on the ground that the shareholder, namely, S. Moonesinghe,was indebted to the company. This objection was not even taken inthe proceedings before the District Court. The parties went on with theinquiry solely on the one question whether article 29 applied or not.In the second place it seems clear to me that article 30 can only applywhen the directors have made up their minds to effect the registrationof the shares, and it cannot therefore operate in this case, where thedirectors expressed their opinion that they were not prepared toentertain any application for registration on the ground that article 29gave them a discretion to do so. I therefore fail to see how article 30can be made to apply to a case like this, where the first question thathas to be decided is whether the directors had the right to decline toregister as they claimed to do.
We have come therefore to the conclusion that the appellant is boundto fail in the argument that has been placed before me, and the appealmust therefore be dismissed with costs.
Koch J.—I agree.
NADARAJAH v. H. DON CAROLIS & SONS, LTD