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1924 Supreme(SC) 72
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD DUNEDIN, LORD ATKINSON, MR. AMEER ALI, AND LORD SALVESEN.
MOTILAL HIRABHAI - Appellant
Versus
BAI MANI - Respondents
On appeal from the High Court at Bombay.
Decided On : Dec. 5. 1924.
Solicitor for appellants: E. Dalgado.
Solicitors for respondent: T. L. Wilson & Co.
Shares issued by a company as a capitalization of profits to holders of original pledged shares are "accessions" under Section 163 of the Indian Contract Act and must be returned to the pledgor upon redemption. Such claims are determinable in execution proceedings under Section 47 of the Code of Civil Procedure.
Headnote:(A) Code of Civil Procedure, 1908 - Section 47 - Execution of Decree - Scope - All questions arising between the parties to the suit or their representatives relating to the execution, discharge, or satisfaction of the decree shall be determined by the executing court and not by a separate suit - A determination of whether newly issued shares are "issues" of original pledged shares for the purpose of redemption falls within the scope of execution proceedings.
(B) Indian Contract Act, 1872 - Section 163 - Bailment - Pledge - Accessions - In the absence of a contract to the contrary, a bailee is bound to deliver to the bailor any increase or profit which may have accrued from the goods bailed - Shares issued by a company as a capitalization of profits to the holders of original shares are considered accessions to the pledged shares and are redeemable by the pledgor.
(C) Mortgage and Pledge - Redemption - A mortgagee or pledgee cannot withhold accessions to the pledged property based on the alleged rights of a third party to the income of such property; any such third-party rights must be adjudicated in a separate action.
Facts of the case:
Certain shares and sub-shares were pledged to a mortgagee. Subsequently, the company issued new shares to the holders of the original shares by capitalizing excess profits. Upon seeking redemption of the pledged shares and all "issues" thereof, the respondent claimed the new shares. The trustees holding the shares refused to transfer them, contending that the new shares represented dividends owed to a third party and that the claim should be pursued through a separate suit rather than execution proceedings.
Findings of Court:
The court found that the application for the new shares was maintainable under the execution proceedings of the original decree. It further determined that the new shares were not dividends but a capitalization of profits, making them accessions to the original pledged shares.
Issues: Whether the claim for the new shares could be determined under Section 47 of the Code of Civil Procedure and whether the new shares, issued as capitalized profits, constituted "issues" or "accretions" to the original pledged shares.
Ratio Decidendi: Section 47 of the Code of Civil Procedure covers all matters relating to the execution, discharge, or satisfaction of a decree. Under Section 163 of the Indian Contract Act, a bailee must return any increase or profit accrued from the bailed goods. Since the new shares were issued to the holders of the original shares as capitalized profits, they are accessions to the pledged property and must be delivered to the pledgor upon redemption.
Result: Appeal dismissed with costs.
Legal Category Hierarchy
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practice and procedure
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civil procedure
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execution of decrees
- section 47 cpc
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execution of decrees
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civil procedure
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property law
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bailment and pledge
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accessions to pledged property
- section 163 indian contract act
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accessions to pledged property
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bailment and pledge
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corporate law
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shares and capital
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capitalization of profits
- bonus shares
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capitalization of profits
-
shares and capital
Judgement
Appeal (No. 139 of 1923) from a decree of the High Court (September 6, 1921) affirming an order of the Subordinate Judge of Ahmedabad made in execution proceedings of a decree for redemption of shares in a limited company pledged or mortgaged by the present respondent.
The facts appear from the judgment of the Judicial Committee.
1924. Oct. 31. De Gruyther K.C., and E. B. Raikes for the appellants. The Court had no power under
s. 47 of the Code to entertain the application so far as it related to the "B” shares. These shares were not claimed in the plaint, nor were they covered by the decree. The word "issues" in the decree refers to the sub-shares existing at the date of the pledge. The "B" shares cannot be regarded as a capitalization of profits. Further, having regard to the interest of Bai Gulab under the agreement of 1883 in the profits of the company the rights of the parties could not properly be adjudicated in execution proceedings. [Reference was made to Bouch v. Sproule (( 1887) 12 App. Cas. 385.) and In re Piercy . ([ 1907] 1 Ch. 289, 294.)]
Sir George Lowndes and Parikh for the respondents. The mortgagee cannot set up the rights of a third party against the mortgagors right to redeem. The present question was rightly determined under s. 47 of the Code of Civil Procedure. The mortgagee or pledgee was entitled to any accession to the property mortgaged or pledged Transfer of Property Act, 1882, s. 82 ; Indian Contract Act, 1872, s. 163. Whether the new shares were to be regarded as capital or income depends upon the intention of the company In re Evans ([ 1913] 1 Ch. 23, 32.) ; In re Hatton ([ 1917] 1 Ch. 357.) ; Commissioners of Inland Revenue v. Blott . ([ 1921] 2 A. C. 171, 186.)
E, B. Raikes replied.
Dec. 5. The judgment of their Lordships was delivered by
MR. AMEER ALI This appeal arises out of proceedings in execution of a decree made by the Subordinate Judge of Ahmedabad on September 28, 1915, which was affirmed by the High Court of Bombay on June 26, 1917.
The circumstances that gave rise to this litigation are simple. It appears that one Achratlal had purchased forty-eight shares of Rs.1000 each and forty-eight sub-shares at Rs.500 each issued by a company which carried on business in Ahmedabad under the name of the Ahmedabad Ginning and Manufacturing Company. The purchase was made in the name of a person named Girdharlal Dalpat Ram. This Girdharlal was the nephew of a woman called Bad Gulab, who is said to have been under the protection of Achratlal. In the year 1883 a controversy arose between Achratlal and Girdharlal as to the real ownership of the forty-eight Rs.1000 shares and the forty-eight Rs.500 sub-shares. Achratlal alleged that Girdharlal was only his benamidar and that in fact he was the real beneficial owner of the said shares. The contest was settled between Achratlal and Girdharlal on July 18, 1883. On that date an agreement was entered into by which it was agreed that twenty-four shares of Rs.1000 each and twenty-four sub-shares of Rs.500 each were to be transferred to Achratlal under certain conditions. The remaining twenty-four shares of Re. 1000 and the twenty-four sub-shares of Rs.500 were allowed to remain in the name of Girdharlal, subject to the following among other conditions " That during the lifetime of Achratlal and Gulab, Girdharlal should not sell or mortgage the same without their consent, (2.) that out of the amount to be received by Girdharlal as the dividend in respect thereof (excluding such shares as might have been sold with their consent) he was to retain for himself Rs.1100 and hand over the balance, if any, to Achratlal and Gulab or the survivor of them, and (3.) that after the death of both of those persons the shares were to belong to Girdharlal absolutely."
Shortly after the settlement Girdharlal appears to have got into financial difficulties, and in September, 1883, Achratlal advanced him Rs.7500 without interest on the pledge by Girdharlal of five sha
