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HIGH COURT OF CALCUTTA
P. C. Mallick
ALBERT JUDAH JUDAH - Appellant
Versus
RAMPADA GUPTA - Respondent
Suit 487 Of 1956
Decided On : MARCH 3, 1958
Key Points: - Sale of shares under Article 17 requires compliance with specific conditions: prior written demand stating the exact amount due, notice of intention to sell, and a seven-day grace period for payment (!) . - The company must hold a lien at law on the share scrips to authorize a sale under Article 17; an equitable charge alone is insufficient (!) . - A purchaser’s title is protected only if the purchaser acts bona fide and without notice of the company’s lack of authority to sell (!) . - The burden of proving good faith rests on the purchaser; failure to testify can lead to an adverse inference (!) . - Irregularities in director appointment and lack of proper quorum can invalidate a sale, and such defects are not always cured by subsequent ratification (!) (!) . - A sale is not protected if the directors or sellers lacked actual authority at the time of the transaction, even if later ratified (!) (!) . - The share register rectification is a consequential relief tied to establishing the purchaser’s defective title (!) . - Past suits and their withdrawal may inform knowledge but do not alone establish good or bad faith (!) (!) . - Proper service of notices and adherence to procedural requirements under the Companies Act and Articles are essential for a valid sale (!) (!) . - The court may draw adverse inferences from a purchaser’s refusal to testify about their knowledge of the transaction (!) .
( 1 ) THIS is a suit in which the plaintiff seeks to establish his title to a bunch of 26752 ordinary shares in the defendant company. The Company and one Ramapada Gupta in whose name the shares are registered in the books of the company have been impleaded as defendants.
( 2 ) THE plaintiff who was born in Iraq came over to India some years prior to 1938 and started business in medicine first under the name and style of Albert David Bros, and then of Albert David and Co. In 1938 the plaintiff promoted a private company which in 1948 was converted into a public company. To this company in 1938 the plaintiffs business of Albert David and Co. was made over. The company was given the same name. Till September 1954, the plaintiff and his wife owned more than 90 per cent. of the ordinary shares. The plaintiff was also the largest holder of preference shares. Under the Articles, only the ordinary shares had voting rights. To become a director, one need not hold any share at all. The plaintiff was the Managing Director for life under the Articles and under an agreement entered into between the company and the plaintiff pursuant to the Articles.
( 3 ) AT the beginning the company used to deal with imported medicines. In 1939 the plaintiff conceived the idea of manufacturing medicine and with that object the plaintiff appointed Dr. Mukherjee a very able chemist and put him in charge of the manufacturing side. Dr. Mukherjee was given full scope and every facility to manufacture medicine. Dr. Mukherjee in his turn proved his worth. Dr. Mukherjee's services to the company were recognised and he was made a director of the company in July 1940. In a formal resolution passed in a meeting of the Board of Directors held on May 4, 1943 the plaintiff as Managing Director recorded that the success achieved by the company was chiefly due to the quality products prepared by Dr. Mukherjee. The phenomenal success of the company will appear from the sale of its products which rose to over Rs. 50 Lacs from 1952 onward. Dr. Mukherjee's position in the company steadily improved and while the plaintiff was the No. 1 in the company. Dr. Mukherjee became the No. 2. Dr. Mukherjee's remuneration was increased with the passage of time and when the dispute started Dr. Mukherjee was getting as his remuneration 1 per cent. of the total sale i. e. more than Rs. 55,000/- per annum. This was much more than what the plaintiff was getting as Managing Director. In 1948, Dr. Neogy was appointed as a propaganda officer on a salary of Rs. 500/- per month. Shortly thereafter Dr. Neogy was made a director.
( 4 ) IN January 1949 Dr. Mukherjee went to Europe on study leave for a period of little more than two years. He retained his seat in the Board of Directors and during his absence he was given allowance of Rs. 2000/- per month for a period of two years from a date beginning nine months after he left for study. This money was paid to Dr. Mukherjee, though the payment was not made regularly. Dr. Mukherjee returned from abroad in April 1951 and the plaintiff made a gift of 1000 ordinary shares out of his own shares to Dr. Mukherjee. This gift was made as a token of affection as also in appreciation of the services rendered by Dr. Mukherjee to the company.
( 5 ) IT appears that feelings between the parties were strained in the middle of 1954. Dr. Mukherjee stated in his evidence that he apprehended that he would be thrown out from the company. The plaintiff denied that he had any such intention. Be that as it may, whatever the motive of Dr. Mukherjee might have been i. e. to prevent the plaintiff from ousting him as a measure of self protection or to himself get supreme control of the company by ousting the plaintiff Dr. Mukherjee acted and acted with vigour. There was a General Meeting of the company on the morning of September 10, 1954, to increase the Share Capital. The meeting was held in which the plaintiff, Dr. Mukherjee, Dr. Neogy amongst others
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