The main legal point established was that a company cannot refuse to register the transfer of fully paid shares based on the member's debt, as the company had no lien on fully paid shares.

Beasley, C.J.

1. This is an appeal from an order of Stone, J., and arises out of the liquidation of the Madras Cloth Market Ltd. The Managing Directors of the company were the firm of Callianjee & Sons, whose sole proprietor was Ramjee Callianjee. He held 5,000 fully paid up shares in the company in his own name. On 10th September 1924, he being on that date indebted to the company to the extent of Rs. 36,000, borrowed Rs. 2,00,000 from the P. & O. Bank and gave them an equitable mortgage of some of his Immovable property and the 5,000 shares already referred to as security for the loan. In 1925 the Bank filed a suit (C.S. No. 283 of 1925) against Callianjee & Sons, on the equitable mortgage obtaining a preliminary decree for sale on 4th September 1925, and a final decree on 9th October of the same year. On 22nd February 1926, the liquidation of the Madras Cloth Market Ltd., was ordered by the High Court. Upto this time no notice of the equitable mortgage had been given by the Bank to the company.

2. Such a notice was given after the company went into liquidation. On 7th October 1929, Callianjee & Sons became insolvents and the assets of that firm became vested in the Official Assignee of Madras. In the course of the winding up the liquidator got in the assets of the company and collected and discharged debts; and he has paid Re. 1 per share to the contributories of the company except Ramjee Callianjea or the Bank which got the equitable mortgage over Ramjee Callianjees shares. The P. &. O. Bank, as equitable mortgagees, applied to the liquidator for the 5,000 shares covered by the equitable mortgage. The Official Liquidator contended, and contends here, that the Bank are not entitled to be paid the value of those shares because the company are entitled to set off those shares of Ramjee Callianjee against Rs. 36,000 owing to the company by Ramjee Callianjee. It is admitted that the Official Liquidator has a sufficient fund oat of which to pay the Banks claim, should this appeal be dismissed. Stone, J. held that the company in liquidation has no lien on these shares or right to set off Ramjee Callianjees debt to them against those shares and that the Bank were entitled to the shares by reason of the equitable assignment of the shares to them by Eamjea Callianjee. He expressed some doubt as to whether the case was with the principle enunciated in In re Peruvian Railway Construction Co., Ltd. (1915) 2 Ch. D. 144 and held that case did not govern this. Mr. Grant on behalf of the respondents stated here that he did not base his claim on that case at all and that it need not be considered.

3. We have had some difficulty in this case because there is nothing but the briefest order to help us but, as I understand it, the learned trial Judge has allowed the banks claim because the equitable assignment was prior in date to the liquidation. The case has been argued before us as if it were in the Court of first instance and unquestionably the point raised here is one of very considerable importance. It is necessary to refer to the material articles of association of the company. The first of them is Article 20, which gives the company a first and paramount lien upon all the shares other than fully paid up shares registered in the name of each member, whether solely or jointly with others, for moneys from time to time due or payable on any account whatever to the company. It is conceded by the appellants that the company could not under this article claim a lien on Ramjee Callianjees shares because those are fully paid up shares whereas Article 20 deals only with partly paid shares. Then Article 22 says that the company shall not be bound to recognize any equitable interest in shares other than that of a registered holder. Then Article 28, which is the important article here, gives the board power to refuse to register or acknowledge any transfer of shares whilst the share-holder executing the transfer is indebted to the company on an