JUDGMENT

Zafar Ali, J. - The Official Liquidator of the "Indian Merchants Bank, Limited Amritsar, having placed on the list of contributories the name of Mangal Sen, Chumandi Lal Natha Singh and Jas Ram, every one of them Sled objections to the effect that he had ceased to be a member of the company and was not liable to contribute as he had surrendered his shares and the Board of Directors had accepted the surrender which it was competent to do under Rule 43 of the Articles of Association. The Court below overruled this objection on the general ground that the "surrenders (acceptance of the "surrenders?) of the objectors' partly paid-up shares (shares?) and for (?) forfeiture of their allotment money (moneys?) by the Head Board of Directors was (were) unnecessary and ultra vires as it was in substance a reduction by the company of the shares at the price (?) of discharging the shareholders from further liability to calls.' The objectors have appealed against the above order separately.

2. The law on the subject is thus reviewed and discussed by Devadoss, J. in Mirza Ahmad In re A.I.R. 1924 Mad. 703.

Granting for argument's sake that the resolution is according to the rules, I am unable to accept the contention that the surrender of shares is permitted by law so as to enable the Directors of the Company to reduce its capital,

3. Rule 118(5) gives powers to the directors to accept surrender of shares by shareholders; but this power which is an unusual power, granting that it is valid, is subject to restrictions; Table A of the Companies Act does not contain any clauses empowering any company to accept surrender of shares. The Companies Act permits forfeiture of shares on certain grounds; but to give an unlimited or wide power to a company to accept surrender of share is, I think, opposed to the principle that a company cannot buy its own shares and to the principle that a company can reduce its capital only with the permission of the Court and on such terms and conditions as it may impose. The power given by Rule 118(5) is very wide. It is in these terms:

to accept from any member on such terms and conditions as shall be agreed a surrender of his shares or stock or part thereof.

4. Whatever might have been the view as regards the power of a company to accept surrender of shares, I think it is well settled now that a company cannot exercise wide powers of accepting a surrender. It can only accept a surrender under conditions and limitations under which shares can be forfeited. Reliance is placed upon Snell's case In re Natal Investment Co. [1870] 5 Ch. 22. In that case Sir G.M. Griffard, Lord Justice, held that the surrender of shares by Snell was valid. The main reason for the learned Lord Justice holding that Snell's surrender was valid was that his name was not entered on the register of shareholders and that no specific shares were allotted to him though for purposes of the Act he was a shareholder. He found that the substance of the transaction was that both parties were offering to sever their connexion with each other and that the Articles of Association contained a power to cancel shares and that there was nothing in the form preventing the parties from carrying out their intention. Snell's case [1870] 5 Ch. 22 cannot be considered to be good law in view of the decision of the Court of appeal in Bellerby v. Rowland and Marwood's Steamship Co. Ltd. [1902] 2 Ch. 14. Cozens Hardy, L.J., lays down the law thus:

Every surrender of shares, whether fully paid or not, involves a reduction of capital, which is unlawful, except when sanctioned by the Court under the Companies Act of 1867 and 1877. Forfeiture is statutory exception, and is the only exception. For I regard a surrender under circumstances which would justify a forfeiture, as merely equivalent to a forfeiture.

5. Collins, M.R. quotes with approval the following observation of the learned Master of the Rolls in In re Dron field Silkstone Coal Co. [1881] 17 Ch. D. 76.

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