ARJUN PRASAD Vs. CENTRAL BANK OF INDIA LIMITED

JUDGEMENT

(1.) This is an appeal from order No. 96 dated 22-1-1954 made by a learned single Judge of this Court in Companies Act Case No. 3 of 1951. The order was made on two petitions filed in the said case, one by Mr. Arjun Prasad and the other by his father Lala Gurusharan Lal, his mother Srimati Pankaj Devi, and his wife Srimati Madhurbhashini Devi.

(2.) The aforesaid four persons held a large number of shares in the Gaya Sugar Mills, Limited. Sometime in 1947, four thousand seven hundred, and seventy-six shares of Rs. 100 each and thirty-three thousand one hundred and forty shares of Rs. 10 each of the Gaya Sugar Mills, Limited in the names of the aforesaid four persons were deposited by Lala Gurasharan Lal with the Central Bank of India as security for payment of a debt of Rs. 8,83,000/- and odd. At the time of the deposit, Messrs. Arjun Prasad and Lala Gurusharan Lal and the two ladies executed transfers in blank in favour of the Central Bank. On 16-5-1951 there was an application for winding up, and on, 14-11-51 was an order for winding up of the Gaya Sugar Mills, Limited. On 29-7-1952, the Central Bank of India, Limited, wrote to Lala Gurusharan Lal to the effect that the latter had an overdraft account amounting to Rs. 6,10,885/- up to 10-6-1952, and against the said overdraft account the Bank held as security a number of shares of various companies, the market value of which was not sufficient to cover the said overdraft; the Bank, therefore, called upon Lala Gurusharan Lal to liquidate the overdraft account, and added that if the overdraft amount together with interest up to date was nut paid on or before 11-8-1952, the, Bank would proceed at their option to sell the shares held by them as security. Sometimes in July, 1952, Mr. Arjun Prasad made an application for the approval of a scheme of re construction of the Company. This application was heard on 6-10-1953 and an order was passed for calling meetings of the share-holders and of the creditors in accordance with Section 153, Companies Act and the meetings were to be held on 9th and 10th November 1953. Sometime before this, however, on 20-7-1953, the Central Bank of India sent to the Official Liquitiator of the Gaya Sugar Mills, Limited, the share certificates in question together with the transfer deeds duly filled in, the transferee being the Central Bank of India, Limited and the date of transfer being the 2nd and 3rd February 1951. The Bank asked the Official Liquidator to get the-shares registered in the name of the Bank. On 6-8-1953, the Official Liquidator submitted a report to the learned Judge hearing Companies Act cases. In this report, the Official Liquidator said:"i have received from the Central Bank of India, Calcutta and Patna, seven applications for transfer of shares of the Gaya Sugar Mills Ltd. , accompanied by the relevant share certificates and transfer deeds duly completed in all respects from the transferees. These transfer deeds are of a date prior to the petition for winding up. I have examined them and they appear to be bone fide. . It is therefore, prayed that your Lordships will be pleased to give me sanction to do all acts and things as may be necessary in respect of the said transfers and to permit me to affix the company's seal in relation to the said share certificates were required, or pass such other orders as may in the premises be deemed just and proper. "this report was considered by his Lordship Imam J. (as he then was) on 7-8-1953. On that date the following order was passed:"read the report of the Official Liquidator under Section 227 (2) , Companies Act. It appears that the transfers in these cases took place before the order of winding up. The prayer of the Official Liquidator to the following effect is allowed. He is given sanction to do all acts and things as may be necessary in respect of the said transfers and is permitted to affix the Company's seal in relation to the said share certificates where required. These shares are to be transferred to the Central Bank of India. "on 5-11-1953, Lala Gurusharan Lal wrote to the Central Bank of India a letter in which he set out the advantages and disadvantages if the liquidation proceedings were allowed to continue, and the advantages of the scheme of reconstruction put forward by the creditors, in the end Lala Gurusharan Lal asked the Central Bank of India to allow him to act as a proxy for the Central Bank so that the scheme of reconstruction might be approved at the meeting of the share-holders to be held within a few days of the writing of the letter. The Central Bank of India did not appoint Lala Gurusharan Lal as their proxy. Then, on 9-11-1953 Mr. Arjun Prasad filed an application supported by an affidavit of that date and a supplementary affidavit dated 10-11-1953. In this application, Mr. Arjun Prasad said that the shares in question were merely f ledged with the Central Bank of India and the Bank ad 'no legal interest or right in the shares apart from their right as a pledge, and the property in the shares still vested in him, his father, mother and wife; there-lore, the Bank was not the owner of the shares in question and had no right to get themselves registered in respect of the shares. Mr. Arjun Prasad substantially asked for the following reliefs: (1) an order of injunction restraining the Central Bank from exercising any vote as a shareholder of the Caya Sugar Mills, Limited on the strength of the shares in question; and (2) Setting aside the order dated 7-8-1953 passed by his Lordship Imam J. (as he then was). Subsequently, Lala Gurusharan Lal, his wife Srimati Pankaj Devi, and Srimati Madhurbhashini Deyi, wife of Mr. Arjun Prasad, also filed an application in support of the application of Mr. Arjun Prasad in which they made the further prayers that the name of the Central Bank of India, Limited should be removed from the Register of members of the Gaya Sugar Mills, Limited, and the names of Lala Gurusharan Lal, Arjun Prasad, Srimati Pankaj Devi and Srimati Madhurbhashini Devi should be reinstated, or in the alternative, the Central Bank of India should be directed to appoint Lala Gurusharan Lal or his nominee as a proxy for attending the meetings of the ordinary share-holders of the Company. (3) These petitions were heard by his Lordship Ramaswami J. and on 22-1-1954 he dismissed both the applications. He reached the conclusion that the transaction between the petitioners and the Central Bank of India was not a pledge, but was in its true nature and effect a mortgage of the shares and the Bank had a valid legal title thereto. His Lordship said;"applying the principle of these authorities I have reached the conclusion that the petitioners in this case have by making a deposit of the share certificates and by executing blank transfer deeds mortgaged the shares in favour of the Bank who hold the legal title. I am further of opinion that the Bank was entitled to fill in the blank transfers and to apply before the Official Liquidator to have their names entered in the register in place of the petitioners for the shares in question. With respect I hold that the order of Imam J. (as he then was) dated 7-8-1953 is a correct order. I do not propose to go into the question whether I have any power to reconsider the order of Imam J. Assuming in favour of the petitioners that I have such power, I do not think (for the reasons already given) that any case has been made out for modifying or vacating that order". The present appeal is from the aforesaid decision of Ramaswami J.

(3.) The principal question which falls for determination in the present appeal is whether the transaction in question was a pledge or a mortgage; in other words, was the Central Bank of India a mere pledge or a mortgagee? Mr. Sen who has argued before us on behalf of the appellants with considerable ingenuity has contended that the transaction was a mere pledge and the Central Bank had no legal title as a mortgagee' in respect of the chares. He has contended that a mere execution of blank transfers and a deposit of the share certificates with the Central Bank of India, Limited did not create a legal mortgage in favour of the Central Bank; he contended that in essence the transaction was a mere pledging of the shares as security, and, at the highest it may amount to an equitable mortgage. He has also contended that the transfers were in blank when originally made and such blank transfers were ineffective to pass title; he has submitted that a pledge or mortgagee cannot perfect the imperfect transfer by filling in the blank transfer, unless specially authorised to do so by the pledger or mortgagor, though such authority may be conferred by subsequent ratification. He has further submitted that in the case of a bona fide transferee for value to whom a transfer had been intended from the very outset, the authority to fill in the blank transfers may be implied and he can fill in the blank transfers at any subsequent date to perfect the transfer; but in such a case when the blank transfer is filled in, the transfer is operative only from the date it is filled in, as against the Company the transfer is inchoate till the transfer is registered.