Sudhi Ranjan Das, J.

1. In this application, the Calcutta Stock ExchangeAssociation Limited (which I shall hereinafter call the Association) prays thatthe injunction granted by this Court on 29th August 1940 prohibiting andrestraining the Association until further order of this Court from makingpayment of the sale proceeds of share No. 163 or any part thereof to any personwhomsoever be dissolved.

2. The facts leading up to the present application are notin dispute and are as follows: On 20th December 1939 a consent decree waspassed in this suit. By the terms of settlement embodied in this decree, theplaintiff undertook to pay to the defendant Rs. 4000 by certain instalments.The plaintiff also undertook not to transfer share No. 163 of the Associationstanding in his name until payment of Rs. 4000 in full. The share was alsocharged with the repayment of the amount. A copy of the terms of settlement wason 8th January 1940 sent by the defendants solicitor to the Association.

2a. On 29th August 1940 in execution of this decree thedefendant obtained a prohibitory order a copy of which is annexure"B" to the present petition. This order was served on the Associationon 10th September 1940. It is this order which the Association is complainingagainst in the present application.

3. In answer to the defendants solicitors enquiry as tohow much was due to the plain tiff for dividend on the above share theAssociation on 6th February 1941 replied stating that a sum of Rs. 1000 waspayable as bonus declared for the year ending September 1940 and that there wasno other attachment on the share On 24th March 1941 the Association sent acheque for Rs. 1000 to the Sheriff and informed the defendants solicitor aboutsuch payment.

4. It appears that about this time the plaintiff was unableto fulfil his engagements with other members of the Association. Eventually on19th February 1942, he was declared a defaulter by the Committee of theAssociation under Bye-law 13 of the Association and was also suspended frommembership of the Association under cl. 21(6) of its Articles of Associationwith effect from that date.

5. In April and May 1942, there was some furthercorrespondence between the defendants solicitor and the Association and itssolicitors in course of which the Association informed the former that theplaintiff had been suspended by the Committee and that the Association hadunder cl. 31 of its Articles of Association, the first and paramount lien onthe amount of the bonus on account of arrears of subscription and that afterdeducting its dues it was prepared to pay the balance into Court on a paymentorder being obtained by the defendant from the Court. The Association alsomentioned that the attachment was subject to the Associations right againstthe share by virtue of its Articles of Association and that if the plaintiffdid not satisfy the claims of the members in due time the share would beforfeited and that the plaintiff would cease to bold any right or interest inthe share and the defendants right as attaching creditor would ipso facto cometo an end. The defendants solicitor contended that the Association could onlyrealise the dues from the sale proceeds and the residue would remain subject tothe attachment of the defendant. The Association reiterated its contention thatupon forfeiture the share would become the property of the Association.

6. The plaintiff having failed and neglected to fulfil anyof the engagements within six months from the date upon which be had beendeclared a defaulter the share No. 163 was, by a resolution passed by theCommittee of the Association on 1st September 1942, forfeited to theAssociation and he was also expelled from the Association on and from thatdate. A declaration of forfeiture was made by one Biswambhar Nath Chaturvedi amember of the Committee of the Association under cl. 30 of its Articles ofAssociation.

7. The defendant having come to know that due to default theshare of the Association standing in the name of the plaintiff would be sold bythe Association the defendants solicitor on 20th September 1942 wrote to theAssociation reminding it that the interest of the plaintiff in the share hadbeen attached and requesting the Association not to pay any money to theplaintiff out of the sale proceeds as the same would stand attached. The Associationthrough its solicitors gave notice to the defendants solicitors that the sharehaving been forfeited it had become the property of the Association and calledupon the defendant to withdraw the attachment.

8. On 10th December 1942 the share was sold by theAssociation at and for Rs. 32,000. Exhibit "D" to the petition showsthat the sum of about Rs. 11,358-9-0 is due by the plaintiff to the othermembers of the Association. It is also stated that Rs. 141-6-0 is due by theplaintiff to the Association.

9. The defendant not having taken any steps to remove theattachment the Association has made the present application for getting theinjunction dissolved. The plaintiff has not appeared to oppose thisapplication. This application is opposed by the defendant.

10. The argument before me has proceeded on broad generalprinciples as to the validity or otherwise of the power of forfeiture taken bythe Association in its Articles of Association and as to whether, in thecircumstances of this case, the power could be exercised so as to nullify orprejudice the rights which the defendant had acquired by virtue of the chargecreated by the decree in his favour. No point has been raised before me that,even if the power of forfeiture was valid and could be exercised in thecircumstances of this case, there has been any irregularity or illegality inthe mode of exercise of this power so as to vitiate the resulting forfeiture.

11. The several questions, which have been argued by LearnedCounsel on both sides with admirable clarity and indeed with great ability andthoroughness, are as follows:

(a) Does the Indian Companies Act sanction forfeiture ingeneral or does it sanction forfeiture for nonpayment of calls only

(b) If the Act does not affirmatively and in so many wordssanction forfeiture otherwise than for non-payment of calls, is the power offorfeiture contained in the Articles of Association of this Association andexercise of such power of forfeiture in the circumstances of this case illegaland ultra vires the Association by reason of its being or involving:

(i) an illegal reduction of capital, or

(ii) a purchase of its own share

(c) Assuming the power of forfeiture to be valid, can theAssociation, in the circumstances of this case, exercise this power offorfeiture for its own benefit and to the prejudice of the rights which thedefendant had, prior to the exercise of this power, acquired by virtue of thecharge created by the decree

12. Mr. Khaitan who appears for the Association contendsthat under S. 21, Companies Act, 1913, the Memorandum and Articles bind theAssociation and the members thereof to the same extent as if they respectivelyhad been signed by each member and contained a covenant on the part of eachmember to observe all the provisions of the Memorandum and of the Articlessubject to the provisions of the Act. Then he refers me to S. 32(2)(g) and S.151 of the Act and Form E of Sch. III to the Act. The reference to part II inForm E appears to be a mistake for Part III. Perhaps it is due to the fact thatOut Form E was copied from Form E of the English Act of 1908 where Part II ismentioned. In Sarkar & Sens edition of the Act I find that Part III ismentioned in Form E. Section 32 which is mentioned in Form E is in Part III ofthe Act. Be that as it may, the contention of Mr. Khaitan is that the abovesections and the form clearly recognise forfeiture in general and that there isno reason whatever to limit forfeiture to nonpayment of calls only. Regulationsin Table "A" in Sch. I to the Act and in particular Regulations 24 to34 are, says Mr. Khaitan, model Regulations which may or not be adopted by aCompany at its option and therefore they cannot be regarded as in any waycutting down or limiting the provisions of S. 32(2)(g) and Form E whereforfeiture is referred to generally and with out any qualification or limit.

13. Mr. A.C. Mitra appearing for the defendant on the otherhand refers me to Ss. 2(1), 17 and 18 of the Act and contends that theRegulations in Table "A" are parts of the Act and explains what thelegislature meant by the use of the term "forfeiture" in S. 32(2)(g)and in Form E in sch. III to the Act. According to Mr. Mitra, the Regulationsin Table "A" should be read along with the provisions of the Act andso read, they clearly establish that the Act sanctions only forfeiture fornon-payment of calls.

14. It is common knowledge that the Company legislation inIndia has been based on English Statutes. It is, therefore, necessary to takenote of the English law and Statutes on the subject. In England from very earlytimes Companies used to be incorporated by Royal Charter or by Special Acts ofParliament. The habit of forming Joint Stock Companies grew among tradingpeople and they used to execute deeds of settlement governing their mutualrelations. These deeds of settlement, as will be seen from the cases citedhereafter, frequently contained clauses providing for forfeiture of theinterest of its member not only when he failed to bring into common stock whathe had undertaken to do, but also if and when a member or a person who hadacquired the interest of any member failed to execute the deed of settlement.

15. In 1844, Parliament passed an Act for the registration,incorporation and regulations of Joint Stock Companies (7 and 8 Vic. C. 110).This Act did not limit the liability of the members but expressly preserved itby Ss. 25 and 66. Section 7 of this Act provided that no Joint Stock Companyshould be entitled to receive a certificate of complete registration unless itbe formed by some deed or writing under the bands and seals of theshare-holders therein. The section required that the deed should appoint notless than three Directors and one or more auditors and should also set forth ina schedule thereto certain particulars, e.g., name of the company, the businessand purpose of the company, the amount of capital and so on. Then the sectionprovided that such deed must contain a covenant on the part of everyshare-holder, with a trustee on the part of the company, to pay up the amountof the instalments on the shares taken by such share holder, and to perform theseveral engagements in the deed contained on the part of the share-holders, andthat such deed must also make provision for such of the purposes set forth inSch. (A) to this Act as the nature and business of the company might require,and either with or without provision for such other purposes (not inconsistentwith law) as the parties to such deed should think proper. Then followedprovisions as to mode of execution and filing of the deed with the Registrar ofJoint Stock Companies. Schedule "A" to the Act set out a list ofpurposes for which provision was required to be made by the deed of settlementof the company. There were 38 items. Item 32 was as follows:

32. For determining whether on failure to pay any instalmentor calls, the share shall or shall not be forfeited and if forfeited, whetherand on what conditions the property in such share may be recovered by theshare-holder.

Although Sch. "A" to the Act referred toforfeiture for non-payment of call or instalment it cannot be seriouslycontended that they limited forfeiture only to non-payment of call orinstalment, for, S. 7 authorised the company to include in its deed ofsettlement "provisions for such other purposes (not inconsistent with law)as the parties to such deed should think proper," The scheme of this Actwas to leave it open to the parties to include in the deed of settlement anyprovision not inconsistent with law.

16. The Joint Stock Companies Act (19 & 20 Vic., c. 47)was passed in 1856. This Act introduced the principle of limited liability ofthe members. Section 3 permitted 7 or more persons by subscribing their namesto a memorandum of association to form themselves into an incorporated companywith or without liability. Sections 5 and 7 dealt with the contents and form ofthe memorandum. Section 9 provided that the memorandum might be accompanied byarticles of association prescribing the regulations of the company; but if nosuch regulations were prescribed or so far as the same did not extend to modifythe regulations contained in the table marked "B" in the schedule tothat Act, such last-mentioned regulations should, so far as the same wereapplicable, to be deemed to be the regulations of the company. Table"B" was headed "Regulations for management of the company."Clauses 15 to 19 of this Table B dealt with forfeiture of shares fornon-payment of call. There was form of a balance-sheet at the end of Table"B." According to this balance-sheet against capital were to be showncertain particulars in. eluding particulars of any forfeited shares. Section 17required the making and filing of an annual list of share-holders with certainparticulars. One of these particulars was "(6). The total number of sharesforfeited." Form E in the schedule also required that the total number ofshares forfeited should be stated. Thus we find that in this Act of 1856 wasintroduced for the first time the scheme of referring to forfeiture without anyqualification in the body of the Act and in Form E, and of referring toforfeiture for non-payment of calls only in the table set forth in theschedule.

17. This scheme has been maintained ever since in allsubsequent statutes, namely, the Companies Act, 1862 (25 & 26 Vic. c. 89),the Companies (Consolidation) Act, 1908 (8 Edw. VII c. 69), and the CompaniesAct, 1929 (19 & 20 Geo. V, c. 23). The provisions with regard to forfeiturethus remained practically the same. Section 26(g) of the Act of 1908 and S.108(3)(i) of the Act of 1929 referred to the total number of shares forfeited.Form E of 1908 and the form in Sch. 6 to the Act of 1929 remained the same asForm E in the Acts of 1556 and 1862 except that certain foot-notes were addedin 1908 and are continued in 1929. Foot-note (3) requires that in the totalamount of calls received should include what had been received on forfeitedshares and foot-note (4) requires that the aggregate number of shares forfeitedshould be inserted in the item dealing with total amount paid on forfeitedshares. Table "A" continued to deal with forfeiture of shares fornon-payment of calls only. There is no longer any balance-sheet at the end ofTable "A."

18. The legislation in India relating to companies hasfollowed the lines of legislation in England. Thus the Indian Joint StockCompanies Act, 1850 (Act 43 of 1850) was based on Statute 7 and 8 Vic. c. 110.Then we had successive enactments following further changes of law in England.Finally the Indian Companies Act of 1913 was based on the English Act of 1908.Recent amendments of our Act of 1913 have brought it up to date on the lines ofthe English Act of 1929 with certain modifications. For our present purpose, S.32(2)(g) of our Act corresponds with S. 26(g) and S. 108(3)(i) of the EnglishActs of 1908 and 1929 respectively. Our Form E corresponds to the Form E of theEnglish Act of 1908 and the form in Sch 6 to the English Act of 1929. Clauses24 to 30 of our Table "A" deal with forfeiture for non-payment ofcalls as to the corresponding clauses of Table "A" of the EnglishActs.

18a. The above analysis of the earlier Acts shows that thescheme of referring to forfeiture without any qualification or limitation inthe body of the Act and in the form and of referring to forfeiture for nonpayment of call in the table set out in the schedule to the Act dates back to1856, if not to 1844. Having ascertained this scheme, it becomes necessary toenquire how the Courts in England have interpreted the scheme for I apprehendthat I am bound to follow the principles the English Courts have laid down withregard to this matter in different cases. I, therefore, proceed to deal withsome of these cases.

19. The case of In re Kollmans Railway Locomotive andCarriage Improvement Co.; Beresfords case 3 De. G. & Sm. 175 : (19 L.J.Ch. 332), was decided in 1850. The deed of settlement of the company containeda clause authorising the directors to declare forfeited the shares of any partyto the deed who did not execute it and another clause directing that, on atransfer the transferee should take to himself the antecedent liability of thetransferor. The respondent, Beresford, to whom 5 shares had been allotted paidhis deposit and some calls but he did not execute the deed of settlement.Thereupon in August 1845 the directors declared his shares forfeited andcarried them to the companys share account and Beresford submitted to itSeveral years later on, the company came to be wound up under the Joint stockcompanies winding up Acts and it was sought to include the name of Beresford inthe list of contributories Beresford objected to this. After hearing thequestion discussed, the Master held that Beresford should not be included inthe list of contributories as he was virtually a party to the deed so as toenable the directors to forfeit his shares under its provisions and that suchforfeiture relieved him from responsibility in respect of losses accruingbefore it was declared The official manager as he was then called appealed andKnight Bruce V.C. upheld the decision of the Master. There was a furtherunsuccessful appeal which is reported in Ex parte Beresford, (1850) 2 Mac.& G. 197 : (42 E.R. 76). The company in this case does nor, however, appearto have been registered under the Act of 1844.

20. In re Cobre Copper Mining Co.; Kelkes case, (1869) 9Eq. 107 : (39 L.J. Ch. 231), is another instance where a forfeiture otherwisethan for non-payment of calls was upheld. In this case the company was formedin 1885 under a deed of settlement. The original deed of settlement contained aprovision for forfeiture for nonpayment of instalment. In 1866 at a generalmeeting held under the provisions of the deed of settlement certain resolutionswere passed by the requisite majority altering some of the original clauses Oneof the resolutions was that the capital be increased from 40 to 50 per shareand that upon non-payment of the additional amount that share be forfeited.Another resolution adopted a new clause that within a certain period theshare-holders were to bring in their certificates with the name, residence anddescription of the holders to be registered and that in default the sharesshould be forfeited for the benefit of the company. Copies of the resolutionswere sent to all share holders. Holders of 2405 shares did not send in theircertificates and their shares were forfeited on 6th December 1866. The companywas registered on 13th December 1866 under the Act of 1862 and the names of9595 share-holders who had sent in their certificates were filed with theRegistrar as share holders. In 1868 the company went into voluntaryliquidation. The liquidators gave notice to Kelke and Count Pahlen whose shareshad been forfeited that they intended to put their names on the list ofcontributories. Kelke and Count Pahlen thereupon took out summons praying thattheir names might be struck off the list of contributories of the company.James V.C held that the shares of the members who did not send in theircertificates had been effectually forfeited and that they were not liable to beplaced on the list of contributories of the company. Eminent counsel appearedin the case but no point was taken that the Act of 1862 did not sanctionforfeiture otherwise than for non-payment of calls. It is true that theforfeiture took place on 6th December 1866 and the company was registered on13th December 1866 as a company with limited liability but it was treated asthe continuation of the same company with the same constitution.

21. The next case I should refer to is that of Hope v.International Financial Society, (1876) 4 Ch. D 327 : (46 L.J. Ch. 200). TheCompany in this case was registered in May 1863 Clause 107 of its Articles ofAssociation authorised the forfeiture of the shares of any share-holder whodirectly or indirectly carried on commenced, supported or threatened anyaction, suit or other proceeding at law or in equity against the company onpayment to him of the full market value of the share. On 12th August 1876, thedirectors recommended that the shares of those share-holders who wished toretire be purchased and that on surrender the price be paid in cash. Theplaintiff who was in the minority and was opposed to this scheme, filed thisaction to prevent its adoption and applied for injunction. No order was made onthe application on the undertaking of the company not to give effect to theresolutions if passed, until the disposal of this suit. Pending the suit thecompany passed the special resolution and the confirmatory resolution accordingto the recommendations of the directors in August and September 1876. At asubsequent meeting of the shareholders, the shares of the plaintiff wereforfeited in accordance with Art. 107 to which I have referred because theplaintiff had brought this action and marked value was offered to him but hedid not accept it. Bacon V.C. held that the scheme was ultra vires as itamounted to buying of own shares and an illegal reduction of capital. As to theforfeiture of the plaintiffs share Bacon V.C. at p. 332 did not say that suchpower of forfeiture was had because the Act only sanctioned power of forfeiturefor non-payment of call but rather put it on the ground of public policy. Therewas an appeal from this decision. It was held by the Court of Appeal (James,Baggaley and Brett L. JJ.) affirming Bacon V.C. that the scheme of buying upthe shares of those share-holders who desired to retire was ultra vires andinvalid being either an attempt to reduce the capital without complying withthe provisions of the Companies Act or else a trafficking in its own shareswhich was not authorised by the memorandum. I shall have to deal with this partof this case more in detail hereafter when I deal with the second point in thepresent case. For our present purposes, I need only point out that eminentcounsel, namely, Cotton Q.C., Davey Q.C. and Macnaghten appearing for theappellant did contend before the Court of Appeal that the plaintiff had nolocus standi to continue the action as his shares had been forfeited under Art.107. James L.J. at page 334 during argument observed as follows:

We cannot listen to that argument. Any stipulation that ashareholder shall not appeal to a Court of Justice must be bad.

If forfeiture otherwise than for non-payment of call wasillegal, it is difficult to understand how such eminent counsel relied on thisclause to found their aforesaid argument and why this article was not held byBacon V.C. or the Lord Justices to be had because no such forfeiture wassanctioned by the Companies Act but was held had on the ground of its beingopposed to public policy being in restraint of legal proceedings.

22. I now pass on to more recent decisions to see how theCourts have understood and interpreted the Act, the Form E and the Table "A".Of course the point now before me was not in issue in those cases.

23. In the case of In re Dronfield Silkstone Coal Co.,(1881) 17 Ch. D. 76 : (50 L.J. Ch. 387), Jeseel M.R. observed at page 84:

As to forfeiture not only are there regulations given in thearticles in Table A but it is expressly referred to in the Act.

24. In Trever v. Whitworth, (1887) 12 A.C. 409 : (57 L.J.Ch. 28), Lord Herschell at page 417 said:

The forfeiture of share is distinctly recognised by theCompanies Act and by the articles contained in the Schedule which in theabsence of other provisions regulate the management of a limited liabilitycompany.

Lord Watson said at page 429:

Section 26 of the Act of 1862 and the regulations of Table"A" (17 to 22) show plainly that the legislature intended companiesto have the power of forfeiting shares.

Lord Macnaghten at page 438 said:

Forfeiture is contemplated by the Act of 1862; it ismentioned in S 26; every company is to return to the Registrar of Joint StockCompanies once a year the total amount of shares forfeited. There can be noquestion as to the power of a Company in a proper case to forfeit shares.

25. In Bellerby v. Rowland and Marwood Steamship Co., (1902)2 Ch. 14 at page 26 : (71 L.J. Ch. 541), Collins M.R. said that:

The justification of forfeiture rests upon the statuteitself.

At page 31 Cozens Hardy L.J. said:

Two propositions may be asserted without doubt. Firstly acompany may forfeit shares. This is recognised by S. 26, Companies Act 1862, aswell as by Table A.

26. I am referring to these passages to show that thelearned Judges held that both the Act and the Table "A" recognisedforfeiture. Indeed Lord Macnaghten does not even refer to Table "A"in the passage I have quoted. He refers to S. 26 and Form E and states thatforfeiture is contemplated by the Act. If S. 26 and Form E without the aid ofTable "A" recognises forfeiture, then what is the forfeiturecontemplated by the Act, apart from Table "A" It is not forfeiturefor any particular reason but forfeiture in general.

27. Phillips v. Manufacturers Securities Ltd., (1917) 116L.T. 290 : (86 L.J. Ch. 305) and Side Bottom v. Kershaw, Lease and Co Ltd.(1920) 1 Ch. 154 : (89 L.J. Ch. 113) are instances of cases where articlesauthorising the directors to require any shareholder who competed with thecompanys business to transfer his shares, at their full value to the nomineesof the directors were upheld although there is no such provision in the Act orin Table A.

28. The subject of forfeiture is dealt with in Lindley onLaw of Companies, 6th Edition, 1902 in Bk. III, Ch. 6, pages 722 to 730. ThereI find no statement that the Act contemplates forfeiture for non-payment ofcalls only and no other forfeiture. Nor do I gather anything to that effect fromBuckleys Companies Act, 10th Edn., page 597 et seq. In Stiebeis, Company Law,Edn. 3, page 206 in Halsburys Laws of England (Hailsham Edition), Vol. V,Arts. 492, 493 and in Gore Browns Joint Stock Companies, Edn. 34, p. 408 andin the students edition of Tophams Principles of Company Law to which I havebeen referred by Mr. Mitra, there are passages suggesting that forfeitureotherwise than for non-payment of calls is invalid. But those learned authorsdo not lay down this proposition on a construction of the Act and Table"A" but base themselves on the decision in Hopkinson v. Mortiner,Harley and Co., (1917) 1 Ch. 646 : (86 L.J. Ch. 467). With great respect to thelearned authors, I am bound to say that this decision ought not to be so widelyinterpreted but should be limited to the facts of that case. I shall deal withthat case in greater detail when I deal with the second point argued before me.

29. On the first point, then, my view is that the IndianCompanies Act, S. 32(2)(g) and Form E recognise forfeiture generally. In myjudgment, neither precedent nor principle compels me to hold that the Actsanctions forfeiture for non-payment of calls only. I regard the clauses inTable "A" as model regulations which may be usefully inserted in theArticles of Association of trading companies if they so choose. For theordinary purposes of an ordinary trading company, those regulations aregenerally found to be satisfactory and sufficient, but the companies are leftfree to provide their own rules including rules relating to forfeiture, havingregard to the nature and scope of their business, except that some of theclauses of Table "A" which do not include the forfeiture clauses haverecently been made compulsory by our Act. I find no good reason to hold thatthe forfeiture recognised in the body of the Act and in Form E is limited toforfeiture for non-payment of calls. Forfeitures otherwise than for non-paymentof calls were frequently in use, as the old cases, to which I have referred,show and if the legislature intended to do away with that it would haveexpressly said so. In other words, I am not of opinion that Table "A"controls the section or the form. My answer to the first question, therefore,is that the Act sanctions forfeiture generally, that is to say, forfeiture as ameans to get rid of a member who is in default either in payment of calls or inobserving or performing other rules and regulations of the Company. In thisview of the matter question (b) will not arise.

30. If I am wrong in this view then the second questionarises and I piss on to discuss that question. Re (b): The Association wasincorporated in 1923 under the Indian Companies Act (Act VIII [8] of 1913) as acompany limited by shares. The objects of the Association are inter alia:

(a) To acquire and take over all or any of the assets andliabilities of the present unincorporated Association known as the CalcuttaStock Exchange Association and to conduct the affairs of the Stock Exchangefounded by that Association and generally to support and protect the character,status and interest of brokers and dealers in stocks and shares on the StockExchange at Calcutta and elsewhere.

(b) To facilitate the transaction of business on the StockExchange and to make rules and bye-laws regulating the mode and conditions inand subject to which the business on the Stock Exchange shall be transacted andthe conduct of the persons transacting the same and generally for the goodorder and government of Members of the Association.

(c) To establish just and equitable principles, to settlepoints of practice and to decide upon any questions of business usage orcourtesy between or among members of the Association.

* * * * *

(d) To do all such other things as may be conducive to orincidental to the attainment of the above objects or any of them.

and the other objects set forth in its Memorandum ofAssociation. The capital of the Association is Rs. 3,00,000 divided into 300shares of Rs. 1000 each with power to increase or reduce the capital of theAssociation for the time being.

31. Clause 2 of the Articles of Association excludes theregulations contained in Table A. Clause 4 forbids the employment of the fundsof the Association in the purchase of the shares of the Association. Clauses 5and 6 deal with the qualification and conditions of membership. Clause 19provides that no share shall be allotted otherwise than upon the condition thatthe full amount payable thereon shall be paid or credited as fully paid up onallotment. Clauses 21 to 30 deal with suspension, expulsion and forfeiture, andhow the forfeited share is to be dealt with. Clause 31 gives the Association afirst and paramount lien on the shares and the sale proceeds thereof for thedebts, and liabilities of the member, such lien extending to all payments outof profits declared in respect of such share. Clause 32 confers on theAssociation power to sell the shares in enforcement of its lien subject tocertain conditions.

32. Clause 33 provides how the proceeds of sale in enforcementof lien are to be applied, namely:

33. The nett proceeds of any such sale shall be applied inor towards satisfaction of the debts, liabilities, or engagements, and theresidue (if any) paid to such member, his executors, administrators, committee,curator or other representatives.

33. As I have said, cls. 21 to 30 deal with the expulsion,suspension and forfeiture of shares. These articles afford means to theAssociation to get rid of a defaulting member. The shares being fully paid upunder cl. 19, there was no necessity in this Association to provide forforfeiture for non-payment of calls in respect of the shares. Therefore, thedefaults leading to suspension, expulsion and forfeiture contemplated by theseclauses cover a variety of misconduct which renders the member guilty of suchmisconduct an undesirable member. The main and primary purpose of these clausesis to get rid of such a member. The other provisions in these clauses, namely,what will happen to the share so forfeited, the power of sale or re-allotmentof the forfeited share and the appropriation of the proceeds of sale afterforfeiture are ancillary or incidental to the primary object and regulate theprocedure that has to be followed upon the expulsion and forfeiture. In spiteof the forfeiture, the member whose share has been forfeited continues to beliable for his dues without any deduction for the value of the share at thedate of the forfeiture.

34. Articles 31 to 33, however, give the Association thefirst and paramount lien upon the shares and proceeds of sale thereof for alldebts, liabilities and engagements of the member to or with the Association andthe means of enforcing such lien by sale. The power of sale given by thesearticles is primarily to enable the Association to realise its dues. Thisdistinction between sales under the two sets of articles, viz., 21 to 30 and 31to 33 is important and should be borne in mind.

35. Power of forfeiture otherwise than for non-payment ofcalls and power of compulsory expropriation of members by purchasing theirshares were well known in England and was usually taken by Joint StockCompanies in their deeds of settlement as will appear from the cases I havealready referred to. That similar clauses may be lawfully adopted by a similarbut un-incorporated Association governed by a deed of trust is shown by thecase of Official Assignee, Bombay v. K.R.P. Shroff & Ors., 59 I.A. 318 :(A.I.R. (19) 1932 P.C. 186). That such power of expulsion or forfeiture ispermissible in the case of companies limited by guarantee and not having ashare capital cannot be doubted. Form No. 253 at page 753, Form No. 253(a) atp. 757 and Form No. 254 at p. 762 of Part I of Palmers Company Precedents,15th Edn., are instances of such power of expulsion or forfeiture. It is clear,therefore, that there is no inherent vice or objection to these clausesregarded as terms of an agreement. They are not opposed to public policy. Thequestion, therefore, is whether a company limited by shares is precluded fromadopting such clauses by any provision in the Companies Act. In other words, isthe abandonment of these clauses, which are necessary and usual in the case ofsimilar associations in the nature of members club, the price the Associationhas to pay for the privilege of having the liability of its members limited byshares

36. Mr. Mitra contends that these clauses giving a power offorfeiture otherwise than for non-payment of calls and the appropriation of thesale proceeds in liquidation of its dues are prohibited by the Companies Act.Mr. Mitra seeks to place the Association on the horns of a dilemma, namely,either such power is an illegal reduction of capital or such appropriation ofsale proceeds is a trafficking in its own shares. The two lines of argument areas follows:

37. (a) Under S. 6 of the Act, the memorandum has to statecertain things. Those are the conditions of the memorandum. One of theseconditions is the amount of the share capital with which the company proposesto be registered and the division thereof into shares of a fixed amount.Section 10 of the Act prevents a company from altering the conditions containedin its memorandum except in the case and in the mode and to extent for whichexpress provision is made in the Act. The next step in the argument is that S.55 of the Act permits reduction of share capital under certain conditions only.Any reduction of capital otherwise than in accordance with the mode prescribedby that section is illegal. Forfeiture extinguishes the share which is forfeited.So forfeiture is reduction of capital at all times and as it is done withoutthe sanction of the Court it is not within S. 55 and therefore illegal. Butthere is an exception in the case of forfeiture for non payment of call only,because there is express provision in the Act for such forfeiture. Therefore,forfeiture otherwise than for non-payment of call is an unauthorised andillegal reduction of capital. Therefore the articles giving such power offorfeiture otherwise than for non-payment of calls are illegal and ultra viresthe company.

38. It will be noticed that the whole of this line ofargument is based on the assumption that a forfeiture of shares at all timesoperates as a reduction of capital, which in its turn, is based on the furtherassumption that the share is extinguished on forfeiture. We have to see whetherthese assumptions are well founded.

39. (b) The appropriation of sale proceeds of a forfeitedshare towards its dues amounts to buying the share for the dues. The dues arethe price indirectly of this buying and this is had under S. 64-A, CompaniesAct.

40. In support of the first line of argument Mr. Mitra hasreferred mo to Arthur Field-houses treatise on Book keeping at p 398 et seqand has argued that in the case of shares forfeited the practice ofbook-keeping is to deduct the amount of the forfeited shares from the amount ofthe subscribed and paid up capital and to show it under a separate head asforfeited shares account. After the shares are re-issued, the forfeited share accountmay be either credited to a reserve fund or utilised towards the liquidation ofan unrealisable asset such as preliminary expenses or good-will. This system ofbookkeeping, he says, clearly shows that, upon forfeiture, the share isextinguished, for, there cannot be a share without a shareholder andconsequently the capital account is automatically reduced and the danger isthat the amount paid up on the forfeited shares being thus taken out of thecategory of capital may be utilised by the company or its directors in payingdividends or in any other unauthorised manner so as to prejudice and injure theinterests of the creditors of the company. I do not accept that this practiceof book-keeping can affect the question I have to decide, namely, whether infact or in law there is a reduction of share capital on a forfeitures A glanceat the balance-sheet that was attached to table, "A" of the EnglishActs of 1850 and 1862 will clearly show that against capital were to be shownthe following particulars, namely, (1) number of shares, (2) the amount paidper share, (3) if there be any arrears of calls, the nature of the arrears andthe names of the defaulters, and (4) the number of forfeited shares. The sumtotal of all these four items constituted the capital. Form E, to which I havereferred, requires that the nominal share capital, the total number of sharestaken up, the number of shares issued and the consideration therefor, theamounts called up on each share, total amount of calls received includingpayment on application and allotment and certain other particulars are to beshown in the annual return to be filed under the Act. In the last mentioneditem is to be included whatever has been received on forfeited as well asexisting shares. Further down there is another item requiring disclosure of thetotal amount, if any, paid on shares forfeited stating the aggregate number ofshares forfeited. Thus the total amount of nominal capital, issued capital andthe amount of calls received including payments on application or allotment inrespect of forfeited as well as existing shares are fixed and earmarked ascapital and there can be no room for any mis-application of this capital eitherby the company or the directors and any misapplication will constitutemisfeasance on the part of the directors so as to render them liable under S.235 of the Act. Farther, if on a forfeiture the share is extinguishedaltogether then it becomes difficult to understand how or why table"A" provides for the sale of such non existent share. The Articles ofAssociation of this Association make the member whose share if forfeited tocontinue to be liable. The shares are and under cl. 19 of the Articles have tobe fully paid up. If surrender of fully paid up shares, according to LindleyL.J. in In re Denver Hotel Co., (1893) 1 Ch. 495 at p. 505 : (62 L.J Ch. 450),does not involve any release by the company of any of its rights, I do not seehow a forfeiture of a fully paid up share can operate as a reduction ofcapital, nominal or issued, where sale or re-allotment of the forfeited shareis authorised by the articles. The true position seems to me to be that theright of a particular shareholder is gone but the share considered as an unit,exists and is kept in suspense until another holder is found for it by sale orre-allotment. It is earmarked as a species of capital, namely forfeited share.

41. I now proceed to deal with the cases cited before me tosee whether they support Mr. Mitras contentions. It should be borne in mind thatnone of them except one was a case of forfeiture and the point now before mewas not before the Court. So the observations in those cases should not beunduly stressed.

42. The first case is the case of Hope v. InternationalFinancial Society, (1876) 4 Ch. D. 327 : (46 L.J. Ch. 200), to which I havealready referred. This was a case where the company proposed to purchase theshare of those shareholders who wished to retire by paying the purchase pricein cash. Bacon V.C. held that this was nothing but a diminution of the capitalwhich it was not competent to the company to do. James L.J. held that thecompany was on the horns of a dilemma. Either it was purchase of shares in thesense of trafficking in its own shares not authorised by the memorandum or itis an extinguishment of the shares and therefore a reduction of the capital ofthe company. It was a scheme to divide the assets between the share-holders, adevice, in fact to evade the provisions of the law regulating the reduction ofcapital. All the Lord Justices held that it was a reduction of capital. I donot think that this case helps Mr. Mitra. Here there was actual payment madeout of the capital and therefore an actual diminution of the capital and not amere notional reduction brought about by any system of book-keeping. Brett L.J.observed at p. 340:

But if it was not intended to re-issue these shares, then itseems to me to follow that the amount of capital represented by them wasnecessarily extinguished, It is true to say that the mere power to accept asurrender or a mere power of forfeiture does not alter the memorandum ofassociation, because it is only accepting a surrender from one share-holder forthe purpose of obtaining another share-holder; the amount of capital issuable,or which the company has power to issue, is not modified at all.

This passage appears to me to be against the contention ofMr. Mitra. It indicates that if shares are re-issued or intended to bere-issued then there is no extinguishment of any part of the capital, nominalor actual. Forfeiture and surrender equivalent to forfeiture is obtaining ofone member for another member.

43. In re Drongield Silkstone Coal Co., (1881) 17 Ch. D. 76: (50 L.J. Ch. 387), has been discussed before me. In this case, there was noprovision in the memorandum enabling the company to purchase its own shares.Article 10, however, authorised the directors to purchase the companys shares.There were disputes between the directors namely. Ward on one side and Addy& Batt on the other. Eventually, it was agreed that the company wouldpurchase Wards shares and necessary documents were executed in 1872 and Wardwent out of the company. His shares were registered in the name of the companyitself. The affairs of the company flourished for several years thereafter butultimately in 1879 the company went into liquidation. The liquidators includedWard in the list of contributories. Ward applied to have his name removed fromthe list. The matter was heard by Jessel M.R. The learned Master of the Rollsreferred to Art. 10 and pointed out that the article was as general as possibleand contemplated dealing with the shares for profit. He held that thetransaction was invalid for the following reasons: (i) that the transaction wasa trafficking in its own shares and the article which authorised it went beyondthe memorandum; (ii) that the company could not be a member of itself; (iii)that the transaction was a reduction of capital without the sanction of theCourt. Accordingly he held that Wards name should be in the list ofcontributories. Ward appealed and the Court of Appeal reversed the decision ofJessel M.R. I do not propose to deal with the reasonings of the Lord Justicesbecause in a subsequent case to which I shall presently refer the House ofLords disapproved of those reasons although they supported the actual decisionon the facts and particularly having regard to the conduct of the parties andthe lapse of time. In that case the House of Lords approved of the reasoning ofthe Master of the Rolls. I therefore take this opportunity to quote only twopassages from the judgment of Jessel M.R. which, I think, show the nature andeffect of forfeiture. At page 84 the learned Master of the Rolls observed asfollows:

As to forfeiture, not only are there regulations given inthe articles in Table A, but it is expressly referred to in the Act. It isplain that forfeiture is not treated as a diminution of capital. The companydoes not pay anything on a forfeiture of shares; it simply takes them away froma share-holder who cannot pay his calls. The power of forfeiture is the meansof enforcing payment if possible. As long as the shares are worth anything theholder does not let them be forfeited, and pays; it is only when they are worthnothing, and he cannot pay, that he allows them to be forfeited.

Then after quoting a passage from the judgment of James L.J.in Hope v. International Financial Society, (1876) 4 Ch. D. 327 at p. 336 : (46L.J. Ch. 200), the Master of the Rolls said at p. 85:

Now that applies to forfeiture with very great force. It isquite plain that it is not the meaning of the Act that the power of forfeitureshould be interfered with, nor can forfeiture be treated as a diminution ofcapital.

In this case there was actual payment by the directors. Thiswas not a case of forfeiture, The Master of the Rolls makes it clear thatforfeiture does not involve any payment and cannot be treated as diminution ofcapital.

44. Mr. Mitra has strongly relied on the case of Trevor v.Withworth, (1887) 12 A.C. 409 : (57 L.J. Ch. 28). This was also a case ofpurchase by the company of its own shares. It was not a case of forfeiture. Inthis case it was found as a fact that capital had been used in purchasing theseshares. See per Lord Herschell at p. 416, per Lord Watson at p. 430 and perLord Macnaghten at p. 434. This being the position the transaction amounted bothto an unauthorised reduction of capital and to illegal trafficking in sharesand could not be supported at all. There are, however, certain observations asto the effect of forfeiture which are useful and instructive. Said LordHerschell at pp. 417-8 as follows:

It is urged that the views I have expressed are inconsistentwith the forfeiture and surrender of shares in a company. I do not think so.The forfeiture of shares is distinctly recognised by the Companies Act, and bythe articles contained in the schedule which, in the absence of otherprovisions, regulate the management of a limited liability company. It does notinvolve any payment by the company, and it presumably exonerates from futureliability those who have shewn themselves unable to contribute what is due fromthem to the capital of the company. Surrender no doubt stands on a differentfooting. But it also does not involve any payment out of the funds of thecompany. If the surrender were made in consideration of any such payment itwould be neither more nor less than a sale, and open to the same objections. Ifit were accepted in a case when the company were in a position to forfeit theshares, the transaction would seem to me perfectly valid. There may be othercases in which a surrender would be legitimate. As to these I would repeat whatwas said by the late Master of the Rolls in In re Dronfield Silkstone Coal Co.,(1881) 17 Ch. D. 76 : (50 L.J. Ch. 387). It is not for me to say what thelimits of surrender are which are allowable under the Act, because each case asit arises must be decided upon its own merits.

Lord Watson observed at p. 424 as follows:

When a share is forfeited or surrendered, the amount whichhas been paid upon it remains with the company the shareholder being relievedof liability for future calls, whilst the share itself reverts to the company,bears no dividend, and may be re-issued. When shares are purchased at par, andtransferred to the company, the result is very different. The amount paid up onthe shares is returned to the shareholder; and in the event of the companycontinuing to hold the shares (as in the present case) is permanently withdrawnfrom its trading capital.

His Lordship at pp. 428-9 made the following observations:

When a company, in order to get rid of a troublesomeshareholder buys his shares and continues to hold them as in In re DronfieldSilkstone Coal Company : (1881-17 Ch. D. 76 : 50 L.J. Ch. 387) the object maybe different, but the result so far as regards the capital of the company, is preciselythe same as if it had purchased the shares as an investment. If the shares arepurchased with the view of being re-sold, that is simply a speculation with thefunds of the company. If they are purchased with the view of their beingretained by the company, that is a permanent withdrawal of the money investedin them from the trading capital of the company. I do not agree with CottonL.J. in thinking that if such a transaction is invalid no forfeiture orsurrender could be supported, When shares are forfeited or surrendered and notre-issued, that affects only the nominal amount of the shares so far as unpaid;when they are bought and not re-issued that diminishes the paid up as well asthe nominal capital.

This passage was relied on by Mr. Mitra but I dont think ithelps him in view of the fact that under Art. 19 of the applicant associationall its shares are fully paid up. On the other hand, this passage clearlyindicates that in the case of forfeiture of fully paid up shares not even thenominal capital is affected. There is no question of the paid up capital beingdiminished. I have endeavoured to show by reference to Form E that on aforfeiture of shares, whether fully paid up or partly paid up, there is noteven a nominal diminution of capital. In the annual return the nominal capitaland the paid up capital in respect of all shares, existing or forfeited, areear-marked and kept intact. The following observations of Lord Macnaghten at p.438 clearly establish this:

One word with regard to powers of forfeiture and surrenderof shares, which were referred to in argument as affording some support to theviews of the respondents. Forfeiture is contemplated by the Act of 1862: it ismentioned in S. 26; every company is to return to the registrar of joint-stockcompanies once a year the total amount of shares forfeited. There can be noquestion as to the power of a company in a proper case to forfeit shares.

The passages I have quoted above clearly indicate thatforfeiture does not involve any payment; the paid up capital remains with thecompany; if forfeited share is re-issued there is no withdrawal of any capitaleven if the share was partly paid up. I do not think that this case is anyauthority for the proposition that a forfeiture of share operates automaticallyas a reduction of capital.

45. The next case to be considered is that of Bellerby v.Rowland & Marwood Steamship Co. Ltd., (1902) 2 Ch. 14 : (71 L.J. Ch. 541).This case was concerned with the validity or otherwise of a surrender of partlypaid up shares. The surrendered shares were not issued. Kekewhich J. held thatthe surrender was illegal and null and void but he dismissed the action on theground of delay. The plaintiffs appealed. Collins M.R. held (p. 22) that it wasnot a case of gratuitous surrender because it involved the release by thecompany to the surrenderors of the right to call up the unpaid balance of 1 oneach share and there being thus an exchange of consideration the transactionwas a sale and purchase rather than a surrender and since Trevor v. Whitworth,(1887-2 A.C. 409 : 57 L.J. Ch. 28), this is not permissible. At p. 25 thelearned Master of the Rolls observed as follows:

I can see no distinction in principle between returning to ashareholder a part of the paid up capital in exchange for his shares and wipingout his liability for the uncalled up sum payable thereon. Both methods involvea reduction of the capital which, as Lord Watson pointed out in Trevor v.Whitworth, (1887-2 A.C. 409 : 57 L.J. Ch. 28), persons dealing with the companyare entitled to rely upon as existing either as paid up or as still to becalled up, and such a reduction, therefore, can only hold good if sanctionedunder the conditions prescribed.

His Lordship at p. 26 referred to the observations ofLindley L.J. in In re Denvor Hotel Co., (1893) 1 Ch. 495 at p. 505 : (62 L.J.Ch. 450), but did not think it necessary to consider whether surrender of fullypaid up shares could be supported. Cozens Hardy L.J. held that the companyparted with 415, a portion of its assets, in consideration of the acquisitionof the shares and this was a purchase of the shares and is directly within theauthority of Trevor v. Whitworth, (1887 2 A.C. 409 : 57 L.J. Ch. 28). At p. 32Cozene. Hardy L.J. made the following observations which were relied on by Mr.Mitra:

It is not necessary, in my view, for the purpose of thepresent case to go beyond this. But a careful consideration of the speeches ofLord Macnaghten and Lord Watson in Trevor v. Whitworth, (1887-2 A.C. 409 : 57L.J. Ch. 28) and British and American Trustee and Finance Corporation v.Couper, (1894 A.C. 399 : 63 L.J. Ch. 425) has satisfied me that the realobjection to a surrender of shares does not lie in the fact that money has beenpaid by the company to acquire the shares. The objection is founded on a largerproposition. A company cannot be a shareholder in itself. Every surrender ofshares, whether fully paid up or not, involves a reduction of capital which isunlawful except when sanctioned by the Court under the Companies Acts of 1867and 1877. Forfeiture is a statutory exception and is the only exception. For Iregard a surrender, under circumstances which would justify a forfeiture, asmerely equivalent to a forfeiture.

I find it difficult to follow bow a surrender of fully paidup share involves a reduction of capital unless it be for the reason that inthe annual return in Form E there is no provision for showing the amount ofsurrendered shares and therefore the directors may in the return deduct thesame out of the issued capital and thereby reduce the issued capital and enablethem to deal with the amount in any manner they please to the prejudice of thecreditors. Further, the statement that every surrender involves a reduction ofcapital is opposed to the view of Lindley L.J. to which I have referred.Provision for forfeiture with a mandatory provision for sale or re-allotment ofthe forfeited share appears to me to prevent any reduction. The case is stillmore apparent when the share is fully paid. The passages I have quoted fromTrevor v. Whitworth, (1887-2 A.C. 409 : 57 L.J. Ch. 28) and the judgments ofthe learned Lords generally in that case do not appear to me to support theobservations of Cozens Hardy L.J. in Bellerby v. Rowland and Marwood SteamshipCo. Ltd., (1902) 2 Ch. 14 at p. 32 : (71 L.J. Ch. 541). With great respect tothe learned Lord Justice, I cannot rely on this obiter dictum as establishingthe proposition that a forfeiture of shares whether fully paid up or partlypaid up must of necessity amount to a reduction of capital. I do not think thisbroad proposition can be deduced from Trevor v. Whitworth, (1887 2 A.C. 409 :57 L.J. Ch. 28) to which I have already referred.

46. The case of Hopkison v. Mortiner, Harley and Co. Ltd.,(1917) 1 Ch. 646 : (86 L.J. Ch. 467), requires careful consideration for Mr.Mitras argument is principally based on this case. The company in this casewas incorporated in 1912 with a capital of 100,000 divided into 9900 preferredshares of 10 each and 1000 deferred shares of 1 each. All deferred shares and8445 preferred shares were issued. All these issued shares (except 7 preferredshares) had been fully paid up. Article 22 gave the company a first andparamount lien on all shares other than fully paid up shares for all debts dueby the member to the company. Article 23 gave a power of sale for enforcingthis lien and also gave & power to the board to forfeit the shares subjectto such lien. Article 24 provided in the case of sale, for application of thesale proceeds towards satisfaction of the debts of the member. Article 25provided, in the case of forfeiture, that the forfeiture should include alldividends. Article 99 declared that all forfeited shares should be deemed to bethe property of the company and the Board might sell, re-allot, re-issue orotherwise dispose of the same. There were other articles expressly providing inthe usual manner for forfeiture for non-payment of any call or instalment butno question arose in this case as to that power of forfeiture: see p. 651.Thus, it is clear that there were two sets of clauses, one set related toforfeiture pure and simple which was not considered in this case, the other setrelated to lien and power of forfeiture was attached to it as a means ofenforcing this lien. The plaintiff was a former manager of the company and held100 fully paid up shares. The company had claims against the plaintiff. Inthese circumstances of 6th June 1916, the directors issued a notice of meetingfor 17th June 1916, for passing a resolution (inter alia) altering Art. 22, bydeleting the words "other than fully paid up." The effect of thisalteration would give the company a lien on all fully paid up shares anddividends thereon for the liabilities of the members and render the shares anddividends liable to forfeiture in enforcement of the lien. The plaintiff afterwriting a letter to the directors to abandon this part of the resolution filedthis suit on 16th June 1916, for a declaration that the resolution was ultravires. The resolution, however, was passed and duly confirmed. After referringto the group of articles relating to lien and stating that the other group ofarticles relating to forfeiture were not relevant, Eve J. summarises the rivalcontentions at pages 651 and 652. After dealing with the preliminarly questionas to whether the action was premature or not, with which we are not concerned,his Lordship at page 653 passes on to the question whether the forfeiture underthis power would or would not result in an illegal reduction of capital. Iagain emphasise that his Lordship was here dealing with power of forfeitureattached to lien and not with the other power of forfeiture. Therefore all theobservations made by his Lordship as to power of forfeiture must be read asreferring to this special kind of power of forfeiture for enforcing the lien.

47. After referring to S. 26 of the Act of 1862 and Arts, 17to 22 of the Table "A," his Lordship at page 653 proceeded asfollows:

But I do not think it follows from anything to be found inthe Act or in any reported case that reduction of capital brought about bymeans of a forfeiture for non-payment of debts due from a member generally asdistinct from debts due from him as a contributory, is legalized without beingsanctioned by the Court.

Even if the forfeiture is made without any part of the valueof the shares being set off against the debt, the capital is reduced by theamount paid up on the forfeited shares and if on the other hand the debt ispartially or wholly satisfied the transaction involves not only the gamereduction but what is equivalent to an actual payment by the company and howcan this operation be said to be anything but a purchase by the company of itsown shares

At page 654 his Lordship makes the following observations:

But, as the article stands, I am of opinion it is invalid inthis respect, and that the board cannot forfeit shares for non-payment of thedebts and liabilities therein referred to without bringing about an illegalreduction of the companys capital in any event and a purchase by the companyof its own shares in some events, It may be that a reduction in capital broughtabout by the forfeiture of fully paid shares inflicts no injury on thecreditors or con tributaries but this consideration cannot legalize a procedurewhich for other reasons is illegal and it does not exist if in fact the valueof the shares which may be greatly in excess of the amount paid up on them-hasto he brought into account with the defaulting member.

His Lordship proceeds on the assumption that forfeiturealways involves reduction of capital but gives no reasons for this assumption.He does not consider or even refer to Form E.

48. Then Eve J. goes on to discuss the third point, namely,whether such a power attached to lien constitutes a clog on the equity, Afterreferring to certain authorities his Lordship states his conclusion at page 655in the following terms:

Such being the state of the law, I think this power toforfeit the plaintiffs shares on his failure to redeem on a seven days noticeis a clog on the equity and as such invalid and ultra vires.

Bearing in mind that by the words "this power toforfeit" his Lordship was referring to the particular power of forfeitureattached to lien, I respectfully agree with the conclusions arrived at by thelearned Judge on this point of clog on equity. But with utmost respect to thelearned Judge I cannot subscribe to the broad general proposition thatforfeiture for debts, as distinct from calls, amounts to an illegal reductionof capital. The proposition, in my humble opinion, should be qualified so as tosay that a forfeiture in enforcement of a lien on shares for debts, as distinctfrom calls, due by a member to the company under a special article attachingthe right of forfeiture to lien amounts to a reduction of capital. This is whatI think the learned Judge meant to lay down for I find that at page 655, afterreferring to In re Dunlop, (1883-21 Ch. D. 583 : 31 W.R. 211), his Lordshipmade the following observations:

I am not saying that a power to forfeit a contributorysshares for non-payment of debts generally is an invalid power to be inserted inthe articles of a company registered under the Companies Acts, but In reDunlop, (1883) 21 Ch. D. 583 : (31 W.R. 211), is no authority for saying it isa valid one.

I think his Lordship was here referring to the ordinaryclauses relating to forfeiture. It is to be noted that in the head-note to thiscase the reporter after referring to Arts. 22 and 23, was careful to insert thewords "under this power" in item (2) of the summary of the decision,obviously referring to the power of forfeiture given by those articles relatingto lien. In my opinion, therefore, the observations of Eve J. should be takenas referring to that power of forfeiture alone.

49. That there is a distinction between forfeiture pure andsimple and a forfeiture in enforcement of a lien which I have endeavoured toexplain also appears from the judgment of Luxmore J., in In re Bolton; Ex parteNorth British Artificial Silk Ltd., (1930) 2 Ch. 48 : (99 L.J. Ch. 209). Inthat case Art. 29 dealt with lien and included a power of forfeiture inenforcement of lien and there was another group of Arts. 30 to 35, which dealtwith forfeiture for non-payment of call. Luxmore J. after referring to Art. 29,under the heading "lien" which was similar to the article in the caseof Hopkinson v. Mortimer, Harley and Co. Ltd., (1917) 1 Ch. 646 : (86 L.J. Ch.467), and Arts. 30 to 35, under the heading "Forfeiture of shares"observed as follows at page 58:

This group of articles is in the usual and well known form.The company has purported to act under the powers in this particular group andcot under Art. 29..... The power in Arts. 33 to 35 is obviously a separate anddistinct power from that in Art. 29, and to my mind it would be contrary to allthe rules of construction to read a proviso on a distinct power conferred for adistinct purpose by one article as applicable to an equally distinct powerconferred for an equally distinct purpose by another group of articles in thesame articles of association. I am satisfied that the forfeiture of the 8200shares by the resolution of 11th October 1928, was a valid and effectiveforfeiture and I so hold.

The case of Hopkinson v. Mortimer, Harley and Co. Ltd.,(1917) 1 Ch. 646 : (86 L.J. Ch. 467), was cited before Panckridge J. in thecase of Surajmull Mohta v. Ballavdas Mohta, 63 Cal. 531. In that case it wasnot argued by Mr. S.N. Banerjee that the articles of this very association wereultra vires, although he relied on the Judgment of Eve J. At page 533Panckridge J, observed as follows:

He relies on the judgment of Eve J. in Hopkinson v.Mortimer, Harley and Co. Ltd., (1917) 1 Ch. 646 : (86 L.J. Ch. 467). There itwas held that alien held by the company on the shares of a member being anequitable charge in the nature of a mortgage the power to forfeit the membersshares on his failure to redeem on a seven days notice was a clog on theequity of redemption and as such invalid and ultra vires.

In my opinion in this case these considerations do notarise, because the association did not attempt to enforce their lien by sale,but purported to act under quite different powers which came into operation oncertain events happening which had nothing to do with the registered share heldby the shareholder. If the association had been purporting to exercise the liengiven them under Art. 31, then the legality and extent of Art. 33, would becomematters for consideration. But as things stand, in my opinion the question doesnot arise. The distinction between articles authorising forfeiture and articlesproviding for a lien is recognised in In re Bolto; Ex parte North BritishArtificial Silk, Ltd., (1930) 2 Ch. 48 : (99 L.J. Ch. 209), Mr. Banerjeemaintains that that case, properly applied, is of assistance to him, becauseit. was there held that in the circumstances the company could claim no morethan the difference between the amount received on the re-allotment of theforfeited shares and the amount due at the date of forfeiture. The answer, Ithink, to this is that the language of the articles in that case was quitedifferent from the language which is before me, and there was nothing sodrastic in those articles as provision for the extinction of all interestincidental to the shares.

50. On a consideration of the provisions of the Act, and thedifferent decisions to which I have been referred, I have arrived at theconclusion that the Articles of this Association relating to forfeiture arenot, having regard to the nature and scope of its objects, ultra vires theAssociation or repugnant to any provision of the Act. Exercise of such power offorfeiture, specially in view of the fact that under Art. 19, all the shares ofthe Association are fully paid up at the time of allotment, does not bringabout any illegal reduction of capital in contravention of S. 55 of the Act.Nor do I think the exercise of this power of forfeiture in the circumstances ofthis case amount to a buying of its own share so as to offend against S. 54A ofthe Act. Buying of shares imports an agreement between the buyer and theseller. Forfeiture is wholly inconsistent with any idea of agreement. Further,as I have tried to explain, there is a difference between sale after forfeitureand a sale in enforcement of a lien. In the latter case, the primary object ofthe sale is the realisation of the dues. In the former case the sale isincidental to the forfeiture, which has preceded and is the mode of disposingof the share which has come into the hands of the Association as a result offorfeiture. It is true in both cases of sale the sale proceeds are appropriatedtowards the dues of the Association and other members but the primary object ofsale after forfeiture is not to realise the dues or to release the debt but todispose of the forfeited share so as to find one shareholder for another. Theliability of the member whose share has been forfeited continues. Thetrafficking in shares prohibited by S. 54A, imports the idea of some actual paymentdirectly or indirectly in the initial acquisition of the share. In all thecases cited there was an actual payment in cash or actual release of a debt byarrangement between the company and the member.

51. Re: (c) - The last point argued by Mr. Mitra is thatassuming the power of forfeiture is valid the Association cannot exercise itfor its own benefit so as to prejudice the defendants right under the chargecreated by the decree in his favour. His argument is as follows: The decreecreated a charge in his clients favour as far back as 20th December 1939. TheAssociation was notified about the charge. There was an actual attachment bymeans of the prohibitory order dated 29th August 1940. The Association actedupon the decree and the order and actually paid Rs. 1000. Now the Associationcannot turn round and capriciously exercise the power of forfeiture so as tonullify the right of the defendant. This argument overlooks the nature of theshare. The share was subject to the articles and all the incidents thereof. Theliability to forfeiture is, as it were, an inherent vice or defect to which theright of the member is subject. Creditors of the member can have no higherright. The decree and the attachment affected the right, title and interest of themember, which was subject to this liability to forfeiture all the time. Theright of the Association was dormant when it made the payment. The inchoateright has since ripened into full right. I do not see that there is anyquestion of estoppel here.

52. Mr. Mitra has referred me to the case of BradfordBanking Co. Ltd. v. Henry Briggs, Son and Co., Ltd., (1886) 12 A.C. 29 : (56L.J. Ch. 364). That case appears to me to be clearly distinguishable and notapplicable to the facts of the case now before me, for, here, the Associationis not claiming any right on the lien clauses but is insisting on its rightsunder the forfeiture clauses and the incidents thereof. The share on which thedefendant is claiming rights as a charge-holder and attaching creditor wasalways subject to the infirmities imposed thereon by the forfeiture clauses.The question of priority cannot therefore arise. The cases of Rainford v. JamesKeith and Blackman Co. Ltd., (1905) 2 Ch. 147 : (74 L.J. Ch. 531) and ImperialBank of India v. U Rai Thu and Co. Ltd., 50 I.A. 283 : (A.I.R. (10) 1923 P.C.211), were also not cases of forfeiture. The question in those cases were aboutpriority between persons claiming charge. In the case before me, the real pointis not of priority at all. In my judgment the question I am considering must beanswered in the affirmative.

53. The result is that in my opinion this application shouldbe allowed with costs as of a motion. As between the Association and itsSolicitors, I certify for 3 days hearing and for two counsel.

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Naresh Chandra Sanyalvs. Ramani Kanto Roy (21.04.1943- CALHC)