Holding

Mere appointment of a receiver, attachment, or pledge of shares does not deprive the registered holder of the shares of the rights of a member, including the right to vote and to requisition an extraordinary general meeting under s.169 of the Companies Act, 1956.

Summary

The Collector of Kanpur appointed a receiver over Swadeshi Cotton Mills Ltd. and ordered the seizure, attachment and pledge of its 10 lakh shares in Swadeshi Polytex Ltd. The Cotton Mills Company, together with four other shareholders, requisitioned an extraordinary general meeting of Polytex under s.169 of the Companies Act, 1956. The respondents argued that the appointment of the receiver, the attachment and the pledge deprived the Cotton Mills Company of its status as a member and its right to vote or requisition the meeting. The Supreme Court held that a receiver’s appointment, attachment of shares or pledge does not divest the legal owner—whose name is entered in the register of members—of the rights of a member, including voting and the right to requisition a meeting. Consequently the extraordinary general meeting was validly called. The appeal was dismissed with costs.

Issues considered

Whether the appointment of a receiver under the U.P. Land Revenue Act deprives a shareholder of the rights of a member under the Companies Act, 1956.
Whether attachment of shares under s.149 of the U.P. Land Revenue Act affects the shareholder’s voting rights.
Whether pledge of shares under the Indian Contract Act, 1872 curtails the shareholder’s rights.
Whether an order under the Industries (Development and Regulation) Act, 1951 impacts the shareholder’s voting rights.

Legislation cited

Code of Civil Procedure, 1908s. Order XL, s. Rule 51, s. Rule 60, s. Rule 64, s. Rule 76, s. Rule 77
Companies Act, 1956s. 137, s. 150, s. 153, s. 153B, s. 169, s. 172, s. 176, s. 187B, s. 187C, s. 41, s. 87
Indian Contract Act, 1872s. 172, s. 173, s. 174, s. 175, s. 176, s. 177, s. 178A
Industrial Development & Regulation Act, 1951s. 18AA(1)(a)
Presidency Towns Insolvency Act, 1909s. 17
Provincial Insolvency Act, 1920s. 28(2)
U.P. Government Electrical Undertakings (Dues Recovery) Act, 1958
U.P. Land Revenue Act, 1901s. 149, s. 182A

Subjects

shareholder rightsreceiver appointmentattachment of sharespledge of sharesextraordinary general meetingsection 169 Companies ActU.P. Land Revenue ActIndustrial Development and Regulation Actvoting rightscompany law

Judgment

A

BALKRISHAN GUPTA AND ORS ..

B v•.

SWADESHI POLYTEX LTD. AND ANR.

February 12, 1985

[E.S. VENKATARAMiAll AND SABYASACIU MUKHARn, JI.]
c
.. Companies Act, l9S6-Sectlons 41, 87, 137, ISO and· 169-Member/
sl:are-holder of a· cOmpany-Meaning of-When does a person cease to be a
member/shareholder-Rights and Privileges of a shareholder when a Receiver
i.r appointed in respect of the shares-Scope of-Sections 182A~ 149 of the
U.P. Land R~rtnue Act 1901and1. SI and Order XL o/C.P.C.

D . · U.P. Land Rerenue Act 1901, ss. IB2A, 149 ands. SI and order XL of
C.P.C.-Appofntment of Receiver In respect of shares-Attachmeni' and Pledge
of sharer-Whether it deprlve1 the' shareholder of irs title or right to vote and
other privllege~Whether ownership of shares vests in the Recei11er-A charg-
ing order and order of attachment-Distinction between.

Industrial (DeP<lopment and Regulation) Act 1951, s. I BAA(]) (a)-
Order of Central Go1ernment taking m~r management of shareholder-company-
Whether deprive1 the share·holder company of its right to vote in respect of
shares. ·

Indian Contract Act 1972-SectlonJ 112 and 178A-P1edge and
mortgage-Distinctl~n between.
F
Section 169 (1) of'the Companies Act provides that the Board of .
directors t..f a CC'rnpany shatJ., on the requisition pf such number of members
of the compaOy as is specified in sub-section (4). forthwith proceed duly to
call an extraordinary general meeting of the company, Sub-section 4(a) says
, that the number of members entitled to requisition a·- meeting in regard to
any matter shall be1 in the case of a company having a share capita], such"
G number of them as held at the date of the deposit of the requisition, not
Jess than one-tenth of suCh of the paid up capital of the compJny as at that •
. date carries the right of voting in regard to that matter.

The Swadeshi Cotton Mills Company Ltd. (for short, the Cotton Mill"'
Company!, bad 10 lakb• share• out or 39,00,000 shares or R,s. 10/ • each in •
H the respondent Swadesbi Polyte• Ltd. (for short, tho Polyte• Company). On
BALKRISHNA v. SWADESHI POLYTEX 8S5

27th October, 1977, the Collector of Kanpur passed an order under s. 182A A
of the U.P. Land Revenue Act 1901 (for short, the Land Revenue Act,
read with s. 5 of the U.P. Government Eleclrical Undertakings (Dues
Recovery) Act 1958 appointing a Receiver in respect of the Cotton Mi1Is
Company, since it could oat meet the wage bill, the dues of the U.P.
Electricity Board and several other monetary claims against it from about
1975~76 on account of a serious set back in its financial position. By tho
said order, he empowered the Receiver to seize 1 lak:h of shares of the B
Polytex Company and to pledge them in favour of the State Governu1ent of
Uctar Pradesh against a Joan for !he purpose of meeting the dues payable
to the employees of the Cotton Mills Company. He made a further order
under s. I 49 of the Land Revenue Act re~d with s. S of the U.P. Govern·
meat Electrical Undertakings (Dues Recovery) Act 1958 attaching the
remaining 9 lakhs shares of the Polytex Company held by Cotton Mills
Company and empowering the Receiver to seize them. Pursuant to the
c
orders of the Collector, the Receiver seized 10 lakhs shares held by the
Cotton Mills Comp<Jny ond pledged 3.5 lakhs shares in favour of the
Governmeo of U.P. and kept the remaining 6.S Jakbs share~ with him.

The Cotton Mills Company and four others share-holders who D
together held 10,01,950 share of Rs. JO each in the Polytex Company
sent a n~tice to the Polytex Company under s. 169 of the Act requiring the
Board of Directors of PolyteJt Company to consider and pass c'ertain resolu-
tions regarding removal of its Managing Director and three directors and
appointment of some other persons in their place. Pursuant to such requisi·
tions, the directors of the Polytex Company resolved to hold the extraordi·
nary meeting on March 28, 1984. However, the meeting CC'Uld not be held,
since some of the share holders had obtained temporary injunctions restrain- E
ing the holding of the meeting. The matter ultimately came up before the
Supreme Court in Special Leave Petitions when it clirected the High Court
to !Dake an order for holding the meeting notwithstanding any order of
injunction etc, issued by any other court or authority in India. Accordingly,
the meeting was fixed for 14th August 1984. But, in the meanwhile,
appeltant No. 1 moved an application before the High Court, in an appeal
already pending between the Cotton Mills Company and the Polytex Corn-
F
pany questioning the right of the requisitionists to issue notice under s. J 69
of the Act to call the extraordinary general meeting. The High Court
dismissed the application Hence this appeal by Special Leave.

The appeJJants contended that : (1) Since a Receiver had been appoint-
ed by the Collector in respect of the shares held by the Cotton Mills Com- G
pany and they had also been attached, the shares held by the Cotton Mills
Company could not be taken into consideration for determining the required
qua1ification to issue the notice under s. 169 of the Act requisitioning the.
extraordinary general meeting and that if those shares were omitted from
consideration then the shares held by the other requisitionists would not be
sufficient to issue the said notice. In other words the extraordinary general
111eetin~ had not been validly called since the Cott9n Mills Company had
ff
\
856 SUPRl!Ml! COURT REPORTS (1985) 2 S.C.R.

A ceased to enjoy the privileges or a member of the Polytex Company by
reason of the appointment of a Receiver by the Collector of Kanpur in
respect of the ten lakhs shares in the Poly! e Company held by the Cotton
Mills Company, the attachment of the 9 lakbs shares out of the said 10
lakbs and also the pledge of 3,50,000 shares out of the said 10 lakhs shares
with the Government of Uttar Pradesh as security for the loans advanced by
B it; (ii) The order of the Collector being an order in the nature of a charging
order; the Receiver had obtained an equitable right in the shares in question
and there being no other legal or equitable right which would prevail over
it, the Cotton Mills Company bad lost its right to the shares; and (iii) By
virtue of an order made by the Central Government on April 13, 1978
under s. !SAA (I) (a) of the Industrial (Development & Regulation) Act
1951 taking over the management of Swadeshi Cotton Mills along with its
c five other industrial units, the Cotton Mi11s Company had lost the right to
exercise its voting rights in respect of the shares in question.

Dismissing the appeal,

HELD : 1. (i) In the Act, the expressions 'a member', 'a share..
D bolder' or 'holder of a share' are used as synonyms to indicate the person
who is recognised by a company as its owner f0r its purposes. What does
ownership of a share connote ? Ownership in its most comprehensive
signification says Salmond, 'denotes the relation between a person and any
right that is vested in him. That which a man owns in this s~nse is a right'.
The right of ownership comprises benefits like claims, liberties, powers,
immunities and privileges and burdens like duties, liabilities, disabilities,
Whatever advantages a man may have as a result of the ownership of a
E
right may be curtaBed by the disadvantages in the form of burdens attached
to it. As observed by Dias, an owner may be divested of his claims etc.
arising from the right owned to such an extent that be may be left with no
immediate practical benefit. He remain the owner nonetheless because his
interest wiJl outlast that of other persons in the thing owned. The owner
possesses that right which ultimately enables him to enjoy all rights in the
F thing owned by attracting towards himself those rights in the thing owned
wbich for the time being belong to others, by gf;ltting rid of the correspond·
ing burdens. [877 D·F]

1. (ii) Section 41 of tho Act defines the expression "member'~ of a
company. Subject to s. 42 of the Act, a company or a body corporate may
G also become a member. When once a person becomes a member, he is
entitled to exercise all the rights of a member until he ceases to be a
member in accordance with the provisions of the Act. A persons ceases to
be a member by transferring his share to another person, by transmission of
his share by operation of law, by forfeiture of share, by death, or by any
other reason known to law. A _person who is a shareholder of a company
has many rights under the Act. Some of them, are : (i) the right to vote at
all meetings Section 87. (ii) the right to requisition an extraordinary general
meeting of the company or to be a joint requisitionist (Section 169), (iii) the
H
BALKR,Sl!AN v. SWADESl!I POLYTEX 857
• A
> right to receive notice of a general meeting (Section 172), (iv) the right to
appoint proxy and inspect proxy register (Section 176), (v) in tho case of
a body corporate which is a member, the right to appoint a representative
to attend a general meeting on its behalf (Section 187) and (vi) the right to
require the company to circulate his resolution (Section 188). Therefore, it
is clear from the relevant provi"ions of the Act which are referred to above
that a member can participate and exercise bis vote at the meetings of a
company in accordance with the Act and the ar iticles of association of the B
company. (875 G, 876 A, 878 A·B,]

2. (i) Section l SO of tlie Act requires every company to keep a
register of members containing the names, address and the occupation, if
any, of each member and other particulars mentioned therein. The privileges
of a member can be exercised by only that person whoso name is entered in C
the Register of Members. A Receiver whose name is not entered in the
Register of Members cannot exercise any of these rights unless in a proceed-
ing to which the company concerned is a party an order is made authorising
him to do so. Even where the holder of a share whose r.ame is entered in
the Register of Members hands over bis shares with blank transfer forms
duly signed, the lransferee would not be able to claim the rights of a
D
member as against the company concerned until his names is entered in the
Register of Members. (875 D, 880 D·E, 881 0)

Matha/one v. Bombay Life Assurance Co. Ltd., [1954] S.C.R. 117 and
Messrs HOwrah Trading Co. Ltd. v. The Commis~ioner of Income-tax, Calcutta,
(1959] Supp. 2 S.C.R. 448, followed.
E
In re: Wala Wynaad Indian Gold Mining Company, [1882] 21 Ch. D.
849, Kurapati Venkata Mal/ayya & Anr. v. Thondeput Ramaswami & Co. &
Anr. [1963] Supp. 2 S.C.R. 995 and Jagat Tarlni Dasi v. Naba Gopal Chaki,
(1907] I.L.R. 34 Cal. 305, referred to.

Wise v. Landsdell, (1921] l Ch. 420 and Morgan & Anr. v. Gray & F
Ors., (1953] 1 Ch. D' 83 at p,87, relied upon.

2, (ii) A perusal of the provisions of s.182A of the Land Revenue Act
shows that there is no provisions in it which states that on the appointment
of a person as a receiver the property in respect of which he is so appointed
vests in him similar to the provision in s.17 of the Presidency Towns G
Insolvency Act, 1909 where on the making of an order of adjudication the
property of the insolvent wherever situate would vest in the official assignee,
or in s.28(2) of the Provincial Insolvency Act, 1920 which states that on the
making of an order of adjudication, the whole of the property of the in-
solvent would vest in the court or in the official Receiver. Sub·section (4)
, of section 182A of the Land R.evenue Act provides that Ruies 2 to 4 of
Order XL of the Code of Civil Procedure 1908 shall apply in rel atioo to a
Receiver appointed under that section. A Receiver appointed under order
XL of the Code of Civil Procedure only holds tho property committed to H
\
SUPRBKll COUll.T REPORTS (1985) 2 s.c.li..

A bis cont£ol under the order of the court but the property does not vest in
him. A receiver appointed by a court or authority io respect of a property
bolds it for the benefit of the true owner subject to the orders that may be
made by such court or authority. Under s.51 of the Code of Civil Proce-
dure, 190& a Receiver may be appointed by a civil court oa the application
of a decree-holder in execution of a decree for purposes of realising the
decree-debt, · This is only a mode of equitable relief granted ordinarily
B when other modes of realisation of the decretal amount are impracticable.
A Receiver appointed under that section will be able to realise the amounts
due from a garnishee and his powers are akin to the powers of a Receiver
appointed under Order 40 Rule I of the Code of Civil Procedure, 1908. But
be would oot have any beneficial interest in the assets of the judgment ..
debtor. He collects the debts not as bis own but as an officer of the court.
Thus whatever may be the other powers of a Receiver dealing with the pro ..
c perty which is custodia legis while in bis custody, he is not to be construed
as either an assignee or beneficial owner of such property.
[880 A, 887 H, 888 A-B, 882 H)

2. (iii) Section 137 of the Act provides that if any person obtains an
order for the appointment of a Receiver of, or of a person to manage, the
property of a company, or if any person appoints such Receiver and any
D powers contained in any instrument be shall within thirty days from the date
of the passing of the order of the making of the appointment under the said
powers, give notice of the fact to the Registrar; and thr: Registrar shall on
payment of the prescribed fee, enter the fact in the register of charges. main·
tained under s.130 of the Act. It is not clear in the instant case whether
any entry bad been made in the register of charges of the order of appoint·
mdnt of Receiver. Even granting that such an entry bad been made, it
E would not have the effect of takiog away the right of the Cotton Mills
Company" to exercise the right to vote in respect of the shares in question.
[884 C-E]

3~ There is oo substance io the argument based on ss.1S3B, 187B and
187C of the Act. Section 153 of the Act states that no notice of any trust,
express implied or constructive, shall be entered in the reg:ister of members
or of debenture holders. Section 1S3B of the Act re<fUires that notwith·
F standing anything contained in s.1S3 where any shares in, or debentures of a
company are held in trust by any person, the trustee shall, make a declara·
tioo to the public trustee. Section I87B of the Act provides that save as
otherwise provided in s.1538 but notwithstanding anything contained in any
other provisions of the Act or any other law or any contract, memorandum
or articles, where any shares in a company are held in trust. by a person as
trustee, the rights and powers (including the right to vote by proxy) exercisa
G able at any meeting of the company or at any meeting of any class of mem-
bers of the company by the trustee as a member of the company cease to be
exercisable by the tru'>tee as !'.Uch member and become exercisable by the
public trustee. Section 187C of the Act makes it incumbent upon a person
\1ihose name is entered in the Register of Members of a company but who
does not bold the beneficial interest in the share in question in such form as
may be prescribed specifying the name and other particulars of the persons
who bolds the beneficial interest in such llhare. The Companies (Declara-
H tion of beneficial Interest in shares) Rules, 197S are made in this connec-
BALKR!SHAN v. SWADESH! POLYTEX 859

tioo. It is obvious from the foregoing that none of the provisions referred A
to above has any bearing on the question before this Court. Thus, mere
appointment of a Receiver in respect of certain shares of a company with-
out more cannot, therefore, deprive the holder of the shares whose name is
entered in the Register of Members of the Company the right to vote at the
meeting of ~he company or to issue a notice under s.169 of the Act.
(884 F·H, 885 A·C]
B
4. Under Rule 76 of Order 21 of the Code of Civil Procedure, 1908,
the shares in a Corporation which are attached may be sold through a broker.
Jo the alternative such shares maY be sold in public auction under Rule 77
thereof. On bucb sale eithei lioder Rule 76 or under Rule 77 the purchases
acquires title. Until such sale is effected, all other rights of the judgment
debtor remain unaffected even if the shares may have been seized by the
officer of the court under Rule43 of Order 21 of the Code of Civil Procedure,
c
1908 for the purpose of effecting the attachment, or through a Receiver or
though an order in terms of Rule 46 of Order 21 of the Code of Civil Procedure
may have been served on the judgment-debtor or on the company coocerne4.
The consequence of attachment of certain shares of a company held by a
shareholder for purposes of sale in a proceeding under s.149 of the Land
Revenue Act is more or less the same. The effect of an order of attachment D
is what s.149 of the Land Revenue Act itself says. Such attachment is
made according to the law in force for the time being for the attachment and
sale of moveable property under the decree of a civil court
(886 B-C, 885 D]

5. (i) It is to be noted that a charging order and~r the English Law is
not the same as an attachment of property or appointment of a Receiver E
under the Land Revenue Act. Charging Orders under the English Law are
made under order SO of the English Supreme Court Practice under which
the English court may for the purpose of enforcing a judgment or order ot
that court under which a debtor is required to pay a sum of money to a
creditor make an order imposing on any such property of the debtor as may
be specified in the order, a charge for securing the payment of any money
due or to become due under the judgment or order. Such an order is referred F
to as the 'charging order'. A charging order on the property or assets of
the debtor is one of the modes of enforcement of a judgment or order for
the payment Of money to the creditor. It is, bowev~r, not a direct mode of
enforcement in the sense that the creditor can immediately proceed to re-
cover the fruits of his judgment, but it is rather an indirect mode of enforce·
ment in the sense that it provides the creditor with security, in whole or in
part, over the property of the debtor. It makes the creditor secured creditor G
who having obtained his charging order must proceed, as may be neces ..
sary according to the nature of the property charged, to enforce bischarge in
order to obtain the actual proceeds of bis charge to satisfy bi!l judgm::at, in
whole or in part. Subject to the other provisions of law a charge-imposed by
, a charging order will have effect and will be enforceable in the same court
and in the same manner as an equitable mortgage created by the debtor by
writing under his hand. An order of attachment cannot, therefore, have the H
effect of d>priving the holder of the shares of his title to the shares. There·
fore, the attachment of the shares in the Polyte•Company held by the Cotton
\
860 stlPlllDlll COURT REPORTS (1985] 12 s.c.a.
A Mills Company had not deprived tho Cotton Mills Company of its right to
vote at the meeting or to issue the notice under s.169 of the Act.
(887 B-F, 888 C}

Hawksv. MeArthur&Ors. [1951] 1 All E.R. 22, inapplicable.

B 5. (ii) The fact that 3,50,000 shares have been pledged in favor of the
Government of Uttar Pradesh also would not make any difference. Sections
172 to 178-A of tbo Indian Contract Act, 1872 deal with the contract of
pledge. A pawn is not exactly a mortgage, The two ingredients of a pawn
are: "(1) that it is essential to the contract of pawn that the property pled-
0

ged should be actually or constructively d olivored to tho pawnee and ( 2) a
C pawnee has only a special property in the pledge but the general property
therein remains in the pawner and wholly reverts to him on discharge of the
debt. A pawn therefore is a security where by contract a deposit of goods
is made as security for a debt. The right to property vests in the pledged
only so far as is necessary to secure the debt. The pawaer however has a
right to redeem the property pledged until the sale. Under s.176 of the
D) Indian Contract Act, 1872 if tho pawner makes default. in payment of tho
debt, or performance, at the stipulated time, of the promise, in respect of
which the goods were pledged, tho pawnee may bring a suit against the
pawnor upon the debt or promise, and retain the goods pledged as a colla-
teral security, or he may sell the thing pledged, on giving the pawnor reaso-
nable notice of the sale. Ip the case of a pledge, however, the legal title
E to the goods pledged would not vest in the pawnee. The pawnee has only a
special property. A pawnee has no right of foreclosure since he never bad
absolute ownership at law and bis equitable title cannot e.xceed what is
specifically granted by law. In this sense, a pledge differs from a mortgage.
In view of the foregoing the pawoee in the instant case i.e. the Government
of Utlar Pradesh could not be treated as the bolder of the shares pledged
F in its favour. The Cotton Mills Company continued to be the member of
the Polyte:m Company in respect of the said shares aod could exercise its
rights under s.169 of tho Act. [888 D·H, 889 A-CJ

Lal/an Prasad v. Rahmat All &1 Anr., [1967] 2 S.C.R. 233 pp, 238-239
Bank of Blhar v. State of Blhar & Ors., [1971] Supp. S.C.R. 299 and Swa.
deshi Cotton Mills v. Union of India, [1981] 2 S.C.R. 533, referred to.
G
6. There is no substance in the contention that on the passing of an
order by the Central Government under s.I8A (1) (a) of the Industries
(Development and Regulation) Act, 1951 taking over the management of _.. . _
the Cotton Mills Company alongwith its five other industrial units,
H the Cotton Mills Company lost its right to exercise its voting. rights
BALKRUHAN v. SWADESHI POLYTEX 861

io respect of the shares in question. What was tlken over under the above A
'
" said orders was the management of the six industrial units referred to there·
in and not all the rights of the Cotton Mills Company. The shares belong
to the company and the orders referred to above cannot have.any effect oo
them. Hence the passing of the orders under s. l 8AA (I) (a) of the Indus·
tries (Development and Regulation) Act, 1951 has no effect on the voting
B
rights of the Cotton Mills Company. [889 E·H, 890 A]

CtVIL APPELLATB JURISDICTION : Civil Appeal No. 4803 of 1984

From the Judgment and Order dated 7 .8.84 of the Allahabad
High Court in Civil Misc. Application No. 10968 of 84 & S.A. No. C
2/82.

K.K. Venugopal, RN. Karanjawala & Mrs. Manik Karanjawala
for the appellant.

K.Parasaran, Attorny General of India. K. S. Cooper, Csril S. D
Shroff. S.S. Shroff and S. A. Shroff for the respondents.

Ashok Desai, Anil Diwan Pinaki Mishra and Praveen Kumar
for respondent No. I.

Dr. Y. S. Chita/e, V.D. Mehta V. A. Bobde, S. Swarup K.J. John
for respondent No. 2.

Soli J. Sorabjee, V. D. Mehta, S. Swarup and K, J. John for
respondents Nos. 6-8. F

Ani/ Dewan, R. Karanjawa/a, Mrs. Manik Karanjawa/a and
Arun Jetly for the Intervenor.

Miss Bina Gupta for the Intervenor.
G

TS. Krishnamurthi and Vineet Kumar for the Intervenor .
•
, The Judgment of the Court was delivered by
H

\
862 SUPRBME COURT REORTS (1985] : S.C.R.

VENKATARAMIAH, J. This appeal by special leave is filed against
the order dated August 7, 1984 passed by the High Court of Allaha -
bad in Civil Misc. Application No. 10968 of 1984 in Special Appeal
No. 2 of 1982 on its file. The dispuce involved in this case relates
to the validity of an extraordinary general me. ting of the Swadeshi
B Polytex Ltd. (hereinafter referred to as 'the Polytex Company'), a
company governed by the Companies Act, 1956 (hereinafter referred
to as 'the Act') held pursuant to a notice dated February 11, 1984
issued under section 169 of the Act by some of its members.
The controlling interest in the Swadeshi Cotton Mills Company
c Ltd. (hereinafter referred to as 'the Cotton Mills Company') whicl:
is also governed by the Act was acquired by Mangturam Jaipuria
and his family in 1946. Sitaram Jaipuria is the adopted son of
Mangturam Jaipuria. After his adoption Magturam Jaipuria got a
natural son, Rajaram. In or about the year 1964, Sitaram Jaipuria
became the Chairman and Managing Director of the Cotton Mills
D Company. In 1970, the Jaipmia family decided to promote another
company and accordingly the Polytex Company was established. In
1970, Rajaram became the Managing Director of the Cotton Mills
Company and Sitaram continued as its Chairman. Sitaram became
the Chairman and Managing Director of the newly established Poly-
E tex Company in which the Cotton Mills Company had acquired 10
lakhs shares of Rs. 10 each. From about 1975-76 on account ofa
very serious set back in its financial position the Cotton Mills
Company could not meet the wage bill, the dues of the U.P. Electri·
city Board and several other monetary claims against it. There were
serious labour tro~bles in its factory and its work virtually became
paralysed. The total liability of the Cotton Mills Company was in
the order of Rs. 2 34 crores in the year 1977. On October 27, 1977,
the Collector of Kanpur passed an order under section 128-A of the
U.P. Land Revenue Act, 1901 (hereinafter referred to as 'the Land
Revenue Act' read with section 5 of the Utta\ Pradesh Government
Electrical Undertakings (Dues Recovery) Act, 1958 appointing a
Receiver in respect of the Cotton Mills Company for a period of six
G months with variovs powers specified therein and in particular to
seize 1 lakh of shares of the Polytex Company of the face value of
Rs 10 lakhs held by the Cotlon Mills Company and to pledge them
in favour of the State Government of Uttar Pradesh against a loan •
for the purpose of meeting the dues payable to the employees of the
Cotton Mills Company and he made a further order under section
149 of the Land Revenue Act read with section 5 of the U. P.
Government Electrical Undertakings (Dues Recovery) Act, 1958
llALKRISHAN v. SWADESHI POLYTEX (Venkataramiah, J.) 863
.,. attaching the remaining 9 lakhs shares of the Polytex Company held A
by the Cotton Mills Company and empowering the receiver to seize
them. Both the order appointing the Receiver and the order attach-
ing 9 lakhs shares were incorporated in the same document, the
relevant part of which read thus :
',-' ORDER B

"Whereas electricity dues are payable by M/s · Swadeshi
Cotton Mills Co. Ltd., Kanpur, to the U.P. State Electricity
Board and recovery certificates for the amount enumerated
below have been received for realisation of the dues above
mentioned from the said consumer : c
Recovery certificates dated
29.9.76, 31.12.76, 1612.76,
29.12.76, 16.7 .76, 17.9.76
and 3.10.77 1,06,22,423.17
Less amount paid 19,00,000.oO
------- D
Balance 87,22,423.17
Add : Collection charges 10,62,242.31
-------
TOTAL RECOVERABLE 97,84,665.48
-------
And whereas, for the expeditious recovery of the dues
E
outstanding as above, without affecting adversely the runn-
ing of the mills, it is just and proper that a Receiver be
appointed over the mills at Kanpur, belonging to M/s Swa-
deshi Cotton Mills Co. Ltd. Now, therefore, I, K.K. Baksi,
Collector, Kanpur, in exercise of the power under sub-sec-
~
tion (I) of section 182-A of U.P. Land Revenue Act of 1901
read with section 5 of U.P. Government Electrical Under- F
takings (Dues Recovery) Act, 1958, do hereby appoint Shri
L.N. Batra, A.D.M. Kanpur as Receiver of the said mills
belonging to M/s Swedeshi Cotton Mills Co. Ltd., for a
period of six months with immediate effect and direct that
the Receiver shall exercise the following powers :
G
1. The Receiver shall exercise supervision over the sales
~ of products of the said mills and the disbursement of recei-
, pts from day to day.

2. That the receiver shall ensure that the receipts of
the said mills are, after the payment of labour dues and H
.~·

\
864 SUPREME COURT REPORTS [1985] 2 s.c.R.

A other essentials for the running of the Mill, appropriated
towards recoverable arrears against M/s Swadeshi Cotton
Mills Co. Ltd. as Land Revenue.

3. That the receiver shall, if necessary, for the running
of the said mills borrow money from State Government or
B other financial institutions and other appropriate arrange-
ment in this behalf for the repayment of the amount and
the recovery thereof as arrears of land revenue.

4. That the Receiver shall seize the shares held by M/s.
Swadeshi Cotton Mills Co. Ltd., of M/s. Swadeshi Polytex
c Ltd. of the face value of Rs. 10 lacs (Ten lacs) and shall be
competent to pledge, the same by way of security for the
borrowings referred to above.

s. That the Receiver shall be competent also to make
payment to the Punjab National Bank against the guarantee
D dated 16.12.1976 and relieve the State Government of its
liabilities thereunder correspondingly.

6. That in the event of Guarantee furnished by the
State Government in favour of Punjab National Bank dt.
16.12.76, being invoked, the Receiver shall be competent to
E make the payment to the State Government against the
liability accruing therefrom

7. That the Receiver shall have access to all books of
accounts, ledger, cash books, Stok books and all other
documents kept or maintained by M/s Swadeshi Cotton
F Mills Co. Ltd. in course of business.
8. That the Receiver shall be competent for the
reasons to be recorded also to put a restraint against any
transaction being entered into by M/s. Swadeshi Cotton
Mills Co. Ltd., involving the business and assets of the
mills and which are not in the interest thereof or may be
G detrimental to the same in his opinion.
9. That the Receiver shall have all powers incidental
or ancillary for carrying out of the functions and the
powers referred to above.
'
10. That subject to the above and to any directions
H that I may, hereafter issue from time time to time, the
BALKRISHAN v. SWADESHI POLYTEX (Venkatarmiah, J,) 865

present management of the said mills shall continue to run A
the mill and business.

In view of the urgency the order is being made ex-
parte with the direction, however, that a notice to show
cause shall issue to M/s. Swadeshi Cotton Mills Company
Ltd. for November 15, 1977. B
And further, in exercise of the power under section 149
of U.P. Land Revenue Act 1901 read with section 5 of
U.P. Government Electrical Undertakings (Dues Recovery)
Act of 1958, I hereby direct attachment and sale of shares
held by M/s. Swadeshi Cotton Mills Co. Ltd. in M/s. c
Swadeshi Polytex of the face value of Rs. 90 lacs (Ninety
lacs) and hereby empower the Receiver to seize the same.

Sd/-
K.K. Baksi
Dated : Kanpur Collector, Kanpur. D
October 27, 1977 ."

On the same date i.e. on October 27, 1977 the Receiver pledged
1 lakh of shares as per the order of the Collector in favour of the
Government of Uttar Pradesh against a loan of Rs. 13.5 lakhs. 'J he
Receiver also took possession of 9 fr khs shares as per the order E
made under section 149 of the Land Revenue Act. Subsequently the
Receiver pledged on November 9, 1977, 1 lakh shares out of the
above 9 lakhs shares in favour of the Government of Utter Pradesh
against a loan of Rs. 15 lakhs and on January 4, 1977, 1.5 lakhs
shares against a further loan. Thus out of the 10 lakhs shares of the
Polytex Company of the face value of Rs. 1 crore held by the F
Cotton Mills Company, 3.5 lakhs shares stood pledged in favour of
the Government of Uttar Pradesh and the remaining 6.5 lakhs shares
of the face value of Rs. 65 lakhs remained with the Receiver.

The events which have led to this appeal are, however, these :
In the year 1976, the Cotton Mills Company filed a petition under G
sections 397 and 398 of the Act against the Polytex Company alleging
oppression and mismanagement of the Polytex Company by Sitaram
Jaipnria and other directors of the Polytex Company in Company
Petition No. 20 of 1976 on the file of the Allahabad High Court.
That petition was dismissed by the Company Judge of the High
Court on April 19, '1982. Against his decision an appeal was filed by
the Cotton Mills Company in August, 1982 in Special Appeal No. 2 lf
866 SUPREME COURT REPORTS (1985] 2 s.c.R.
A of 1982 before the Division Bench of the High Court. That appeal
is still pending. On February 11, 1984, the Cotton Mills Company
and four others, namely, Rajaram Jaipuria, Mahabir Prasad Dalmia,
Siyaram Sharma and K.B. Agarwal who together held 10, 01, 950
shares of the value of Rs. 10 each sent a notice to the Polytex
Company which was received by it on February 15, 1984 under
B
section 169 of the Act requiring the Board of Directors of the
Polytex Company to call an extraordinary general meeting of the
Polytex Company to consider and, if thought fit, to pass with or
without modification the following as ordinary resolutions :

"!. "RESOLVED that the appointment of Shri Sitaram
c Jaipnria as Managing Director of Swadeshi Polytex
Ltd., be and is hereby terminated prior to the expiry
of his term, in exercise of the powers conferred by
Article 110 of the Articles of Association of the
Company."
D
2. "RESOLVED further that Shri S1taram Jaipuria be and
is hereby removed from the office of Director and con-
sequently from the office of the Managing Director of
the Swadeshi Polytex Ltd."

E 3. "RESOLVED further that resolution passed at the
13th Annual General Meeting of Swadeshi Polytex
Ltd. in respect of item. 7 "Special Business" of the
Notice dated 3 lst January, 1983 of the said 13th
Annual General Meeting for the remuneration of Shri
Sitaram Jaipuria as Managing Director be and is
F hereby rescinded".

4. "RESOLVED that Shri Ashok Jaipuria be and is
hereby removed from the office of Director of Swa-
deshi Polytex Ltd."

5. "RESOLVED that in the vacancy caused by the
G removal of Shri Ashok Jaipuria, Shri Sitaram
Singhania, be and is hereby appointed as a Director of
Swadeshi Polytex Ltd. and in respect of whose appoint-
ment special notices have been received from some
members indicating their intention to appoint Shri
H Sitaram Singhania as a Director of the Company."
BALKRISHAN v. SWADESI!I POLYTEX (Venkataramiah, J.) 867

6. "RESOLIED that Shri B.M. Kaul be and is hereby A
removed from the office of Director of Swadeshi
Polytex Limited."

7. "RESOLVED that in the vacancy caused by the
removal of Shri B.M. Kaul, Dr. Rajaram Jaipuria be
and is hereby appointed as a Director of Swadeshi B
Polytex Ltd. and in respecl of whose appointment
special notices have been received from some members
indicating their intention to appoint Dr. Rajaram
Jaipuria as a Director of the Company."
c
8. "RESOLVED that Shri P.B. Menon be and is herey
removed from the office of Director of Swadeshi
Polytex Ltd."

9. "RESOLTED that in the vacancy caused hy the
removal of Shri P .B. Menon, Shri R-D. Thapar, be
and is hereby appointed as a Director of Swadeshi D
Polytex Ltd., and in respect of whose appointment
special notices have been received from some members
indicating their intention to appoint Shri D.R. Thapar
as a Director of the Company." "

The requisit10nists of the meeting also asked the Polytex E
Company to treat the said notice as a special notice nnder section
284 (2l and (5) read with section 190 of th~ Act for appointment
of Sitaram Singhania, Rajaram Jaipnria and R.D. Thapar in place
of Ashok Jaipur;a, B.M. Kaul (who was also the Chairman of the
Cotton Mills Company) and P.B. Menon respectively as directors
of the Polytex Company. They enclosed an explanatory statement as
required by section 173 of the Act to the notice containing reasons F
for moving the aforeaid resolutions. On receipt of the notice, an
emergent meeting of the Directors of the Polytex Company was
held on February 23, 1984 ta consider the above said notice issued
under section 169 of the Act. <he following is the material part of
• the minutes of the said meeting :
G
• "REQUISITION NOTICE"

The Board was informed that a notice had been receiv-
ed at the Registered Office of the Company on 15th
February, 1984 from Swadeshi Cotton Mills Co. Ltd.
If

\
868 SUPREME COURT REPORTS (1985] 2 s.c.R

A (SCM) and four other shareholders requi.<tioning an
Extraordinary General Meeting of the Company under
Section 169 of the Companies Act, 1956.

The requisition notice received from SCM was read
before the Board. The Board considered the motives behind
B the requisition and took serious note of the false and
baseless allegations made in the explanatory note enclosed
to the notice of requisition. The Secretary pointed out few
technical defects in the requisition notice. The draft notice
and the explanatory statement was placed before the meet-
ing. The same was perused and discussed and the following
c resolutions were passed :

"RESOLVED that an Extraordinary General Meeting
of the Company, pursuant to the requisition received by
the Company on 15th February, 1984 under Section 169 of
the Companies Act 1956 from Swadeshi Cotton Mills Co.
D
Ltd. & others be held at the Registered Office of the Com-
pany on Wednesday, the 28th March 1984 at 10.30 A.M."

"RESOLVED further that the Secretary be and is
hereby authorised to issue notice for convening the
E aforesaid meeting, as per draft placed before the Board 'and
initialled by the Chairman for the purposes of inden tifica-
tion and to take such other steps as may be required in this
regard."

The Board was of the view that the financial institutions
should be informed of this development and the directors
F who wish to make their representation to the shareholders
may be requested to do so, The Secretars was directed to
to take necessary steps in this regard."

The Board of Directors also prepared and circulated an expla-
natory statement pursuant to section 173 of the Act along with the
G notice issued to the shareholders calling the extraordinary general
meeting to be held on March ;8, 1984. The requisitionists of the
•
meeting filed an application before the Division Bench m special
Appeal No. 2 of 1982 for appointing a Chairman of the meeting. S.
Jagannathan who was a member of the Board of Directors as the nomi-
nee ofI.F.C.I. was appointed as the chairman of the meeting by the
H Division Bench on March 23, 1984. The meeting was, however, adjour-
BALKRISHAN "· SWADBSHI POLYTEX (Venkataramiah, J.) 869

ned as a shareholder had obtained an order of temporary injunction A
restraining the holding of the meeting in a suit filed by him at the
court of the Munsif.Alipore (West Bengal). When the requistionists
applied to the High Court of Allahabad to fix a fresh date of the
meeting, the High Court declined to do so by its order dated May
22, 198-l because the temporary injuction order had been issued by a
II
court not subordinate to it. It appears that another shareholder
applied for injunction in a suit filed in the Civil Judge's court at
Gwalior and a third shareholder moved the City Civil Court, Madras
for a similar relief. Then the requisitionists filed two special Leave
Petitions before this Court against the order of the Allahabad High
Court passed the following order on the said petitions which were
numbered as Civil Appeals Nos. 2597-98 of 1984 : c
"Special Jeane granted.

The High Court of Allahabad shall make a fresh order
directing the holding of the meeting of the Company and
that meeting shall be held in accordance with the order of D
the High Court notwithstanding any order of injui;ction etc.
issued by any other court or anthority in India or to be
issued hereafter. If any person has any grievance about the
holding of the meeting he shall approach the High Court
of Allahabad for appropriate directions. If the requisitio-
nists or the Company wish to held the meeting early they E
may approach the vacation Judge of the High Conrt of
Allahabad who has all the powers of the Company Judge to
make fresh orders. The appeals are disposed of
accordingly."

Again ou July 4, 1984 a further order was passed by this Court F
as follows :

"Mr. Sorabjee and Mr. Mridul state that the extra·
ordinary general meeting may be called on any day to be
fixed by the High Court in the second week of August,
1984. They also state that the venue of the meeting shall
be determined by the Chairman, Shri Jagannathan, appoint·
ed by the High Court. No further orders are necessary
• on prayer b and ci n the application dated 25th June, 19 ~
made before the Allahabad High Court by the petitioner."

Accordingly the meeting was fixed to be held on August 14,
1984. Since there was a motion for the adjournment of the meeting ,
H
\
870 SUPllEMB COURT PJlPOllTS (1985] 2 S.C.R.

A this Court was again approached by the parties by an application for
a further direction which was disposed of on September 4, 1984. In
the meanwhile the appellant No. 1 Balkiishan Gupta had filed an
application before the High Court of Allahabad in Special Appeal
No. 2 of 1982 questioning the right of the requisitionists to issue
notice under section 169 of the Act to call the extraordinary general
B meeting. His contention was that since a Receiver had been appoint-
ed by the Collector in respect of the shares held by the Cotton
Mills Company and they had also been attached, the shares held by
the Cotton Mills Company could not be taken into consideration for
determining the required qualification to issue the notice under
c section 169 of the Act requisitioning the extraordinary general meet-
ing and that if those shares were omitted from consideration then the
shares held by the other requisitionists would not be sufficient to
issue the said notice. That application was dismissed by the High
Court by its order dated August 7, 1984. This appeal by special
leave is filed against the said order of the High Court. In this appeal
D this Court passed the following order on September 14, 1984 :
"All the learned counsel for the parties in this petition
agree that the meeting which is now adjourned to 24.9.84
should be held on that day and the agenda of the meeting
should be discussed and voted upon. We make an order
E accordingly. The result of the voting shall be reported to
this Court by the Chairman within one week after it is
ascertained. The resolutions passed at the meeting shall
not come into effect until further orders by this Court. The
matter may be listed in the third week of October, 1984.''
F After the report submitted by the Chairman of the meeting was
received by this Court, this Court passed a further order on October,
12, 1984 which reads as follows :
"The report of the Chairman of the extraordinary
general meeting which has been submitted to this Court in
a sealed cover is opened and perused by the Court. The
G report states that all the resolutions other than the resolu-
tion for adjournment have been lost. The photostat copies
of the report along with the enclosures may be made avail-
able to the parties at their expense. List the matter on
29.!0.1984 before this Bench."
,.
After the above order was passed, the Industrial Development
ff Bank of India and the Industrial Finance Corporation of India who
BAURISHAN v. SWAD!Sl:i POLYTBX (Venkaiarlllfcfalc, J.) 871

were aggrieved by the result or the counting or votes given on the
taking of poll at the meeting filed applications before this Court
questioning the correctness or the report of the Chairman as regards
the result of the meeting. They contended that the Chairman had
wrongly rejected the votes cast on their behalf and if these votes had
been taken into consideration the resolutions would have been duly
-' ~ passed. Some shareholders who were opposed of the removal of the B
sitting Directors also filed an application for being impleaded. All
these applications were allowed on November 19, 1984 and all parties
agreed that the validity of the meeting and of its result reported to
the court should be decided by this Court. During the hearing a
writ petition filed in the High Court of Bombay was also withdrawn c
to this Court for being heard along with these cases. At the conclu-
sion of the hearing of the above cases, the parties filed a compromise
petition requesting the Court to make an order in terms thereof.
On the basis of the said compromise the Court passed an order on
February 1, 1985, the material part of which reads thus :
D
I. The Board of Directors of Swadeshi Polytex Ltd.
(hereinafter referred to as 'SPL') shall be re-constituted
pending the holding of the next Annual General Meeting of
SPL as under :

(a) Four nominees of Financial Institutions (including
one to be selected and communicated by IDBI/
IFCI to SPL) including the representative of the E
U.P. State Industrial Development Corporation.

(b) Four nominees of Shri Sitaram Jaipuria (herein-
after referred to as 'SRJ') including SRJ.

(c) Four nominees of Dr. Rajaram Jaipuria (herein·
after referred to as 'RRJ') including RRJ.

All nominations under sub-clauses (b) and (c) above
shall be made by February 9, 1985. Nominations under
sub-clause {a) (except the nominee of the U. P. State Indus-
trial Corporation) shall be made within ten days of the date G
of this order. The re·constituted Board shall start function-
ing from February 11, 1!185. The Secretary of SPL is
directed to convene the re-constituted Board meeting within
15 days of the order.
ff
872 SUPREME COURT REPORTS [1985] 2 s.c.R

A
2 (a) SRJ and RRJ shall designate one nominee each
ont of their respective nominees directors as Execu-
tive Directors. The said Executive Directors shall jointly
carry on the management of SPL and will have all the
powers of the Managing Director and control of
finance. If any difference of opinion arises it shall
B
be referred to the Board of Directors.

2 (b) All committees of the Board shall stand dissolved.

3. SRJ shall continue as the Managing Director of the
Company and he voluntarily 'undertakes not to exercise any
c powers or functions of the Managing Di1 ector till his re-
election ·at the next Annual General Meeting of SPL.

4. S.RJ will continue to be the Chairman of the
Company and as such will preside over the Board meetings
of SPL. He voluntarily undertakes not to have any second
or casting vote.
D
S. All minutes of the Board meetings shall be prepared
by a nominee of the Financial Jn,titutions and shall be
signed by the Chairman.

6. The next Annual General Mecti ng of the SPL shall
E . be called and held on May 15, 1985. Th; Chairman of the
said Annual General Meeting shall be appointed by this
Court.

7. A 1l the Members of the re-constituted Board
appointed pursuant to clause I above (excluding nominees
mentioned in clause 1 (a) ) including non-rotational
F
Directors i. c. SRJ and/or Shri F. R. Beshania shall resign
and a new Board shall be elected at the said Annual General
Meeting. All shareholders of SPL (including SRJ and
RRJ) shall be entitled to propose names of any persons for
appointment as Directors of SPL at the said Annual General
G Meeting. Members of the re-constituted Board may if
they so desire seek re-election at the said Annual General
Meeting.

8. All pending matters before this Court including the
Transfer Case No. I of 1985 and all Civil Misc. Petitions
H in Civil Appeal No. 4803 of 1984 save and except Civil
ilALKRISiiAN v. SWAl>ES!U POLYTEX (Venkataramiah, J.) 873

Appea I No. 4803 of 1984 (Balkrishan Gupta &: Ors. v. A
• Swadeshi Polytex Ltd. &: Ors.) shall stand withdrawn and
all questions raised in all such withdrawn proceedings are
expressly left open. All allegations against the Financial
Institutions, the Chairman of the IDBI and the Government
in Transfer Case No. I of 1985 and Civil Misc. Petitions
-' .. Nos. 39900 of 1984 and 340 of 1985 shall stand withdrawn. B

9. Votes cast by the Financial Institutions at the next
Annual General :"Aeeting of SPL to be held on May 15,
1985 shall not be questioned by the parties hereto an ony
ground.
c
10. The Civil Appeal No. 4803 of 1984 (Balkrishan
Gupta&: Ors. v. Swadeshi Polytex Ltd. &: Ors.) shall be
disposed of on merits.

I I. Notice of Board meeting to all members of the
re-constituted Board shall be sent by Registered Post D·
Acknowledgment due.

12. It shall be open to the Board of Directors if it so
chooses to review any delegation of powers.

13. There shall be no disciplinary action by way of
victimization of any employee. E

14. SRJ shall obtain the resignation of the present
members of the Board of Directors (excluding the nominees
of Financial Institutions).

15. Liberty is reserved to the parties to apply to this
Court. P

The undertakings that have to be filed in accordance
with the above order shall be filed in this Court within one
week from today. The next Annual General Meeting which
is ordered to be held on May 15, 1985 shall be held not-
withstanding any order, direction or injunction of any G
other Court in India. The parties are at liberty to apply to
this Court for nominating a Chairman for the next Annual
• General Meeting.
Judgment in Civil Appeal No. 4803 of 1984 is reserved.
All the other cases referred io above stand disposed of H
874 SUl'IUOOi COUllT 11.lll'OllTS ll985] 2 S.C.R.
A in terms of this order."

The parties, however, requested the Court to decide the ques_.
tion relating to the right of the Cotton Mills Company to join as a
requisitionist of a meeting under section 169 of the Act or to vote
at a meeting of the company since it was likely that one or the other
B member might raise it as an issue at the next meeting. We shall,
therefore, proceed to decide the said question by this judgment.

The principal ground urged on behalf of the appellants is that
the extraordinary general meeting bad not been validly called since
the Cotton Mills Company had ceased to enjoy the privileges of a
c member of the Polytex Company by reas:m of the appointment of a
Receiver by the Collector of Kanpur in respect of the ten Jakhs
shares in the Polytex Company held by the Cotton Mills Company,
the attachment of the 9 lakhs shares out of the said 10 lakhs shares
and also the pledge of 3,50,000 shares out of the said 10 lakhs shares
with the Government of Uttar Pradesh as security for the loans
D
advanced by it. The total paid-np equity share capital of the Poly-
tcx Company is Rs. 3,90,00,000 (39,00,000 shares of Rs. IO each)
and it is not disputed that if the 10 lakhs shares held by the Cotton
Mills Company arc omitted from consideration, the remaining
requisitionists would not have sufficient voting strength to issue a
notice under section 169 of the Act. The appellants contend that
the Cotton Mills Company could not, therefore, join the other
requisitionists in issuing the notice under section 169 of the Act
calling upon the Polytex Company to call the extraordinary general
meeting and without the support of the shares held by the Cotton
Mills Company, the remaining requisitionists would not have been
eligible to requisition the meeting. · The material part of section 169
F of the Act reads :
"Calling of extraordinary general meeting on
requisition.-
169. (I) The Board of directors of a company shal~ on
the requisition of such member or members of the company
G as is specified in sub-section (4), forthwith proceed duty to
call an extraordinary general meeting of the company.
(2) The requisition shall set out the matters for the
considefoltion of which the meeting is to be called, shall be
signed by the requisitionists, and shall be deposited at the
ff registered office of the company.
BALKRISHAN v. SWADESHI POLYTEX (Venkataramiah, J.) 815

(3) The requisition may consist of several documents A
in like form, each signed by one or more requisitionits.
s
(4) The number of members entitled to requisition a
meeting in regard to any matter shall be :

(a) in the case of a company having a share capital. B
such number of them as held at the date of the deposit of
the requisition, uot less than one· tenth of such of the paid-
up capital of the company as at that date carries the right
of voting in regard to that matter; ...... "

We have already referred to the order of the Collector appoin- c
ting the Receiver in respect of the shares in question, attaching them
and ordering that 3,50,000 shares be pledged in favour of the Govern-
ment of Ut!ar Pradesh.

Section 150 of the Act requires every company to keep a regis-
ter of members containing the names, address and the occupation, if
0
any, of each member and other particulars mentioned therein. Sec-
tion 153 of the Act provides that no notice of any trust, express,
implied or constructive, shall be entered on the register of members.
Section 153B of the Act, however, provides that notwithstanding
anything contained in section 153, where any shares in a company
are held in trust by any person, he (the trustee) shall within snch E
time and in such form as may be prescribed make a declaration to
the public trustee appointed under section 153A of the Act in accor-
dance with and subject to the rest of the provisions of section 153B
of the Act.
It is clear from the relevant provisions of the Act which are
F
referred to hereafter that a member .can participate and exercise his
vote at the meetings of a company in accordance with the Act and
the articles of association of the company. Section 41 of the Act
defines the expression "member" of a company. The subscribers
of the memorandum of association of a company shall be deemed to
have agreed to become members of the company and on its registra- G
tion shall be entered as members in its register of members. A sub-
scriber of the memorandum is liable as the holder of shares which
he has undertaken to subscribe for. Any other person who agrees
to become a member of a company and whose name is entered in its
register of members shall be a member of the company. In his case
the two conditions namely that there is an agreement to become a
member and· that his name is entered in the register of H
876 stJj>lmiJ! COiJRT IU!PORTS [198)] 2 s.c.a .

A . members of the company are cumulative. Both the conditions have
to be satisfied to enable him to exercise the rights of a member.
Subject to section 42 of the Act, a company or a body corporate may
also become a member. When once a person becomes a member,
he is entitled to exercise all the rights of a member until he ceases to
be a member in accordance with the provisions of the Act. The
B voting rights of a member of a company are governed by section 87
of the Act. Section 87 of the Act says that subject to the provi-
sions of section 89 and sub-section (2) of section 92 of the Act every
member of a company limited by shares and holding any equity share
capital therein shall have a right to vote, in respect of such capital,
on every resolution placed before the company and his voting right
c on a poll shall be in proportion to his share of the paid-up equity
capital of the company. Regulations 8 and 86 (a) of the Articles of
the Polytex Company read :

"8. Save as herein otherwise provided, the Company
shall be entitled to treat the registered holder of any share
D
as the absolute owner thereof and accordingly shall not,
except as ordered by a court of competent jurisdiction or as
by law required, be bound to recognise any trust, be-naml or
equitable or other claim to or interest in any such share or
any fractional part of such share on the part of any other
person whether or not it shall have express or other notice
E thereof.

86. (a) On a show of hands every holder of Equity
shares entitled to vote and present in person or by proxy
shall have one vote and and upon a poll every holder of
equity shares entitled to vote and present in person or by
F proxy shall have one vote for every Equity share held by
him."
A person ceases to be a member by transferring his share to
another person, by transmission of his share by operation of law, by
forefeiture of share, by death, or by any other reason known to law.
G In the case before us therefore three points arise for consideratton at
this stage.

They are:
,.
(i) Whether by reason of the appointment of the Receiver
under the Land Revenue Act in respect of the shares
H of the Polytex Cempany held by the Cotton Mills
BALKRISHAN v. SWADESHI POLYTEX (Venkataramiah, J.) 871

Company, the Cotton Mills Company had ceased to A
have the rights of a member under section 169 of the
Act?

(ii) Whether by the attachment of the shares under section
149 of the Land Revenue Act, the Cotton Mills Com- B
pany suffered any diminution or curtailment in its
rights as a shareholder in respect of the shares so atta-
ched?

(iii) Whether by the pledge of certain shares, the Cotton
Mills Company suffered any such diminution or curtail- C
ment?

In the Act, the expressions 'a member', 'a share holder' or
'holder of a share' are used as synonyms to indicate the person who
is recognised by a company as its owner for its purposes. What does
ownership of a share connote? 'Ownership in its most comprehensive D
signification; says Salmond, 'denotes the relation between a person
and any right that is vested in him. That which a man owns in this
sense is a right. The right of ownership comprises benefits like
claims, liberties, powers, immunities and privileges and burdens like
duties, l abilities, disabilities Whatever advantages a man may have
E
as a result of the ownership of a right may be curtailed by the dis-
advantages, in the form of burdens attached to it. As observed by
Dias, an owner may be divested of his claims etc. arising from the
right owned to such an extent that he may be left with no immediate
practical benefit. He remains the owner nonetheless because his
interest will outlast that of other persons in the thing owned. The
owner possesses that right which ultimately enables him to enjoy all
rights in the thing owned by attracting towards himself those rights
in the thing owned which for the time being belong to others, by
getting rid of the corresponding burdens. An owner of a land may get
rid of the interest of a mortgagee in it by redeeming the mortgage,
may get physical possession of land by terminating a lease and
may get rid of an attachmeilt by discharging the debt for which G
it is attached. A Receiver appointed by a court or authority in res-
' pect of a property holds it for the benefit of the true owner subject
to the orders that may be made by such court or authority. The
differeut kmds of rights of ownership flowing from the ownership of
a right depend upon the nature of the right owned. A person who
is a shareholder of a company has many rights under the Act. Some
H
878 SPREME COURT REPOkTS tl985j 2 s.c.lt.
A of them, with which we are concerned in this appeal principally, are
(i) the right to vote at all meetings (Section 87), (ii) the right to
requisition an extraordinary general meeting of the company or to
be a joint requisitionist (Section 169), (iii) the right to receive notice
of a general meeting (Section 172), (iv) the right to appoint proxy
and inspect proxy registers (Section 176), (v) in the case ofa body
B
corporate which is a member, the right to appoint a representative to
attend a general meeting on its behalf(Section 187) and (vi) the right
to require the company to circulate his resolution (Section 188). The
question for consideration is when does a shareholder cease to be
entitled to exercise any of these rights ?
c Section 182-A of the Land Revenue Act which provides for the
appointment of a Receiver in respect of the assets of a defaulter who
is liable to pay an arrear of revenue or any other sum recoverable as
an arrear of revenue reads thus :
"182-A. Appointment of Receiver-(!) Notwith-
D standing anything in this Act, when an arrear of revenue or
any other sum recoverable as an arrear of revenue is due,
the Collector may, in addition to or instead of any of the
processes hereinbefore specified, by order-
(a) Appoint, for such period as he may deem fit, a
Receiver of any moveable or immovable property
E of the defaulter;
(b) Remove any person from the possession or ous-
tody of the property;
(c) Commit the same to the possession, custody or
management of the Receiver;
F
(d) Confer upon the Receiver all such powers, as to
bringing and defending suits and' for the realisa-
tion. management, protection, preservation and
improvement of the property, the collection of the
rents and profits thereof, the application and
disposal of such rents and profits, and the execu-
G tion of documents, as the defaulter himself has or '
such of those powers as the Collector thinks fit.
(2) Nothing in this Section. shall authorise the
Collector to remove from the possession or custody of 1'ro-
perty any person whom the defaulter has not a present right
H to remove.
BALKRISHAN v. SWADESHI POLYTEX (Venkataramiah, J.) 819

(3) The Collector may from time to time extend the A
duration of appointment of the Receiver.

(3-A) No order under sub-section (1) or sub-section (3)
shall be made except after giving notice to the defaulter to
show cause, and after considering any representations that
B
may be received by the Collector in response to such notice :

Provided that an interim order under sub-section (1)
or sub-section (3) may be made at any time before or after
the issue of such notice :
Provided further that where an interim order is made c
before the issue of such notice the order shall stand vacated
if no notice is issued within two weeks from the date of the
intarim order.

(4) The provisions of l't11.Ies 2 to 4 of Order XL,
contained in the First Schedulo to the Code of Civil Proce- D
dure, 1908, ~hall apply in relation to a Receiver app~inted
under this 11ection as they apply in relation to a Receiver
appointed nnder this section as they apply in relation to a
Receiver appointed under the Code with the substitution of
references to the Collector for references to the Court."
E
Section 149 of the Land Revenue Act which provides for the
attachment and sale of moveable property belonging to a defaulter
reads thus :-
"149. Attachment and sale of moveable property-
The Collector may, whether the defaulter has been F
arrested or not, attach and sell his moveable property.
Every attachment and sale ordered nnder this section
shall be made, according to the law in force for the time
being for the attachment and sale of moveable property
under the decree of a Civil Court. In addition to the G
particulars mentioned in clauses (a).to (c) of the proviso to
' Section 60 of the Code of Civil Procedure, 1908 (Act y of
l 908), articles set aside exclusively for the use of religious
endowments . . be exempted from attachment and sale
shall
d h
un er t 1s sect10n. The costs of the attachment and sali
shall be added to the arrear of revenue, and shall be
recoverable by the same procedure."
H
880 SUPREME COU!l.T REPORTS (1985) 2 SC.R,
A We shall first consider the effect of appointment of a Receiver
in respect of the shares in question. A perusal of the provisions of
section 18 2-A of the Land Revenue Act shows that there is no
provision in it which states that on the appointment of a person as a
Receiver the property in respect of which he is so appointed vests in
him similar to the provision in section 17 of the Presidency Towns
B
Insolvency Act, 1909 where on the making of an order of adjudi-
cation the property of the insolvent wherever situate would vest in
the official assignee, or in section 28 (2) of the Provincial Insolvency
Act, 1920 which states that on the making of an order of adjudi-
cation, the whole of the property of the insolvent would vest in the
c court or in the Official Receiver. Sub-section (4) of section 182-A
of the Land Revenue Act provides that Rules 2 to 4 of Ordrr XL of
the Code of Civil Procedure, 1908 shall apply in relation to a
Receiver appointed under that section. A Receiver appointed under
Order XL of the Code of Civil Procedure only holds the property
committed to his control under the order of the court but the pro-
D perty does not vest in him. The privileges of a member can be
exercised by only that person whose name is entered in the Register
of Members. A Receiver whose name is not entered in the Register
of Members cannot exercise any of those rights unless in a proceeding
to which the company concerned is a party and an order is made
therein. In Matha/one v. Bombay Life Assurance Co. Ltd 1 it has
E been laid down clearly that a Receiver appointed by a court in
respect of certain shares which had not been duly entered in the
Register of Members of the company concerned as belonging to him
could not acquire certain newly issued shares which could be
obtained by the members of the company. This Court observed at
page 143 thus :
F "Mr. Pathak argued that the plaintiff was entitled to
reliefs A and B, both in his suit as well as in the receiver's
suit and that the receiver's suit was wrongly dismissed by
the High Court. We are unable to agree. In our opinion,
the High Court rightly held that the receiver appointed in
the suit of Sir Padampat could not acquire the newly issued
0 shares in his name. That privilege was conferred by section
105-C only on a person 'whose name was on the register of
members. The receiver's name admittedly was not in the
register and the company was not bound to entertain that
application. Mr. Pathak argued that may be so but the
ceiver was not making an application in his individual
H (I) [1954] S.C.R. 117.
BALKR!SHAN v. SWADESHI POLYTEX (Venkataramiah, J.) 881

right but he had been armed by the court with power to A
apply in the right of the defendant Reddy. The fact how-
ever is that the receiver made the applicati0n in his own
name. Even if Mr. Pathak's contention is right the

..
company was no party to the suit filed by Sir Padampat
against Reddy and that being so, no order could be issued
- to the company in that suit to recognize the receiver as a B
shareholder in place of Reddy."
Even where the holder of a share whose name is entered in the
Register of Members hands over his shares with blank transfer forms
duly signed, the transferee would not be able to claim the rights of
a member as against the company concerned uutil his name is c
entered in the Register of Members. This Court in Messrs Howrah
Trading Co. Ltd. v. The Commissioner of Income-tax, Ca/cuttal has
observed at pages 453-454 thus:
"The position of a shareholder who gets dividend when
his name stands in the register of members of the company
causes no difficulty whatever. But transfers of shares are D
common, and they take place either by a fully executed
document such as was contemplated by Regulation 18 of
Table A of the Indian Companies Act, 1913, or by wnat are
known as 'blank transfers'. In such blank transfers, the
name of the transferor is entered, and the transfer deed
E
signed by the transferor is handed over with the share scrip
to the transferee, who, if he so chooses, complet~s the trans-
fer by entering his name and then applying to the company
to register his name in place of the previous holder of the
share. The company recognises no person except one whose
name is on the register of members, upon whom alone calls
for unpaid capital can be made and to whom only the F
dividend declared by the company is legally payable. Of
course, between the transferor and the transferee. certain
equities arise even on the execution and handing over of 'a
blank transfor', and among these equities is the right of the
transferee to claim the dividend declared and paid to the
, transferor who is treated as a trustee on behalf of the trans-
feree. These equities, however, do not touch the company, G
and no claim by the transferee whose name is not in the
register of members can be made against the company, if
the transferor retains the money in his own hands and fails
to pay it to him.
{J) (1959] Supp. 2 S.C.R. 448.
ff
882 SUPHlll! COURT REPORTS (1985) 2 s.c.a.
A A :la11ct at tilt scheme of the Indian Companies Act,
1'13, shows that the words "member'', "shareholder" and
"holder of a share" have been used interchangeably in that
Act. Indeed, the opinion of most of the writers on t. e
subject is also the iame. Buckley on the Companies Act,
B 12th Edition, Page 803 has pointed out that the right of a
transferee is only to call upon the company to register his
name and no more. No rights.arise till such registration
takes place."
In this case this Court followed the dictum of Chitty, J. in In
re: Wala Wynaad Indian Gnld Mining Company(1) which emphasised
c that the entry of the name of person in the Register of Members was
an essential condition for exercising voting rights at the meeting of
the ~ompany concerned. In "Buckley on the Companies Acts" (14th
Edn.), Vol. I, page 972 it is stated thus:
"Company cannot enquire into beneficial ownership-
As between the shareholder and the company, the person
D
entitled to exercise the right of votin1 is the person legally
entitled to the 'hares, the member whose name is on the
register.''
In Kurapati Venkata Ma/layya & Anr. v. Thondep11 Ramaswami
&, Co. <h Anr .(') this Court had oceasion to eonsidu the validity er a
E suit instituted by a Receiver to collect debts due to a party to a suit
in his own name. The Court upheld the right of the Receiver to
maintain the suit observing that a Receiver invested with full powers
to administer the property which is Custodia Jegis or who is express-
ly authorised by the court to institute a suit for collection of debts
F was entitled to institute a suit in his own name provided he did so in
his capacity as a Receiver. But in the course of the said decision
this Court approved the decision of the Calcutta High Court in Jagat
Tarini Dasi v. Naba Gopal €hak11 1 ) in which it had been stated : "On
the whole, we are disposed to take the view that, although a Receiver
is not the assignee or beneficial owner of the property entrusted to his
care, it is an incomplete and inaccurate statement of his relation to
G the property tu say that he is merely its custodian" (Underlining by
us). Thus whatever may be the other powers or a Receiver dealing
with the property which i! in custodia legls while in his custody, he
is not to be construed as either an assignee or beneficial owner of
H such property. · '
(I) [1882] 21 Cb. D. 849,
(2> [l 963] supp. 2 s.c.R. 995.
(3) [190Y) I.l.. R. 34 Cal. 305,
BALKRISHAN v. SWADESHI POLYTl!lf (Venkatariimiah, J.) 883

In Wise v. Lansdel/(l) it was held that in the case of a bankrupt A
whose name was still on the Rei:ister of Members of a company as
between himself and the company, the bankrupt, so long as his name
remained on the register was entitled to vote in respect of the shares,
though as between himself and the mortga2ees he could vote only as
they dictated. But the right to vote was held to be unimpaired as
long a~ his name appeared on the Register. B

In a later case, Morgan&: A.nr. Y. Gray &i Ors.<'> after referring
to the decision in Wise v. Lansdell (supra) Danckwerts J. observed :

"It seems to me that, unless there is some provision in
the company's articles or in the Companies Act which c
empowers me to say that the bankrupt is no longer a
member of the company, and is, therefore, unable to vote,
expressly. I most come to the conclusion that the bank-
rupt still remains a member as long as he is on the register;
notwithstanding that by taking appropriate steps under the
appropriate provisions the trustee in bankruptcy may be D
able to secure registration of himself as the proprietor of
the shares. Unless and until that is done, and as long as
the bankrupt remains on the register of the company, he
remains a member in respect of those shares and is entitled,
as it seems to me, to exercise the votes which are attribut-
able to that status, notwithstanding that he has no longer E
any beneficial interest in the shares and that the company is
entitled to pay any dividends to his trustee in bankruptcy."

1he following statement in Kerr on Receivers (13th Edn.) at
page 310: "the power of the company and its directors to deal with
p
the property comprised in the appointment (both property subject to
a floating charge a,1d property subject to a fixed charge), except sub-
ject to the charge, are paralysed" which was relied on by the appel-
lants is not of much use to them. lt only means that the authority
competent to appoint a Receiver may give directions regarding the
property. It does not imply that the right of the company to exer- G
cise the right to vote on the basis of the shares of another company
' held by it at the meeting of such other company becomes automati-
cally suspended.
,I Under section 51 of the Code of Civil Procedure, 1908 a
H
(I) (1921] 1 Cb. 420.
(2) !1953] I Cb. 83 at p. 87,
884 SUPREME COURT REPORTS (1985) 2 S.C.R.

Rec~iver may be appointed by a civil court on the application of a
A decree-holder in execution of a decree for purposes of realising the
decree-debt. This is only a mode of equitable relief granted ordi-
narily when other modes of realiS1tion of the decretal amount are
impracticable. A Receiver appointed under th1t section will be able
to realise the amounts dm: from a garnishee and his powers are akin
to the powers of a Receiver appointed under Order 40 rule l of the +-
B '
Code of Civil Procedure, 1908. But he would not have any bene-
ficial interest in the assets of the judgment-debtor. He collects the
debts not as his own but as an officer of the court.

We do not also find any substance in the contention of the
appellant based on section 137 of the Act. Section 137 of the Act
c provides that if any person obtains an order for the appointment of
a Receiver of, or of a person to manage, the property of a company,
or if any person appomts such Receiver under any powers contained
in any instrument he shall, within thirty days from the date of the
passing of the order or of the making of the appointment under the
l) said powers, give notice of the fact to the Registrar; and the Registrar
shall, on payment of the prescribed fee, enter the fact in the register
of charges maintained under section 130 of the Act. It is not clear
Ill this case whether any entry had been made in the register of
charges of the order of appointment of Receiver in this case. Even
granting that such an entry had been made, it would not have the
E effect of taking away the right of the Cotton Mills Company to
exercise the right to vote in respect of the shares in question. We do
not also find any substance in the argument based on sections 153B,
J87B and 187C of the Act. Section 153 of the Act states that no
notice of any trust, express, implied or constructive, shall be entered
in the register of members or of debenture holders. Section 1538 of
F
the Act requires that notwithstanding anything contained in section ...
153, whei'e any shares in, or debentures of, a company are held in
trust by any person, the trustee shall, make a declaration to the
public trustee. Section !87B of the Act provides that save as
otherwise provided in section !53B but notwithstanding anything
G contained in any other provisions of the Act or any other law or any
contract, memorandum or articles, where any shares in a company '
are held in trust by a person as trustee, the rights and powers
(including the right to vote by proxy) exercisable at any meeting of
the company or at any meeting of any class of members of the
company by the trustee as a member of the company cease to be
exercisable by the trustee as such momber and become exercisable
ll by the public trustee. Section 187C of the Act makes it incumbent
BA.LKRISHAN v. SWADESI!! POLYTEX (Venkatariimfah, J.) 885

upon a person whose name is entered in the Register of Members of A
a company but who does not hold the beneficial interest in the share
in question in such form as may be prescribed specifying the name
and other particulars of the person who holds the beneficial interest
in such share. The Companies (Declaration of Beneficial Interest in
Shares) Rules, 1975 are made in this connection. It is obvious from
B
the foregoing that none of the provisions referred to above has any
bearing on the question before us.

Mere appointment of a Receiver in respect of certain shares of
a company without more cannot, therefore, deprive the holder
of the shares whose name is entered in the Register of Members c
of the company the right to vote at the meetings of the company
or to issue a notice under section 169 of the Act .
•
The consequence of attachment of certain shares of a company
held by a shareholder for purposes of sale in a proceeding un.der
D
section 149 of the Land Revenue Act is more or Jess the same. The
effect of an order of attachment is what section 149 of the Land
Revenue Act itself says. Such attachment is made according to the
law in force for the time being for the attachment and sale of
movable property under the decree of a civil court. Section 60 of
the Code of Civil Procedure, 1908 says that except those items of E
property mentioned in its proviso, lands, houses, or other buildings,
goods money, banknotes, cheques, bills of exchange, hundis,
promissory notes, Government securities, bonds or other securities
of money, debts, shares in a corporation and all other saleable
property, movable or immovable, belonging to a judgment-debtor,
or over which, or the profits of which, he has a disposing power F
Y"' which he may exercise for his own benefit, whether the same be held
in the mm' of tho judgm!nt-d,btor, or by another person in trust
for him or on his beh•lf, is liable for attachment and sale in execu-
tion of a decree ag, inst him. Section 64 of the Code of Civil
Procedure, 1908 states that where an attachment of a property is
made, any private transfer or delivery of the property attached or of G
any interest therein and any payment to the judgment-debtor of any
._ debt, dividend or other monies contrary to such attachment, shall be
~ void as against all claims enforceable under the attachment. What is
forbidden under section 64 of the Code of Civil Procedure is a
private transfer by the judgment-debtor of the property attached
contrary to the attachment, that is, contrary to the claims of the
decree holder under the decree for realisation of which the attach- H
886 SUPRllW1 COURT REPORTS [lll85) Z S.C.R.
A ment is effected. A private transfer under section 64 of the Code of
Civil Procedure is not absolutely void, that is, void as against all the
world but void only as against the claims enforceable under the
attachment. Until the property is actually sold, the judgment-debtor
retains title in the property attached. Under Rule 76 of Order 21
of the Code of Civil Procedure, 1908, the shares in a Corporation
B
which are attached may sold through a broker. In the alternative
such ·~shares may be sold in public auction under Rule 17 thereof. '
On such sale'.either under Rule 76 or under Rule 77, the purchaser
acquires title. Until such sale is effected, all other rights of the
judgment-debtor remain unaffected even if the shares may have been
c seized by the officer of the court under Rule 43 of Order 21 of the
Code of Civil Procedure, 1908 for the purpose of effecting the
attachment, or through a Receiver or though an order in terms of
Rule 46 of Order 21 of the Code of Civil Procedure may have been •
served on the judgment-debtor or on the company concerned.

D On behalf of tho appellants, relying upon the decision in
Hawks v. Mc Arthur dr Ors<.1> it is contended that the order of the
Collector attaching the share1 was in the nature of a charging order
which ideprived the Cotton Mills Company of its rights in them.
Having:carefully gone through the said decision, we find that it bas
not much relevance to the case. In that case the Chairman and
the Manager of a company had purchased certain shares of the
company held by one of its members in two separate lots after
paying consideration therefor contrary to Article 13 of the Com-
pany's Articles of Association which granted a right of pre-emption
to all the other members in respect of the shares in question.
Immediately after the said purchases were made another member of
F the company obtained a money decree against the transferor of
the shares and also a charging order over the shares standing in the '-..,.
name of the transferor but which bad been sold earlier either to the
Chairman or the Manager. He claimed that since the transfer of
the shares was contrary to Article 13 of the company's Articles of
Association, the transfer was void and hence be was entitled to
G enforce the charging order against those shares for realising his
decretal amount. The Court negatived bis claim holding that
notwithstanding lth( complete failure to comply with the company's
·articles in regard ~to_ the procedure to be followed before shares
could be transferred, the transferees having paid to the transferor '
the full considerationJor the shares had obtained equitable rights
therein and as their rights accrued earlier than the equitable right
ff
BALll::IUSHAN v. SWADESHI POLYTBX (Venkataramlah, J.) 887

of the plaintiff under the charging order, their rights must prevail A
over his claim. It was argued before us that the order of the
Collector being an order in the nature of a charging order the
Receiver had obtained an equitable right in the shares in question
and there being no other legal or equitable right which would
prevail over it, the Cotton Mills Company had lost its right to the
shares. The statement of facts of the above decision itself show! B
that it has no bearing on the case before us. It is to be noted
• that a charging order under the English Law is not the same as an
attachment of property or appointment of a Receiver under the
Land Revenue Act. We may here state that charging orders under
the English Law are made under Order 50 of the Engli1h Supreme c
Court Practice under which the English court may for the purpose
of enforcing a judgment or order of that court under which a debtor
is required to pay a sum of money to a creditor, make an order
imposing on any such property of the debtor as may be specified in
the order, a charge for securing the payment of any money due or to
become due under the judgment or order. Such an order is referred D
to as the 'charging order'. A charging order on the property or
assets of the debtor is one of the modes of enforcement of a jndg-
ment or order for the payment of money to the creditor. It is,
however, not a direct mode of enforcement in the sense that the
creditor can immediately proceed to recover the fruits of his judg-
ment, but it is rather an indirect mode of enforc<ment in the sense
that it provides the creditor with security, in whole or in part, over
the property of the debtor. It makes the creditor a secured creditor
who having obtained his charging order must proceed, as may be
necessary according to the nature of the property charged, to enforce
his charge in order to obtain the actual proceeds of his charge to
satisfy his judgment, in whole or in part. Subject to the other p
provisions of law, a charge imposed by a charging order will have
effect and will be enforceable in the same court and in the same
manner as an equitable mortgage created by tne debtor by writing
under his hand. A short passage in Mulla' s Code of Civil Procedure
(14th Edn), Vol. II at page 1510 is imtructive and it reads thus:
G
"There is no provision in the Code for charging orders,
but on the Original Side of the High Courts, which has
inherited the older jurisdiction of the Court of Chancery, it
is the practice in cases where it is considered undesirable to
grant immediate execution to make a charging order in the
form made in the case of Kewny v. Attril (1886) 34 Ch. D.
34S. When the assets require nursing, the advantage of a H
888 SUPREME COURT REPORTS (1985) 2 S.C.R.

A charging order is that it enables the Court on the one hand
to gain time and on the other hand to protect the decree-
holder. It also avoids the confusion that might ensue if the
Court were to allow a direct attachment while it is admini-
stering the assets of the partnersnip. The effect of a charg-
mg order is to constitute the decree-holder a secured
B
creditor although he undertakes to deal with the charge
subject to the further orders of the Court."
•
An order of attachment cannot, therefore, have the effect of
depriving the holder of the shares of bis title to the shares. We are
c of the view that the attachment of the shares in the Polytex Company
held by the Cotton Mills Company had not deprived the Cotton
Mills Company of its right to vote at the meeting or to issue the
11otice under section 169 of the Act.

D The fact that 3,S0,000 shares have been pledged in favour of the
Government of Uttar Pradesh also would not make any difference
Sections 172 to 178-A of the Indian Contract Act, 18'i2deal with the
contract of pledge. A pawn is not exactly a mortgage. As observed
by this Court in La/Ian Prasad v. Rah•nat Ali & Anr.(1) the two ingre-
dients of a pawn are : "(!) that it is essential to the contract of pawn
that the property pledged should be actually or constructively
delivered to the pawnee and (2) a p1wne' has only a special pro-
E perty in the pledge but the general p:operty therein remains in the
pawner and wholly reverts to him on discharge of the debt. A
pawn therefore is a security, where, by contract a deposit of goods
is made as security for a debt. The right to property vests in the
pledgee only so far as is necessary to secure the debt ...... The pawner
however has a right to redeem the property pledged until the sale."
F In Bank of Blhar v. State of Bihar and Ors.<'! also this Court has
reiterated the above legal position and held that the pawnee had a
special property which was not of ordinary nature on the goods
pledged and so long as his claim was not satisfied no other creditor
of the pawner had any right to take away the goods or its price.
Beyond this no other right was recognised in a pawnee in the above
G decision. Under section 176 of the Indian Contract Act, 1872 if
the pawner makes default in payment of the debt, or performance,
at the stipulated time, of the promise, in respect of which the goods
were pledged, the pawnee may bring a suit against the pawnor upon
(I} [1967] 2 S.C.R. 233 at p. 238-239.
H (2) [1971] Supp, S.C.R. 299.
BALKRISHAN v. SWADBSHI POJ.YTEX (Venkataramiah, J.) 889

the debt or promise, and retain the goods pledged as a collateral A
security, or he may sell the thing pledged, on giving the pawnor
reasonable notice of the sale. In the case of a pledge, however, the
legal title to the goods pledged would not vest in the pawnee. The
pawnee has only a special property. A pawnee has no right of
foreclosure since he never had the absolute ownership at law and
his equitable title cannot exceed what is specifically granted by law. B
In this sense a pledge differs from a mortgage. In view of the
J foregoing the pawnee in the instant case i. e. the Government of
Uttar Pradesh could not be treated as the holder of the shares pied- .
ged in its favour. The Cotton Mills Company continued to be the
member of the Polytex Company in respect of the said shares and
could exercise its rights under section 169 of the Act. c
It may be stated here that the Government of Uttar Pradesh
and the Collector who are parties to this appeal have not questioned
• the correctness of the judgment of the High Court.
One other subsidiary contention urged on behalf of the D
appellants relates to the effect of an order made by the Central
Government on April 13, 1978 under section 18 AA (l)'(a) of the
Indu&tries (Development and Regulation (Act, 1951 taking over the
management of Swadeshi Cotton Mills along with five other indus-
trial units belonging to the Cotton Mills Company which was the
subject matter of dispute in Swadeshi Cotton Mills v. Union of lndta(1) E
and the order of extension passed by the Central Government
on November 26, 1983 which is the subject matter of dispute in a
case now pending before this Court. It is urged on behalf of the
appellants that on the passing of the above said orders the Cotton
Mills Company lost its right to exercise its voting rights in respect
of the shares in question. There is no substance in this contention. F
What was taken over under the above said orders was the manage-
ment of the six industrial units referred to therein and not all the
rights of the Cotton Mills Company. The shares belong to the ·
company and the orders referred to above cannot have any effect on
them. The Department of Company Affa•rs, Government of India
rightly expressed its view in the letter written by C. Khushaldas,
Director in the Department of Compauy Affairs on April 9, 1979 0
to B. M. Kaul, Chairman of the Cotton Mills Company that the
voting rights in respect of these shares continued to vest with the
Cotton Mills Company and the manner in which those voting rights
were to be exercised was to be determined by the Board of Directors

(I) (198 I] 2 S.C.R. 533
890 SUPRl!lll! COUll.T 11.BPORTS {1985) 2 s.c.11..

A of the Cotton Mills Company. Hence the passing of the orders
under section 18AA (I) (a) of the Industries (Development and
Regulation) Act, 1951 has no effect on the voting rights of the
Cotton Mills Company.

It is also significant that the Directors of the Polytex Company
B who knew that a Receiver had been appointed in respect of the shares
in question, that they had been attached by the Collector, that a part
of them had also been pledged in favour of the Government of
Uttar Pradesh and that orders had been passed under section 18AA
(1) (a) of the Industries (Development and Regulation) Act, 1951
taking over six industrial units of the Cotton Mills Company did not
c question the validity of the notice. The Polytex Company bad in
this case rightly treated the registered holder i.e. the Cotton Mills
Company as the owner of the shares in question and to call the
meeting in accordance with the notice issued under section 169 of
the Act. The appellants cannot, therefore, be allowed to raise any
dispute about the validity of the meeting on any of the grounds
D referred to above.

In the result the appeal fails and it is dismissed with costs. The
costs of all the parties to the above appeal and other connected cases
shall, however, be borne by the Polytex Company.

Subject to the above order, the order passed by this Court on
February 1, 1985 shall remain in force.
•
E

M.L.A. Appeal dismissed.