Appeals Nos 52 53 and 54 of 1950
Appeals from the Judgment and Decree dated the 7th March 1949 of the High Court of Judicature at Bombay in Appeals Nos 55 and 54 of 1948 arising out of Decree dated the 29th July 1948 of the said High Court in its Ordinary Original Civil Jurisdiction in Suits No 336 of 1945 and No 786 of 1948
GS Pathak H J Umrigar and P N Mehta with him for the appellant in Civil Appeals Nos 52 and 54 and respondent in Civil Appeal No 53 119 M C Setalvad Attorney General for India J BDadachanji with him for the respondent in Civil Appeals Nos 52 and 54 and appellant in Civil Appeal No 53 1953
May 19
The Judgment of the Court was delivered by MAHAJAN J
These appeals though they arise out of two different suits 336 of 1945 and 786 of 1948 can be disposed of by a common judgment as both these suits were instituted in effect to obtain the same relief
In July 1944 a struggle commenced between the group of Sir Padampat Singhania and the group of Shri Maneklal Prem Chand for control of the management of the Bombay Life Assurance Co Ltd and there was a race for the acquisition of the shares of the company between the two groups
Sir Padampat the appellant in Civil Appeal No 54 of 1950 and respondent in the cross appeal No 53 of 1950 on the 25th July 1944 purchased through Shri P N Gupta his Bombay agent 667 shares of the company 484 out of which belonged to Mr Reddy the appellant in CA No 53 of 1950 and respondent in Civil Appeal No 54 of 1950
This deal was made on his behalf by a firm of share and stock brokers Bhaidas Gulabdas
The shares were sold at the rate of Rs 300 per share
On the 29th July Gupta executed a receipt in favour of Bhaidas Gulabdas acknowledging the receipt of these shares while Bhaidas Gulabdas as constituted attorneys of Mr Reddy executed five blank transfer forms in respect of the 484 shares sold by them four for 100 shares each and one for 84 shares
It is alleged that these transfer forms were ultimately filled in the name of Sir Padampat Sin ghania
Sir Padampat however made no application to the company for registration of his name in the register of shareholders till the 11th April 1945
On an application being made the company declined to register the shares in his name and intimated to him their refusal to do so on the 8th May 1945
120 On the 8th January 1945 the company in order to combat the move of Sir Padampat to acquire control of its management made an application under rule 94 A of the Defence of India Rules for sanction for the issue of further capital
The sanction was granted and the company was authorised within a time limit of six months to increase its capital by a sum of Rs 459600 by issuing 4596 shares otherwise the sanction was to lapse
On the 21st February 1945 the directors of the company passed a resolution increasing the capital of the company by issuing these 4596 shares of Rs 100 each at a premium of Rs 75 per share
On the existing shares only Rs 25 per share had been called up
The company therefore decided that the new shares should be offered to the existing shareholders in the proportion of four shares to every five shares held by the shareholders
Reddy as a shareholder of 534 shares including 484 shares sold by him on 25th July but yet not registered in the transferee s name thus became entitled to 427 new shares and one fractional certificate
Out of the 427 new shares offered to him he was entitled to 40 shares in his own right which appertained to 50 unsold shares which he still held in the company
The other 384 shares appertained to the shares that he had sold
The company issued a circular letter to every shareholder giving the details of the offer made and along with it sent two forms A and B Form A being the application form for allotment of new shares the shareholder had to subscribe his name to it and return it to the company for allotment of the shares offered accompanied with a cheque for the amount that had to be paid for obtaining the shares
Form B was a renunciation form
In case a shareholder did not want all or any of the shares offered to be allotted to him he was allowed to renounce his right in favour of some other person
On the 21st February 1945 Reddy returned to the company form A duly filled in requesting the company for allotment of 40 shares out of the new issue 121 which appertained to the 50 shares he still held in the company
In respect of the balance of 384 shares offered to him and which appertained to the 484 shares sold by him he said nothing
The renunciation form was retained by him
On the 23rd February 1945 Messrs J L Mehta and N K Bhartiya purporting to act on behalf of the purchasers of 484 shares wrote to Reddy asking him to forward to them the company s circular letter along with forms A and B as and when received by him after appending to them his signatures to enable them to apply for these shares either in Mr Reddy s name or in the name of the transferees
He was told that he was to hold the shares offered when acquired as a trustee for them
On the 28th February 1945 Messrs Craigie Blunt  Caroe a firm of solicitors also acting on behalf of the purchasers wrote to Mr Reddy a letter to a similar effect
This was prefaced with the remark that the offer of fresh shares by the company was illegal
Without prejudice to that contention Mr Reddy was called upon to apply for the newly offered shares and obtain them on their behalf or to send them the application form A and the renuniciation form B and the fractional certificate to enable them to obtain the new shares offered which appertained to the 484 shares sold by him
The relevant part of this letter reads thus We are instructed by our clients the parties to whom you sold these sharesMr J L Mehta Sir Padampat Singhania Lala Kailashpat Singhania Mr N K Bhartiya and others to call upon you to apply for the additional shares and fractional certificates now issued to which you have become entitled and to let us know when you have done so
When allotted to you you will hold these shares on their behalf and please then hand them to the Hindustan Commercial Bank Ltd Apollo Street Fort Bombay who will pay you the sum of Rs 100 for every share allotted to you which should be accompanied by blank transfer form signed by you as the transferor and the form of renunciation unsigned
They will also pay you the 122 Proportionate sum on any fractional certificate to which you are entitled on handing over the same to the bank in blank unsigned on or before the 7th March 1945
If you prefer to do so please send the form of application A  duly signed by you as well as the renunciation form B  as also the fractional certificate and the relevant application attached thereto unsigned in blank to our client Mr N K Bhartiya at Second Floor Rahimtoola House Homji Street Fort Bombay so as to reach him before the 7th March 1945 and he will then forward the application to the company on your behalf along with the necessary remittance
Our clients agree to indemnify you against any and every liability which you will incur by applying for the partly paid shares
We are instructed to point out that you are a trustee for our clients by virtue of the fact that you have sold your shares in this company to them pending our clients  name being entered on the register in respect of the shares which you have sold to them and that you are bound to comply with our clients  request
 The Hindustan Commercial Bank Ltd also wrote a letter to Mr Reddy on the 1st of March 1945 which reads thus  With reference to a circular dated the 28th February 1945 issued by Messrs Craigie Blunt and Caroe on behalf of their clients Mr J L Mehta Sir Padampat Singhania Lala Kailashpat Singhania Mr N K Bhartiya and others we have instructions to pay you in respect of all shares of the abovenamed company in the new issue that you deliver to us at Rs 100 per share when such shares are allotted to you in exchange for the allotment letters or share scrips with a duly signed transfer deed
We have also instructions to pay you at Rs 20 per fractional certificate delivered to us on or before the 7th March 1945
Please note that we shall do the same if the shares andor fractional certificates are delivered to us in terms of the circular mentioned above
You may send these to us through any 123 bank and the exchange commission will also be paid by us
 These letters indicate that the persons named therein with some undisclosed persons were the purchasers of the shares sold by Reddy and they were the equitable owners of the shares in spite of the original bargain having been made by Sir Padampat
It was not disclosed in these letters that the persons named therein were mere nominees or benamidars of Sir Padampat
One fact however is beyond dispute that the names of these persons were not entered in the blank transfer forms in the column of transferee and eventually it was the name of Sir Padampat alone that was entered therein
Mr Reddy replied to all these communications received by him on the 3rd March 1945 in the following terms With reference to all these communications I have to state that nearly eight months have elapsed since I sold the shares and the shares are not as yet transferred to the names of the purchasers
I have no objection to give the renunciation forms duly signed in favour of the real and true purchasers
As regards the requisition made by you in paras
4 and 5 of the circular letter of 28th February 1945 1 fail to understand as to how I am under an obligation to comply with it
I am ready and willing to sign renunciation form in favour of the true purchasers on my being satisfied that those who are described as the purchasers of my shares are the real and true purchasers of those shares by their producing the transfer forms given by me duly executed by them along with the share certificates
 Whatever else may be said about the attitude of Reddy he was certainly entitled to know the name of person or persons who were the real purchasers of the shares sold because he could only respect and comply with the requisition made by those persons and those persons alone and by none else
Not satisfied with this reply and in view of the fact that the last date for making the application for the issue of additional shares 124 was to expire on the 10th March Sir Padampat instituted suit No 336 of 1945 on the 8th March 1945 on the Original Side of the Bombay High Court inter alia for the following reliefs against Mr Reddy as the sole defendant
The company was not impleaded in this suit
That the defendant may be ordered to send and deliver to the plaintiff the application form A annexed to the circular letter for the number of additional shares allotable to him as also the fractional certificates and the application relating thereto unsigned and in blank upon the plaintiff paying to him such sum as this honourable court may direct andor upon the plaintiff giving such indemnity as this hon ble court may deem proper 2
That the defendant may be ordered upon receiving the certificates of the new shares to hand over the same as also the fractional certificates to the plaintiff together with transfer forms in blank duly signed by him On the 7th December 1945 the plaint was amended and an alternative relief for a decree for Rs 729600 by way of damages was included therein
It was averred in the plaint that upon the sale by defendant of 484 shares the plaintiff became the beneficial owner of those shares and the defendant became a trustee for him of all rights and benefits whatsoever appertaining or accruing to the said shares that one of such rights was the right and opportunity to apply for shares forming part of the new issue that the defendant was bound to do all lawful acts in relation to and for the purpose of securing the said benefits for the plaintiff and which the plaintiff might call upon him to do on terms of the plaintiff indemnifying him against all the consequences thereof and that the plaintiff was ready and willing to do the same
It was further alleged that unless the plaintiff s rights were safeguarded by the 10th March 1945 which was the last day for making application for the shares he will be irretriev ably prejudiced
Ail application was made for the appointment of a receiver of the application form and 125 letterof renunciation and of the rights of Reddy in the new issue of shares
On the same day Bhagwati J made an order under Order XL rule 1 of the Civil Procedure Code appointing the court receiver interim receiver of the application form and letter of renunciation and of the rights if any of the defendant in the 384 shares of the Bombay Life Assurance Co Ltd The receiver was given power to exercise all the rights of the defendant in respect of the said shares on the plaintiff giving the usual undertakings
On the 10th March 1945 the receiver made a request to the company for the allotment to him of 384 shares of the new issue appertaining to the 484 shares standing in Reddy s name in the company register and sold by him on the 25th July 1944
This application was accompanied by a remittance of Rs 38400 payable on these shares according to the resolution of the board
The company was requested to register the name of the receiver in the register of members in respect of these shares
On the 30th April 1945 the company intimated to the receiver that his application for allotment of shares was considered by the board of directors in a meeting held on the 21st April 1945 and it was resolved to reject the same because Reddy had accepted the company s offer only to the extent of 40 shares and the offer regarding the balance had lapsed
The result was that the company refused to register the name of the receiver in respect of the new shares on the 30th April 1945 and it also refused Sir Padampat s application for registering his name as transferee in respect of the 484 shares of Reddy purchased by him which might have entitled him to retain the new shares in his own name
Sir Padampat having thus failed in getting the newly issued shares regis tered in the name of the receiver had no alternative left but to fight out the suit already instituted against Reddy
He also had another suit instituted to obtain practically the same reliefs which were claimed in his own suit by the receiver against the company with the leave of the court namely suit No 786 of 1948
18 126 This suit was filed on the 8th March 1948 after the lapse of about three years of the company s rejection of the receiver s application
It was explained in paragraph 14 of the plaint that the suit had not been filed earlier as the validity of the issue of the new shares was being challenged in suit No 347 of 1945
The prayer in this suit was that the defendant company be ordered to allot to the plaintiff 384 shares mentioned in the application and to put his name on the share register of the company for the said shares
Both the suits were heard by Bhagwati J who delivered one judgment in both of them and substantially granted the reliefs claimed in both the suits
It was held by the learned judge that the 484 shares which Reddy had sold through Bhaidas Gulabdas had been purchased by Sir Padampat that as trustee of these shares he as vendor was also a trustee of all
property rights annexed to the shares and that it was the duty of Reddy when called upon to do so by Sir Padampat on proper safeguard and indemnity for payment to transfer to Sir Padampat all the benefits which he derived by the issue of the new shares by virtue of his being their legal owner
It was further held that a proper requisition had been made by the beneficial owner on the trustee to obtain for him these shares and that the trustee defaulted in his duty in not complying with that requisition and that the company was also in error in refusing the application of the court receiver for registration of his name as a shareholder in respect of the new shares on the ground that Reddy having applied for 40 shares his right to obtain the remaining shares had lapsed
It was argued on behalf of the company that the sanction given by the examiner of capital issues having lapsed no relief could be given against the company and it could not be ordered to allot shares to the plaintiff as there was no available capital which could be issued
Bhagwati J however took the view that the plaintiff could not be deprived of his rights by reason of this circumstance
In the result he ordered the company to comply with the order and allot within three 127 months 384 shares to the plaintiff after obtaining a fresh sanction for the same from the authority concerned
Before concluding the learned judge said that issues 10 and 11 had not been argued before him and the contentions raised therein seemed to have been abandoned and that even otherwise there was no merit in them
Against this common judgment in both the suits Reddy and the company preferred separate appeals
The appeal Bench of the High Court allowed the company s appeal and dismissed the receiver s suit on the finding that the court receiver was not entitled to the allotment of the new shares in his own name as such
Civil Appeal No 52 of 1950 has been preferred against this decision
In suit No 366 of 1945 Reddy s appeal was allowed to the extent that the plaintiff was held disentitled by the reason of lapse of the sanction to reliefs A and B granted to him by Bhagwati J
It was however held that he was a trustee of Sir Padampat in respect of the shares of the new issue and he having failed to apply for the new shares was liable to him in damages and the fact that he made an application in respect of 40 shares did not disentitle him to make another application in respect of the 384 shares
It was also held that a proper requisition had been made by the beneficiary upon the trustee to carry out the trust and he had defaulted in complying with the requisition
The suit was accordingly remanded to the trial judge for assessing damages
The principal questions involved in the appeals are aWhether on the facts and circumstances of this ease Reddy was under a legal obligation as a trustee to apply for and obtain on behalf of Sir Padampat 384 new shares which appertained to the shares sold by Reddy to Singhania bwhether the requisition made on Reddy by Messrs Craigie Blunt  Caroe by their letter dated 3rd March 1945 was sufficient in law to call upon him to apply for shares of the new issue and whether Reddy committed default as a trustee in not complying with this requisition 128 cwhether the conduct of Sir Padampat in not lodging 484 shares for transfer to his name till April 1945 disentitled him to the reliefs claimed by him dwhether the receiver was not entitled to make the requisition and was not the proper person to apply for the new shares in his own name and whether the company was under no obligation to allot to him the shares ewhether the plaintiff was entitled to reliefs A and B of the plaint in the altered situation of the company
It has been held in the courts below that Sir Padampat became on the 29th July 1944 the sole beneficial owner of 484 shares sold by Reddy the legal title to which was vested in him
That having been found the relation of trustee and cestui que trust was thereby established between them
All that is necessary to establish such a relationship is to prove that the legal title was in the plaintiff and the equitable title in the defendant
The fact that such a relationship qua the 484 shares sold by Reddy existed between the parties to the suit was not disputed by the learned AttorneyGeneral appearing for Reddy but he contested the view of the High Court that the cestui que trust could not on any principle of equity or law call upon the trustee to bear his burdens and ask him to obtain on his behalf new shares of the company or make further investments in its capital which would involve in its train new obligations and fresh burdens
As observed by Lord Lindley in Hardoon vs Belilios1 the plainest principles of justice require that cestui que trust who gets all the benefit of the property should bear its burden unless be can show some good reason why his trustee should bear them himself
Mr Pathak did not contest the proposition that Singhania had any right as a beneficial owner of 484 shares to throw on Reddy any of the burdens incidental to the ownership of those shares
He conceded that Reddy as a trustee had a right to be indemnified by his cestui que trust against calls
The proposition is well recognised and 1  129 the liability is enforced on the principles applicable to the equitable ownership of property
Once it is held established that Reddy was a trustee of the 484 shares sold by him he as holder of those shares must also be held to be a trustee of all the property rights annexed to the shares
It was conceded that he was not only the trustee of the corpus but also the trustee of the income and of the dividends that he may receive and that he was bound to pay them over to the beneficiary
In ED Sassoon  Co Ltd vs Patch1 Pratt J held that under section 94 of the Indian Trusts Act a transferor holds the shares for the benefit of the transferee to the extent necessary to satisfy its demands and that as the transferee holds the whole beneficial interest and transferor has none the transferor must comply with all reasonable directions that the transferee may give and that in this situation if he becomes a trustee of dividends he is also a trustee of the right to vote because the right to vote is a right to property annexed to the shares and as such the beneficiary has a right to control the exercise by the trustee of the right to vote
The learned AttorneyGeneral did not combat the view expressed by Pratt J but he objected to any further extension of the rule therein laid down
The question that needs our decision is bare of authority
The English law can furnish no guidance for its solution as there is no provision corresponding to section 105 C in the English Companies Act
In India this is the first known occasion when a situation like this has arisen between a transferor and transferee of shares on a stock exchange transaction
The proposition therefore that has been canvassed in this case has to be decided on first impressions and on general principles of equity
Section  105C the enactment of which has conferred certain rights and privileges on a shareholder which he did not possess before its enactment is in these terms  Where the directors decide to increase the capital of the company by the issue of further shares such shares shall be offered to the members in proportion to 1 130 the existing shares held by each member and such offer shall be made by notice specifying the number of shares to which the member is entitled and limiting a time within which the offer if not accepted will be deemed to be declined  and after the expiration of such time or on receipt of an intimation from the member to whom such notice is given that he declines to accept the shares offered the directors may dispose of the same in such manner as they think most beneficial to the company
 This section limits the powers of the directors to dispose of the further issue of capital in any manner that they may think most beneficial to the company
They are under a mandate to offer these shares in the first instance to the members in proportion to the existing shares held by them
In other words a member becomes entitled under the provisions of this section by reason of his being the holder of a certain number of shares in the company to obtain shares in the further issue of capital as of right
This is not a fruit of stock ownership in the nature of a profit nor does it amount to a division of any part of the assets of the company
It is not an organic product of the original stock like the young of animals or the fruit of trees but as described by the Supreme Court of America in Miles vs Safe Deposit Trust Co1 this right to subscribe to new stock is but a right to participate in preference to strangers and on equal terms with other existing shareholders in the privilege of contributing new capital called for by the corporation an equity that inheres in stock ownership under such circumstances as a quality inseparable from the capital interest represented by the old stock
The exercise of the privilege depends on the option of the shareholder
If he likes he can invest further money and purchase a proportionate share of the new issue of capital
He is of course not obliged to do so
He has also the right to assign the offer made to him in favour of any other person but in that event the directors have the option to allot or not to allot the 1 66 Law
Edition 903 at 026
131 shares to the person in whose favour the share holder renounces the shares offered to him
The offer of course creates fresh rights but it also brings in its train liabilities and obligations
It confers the right on a shareholder to purchase shares in the new issue of capital in proportion to his existing shareholding but in order to obtain that right he has to fulfil certain obligations and he has to incur certain liabilities
In the first instance if he decides to invest his money in the further capital issued he has to make an application to the company for the allotment of shares so offered and with his application he has to remit to the company the amount of the application money
That having been done if the shares offered are only partly paid up as they were in this case he incurs on allotment the further liability of meeting any future calls on these shares
Can it be said in this situation that a transferor of a certain number of shares who being the legal owner of those shares and the beneficial interest of which vests in the cestui que trust is liable for all the payments and obligations attaching to the new issue of shares and is bound to act in both respects for the benefit of the cestui que trust in other words whether he is under a duty when so instructed by his beneficiary to make an application for the new issue of shares offered under the provisions of section 105 C and obtain them in his name by making the necessary payment and by incurring the consequential obligations
Plainly put the question may be posed thus whether the obligation of a transferor of a certain number of shares as a trustee extends also in respect of the right to acquire further shares issued by the company on behalf of his cestui que trust by putting himself on the register of shareholders in respect of the new shares regarding which
he may have to incur fresh liabilities and obligations which were not existing at the time when he made the transfer
Mr Pathak contended that as the right to obtain new shares was inseparable from the ownership of the old stock the transferor of the old stock held the option to buy new stock in like manner as he held the 132 original stock and if qua the old stock he was a trustee for the beneficial owner in the like manner he was a trustee also of the right or the option to buy new shares and was bound to exercise it for the benefit of the cestui que trust and according to his directions and was bound to obtain new shares in his own name for the cestui que trust
Reliance was placed for this proposition on certain observations of Buckley J in Biss vs Biss1
In that case a lessor granted a lease for seven years of a house in which the lessee carried on a profitable business
On expiration of the term of the lease the lessor refused to renew the lease but allowed the lessee to remain as a tenant from year to year on increased rent
During the tenure of the lease the lessee died leaving a widow and 3 children one being an infant
The widow and a son each applied to the lessor for a new lease for the benefit of the estate which the lessor refused to grant
Having determined the yearly tenancy by notices the lessor granted to the son personally a new lease for 3 years
In an action already instituted by the children against the administratrix namely the widow she applied to have the new lease treated as being taken by the son for the benefit of the estate
Buckley J held that the son was a trustee of the new lease for the benefit of the estate
The Court of Appeal reversed this decision and held that the right of renewal had been determined by the lessor long before the son intervened and that the new lease could not be regarded as an accretion to the estate and the son was entitled to retain the lease and that he had not abused his position in any way
This case therefore is no authority for the proposition before us and the Court of Appeal did not say anything on the point
Buckley J however in the course of his judgment observed as follows It is of course very familiar law that if a trustee obtains a renewal of a lease of property vested in him as trustee whether by virtue of a right of renewal or not he must hold the new lease for the benefit of his cestui que trust
The leading authority upon that is 1 1903 2 Ch 
133 Keech vs Sanford 1
The principle is that the trustee owes it to his cestui que trust to obtain a renewal if he can do so on beneficial terms and that the court will not allow him to obtain a renewal upon beneficial terms for himself when his duty is to get it for his cestui que trust
 Reliance was also placed on certain observations of Neville J in Jones vs Evans2
That was a case where the capital of a company was divided into 10000 shares of pound 10 each of which 3728 only had been issued and were fully paid up
The company was very prosperous and the market value of the shares was pound 30 each
The reserve fund of the company exceeded pound 50000
The directors proposed a scheme for distribution of the reserve fund representing accumulated undivided profits amongst the shareholders so that every shareholder was to get a bonus of one new fully paid up share of pound 10 for every existing share held by him
Accordingly resolutions were passed by the company empowering the directors to declare a bonus dividend out of the reserve fund and sanctioning the distribution of a bonus dividend of pound 10 per share out of the reserve fund and authorising the further issue of 3728 shares of pound 10 each out of the unissued capital of the company to be allotted pro rata amongst the existing shareholders and directing that such new shares be paid up in full forthwith
The directors sent a circular letter to every shareholder with a warrant for the bonus divident on his shares informing him of an allotment to him of his proportion of the new shares and giving him an option to accept or refuse the allotment and stating that if he accepted the allotment he was to indorse and return the dividend warrant to the company to be applied in payment of the new shares
Trustees of a testator s will held 200 shares of the company and on receipt of the circular letter accepted their allotment of 200 new shares indorsed and returned their bonus dividend warrant for pound 2000 and afterwards sold the new shares 1 1726 Sel
2 134 at a profit
The question then arose whether as between the tenants for life and remainderman under the will the bonus dividend was capital or income
It was held on the evidence that the company intended to capitalize the reserve fund and not to distribute it as a bonus dividend and therefore the whole of the bonus dividend was capital of the testator s estate
In the concluding portion of his judgment Neville J said as follows   when I say that the option vested in each shareholder either to take the dividend and keep it or to return it and get the greater benefit which the company offered if be did I do not think that is true in the case of trustees because it seems to me that if by taking pound 10 in cash when they were offered by the company a share worth E 20 if they would return it it would be a wilful default on their part if they refused and took less and consequently their cestui que trust would be entitled to insist upon the trustees taking the greatest benefit which the company offered
Therefore in the case of trustees it seems to me that although as between the company and them there may be a right to elect between them and their cestui que trust there is no such right and they must take the dividend in what I will call the capitalized form
 On the basis of these authorities Mr Pathak contended that his client as a beneficiary was entitled to the fullest benefit conferred on the old shares by reason of the new offer and that he was entitled to compel the trustee to act in a manner which would enable him to obtain the benefit
In our opinion the observations made in these cases cited above must be limited to the facts of those cases
We are here dealing with a trustee with peculiar duties and peculiar liabilities and it is a fallacy to suppose that every trustee has the same duties and liabilities
In none of the cases cited by Mr Pathak was there any question of the trustees incurring any personal pecuniary liability
In the case of Biss vs Biss1 the question was obtaining the benefit of renewal of a 1 135 lease and the trustee had to incur no fresh liability for obtaining it
On the other hand a prosperous business was being conducted in those premises and the renewal of the lease was obviously for the benefit of the lessee and carried with it no new or onerous obligations
In Jones vs Evans 1 the trustee had incur no liability of any kind whatsoever
That only question there was whether he should exercise the option of receiving the dividend or of converting the bonus into the shape of capital
It is part of the general law of trust that a trustee must act in a manner most beneficial to the cestui que trust and he can retain no benefit to himself from the corpus of the trust estate or from anything that accrue to that estate subsequently
None of these cases death with a situation like the one that has arisen in the present case
If the newly offered shares were fully paid up and no liability was attached to them there is no question that the trustee would have been bound to obtain them for the benefit of the cestui quo trust
The cases referred to therefore go only so far and no further
We see no principle of equity or on general law which obliges a trustee to buy new shares in his own name for the benefit of the cestui que trust when in so doing he has to bear a heavier pecuniary burden than he undertook to bear as constructive trustee by reason of the sale of his shares in favour of the cestui que trust and which relationship was contemplated to last only till the time when the shares sold could not be registered in the name of the transferee
Of course if the trustee of his own volition chose to obtain the new shares which appertain to the shares already sold by him on principles of equity it could not be denied that the cestui que trust would have been entitled to call upon the trustee to hand over those shares to him on receipt of the amount spent by the trustee but if the trustee of his own volition is not prepared to obtain those shares in his own name it is difficult to see on what principle of law or equity he can be forced to make an application for obtaining those shares in his own name and then pass 1 136 them over to the cestui que trust after obtaining the amount spent by him or after being otherwise fully indemnified in respect of the payments made or to be made or liabilities incurred or to be incurred in future
It is difficult to conceive any principle of equity which obliges a person in the position of a constructive trustee in respect of X number of shares to also become a constructive trustee in respect of in additional say Y number of shares and thus become a trustee of X plus Y shares
Such a burden is not a necessary consequence or an incident of the original transaction of purchase and sale of shares or of the legal relationship of trustee and cestui que trust thus created
That relationship arises by reason of the circumstance that till the name of the transferee is brought on the register of shareholders in order to bring about a fair dealing between the transferor and the transferee equity clothes the transferor with the status of a constructive trustee and his obliges him to transfer all the benefits of property rights annexed to the sold shares of the cestui que trust
That principle of equity cannot be extended to cases where the transferee has not taken active steps to get his name registered as a member on the register of the company with due diligence and in the meantime certain other privileges or opportunities arise for purchase of new shares in consequence of the ownership of the shares already acquired
The trustee can very well say to any request made by the cestui que trust for the acquisition of new shares that he is not prepared to put his name on the register of members for any Additional shares particularly when the acquisition of those shares involves him in further liabilities
In our judgment therefore neither on principle nor on authority can it be held that Mr Reddy could be forced to acquire in his own name 384 shares which appertain to the 484 shares sold by him to Sir Padampat
All that Sir Padampat could call upon Reddy to do was to sign he renunciation form in his favour of the shares offered put of the new issue appertaining to the old shares and after having obtained the renunciation form to make an application in his own name for the purchase of those shares
This view can be sustained on the intelligible principle that the transferor as a constructive trustee in respect of the shares sold by him cannot retain any benefit himself of the new issue which is annexed to the shares sold by him and if any benefit arises out of that offer made under section 105 C that benefit must go to the beneficiary but more than that the beneficiary is not entitled to call upon the trustee to do
Mr Pathak reiterated the argument that had been accepted by the High Court that if the only duty of Reddy was to transfer the offer made to him under section 105 C to Sir Padampat after signing the renunciation then in that case Sir Padampat could not get the full advantage of that offer because in that event the directors were not bound to allot the shares to the person in whose favour they have been renounced by the shareholder while on an application made by the shareholder they were bound to allot him the shares offered
That disadvantage is certainly there but it has to be borne in mind that the relationship of constructive trustee and cestui que trust created on principles of equity cannot be extended ad infinitum in respect of all future acquisitions of rights annexed to the shares sold which acquisitions may involve not only rights but liabilities and obligations which the constructive trustee may not be prepared to undertake and in this situation the cestui que trust may not be able to get all the benefits of the fresh incidents annexed to the ownership of the shares that he had purchased
He himself may be blamable for the loss that be may have thus to suffer by his not having made an application in time for getting himself registered on the register of members and for not having taken proper steps in law for getting his transfer recognised by the company if the request made by him has already been refused by the company
The equitable principle on the basis of which the legal relationship between the transferor and the transferee arises cannot be worked in a manner so as to prejudice the 138 position of the constructive trustee and make him an accounting party in respect of all privileges or fresh offers that may be annexed to the shares sold for all time to come
Mr Pathak urged that his client was prepared not only to pay the application money and the allotment money to the trustee but was further prepared to indemnify him against any future calls on those shares
It has to be remembered that even the original 484 shares sold by Reddy to Sir Padampat were partly paid up shares and Reddy was liable to pay the amount of any call made on those shares subject to being indemnified when the time arose by Sir Padampat for the amount paid on those shares
If Mr Pathak s contention is accepted then Reddy will also become further liable for future calls on the new 384 shares
He would be entitled only to claim indemnity when an occasion arose
It is well settled that a trustee is not entitled to claim indemnity till he suffers an injury for which he has to be indemnified
But the fact remains that the liability to pay calls is for the time being his liability and not that of the cestui que trust
Once his name is entered on the register of shareholders a mere right to claim indemnity may in a case like the present when the time to claim it arises prove to be merely illusory
The shares may go down in value the company may go in liquidation or the financial position of the equitable owner of the shares may deteriorate
In all these situations the right of the trustee to be indemnified in respect of fresh liabilities accruing on the shares would be as already stated merely chimerical and the trustee would have to incur in those situations personal pecuniary liability on account of the shares
Therefore the contention that the trustee is bound to buy the new shares in his own name for the benefit of the cestui que trust is not well founded because it involves in its train pecuniary liabilities which the trustee may have to incur personally and which he is not bound to undertake under any system of law for the benefit of the cestui que trust
We thus hold that Sir Padampat was not 139 entitled to call upon Reddy to make an application in his own name for the acquisition of the newly issued shares by investing his own money in the first instance and then recovering it from Sir Padampat or by signing the application form and sending it to Sir Padampat for acquiring the shares in his name
All that he was entitled to was to call upon him to send him the renunciation form
This Reddy was prepared to do and offered to do so provided the names of all the persons in whose favour renunciation had to be made were disclosed to him
Admittedly this was never done and Sir Padampat could not gain his object by merely having the renunciation form because the directors of the company in the circumstances of this case would never have granted his application if made in his own name on the basis of the renunciation form signed by Reddy
Sir Padampat s or the receiver s suit therefore in this view of the case could not have been decreed
On the view expressed above both the suits must fail
If Sir Padampat had no right to call upon the trustee to buy the newly offered shares in his own name for his benefit a fortiori the receiver appointed by the court had also no such right and on this short ground the claim put forward in both the suits has to be negatived
We are further of the opinion that even if it was held that Reddy was under a duty to sign the application form and the renunciation form and send them over to Sir Padampat to enable the latter to obtain the newly offered shares in Reddy s name the requisition that was made on his behalf directing the trustee to purchase these shares and to exercise the option was ineffective and inadequate
On the basis of that requisition it was not possible for the trustee to carry out the mandate of the cestui que trust and that being so on this ground also the plaintiff was disentitled to relief in the two suits
The first requisition made by Messrs J L Mehta and N K Bhartiya on the 23rd February 1945 was made on their own behalf only and not on 140 behalf of Sir Padampat
It called upon Mr Reddy to forward the circular letter with his signatures on the forms annexed to the letter to enable them to apply for the newly offered shares either in his name or in their or such other names as might be decided upon by them
This requisition was not considered adequate by the High Court and was left out of consideration
Mr Pathak also did not place much reliance upon it
Both the courts below and Mr Pathak however placed reliance on the requisition made on the 28th February 1945 in the letter of Messrs Craigie Blunt  Caroe cited in the earlier part of this judgment
In that letter it was stated as follows We are instructed by our clients the parties to whom you sold these shares Mr J L Mehta Sir Padampat Singhania Lala Kailashpat Singhania Mr N K Bhartiya and others to call upon you to apply for the additional shares and fractional certificates now issued   This requisition therefore purports to have been made on behalf of 4 disclosed beneficiaries and some other undisclosed cestuis que trust
It was not asserted in this letter that the real purchaser of the shares was Sir Padampat Singhania and the other persons mentioned therein were merely his agents or benamidars
Moreover it did not disclose the names of all the beneficiaries
Legitimately therefore in his letter of the 3rd March 1945 Mr Reddy said that he was ready and willing to sign the renunciation form in favour of the true purchasers on his being satisfied that those who are described as the purchasers of his shares are the real and true purchasers by perusing the transfer forms duly executed by them along with the share certificates
It is difficult to understand how a requisition made on the trustee by some disclosed and other undisclosed beneficiaries could be regarded as a proper direction to him which he could be called upon to obey
This requisition was therefore faulty in this respect and the trustee could not be said to have defaulted in his duty in not carrying out 141 such a requisition
Again the indemnity offered in the requisition is merely illusory because in the letter the extent of the liability of each beneficiary whether known or unknown is not mentioned and the trustee could not ascertain from its contents the name of each and every person liable for his claim for indemnity as and when the occasion for it arose or its extent
A mere bald statement in the following words Our clients agree to indemnify you against each and every liability that you incur by applying for these partly paid up shares was in our opinion wholly inadequate
The matter may have been different if along with this requisition a bank guarantee safeguarding the trustee in regard to his future liabilities had been sent to him as well as a cheque for the money required to be paid at the time of making the application
We are also of the opinion that in view of the allegations made in the plaint and in view of the fact that all the share transfer forms were subsequently signed by Sir Padampat Singhania alone this requisition cannot be said to have been made on behalf of the plaintiff and on the basis of it he cannot be heard to say that he made a proper requisition on the trustee which the latter failed to carry out and was therefore liable to him in damages for not carrying out his directions
It is significant that no mention is made in the plaint as to how the names of the persons contained in the letter of the 28th February came to be mentioned therein and how the requisition was made on their behalf when they had never signed the blank transfer forms
It may also be observed that it was left to the option of the trustee to pay from his own pocket the application money and then recover it from the bank
Such a demand could not be made on a trustee and he could not be asked to invest his own money for the benefit of the cestui que trust
The trustee was under no obligation to find a heavy sum of money and to invest it on the purchase of new shares for the benefit of the cestui que trust and to recover the amount after having invested it in them
What the letter of the solicitors in fact intended to 20 142 convey to Reddy was Pay yourself and obtain the shares or else sign a blank cheque and send it to us and then we will see to what extent we are going to make you liable by putting your name on the register of shareholders
 The conclusion of the High Court on this point has been stated in these terms Sir Jamshedji relies on the attitude taken up by his client and has contended that he took up the right attitude by enquiring as to who the real beneficiary was and to be satisfied by the production of the relative transfer forms
Now if this had been the only attitude of Reddy much might have been said in his favour
But unfortunately in this very letter Reddy clearly declined any liability or obliga tion upon him to apply for these shares on behalf of his beneficiary
Whether he knew that his purchaser was Sir Padampat or not as the learned Judge has held or whether there is force in Sir Jamshedji s contention that Messrs Craigie Blunt and Caroe referred to the purchasers as Sir Padampat and others the fact remains that Reddy did not accept his liability as a trustee and then agreed to discharge that liability provided he was satisfied as to who his purchaser was
He only wanted to be satisfied about his purchaser in order to send to him the letter of renunciation
That was the only question on which he wanted to be satisfied In view of the attitude taken up by Reddy the plaintiff had no other course open to him except to file the suit and therefore in our opinion the learned judge was right when he came to the conclusion that the plaintiff was entitled to the relief he had claimed
 We have not been able to appreciate this line of thought
The attitude adopted by Reddy could not cure the defects in the requisition alleged to have been made on behalf of the plaintiff
If the directions given to the trustee were of an inconclusive nature and were in law ineffective then the trustee could not be mulcted in damages for not obeying them even if his attitude was not what it should have been
The plaintiff is not entitled to damages unless and until lie 143 proves that he made a proper and effective demand on the trustee and this the trustee failed to carry out
On this ground also both the suits are bound to fail
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 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 that may be so but the receiver was not making an application in his individual right but he had been armed by the court with power to apply in the right of the defendant Reddy
The fact however is that the receiver made the application 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 shareholder in place of Reddy
The matter might have been different if the company was a party to the suit and was ordered by the court to register the receiver s name in place of Reddy for the 484 shares purchased by Sir Padampat and was also ordered to issue new shares in the name of the receiver
It is not necessary for us to offer any final opinion on the question if the court would have been within its right to direct his name to be included in the register even if the company was impleaded in the suit filed by Sir Padampat against Reddy
We are however quite clear that the company not having been impleaded in that suit it was not bound to issue the now shares in the name of a person whose name was not already in the register of members even if he represented a person whose name was already in the register
The High Court was thus right in dismissing the receiver s suit
We are also of the opinion that the appellate bench of 144 the High Court was also right when it declined to grant reliefs A and B of the plaint to Sir Padampat
The sanction given to the company to issue new capital had lapsed long before Bhagwati J granted reliefs A and B to the plaintiff
It was an extraordinary procedure in a civil suit to direct a company which was no party to the original suit to obtain fresh sanction for the issue of new shares and then allot them to the plaintiff It seems to have been overlooked that if sanction to issue new capital was somehow obtained that capital would also have to be distributed as directed by section 105 C and could not be allotted by the directors in favour of any particular shareholder
In the altered situation that arose after the institution of the suit if the plaintiff succeeded the only relief that could be granted to him was the relief of damages
We are however unable to grant the relief to the plaintiff in view of our finding that Reddy could not be compelled as constructive trustee to buy new shares in his own name for the cestui que trust and further in view of our finding that even if he could be compelled to acquire those shares in his own name for the cestui que trust he could not be said to have defaulted in his duty in carrying out the directions of the cestui que trust as in this case no proper and valid requisition was made by the cestui que trust on the trustee for the acquisition of those shares
The plaintiffs in the two suits are therefore not entitled to any relief For the reasons given above we allow Reddy s appeal No 53 of 1950 and dismiss the cross appeal of Sir Padampat as well as the receiver s appeal No 52 of 1950 and dismiss both the suits but in the circumstances of this case we will make no order as to costs in both the suits throughout
Appeal No 53 allowed
Appeals Nos 52 and 54 dismissed
Agent for the appellants in Appeals Nos 52 and 54 and the respondent in Appeal No 53 section P Varma
Agent for the respondents in Appeals Nos 52 and 54 and the appellant in Appeal No 53 Rajinder Narain


Summary:
A who held a certain number of shares in a company sold some of these shares to B on the 29th July 1944 and executed blank transfer forms in respect of the shares
B made an application to the company for registration of his name only on the 11th April 1945 and his application was rejected
Meanwhile in February 1945 the company resolved to issue new shares and offered to A the number of shares to which he was entitled under the provisions of section 105 C of the Indian Companies Act in respect of the shares which stood in the register in his name
A did not apply for the now shares pertaining to the shares sold to B A firm of solicitors sent a requisition to A on behalf of B C D E and others who claimed to be the purchasers of the shares sold by A calling upon A to apply for the additional shares and to hold them when allotted on behalf of B C D and E and others and offering to indemnify A against all liabilities he may incur thereby
A declined to apply but offered to sign the renunciation form in favour of the true purchasers
As the time fixed for making an application for the new shares was about to expire B filed a suit against A praying that A may be ordered to deliver to B the application form for the now shares and to hand over the new share certificates when received with transfer forms in blank duly signed by him and for damages in the alternative
A receiver 17 118 was appointed and he applied to the company in his own name for allotment of the new shares and for registering his name in respect thereof but the company declined to do so
The receiver filed a suit against the company for allotment of the new shares to him
The High Court of Bombay held that as A was a trustee of B in respect of the new issue and he had failed to apply for the new shares he was liable in damages to B
On appeal  Held i that if A as not of his own volition prepared to obtain the now shares in his name there was no principle of law or equity by which he could be compelled to acquire those shares by spending his own money or by undertaking financial liabilities and pass them over to B on receiving the amount spent by him from the purchaser or being otherwise fully indemnified by him in respect of the liabilities incurred or to be incurred
iiAssuming that A was under any such obligation as the requisition made by the solicitors to A to purchase the shares was made on behalf of 4 disclosed and some undisclosed persons it was ineffective and inadequate and A was not guilty of any breach of duty as a trustee in not complying with the requisition
iiiAs B had no right to call upon A to buy the new shares in his own name for his B s benefit a fortiori the receiver had also no such right
iv In any event as the company was not a party to B s suit no order could be issued to the company in that suit to recognise the receiver as a shareholder in respect of shares sold to B and as long as he was not on the register the company was not bound to entertain an application from him for issue of the now share in his favour
Hardoon vs Belilios 1901 A C 118 E D Sassoon  Co Ltd vs Patch  Miles vs Safe Deposit Trust Co 66 LE 903 referred to
Biss vs Biss 1903 2 Ch 40 Jones vs Evans 1913 1 Ch
23 distinguished