Appeal No 1626 of 1966
Appeal from the judgment and decree dated July 7 8 1964 of the Calcutta High Court in Appeal from Original Decree No 143 of 1960
R B Datar for the appellant
B Sen N R Khaitan and B P Maheshwari for respondent
The Judgment of the Court was delivered by Shah J
Naresh Chandra Sanyal was the holder of a fully paid up share of the Calcutta Stock Exchange Association Ltdhereinafter called the Exchange 
As a member of the Exchange he was authorised to carry on business as a broker in shares stocks and securities in the hall of the Exchange
In December 1941 Sanyal purchased one hundred shares of the Indian Iron  Steel Company Ltd from Johurmull Daga  Company but did not arrange to take delivery of the shares on the due date
Johurmull Daga and Company sold the shares pursuant to the authority given to them by the Sub Committee of the Exchange
The transaction resulted in a loss of Rs 43810 
The Sub Committee directed Sanyal to pay the amount due by him but he failed to carry out that direction
On January 7 1942 the complaint of Johurmull Daga  Company was referred to the Full Committee of the Exchange
Sanyal failed to pay the amount directed to be paid by him and he was by resolution dated February 19 1942 declared a defaulter
On September 1 1942 at a meeting at which Sanyal was present the Full Committee resolved that the share standing in his name be forfeited to the Exchange with effect from September 1 1942 and that Sanyal be expelled from the membership of the Exchange
436Sup
Cl71 48 6 Sanyal then instituted an action in the High Court of Calcutta on its original side claiming a declaration that the articles of the Exchange providing for forfeiture of a fully paid up share were ultra vires and illegal and that particularly articles 21 22
and 24 were invalid that the share held by him had not been properly forfeited by the Exchange and that forfeiture of the share was irregular void and inoperative and was not binding upon him He also claimed an order that he be restored to the membership of the Exchange and that the share register be rectified accordingly
In the alternative Sanyal claimed a decree for Rs 550001 being the value of the share or in any event to the surplus of the sale proceeds after liquidating the debts due by him to the Exchange
 The suit was resisted by the Exchange
The Trial Court dismissed the suit
In appeal under the Letters Patent the decree was confirmed
With special leave Sanyal has appealed to this Court in forma pauperis
The relevant Articles of Association of the Exchange are these article 21 The Committee shall have power to expel or suspend any member or if being firm any member or authorised assistant of the firm in any of the events following 6 If the member or if being a firm any member or authorised assistant of the firm refuses to abide by the decision of the Committee in any matter which under these articles or under the Bye laws for the time being in force is made the subject of a reference to the Committee
Provided always that in every case arising under the provisions of sub section 5 6 7 and 8 of this Article no resolution for the expulsion of a member or if being a firm any member or authorised assistant of the firm shall be valid unless passed by a majority consisting of not less than two thirds of the members of the Committee at a meeting specially convened for the purpose and at which meeting not less than two thirds of the members of the committee at a meeting specially convened for the purpose and at which meeting not less than seven members of the Committee shah be present 4 8 7 article 22 Any member who has been declared a defaulter by reason of his failure to fulfil any engagement between himself and any other member or members and who fails to fulfil such engagements within six months from the date upon which he has been so declared a defaulter shall at the expiration of such period of six calendar months automatically cease to be a member
 article 24 Upon any member ceasing to be a member under the provisions of article 22 hereof and upon any resolution being passed by the Committee expelling any member under the provisions of Article 21 hereof or upon any member being adjudicated insolvent the share held by such member shall ipso facto be forfeited
 article 27 Any share so forfeited shall be deemed to be the property of the Association and the Committee shall sell re allot and otherwise dispose of the same in such manner to the best advantage for the satisfaction of all debts which may then be due and owing either to the Association or any of its mem bers arising out of transactions or dealings in stocks and shares
 article 28 Any member whose share has been so forfeited shall notwithstanding be liable to pay and shall forthwith pay to the Association all moneys owing by the member to the Association at the time of the forfeiture together with interest thereon from the time of forfeiture until payment at 12 percent per annum and the committee may enforce the pay ment thereof without any deduction or allowance for the value of the share at the time of forfeiture
 article 29 The forfeiture of a share shall involve the extinction of all interest in and also of all claims and demands against the Association in respect of the share and all other rights incidental to the share
except only such of those rights as by these Articles expressly saved
 article 31 The Association shall have a first and paramount lien upon the share registered in the name of each member and upon the proceeds of sale thereof for his debts liabilities and engagements
488 article 32 For the purpose of enforcing such hen the Association may sell the share subject thereto in such manner as they think fit
article 33 The nett proceeds of any such sale shall be applied in or towards satisfaction of the debts liabilities or engagements residue if any paid to such member his executors administrators committee curator or other representatives
 The relevant bye laws of the exchange are Settlement of Disputes
All disputes complaints and claims between by and against members shall on the application of either party be decided by the Committee or by a Standing or Special Sub Committee appointed by the Committee for the purpose
In the event of the matter being decided by the Committee the decision shall be final and binding upon all members concerned but any member aggrieved with the decision of the Standing or Special Sub Committee may within seven days of such decision being given appeal to the Committee whose decision shall be final
In the event of any member or members refusing neglecting or failing to observe carry out or comply with any decision of the Committee or if no appeal is preferred with the decision of the Standing or Special Sub Committee such member or members so in default shall be dealt with by the Committee under the rules regulations andor by laws of the Association for the time being in force
 Bye law 13 Defaulters
Any member who shall fail to pay any subscription or other moneys due by him to the Association on due date or who shall fail to fulfil any engagement between himself and another member or members may be declared a defaulter  by the Committee and on such declaration his name shall be posted as a defaulter  on the notice board of the Association and so long as the name remains so posted he shall not be at liberty to exercise any of the privileges of member ship Under the scheme of the Articles of Association of the Ex change the Committee is authorised to expel or suspend a member on the ground inter alia that he refuses to abide by the decision of the Committee in any matter which is under the Articles or under the Bye laws referred to the Committee
A person declared a defaulter because he fails to fulfil any engagement between himself and any other member or members within six months from 489 the date on which he has been declared a defaulter ceases to be a member of the Exchange and his share also stands forfeited
The share so forfeited is deemed to be the property of the Exchange
But the Committee must sell re allot or otherwise dispose of the share for satisfaction of the debts which may then be due and owing by the defaulter to the Exchange or to any of its members arising out of transactions or dealings in stocks and shares
Forfeiture of a share involves extinction of all interest in and also of all claims and demands against the Exchange in respect of the share and all other rights incidental to the share but not the liability of the
erstwhile member to discharge his liabilities to the Exchange
The Exchange has a first lien upon the share of a member and upon the proceeds of sale thereof for his debts and liabilities and in enforcement of the lien the Exchange may sell the share
The net proceeds of the share subject to the lien it sold will be applied in or towards satisfaction of the debts liabilities or engagements of the shareholder and the residue if any paid to such member his executors administrators committee curator or other representatives
In this appeal counsel for Sanyal contended that under the Indian Companies Act 1913 a fully paid up share cannot be forfeited for failure to carry out any engagement by the shareholder other than an engagement to pay a call made by the Company to pay unpaid capital that the procedure followed by the Sub Committee of the Exchange was irregular in that Sanyal had no notice of the meeting of the Committee to declare him a defaulter that the Committee had no authority under the Articles of Association to direct sale of the share and that in any event Sanyal was entitled to the balance remaining on hand with the Exchange after satisfying his debts liabilities and engagements under the Articles of Association
For failure to abide by the decision of the Committee in respect of his liability to pay the amount of loss due to Johurmull Daga  Company Sanyal was declared a defaulter and when he continued to remain a defaulter for six months he was by resolution of the Full Committee expelled from the membership of the Exchange
The Full Committee also resolved to forfeit his share
The Exchange thereafter disposed of the share for Rs 55000 
The argument raised by counsel for Sanyal that a member of the Exchange forfeits his share only if a resolution expelling him and 490 a resolution declaring him a defaulter are passed is without substance
The conductive and between the first two clauses of article 24 is used to indicate an Alternative and does not make the two conditions cumulative
We agree with the observations of Panckridge J in Surajmall Mohta vs Ballabhdas Mohta1 that article 24 is carelessly drawn because on its literal application before his share could be forfeited a member would both have to be expelled by the Committee under article 21 and automatically cease to be a member under article 22 Clearly this cannot be the intention of the article and it is obvious that by a slip and  has been substituted for or
 In any event the Full Committee passed on February 19 1942 a resolution declaring the appellant a defaulter
The appellant did not carry out his engagements for a period of six months there after
By resolution dated September 1 1942 at a meeting of the Full Committee the appellant was expelled from the membership of the Exchange and it was resolved that his share shall stand forfeited
There is no provision in the Indian Companies Act 1913 which restricts the exercise of the tight of the Exchange to forfeit share  for non payment of a call only
The Indian Companies Act 1913 made no provision relating to forfeiture of shares
By section 172 of the Act a company could adopt the regulations contained in Table A in the First Schedule but the Company was not bound to do so
Regulations 24 to 30 of Table A dealt with the power and the procedure relating to forfeiture of shares
Regulation 24 it is true provided for exercise of the power to forfeit a share when there was default in paying calls but no inference follows therefrom that the share of a member could be forfeited only for non payment of a call made in respect of the share which was not fully paid up
In The Calcutta Stock Exchange Association Ltd vs section N Nundy  Co2 Harries CJ after examining the provisions of the Companies Act 1913 reviewed the decisions of the Courts in England and of the High Court of Calcutta and observed that the Indian Companies Act as well as the English Companies Act contemplate recognize and sanction forfeiture generally and not for non payment of calls only that a company may by its Articles lawfully provide for grounds of forfeiture other than nonpayment of call subject to the qualification that the Articles relating to for feiture do not offend against the general law of the land and in particular the Companies Act and public policy and that the forfeiture contemplated does not entail or effect a reduction in capital or involve or amount to purchase by the Company of its 1 I L R 2 I L R 1950 1 cal
491 own shares nor does it amount to trafficking in its own shares
The Court in that case was concerned to determine the true effect of the Articles of the Exchange which fall to be interpreted in this case
This Court in Sri Gopal Jalan  Company vs Calcutta Stock Exchange Association Ltd1 also considered whether forfeiture of shares resulted in reduction of capital contrary to the provisions of the Companies Act where power of forfeiture was given by the Articles for failure to carry out an undertaking or satisfy an obligation of the member to forfeit the shares
The Court in that case was interpreting the Articles which fall to be interpreted in this appeal
The Court held that the Exchange was not liable to file any return of the forfeited shares under section 75i of the Indian when the same were re issued
The Court observed that when a share is forfeited and re issued there is no allotment in the sense of appropriation of shares out of the authorised and unappropriated capital and approved the observations of Harries CJ in section N Nundy s case2 that on such forfeiture all that happened was that the right of the particular shareholder disappeared but the share considered as a unit of issued capital continued to exist and was kept in suspense until another shareholder was found for it
In the view of this Court the shares so forfeited may not be allotted  in the sense in which that word is understood in the 
The Court also pointed out that re issue of forfeited shares is not allotment of the shares but only a sale for if it were not so the forfeiture even for non payment of call would be invalid as involving an illegal reduction of capital
Article 27 of the Exchange it may be recalled is in terms mandatory
The share forfeited to the Exchange must be re allotted or otherwise disposed of  it cannot be retained by the Exchange
The share after forfeiture in the hands of the Company is subject to an obligation to dispose it of
On that account there is no reduction of capital by mere forfeiture
Mr Datar appearing for the appellant however contended that in Sri Gopal Jalan  Company s case1 the parties argued the case on the footing that Articles of Association of the Exchange were not invalid whereas in the present case the validity of the Articles is challenged
But the Court in citing with approval the observations of Harries CJ in section N Nundy s case2 did in effect pronounce upon the validity of the Articles
A forfeited share is therefore merely a share available to the Company for sale and remains vested in the Company for that purpose only
By forfeiting a share pursuant to the authority of the 1  2 I L R 492 Articles of Association no reduction of capital is achieved
We are unable to agree with counsel for Sanyal that forfeiture of shares is permissible only in cases expressly contemplated by Table A Model Articles ie for non payment of calls in respect of a share which is not fully paid up
Subject to the provisions of the the Company and the members are bound by the provisions contained in the Articles of Association
The Articles regulate the internal management of the Company and define the powers of its officers
They also establish a contract between the Company and the members and between the members inter se
The contract governs the ordinary rights and obligations incidental to membership in the Company
In the absence of any provisions contained in the Indian which prohibit a Company from forfeiting a share for failure on the part of the member to carry out an undertaking or an engagement the Articles of a Company which provide that in certain events membership rights of the shareholder including his right to the share will be forfeited are binding
The Articles of Association of the Exchange expressly provide that in the event of the member failing to carry out the engagement and in the conditions specified therein his share shall stand forfeited
Articles 22 24 26 27  29 of the Exchange relating to forfeiture of shares in certain events are therefore valid
There is in our judgment nothing in the procedure followed by the Sub Committee and the Full Committee which rendered the forfeiture of Sanyal s share illegal
It is not in dispute that Sanyal incurred liability in favour of one of the members of the Exchange to pay Rs 438 10 0 in the transaction relating to the sale of Indian Iron  Steel Company s shares and he failed to discharge that liability
He continued to remain in default for six months even after the resolution of the Full Committee and on that account he ceased to be a member and his share was forfeited
The High Court has found that the copies of the letters dated 9th 10th 16th 17th and 20th December 1941 and of 8th January 11th  19th February 1942 were sent to Sanyal and the usual notices relating to the complaints placed before the Sub Committee or the Full Committee were served upon Sanyal that such notices were posted on the notice board of the Exchange that the appellant had opportunities at all stages of the proceedings to come before the Exchange and refute the charges made against him and that at no stage of the proceeding until September 1 1942 did Sanyal appear before the Sub Committee or the Full Committee
The High Court was of the view that the order had not been made against Sanyal contrary to the rules of natural justice
It is true that Johurmull Daga complained about the default committed by Sanyal on December 9 1941 and the meeting of the Sub Committee was held 493 on December 10 1941
Granting that the letter of the Sub Committee enclosing a copy of the complaint dated December 9 1941 sent by post to Sanyal may not have reached him because he had left Calcutta he had still ample notice of the proceeding of the SubCommittee because intimation was given to him by the notice posted on the board of the Exchange
Sanyal raised no contention at any stage before the Sub Committee or before the Full Committee that he had not received the notices of the meetings dated December 10 1941 December 17 1941 January 7 1942 of the Sub Committee and of the meeting dated February 19 1942 of the Full Committee
Regularity of the proceedings of the Com mittees at the various meetings is not challenged before us
We are unable to agree with the contention raised by counsel for Sanyal that the rules of natural justice were not complied with when the Sub Committee and the Full Committee passed the impugned resolutions against Sanyal
There is no substance in the plea that the Committee had no jurisdiction to order sale of the share forfeited
Article 27 declares that the forfeited share is the property of the Exchange and that the Committee of the Exchange shall sell reallot or otherwise dispose of the share for satisfaction of all debts due by the member to the Association or to its members out of transactions in shares and stocks
Under its Articles the Exchange has authority to sell the share and to appropriate the sale proceeds towards satisfaction of the debts liabilities or engagements But we are unable to agree with the view taken by the High Court that the balance of the amount remaining due after satisfying the liabilities of Sanyal remained the property of the Exchange and that Sanyal had no right thereto
Under the stipulations contained in articles 21 22 24 the share of the defaulter or expelled member stands forfeited for failure to fulfil his obligation
The share of  Sanyal by express resolution was forfeited
After applying the amount realised on sale of the share towards satisfaction of the debts liabilities and engagements of Sanyal to the Exchange and its members the balance remaining in the hands of the Exchange had to be held for and on be half of the appellant
That is expressly provided in article 33
The expression used in article 29 The forfeiture shall involve the extinction of all interest is subject to those rights as by the Articles are saved and article 33 saves to the defaulting shareholder whose share is forfeited the right to the balance remaining with the Exchange
Even assuming that Articles 24  31 reserve to the Exchange two distinct powers the power to forfeit and the power to exercise a lien and that article 33 only applies to sale in enforcement of a lien and not to a sale under article 27 we are of the view that the balance on hand after satisfying the liability of the defaulter must still be returned to the 494 defaulting shareholder
The power to forfeit does not imply authority to appropriate the balance remaining in hand after satisfying the liabilities and obligations of the defaulter to the Exchange and its members
Any such implication would be contrary to the intendment of section 74 of the Contract Act
The power of the Exchange to forfeit the shares arises out of the Articles and its source is in contract
Forfeiture of share is in the nature of imposition of a penalty
Section 74 of the Indian Contract Act provides  When a contract has been broken if a sum is named in the contract as the amount to be paid in case of such breach or if the contract contains any other stipulation by way of penalty the party complaining of the breach is entitled whether or not actual damage or loss is proved to have been caused thereby to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or as the case may be the penalty stipulated for
In Fateh Chand vs Balkishan Das1 this Court in dealing with a case in which a claim for damages for breach of contract to sell a lien of immovable property arose pronounced that the expression  the contract contains any other stipulation by way of penalty comprehensively applies to every covenant involving a penalty whether it is for payment on breach of contract of money or delivery of property in future or for forfeiture of right to money or other property already delivered
Duty not to enforce the penalty clause but only to award reasonable compensation is statutorily imposed upon courts by section 74 of the Indian Contract Act
In all cases therefore where there is a stipulation in the nature of penalty for forfeiture of an amount deposited pursuant to the terms of a contract which expressly provides for forfeiture the Court has jurisdiction to award such sum only as it considers reasonable but not exceeding the amount specified in the contract as liable to forfeiture
The same principles in our judgment would apply in the case in which there is a stipulation in the contract by way of a penalty and the damages awarded to the party complaining of the breach will not in any case exceed the loss suffered by the complainant party
It was observed at p 526 in Fateh Chand s case  The section section 74 is clearly an attempt to eliminate the somewhat elaborate refinements made under the English common law in distinguishing between stipulations providing for payment of liquidated damages and 1 1964 IS
CR 515
495 stipulatings in the nature of penalty
Under the common law a genuine pre estimate of damages by mutual agreement is regarded as a stipulation naming liquidated damages and binding between the parties  a stipulation in a contract in terrorem is a penalty and the Court refuses to enforce it awarding to the aggrieved party only reasonable compensation
The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach and stipulations by way of penalty
 The Court also observed at p 530 Section 74 declares the law as to liability upon breach of contract where compensation is by agreement of the parties predetermined or where there is a stipulation by way of penalty
But the application of the enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff
The section does not confer a special benefit upon any party it merely declares the law that notwithstanding any term in the contract pre determining damages or providing for forfeiture of any property by way of penalty the Court will award to the party aggrieved only reasonable compensation not exceeding the amount named or penalty stipulated
 Granting that article 33 deals with those cases in which lien alone is enforced and not in cases where forfeiture is levied and the obligation of the defaulting shareholder is determined by article 29 in our judgment on the principle underlying section 74 of the Contract Act the Exchange had no right to hold out of the sale proceeds of the share any amount in excess of the amount due to it or to its members
The Exchange may not purchase its own shares
If it does so it amounts to reduction of capital
The legal theory of forfeiture is that a share forfeited is only taken over by the Company with the object of disposing it of to satisfy its claim to enforce which the share was forfeited and all other obligations arising against him out of his membership
The Company is given this right to recover the loss suffered by it by reason of the breach of contract committed by the shareholder
If the Company is permitted to retain the balance of the amount after satisfying the debts liabili ties and engagements of the shareholder the transaction would not be different from one purchasing the share of the defaulting shareholder for a value equal to the amount of his obligations
That would be plainly illegal
We are therefore unable to agree with the 496 High Court that the Exchange was entitled to retain the balance after satisfying the debts liabilities and engagements of the appellant to the other members or to the Exchange
The decree passed by the High Court is set aside and the case remanded to the High Court for determining the extent of the liabilities of the appellant to the Exchange not only in respect of the transactions with Johurmull Daga but in respect of all other outstanding liabilities of the appellant to other members of the Exchange and to the Exchange which are enforceable under the Articles
The appellant is entitled to receive from the Exchange the balance remaining due after deducting the aggregate amount or value of the obligations
He will be entitled to interest on the balance at the rate of 6 per annum from the date of the institution of the suit
Parties will bear their own costs throughout
This appeal was filed in forma pauperis
The appellant will pay the court fee payable on the memorandum of appeal if he had not been permitted to appeal in forma pauperis
VPS Appeal allowed and case remanded


Summary:
Under the scheme of the articles of association of the Calcutta Stock Exchange Association Ltd the Committee is authorised under article 21 to expel or suspend a member on the ground inter alia that he refused to abide by the decision of Committee in any matter which is under the articles or under the bye laws referred to the Committee
Under article 22 a member declared a defaulter because he fails to fulfil any engagement between himself and any other member within six months from the date on which he has been declared a defaulter ceases to be a member of the Exchange automatically
Upon his ceasing to be a member and upon a resolution being passed by the Committee expelling a member his share stands forfeited
The share so forfeited is deemed to be the property of the Exchange
Such forfeiture involves the extinction of all interest in and also all claims and demands against the Exchange in respect of the share and all other rights incidental to the share but not the liability of the erstwhile member to discharge his liabilities to the Exchange
But the Committee must sell reallot or otherwise dispose of the share for the satisfaction of the debts which may then be due and owing by the defaulter to the Exchange or to any of its members arising out of transactions or dealings in stocks and shares
The net proceeds of the sale shall be applied towards the satisfaction of the debts liabilities or engagements of the shareholder and the residue if any paid to the member or his legal representatives
The appellant failed to carry out a direction to pay a certain sum arising out of a share transaction and the Committee after notice declared him a defaulter
Six months later after notice to the appellant the Committee resolved that the share standing in his name shall be forfeited to the Exchange and that the appellant be expelled from the membership of the Exchange
The Exchange thereafter disposed of the share for Rs 55000
The appellant challenged the action taken by the Exchange but the suit was dismissed
In appeal to this Court HELD  1 It is not necessary that a resolution expelling a member and a resolution declaring him a defaulter should both be passed before his share is forfeited by the Exchange
The word and is used to indicate an alternative and does not make the two conditions cumulative because it would lead to the anomalous result that a member would have to be expelled by the Committee under article 21 and would also automatically cease to be a member under article 22
490 A C Surajmall Mohta vs Ballabhdas Mohta ILR  approved
484 In any event in the present case a resolution declaring the appellant a defaulter was passed and six months later the appellant was expelled from the membership of the Exchange and it was resolved that his share shall stand forfeited
490 C D 2a Regulation 24 in Table A in the First Schedule to the Companies Act 1913 provides for the exercise of the power to forfeit a share when there is default in paying calls but no inference follows therefrom that the share of a member could be forfeited only for non payment of a call made in respect of a share which was not fully paid up
Subject to the provisions of the Companies Act a company and its members are bound by the Provisions contained in its articles of association
The Articles regulate the internal management of the company and define the powers of its officers
In the absence of any provision contained in the Act which prohibits a company from forfeiting a share for failure on the part of a member to carry out an undertaking or engagement the articles of a company which provide that in certain events membership rights of a shareholder including his right to the share will be forfeited are binding
There  is no provision the Indian Companies Act 1913 which restricts the exercise of the right of the Exchange to forfeit shares for non payment of a call only and the articles of the Exchange expressly provide that in the event of a member failing to carry out the engagement and in the conditions specified therein his share shall stand forfeited
492 A E b Under article 27 the terms of which are mandatory the shares forfeited to the Exchange must be re allotted or otherwise disposed of  it cannot be retained by the Exchange
A forfeited share is merely a shake available to the company for sale and remains vested in it for that pur pose only
By forfeiting a share pursuant to the authority of the articles of association no reduction of capital is achieved
491 F H 492 A Therefore articles 22 24 26 27 and 29 relating to forfeiture of shares are valid
492 D E Sri Gopal Jalan  Co vs Calcutta Stock Exchange Association Ltd   followed
Calcutta Stock Exchange Association Ltd vs section N Nundy  Co ILR  approved
3 There is nothing in the procedure followed which rendered the forfeiture of the appellant s share illegal
The appellant had ample notice of the proceedings and the orders were not made against him contrary to rules of natural justice
493 C 4a Under its articles the Exchange has authority to sell the share and to appropriate the sale proceeds towards satisfaction of the debts liabilities or engagements
But the balance of the amount remaining due after satisfying the liabilities of the appellant did not remain the property of the Exchange
The appellant was entitled to the amount
This is expressly provided for in article 33
The expression used in article 29 the forfeiture shall involve extinction of all interest  is subject to the rights as by the articles saved and article 33 saves the defaulting share holder s right lo the balance remaining with the Exchange493 D G b Even assuming that articles 24 and 31 reserve to the Exchange two distinct powers the power to forfeit and the power to exercise a lien and that article 33 only applies to a sale in enforcement of a lien and not to a sale after forfeiture the balance on hand after satisfying the liability 485 of the defaulter must still be returned to the defaulter under section 74 of the Contract Act
The power of the Exchange to forfeit the shares arises out of the articles and its source is in contract
On the principle underlying section 74 of the Contract Act the Exchange had no right to hold out of the sale proceeds of the share any amount in excess of the amount due to it or to its members
493 H 494 A B Fateh Chand vs Balkishan Das   followed
c The legal theory of forfeiture is that a share forfeited is only taken over by the company with the object of disposing of it to satisfy its claims to enforce which the share was forfeited and all other obligations arising against him out of his membership
If the company is per mitted to retain the balance of the amount after satisfying the debts liabilities and engagements of the share holder the transaction would not be different from one purchasing the share of the defaulting shareholder for a value equal to the amount of his obligation and that would be illegal
495 E H