Case: Chunilal Khusaldas Patel Vs. H.K. Adhyaru &amp; Others

voting rights in respect of the whole block of 1936 shares. The position as it stood on 4-8-1955 was to be considered and it was on an appreciation of the position as it then stood that the District Judge had to and did consider whether the offer of Chunilal or that of Adhyaru should be sanctioned.27. If, therefore the discretion of the District Judge was not, on the facts and circumstances as they then stood, erroneously exercised as stated before and there was also no prejudice to the interests of the contributories, the High Court was not justified in interfering with the discretion exercised by the District Judge and setting aside the order of the District Judge and directing a sale of these 1936 shares by public auction as it did.28. There is also a further consideration why the offer of Chunilal should have been accepted in preference to that of Adhyaru. By his letter dated 29-7-1955 addressed to the Liqudiators, Chunilal had offered to give to the Liquidators the dividend sanctioned at the Annual General Meeting of the Himabhai Company for the year 1954. The directors of the Company had recommended Rs. 20 per share as and by way of dividend and that dividend was to be declared at the Annual General Meeting which was to be held on 6-8-1955. The shares stood in the name of the Liquidators in the register of shareholders of the Himabhai Company and, so far as the Company was concerned, that dividend would be payable to the Liquidators in whose names the shares stood, unless by the time that the dividend came to be declared the shares were transferred in the register of shareholders to the name of Chunilal. The books of the Company were to be closed from 30-7-1955 and unless the transaction had been completed and the shares transferred in the register of shareholders of the Company to the name of Chunilal he would not have been entitled to receive the dividend which would be sanctioned at the Annual General Meeting of the Company on 6-8-1955. This circumstances was considered enough by the High Court to enable it to hold that the offer of Chunilal to the Liquidators to give them the dividend was illusory.It is no doubt true that unless and until the shares were transferred in the name of Chunilal in the register of shareholders of the Company before the date of the Annual General Meeting Chunilal would not have been entitled to the dividends on these 1936 shares. The Company would not recognize anybody except the person whose name was shown as the shareholder in the register of shareholders of the Company and would certainly not be bound to pay the dividends to Chunilal even though the transaction between the Liquidators and Chunilal had been completed. The position, however, between the Liquidators and Chunilal was quite different. Even though Chunilal could not under these circumstances claim the dividend from the Company, as between the Liquidators and Chunilal, Chunilal would be entitled to the dividend and the Liquidators, even though they received the dividend from the Company by virtue of their having been shown as shareholders in the register of shareholders of the Company, would be bound, once the contract of sale had been entered into between them and Chunilal, to hand over the said dividend to Chunilal.The position in law is thus enunciated inPalmers Company Law, 19th edn., page 205 : -"Declared but unpaid dividend passing on transfer.A transfer of shares, after dividend declared, does not, as against the Company, carry the dividend, even where the transferee has expressly bought cum div., but, as between a buyer and seller of shares, the buyer is entitled to all dividends declared after the date of the contract for sale, unless otherwise arranged."There is nothing in the record of the case to show that there was any other arrangement in this behalf and the normal position was that, after the contract for sale was entered into between the Liquidators and Chunilal, Chunilal would become entitled to the dividend on these 1936 shares. Even if the date of the sanction by the District Court, viz., 4-8-1955 be considered as the material date for this purpose, the position would have been no different becauseboth the offers of Chunilal and Adhyaru were before the District Court and the moment the Court sanctioned either of the two offers, the contract of sale would become complete. If the contract of sale thus became complete on 4-8-1955 before the declaration of the dividend at the Annual General Meeting of the Himabhai Company on 6-8-1955, as between the Liquidators and the purchaser the Liquidators would be entitled to recover the dividends from the Company but would be bound to hand over the same to the purchaser. If Adhyarus offer had been sanctioned Adhyaru would have got these dividends from the Liquidators and the Liquidators would not have been entitled to retain the same there being nothing to that effect in the terms of the offer given by Adhyaru to the Liquidators on 27-7-1955. On the other hand, the Liquidators would have been entitled to retain the dividends as against Chunilal because, by his letter dated 29-7-1955 he had agreed to give the dividends the Liquidators. In either view of the situation, the Liquidators stood to gain Rs. 20 more per share if Chunilals offer was sanctioned. They were thus in a position to realise Rs. 520 per share as against Rs. 500 per share offered by Adhyaru. If this circumstance was taken into account there is no doubt that the offer of Chunilal was higher than that of Adhyaru and deserved to be sanctioned by the District Court.29. Having regard, therefore, to all the circumstances of the case, we are of the opinion that the order made by the District Judge was right and the High Court was in error when it set it aside and directed that he said 1936 shares should be sold by public auction.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]The whole tender was as composite tender and Chunilal was not satisfied that it was a valid tender of these 1936 shares by the Liquidators to him. The correspondence which took place between the Liquidators and Chunilal between54 makes it abundantly clear that at that stage the Liquidatorws had not got with them the requisite letters of authority from the contributories so as to enabale them to tender even the 1236 shares to Chunilal nor did they at that time make it clear to Chunilal that they were tendering the balance of 700 shares to Chunilal in exercise of their right under cl.(6). It may be that Chunilal expected that he would ulitmately be able to acquire these shares from the individual contributories beyond the said period of five months at the then market rate which according to the then expectation could never be more than Rs. 450 per share, which was much less than Rs. 500 per share which he had agreed to pay under the terms of his agreement.Whatever may have been at the back of his mind, the fact remains that the Liquidatories, on the evening of thedid not make a valid tender of these 1936 shares to Chunilal and Chunilal was well within his rights in refusing to accept the same.He made his position clear in his letter datedwhich he addressed to the Liquidators and it is futile to urge that the attitude which he took up onwas a pureWe are of the opinion that the District Judge was right in his appreciation of the situation as it ontained onand the High Courts conclusion that Chunilal committed a breach of the agreement was claearly erroneous.It is clear from the above that there could be no question of the District Court giving any notice to the contributoriesand the District Judgewas right in the circumstances of the case in considering the only two offers which were submitted before him and exercising his discretion and giving the sanction in favour of Chunilal as he did. If even the contributories who interests were primarily to be saferguarded had not the slightest notion that anything more than Rs. 500 per share could be obtained by a sale of the shares in open market as is evident from the attitude of Madhubhai right up tomuch less could the Liquidators or the District Judge himself have thought of having these shares sold in the open market. If that step had been then taken the result would have been disastrous and not even Rs.per share would have been obtained at such auction sale. The contributories would certainly have suffered and even the offers made by Chunilal and Adhyaru would then have been of no avail. The adventitious circumstance of third parties coming into the field aftercould not have been foreseen by any of the parties concerned and it would be certainly unfair to Chunilal and to Adhyaru to refuse to accept their offers merely on the ground that a sale by public auction was directed by the contributories and might have fetched a higher price than that of Rs. 500 per share actually offered by Chunilal or Adhyaru.It was urged that the appeal was by way ofof the original application and it was open to the High Court to take into consideration the further facts and events in arriving at its conclusion as it did. We are not impressed with that argument. Even though an appeal is in the nature of aand the courts in this country can take into account the facts and events which have come into existence after the decree appealed against, it could be only for moulding the relief to be granted in the appeal :Vide observations of Varadachariar, J., in Lachmeshwar Prasad Shukul v. Keshwar Lal Chaudhuri,1940 FCR 84 at p. 103 : (AIR 1941 FC 5   at p. 13) (A).In the events that had happened as narrated above, there was no justification, therefore, for the High Court taken into consideration the higher offers which were brought into existence by Madhubhai afterbased on a bid for the managing agency of the Himabhai Company on the strength of the acquisition of the voting rights in respect of the whole block of 1936 shares. The position as it stood onwas to be considered and it was on an appreciation of the position as it then stood that the District Judge had to and did consider whether the offer of Chunilal or that of Adhyaru should be sanctioned.27. If, therefore the discretion of the District Judge was not, on the facts and circumstances as they then stood, erroneously exercised as stated before and there was also no prejudice to the interests of the contributories, the High Court was not justified in interfering with the discretion exercised by the District Judge and setting aside the order of the District Judge and directing a sale of these 1936 shares by public auction as itis nothing in the record of the case to show that there was any other arrangement in this behalf and the normal position was that, after the contract for sale was entered into between the Liquidators and Chunilal, Chunilal would become entitled to the dividend on these 1936 shares. Even if the date of the sanction by the District Court, viz.,be considered as the material date for this purpose, the position would have been no different becauseboth the offers of Chunilal and Adhyaru were before the District Court and the moment the Court sanctioned either of the two offers, the contract of sale would become complete. If the contract of sale thus became complete onbefore the declaration of the dividend at the Annual General Meeting of the Himabhai Company onas between the Liquidators and the purchaser the Liquidators would be entitled to recover the dividends from the Company but would be bound to hand over the same to the purchaser. If Adhyarus offer had been sanctioned Adhyaru would have got these dividends from the Liquidators and the Liquidators would not have been entitled to retain the same there being nothing to that effect in the terms of the offer given by Adhyaru to the Liquidators onOn the other hand, the Liquidators would have been entitled to retain the dividends as against Chunilal because, by his letter datedhe had agreed to give the dividends the Liquidators. In either view of the situation, the Liquidators stood to gain Rs. 20 more per share if Chunilals offer was sanctioned. They were thus in a position to realise Rs. 520 per share as against Rs. 500 per share offered by Adhyaru. If this circumstance was taken into account there is no doubt that the offer of Chunilal was higher than that of Adhyaru and deserved to be sanctioned by the District Court.29. Having regard, therefore, to all the circumstances of the case, we are of the opinion that the order made by the District Judge was right and the High Court was in error when it set it aside and directed that he said 1936 shares should be sold by public auction.