NARESH CHANDRA SANYAL versus CALCUTTA STOCK EXCHANGE ASSOCIATION LTD.

Citation: [1971] 2 S.C.R. 483 · Decided: 25-09-1970 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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483 
NAIU:SH CHANDRA SANY AL 
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CALCUTfA STOCK EXCHANGE ASSOCIATION LTD. 
September 25, 1970 
[J. C. SHAH AND A. N. GROVER, JJ.] 
Companits Act (7 of 1913)-Fully paid up share-Forfeiture of-
E:Oect-Sale of forfeited slwre-lf illegal-Right of member to proeeetls 
of Side-Indian Contract Act (9 of 1872), s. 14--Scope of, 
Under the scheme of the articles of association of the Calcutta Stock 
Exchange Association Ltd., the Committee is authorised under art .. 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 an. 22, 
a member declared a "defaulter" because he fails to fulfil any engage-
ment between himself and any other member within six months from 
the date on which he bas 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 
propeny of the Exchange. Such forfeiture involves the extinction of all 
interest in and also air claims and demands against the Exchange in res-
pect 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 othe'rwise 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 dealinas in sto.cks 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 representatlv"' 
The appellant failed to carry out a direction to pay a certain sum aris-
ina out of a share transaction and the Committee after notice, declared 
him a defaulter. Six months later, after notice to the appellant, the Com· 
mittee 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 Df the share for 
Rs. SS,000. The appellant challenged the action taken by the Exchange· 
but the suit w~ dismissed. 
In appeal to this Coun, 
HELD : (I) It is not necessary that a resolution expelling a member 
and a resolution declaring him a defaulte'r should both be JlllSSed 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 art. 2l and would also automatically 
cease to be a member under art. 22. [490 A·CJ 
Sura;mall Mohtu v. B•llabhdas Mohta, I.L.R 63 Cal. 531, approved. 
. 484 
SUPREME COURT REPORTS 
(1971) 2 S.C.R • 
In any event, in the present case, a resolution declaring the appellant 
a defaulter was passed ~nd six months later the appellant was expelled 
from the membership of the Exchange and it was resolved thai his share 
shall stand forfeited. L490 C-D] 
(2) (a) Regulatioa 24 in Table A in the First Schedule to the Com-
panies Act, 1913, provides for the exercise of the power to forfeit a 
share when there is default in paying calls, but no inference follows there-
from 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 
boun.d by the provisions contained in its articles of association.. The 
·Articles regulate the internal management of the company and define the 
pow~rs 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 share-holder 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 

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