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Judgment
Venkalasubba Rao, J.—This is a letters Patent Appeal from the judgment of Wallace, J. One Subba Rao was a shareholder of the 2nd
defendant company. A money decree was passed against him and in execution of it certain shares belonging to him together with the dividends that
had accrued were attached and sold. The plaintiff who became the purchaser at the Court-sale has instituted the present suit for the recovery of the
dividends. The short question to be decided is: What is the article of the Limitation Act that is applicable to the case? The defendant company
contends that the period of limitation is three years, whereas the plaintiff urges that the period is six years. Wallace, J. was of the opinion that the
suit would have been in time had the plaintiff been a shareholder but that the plaintiff would not fall under that article. The ground of his decision is
that Ripon Press and Sugar Mill Company, Ltd. Vs. Nama Venkatarama Chetty, which lays down that a suit for return of deposit is governed by
Article 116 is inapplicable, if the suit is brought not by a shareholder between whom and the company there is a contractual relation but by a
transferee from such a shareholder*. With great respect, I am unable to agree. Article 116 applies to a suit ""for compensation for the breach of a
contract in writing registered."" The article does not say that the suit must necessarily be by the promisee against the promisor; if, for instance, the
claim is founded upon a registered bond, can it be said that a suit by a transferee from the payee under the bond does not come under this article?
The suit being for a dividend that has accrued, is in the nature of a claim for money due and the position of the transferee for this purpose cannot be
different from that of the shareholder himself.
The case cannot therefore be distinguished as has been done by Wallace, J. from Ripon Press and Sugar Mill Company, Ltd. Vs. Nama
Venkatarama Chetty, .
In my opinion the real question that arises is: Does Article 116 apply at all? In other words, does Ripon Press and Sugar Mill Company, Ltd.
Vs. Nama Venkatarama Chetty, correctly state the law?
Sir John Wallis, C.J. and Seshagiri Afyar, J., held in it that a suit by a shareholder against a company is governed by Arc. 116. With the utmost
respect for the learned Judges I feel bound to say that this decision is based on a fallacy, Article 116 applies to contracts in writing registered. Is
the contract between the shareholder and the company a contract of this description? The learned Judges having held that the memorandum and
the articles of association constitute the contract between the shareholder and the company, took the view that these two documents must be
deemed to registered within the meaning of Article 116. Is this construction correct? The word ""registered"" has not been defined in the Limitation
Act but its definition is to be found in the General Clauses Act of 1897. Section 3, Clause 45, of that Act says: "" ''Registered'' used with reference
to a document shall mean registered in British India under the law for the time being in force for the registration of documents."" Can it be said that
the Indian Companies Act embodies any portion of ""the law for the time being in force for the registration of documents?"" The Act deals with the
registration of companies and not registration of documents. S. after S. refers to the registering of a company. Section 2, Clause 2, defines a
company as one registered under the Act. Section 2, Clause (15) defines the ""Registrar"" as a Registrar performing under the Act the duty of
registration of companies. Section 4 prohibits certain partnerships unless they are registered as companies. Section 11 aims against the registration
of companies by names identical with those of companies already in existence. Section 248 provides for the establishment of registration offices
and deals with the offices where companies shall be registered. It is unnecessary to refer to further sections, but it is clear beyond doubt that it is
the registration of companies and not of documents that is within the purview of the Indian Companies Act.
It is no doubt true that in a few sections the word ""registered"" is used with reference to the memorandum and the articles of association. After
dealing with the registration of these documents (Sections 17, 18, 22 and 23), the Act proceeds to enact in Section 24 that a certificate of
incorporation shall be conclusive evidence that the Association is a company registered under the Act. But registration of the articles and
memorandum is merely incidental and the object to be achieved is the registration of the company. It is not sufficient to say that in the Indian
Companies Act there are some stray provisions that deal with the registration of certain documents. The real question is: Does the Indian
Companies Act contain any portion of ""the law"" as contemplated by the General Clauses Act ""for the time being in force for the registration of
documents?
I have so far applied a negative test. Where is this law then contained? If we now turn to the Registration Act of 1908 we find the preamble
running thus:
Whereas it is expedient to consolidate the enactments relating to the registration of documents, it is hereby enacted as follows.
It is the Indian Registration Act therefore that contains ""the law for the time being in force for the registration of documents."" It is needless to
point out that this Act does not deal with the registration of memoranda or articles of association.
The view I have taken derives some support from Article 112 of the Limitation Act which gives the period of limitation as three years for a suit
to enforce a call by a registered company. If in the opinion of the legislature, enforcing a call is enforcing an obligation arising under a registered
contract, a period of three years would not have been prescribed; For, under Article 116 when any contract (whatever its nature may be) is in
writing registered, the period of limitation is six years. See Tricomdas Cooverji Bhoja v. Gopinath Jiu Thakur (1916) 32 MLJ 357. The general
policy of the Act is to prescribe the longer period in the case of obligations arising under a registered contract. If, therefore, Article 112 in truth
refers to such an obligation, the position will be this: Article 112 will stand apart and be inconsistent with the general scheme and policy of the Act.
From this it is a fair inference that the idea underlying Article 112 is that the obligation in respect of a call does not arise under a registered contract.
This article also incidentally shows by its wording that what is registered is the company and not the articles or memoranda.
Section 116, therefore, of the Limitation Act cannot apply to a suit by a share-holder against a registered company. The learned Judges who
decided Ripon Press and Sugar Mill Company, Ltd. Vs. Nama Venkatarama Chetty, came to the opposite conclusion as they felt that a narrow
interpretation should not be put upon the words in the General Clauses Act. When two interpretations are possible, one narrow and the other a
liberal one, I should certainly not have the slightest hesitation in adopting that interpretation which accords with justice. But I cannot help feeling in
the present case that the construction suggested on behalf of the plaintiff is utterly unsound. It is with the greatest reluctance that I feel compelled,
departing from the authority cited, to adopt a view which gives the shorter period of limitation.
The plaintiff''s learned vakil suggests that if Article 116 does not apply, Article 120, the residuary article governs the case. I cannot accept this
contention. Article 115 applies to suits for compensation for the breach of a contract not in writing registered. It is contended that the memoranda
and articles do not constitute a contract between the company and its members. In Ripon Press and Sugar Mill Company, Ltd. Vs. Nama
Venkatarama Chetty, , it was held that the obligation to pay a dividend arises from the contract evidenced by these documents. I am prepared to
follow this decision in this respect. Section 21 of the Indian Companies Act runs thus:
The memorandum and articles shall, when registered, bind the company and'' the members thereof to the same extent as if they respectively had
been signed by each member and contained a covenant on the part of each member, his heirs and legal representatives to observe all the
provisions of the memorandum and of the articles subject to the provisions of this Act.
This S. is almost identical with Section 14 of the English Act, The Companies (Consolidation) Act, 1908. The contention is that although the S.
says that there shall be deemed to be a covenant on the part of each member, it does not say that the company is bound by reason of a contract
entered into by it.
There has been a good deal of conflict of opinion in England on this point and Palmer in his ""Company Law"" deals in Chapter IV with this
subject.
In Welton v. Saffery (1897) AC 299., Lord Herschell observed:
It is quite true that the articles constitute a contract between each member and the company.
Sterling, J. in Wood v. Odessa Waterworks Company (1889) 42 CD 636 said: ""The articles of association constitute a contract not merely
between the shareholders of the company but between each individual share-holder and every other James, L. J. in Johnson v. Lyttle''s Iron
Agency (1877) 5 ChD 687, referred to the ""articles as a contract between the company and the share-holders. It is unnecessary to multiply
references and it is sufficient to refer to the following passage in Buckley''s Companies Acts, 1924 Edition, page 28:
All the authorities as to whether the articles constitute a contract as between the company and its members were reviewed by Astbury, J., in the
recent case of Ripon Press and Sugar Mill Company, Ltd. Vs. Nama Venkatarama Chetty, who decided that the result of the apparently
conflicting Ripon Press and Sugar Mill Company, Ltd. Vs. Nama Venkatarama Chetty, decisions and dicta referred to above was that though the
articles can neither constitute a contract between the company and an outsider nor give any individual member of the company special contractual
rights beyond those of the members (or, quaere, any particular class of members) generally, they do in fact constitute a contract between a
company and its members in respect of their ordinary rights as members.
If the articles and memoranda constitute therefore a contract binding on the company as well as on each member, Article 115 dearly applies to
the case and a suit for the recovery of the dividend must be brought in three years from the date when payment becomes due.
As the view I am taking is opposed to that adopted by a Bench of this Court in Ripon Press and Sugar Mill Company, Ltd. Vs. Nama
Venkatarama Chetty, and as the point, I understand, is likely to frequently arise in connection with a company which is now under liquidation, I
would refer the following question to a Full Bench:
Is a suit by a share-holder against a company for recovery of a dividend governed by Article 115 or 116 of the Limitation Act?
If neither article applies, which is the article applicable?
Madhavan Nair, J.
For deciding this Letters Patent Appeal, it has become necessary to consider the question, what article of the Limitation Act governs a suit by
a shareholder against a company. In Ripon Press and Sugar Mill Company, Ltd. Vs. Nama Venkatarama Chetty, , it was held by Sir John Wallis,
C.J., and Seshagiri Aiyar, J., that Article 116 applies to such a case. Under this article a period of six years is fixed for suits ""for compensation for
the breach of a contract in writing registered."" The learned Judges in Ripon Press and Sugar Mill Company, Ltd. Vs. Nama Venkatarama Chetty, ,
took the view Ripon Press and Sugar Mill Company, Ltd. Vs. Nama Venkatarama Chetty, that the memorandum and articles of association
constituted the contract between the share-holders and the company and (2) that these two documents must be deemed to be registered within the
meaning of Article 116. Accepting the soundness of the view that the two documents constitute the contract, the learned vakil for. the respondent
has argued that these two documents cannot be considered to be registered within the meaning of Article 116, ""Registered"" according to the
General Clauses Act, Section 3, Clause 45, when used with reference to a document, means ""registered in British India according to the law for
the time being in force for the registration of documents."" According to its preamble, the Indian Registration Act contains the law for the time being
in force for the registration of documents. That Act does not contain any special provision for the registration of ""memorandum and articles of
association."" Sections 17 and 18 of the Indian Companies Act refer to the registration of these documents and Section 22 says that the Registrar of
the province in which the registered office of the company is situate shall retain and register them. The Registrar means a Registrar or Assistant
Registrar performing under the Indian Companies Act the duty of registration of companies (see Section 2, Clause (15). Section 23 refers to the
effect of registration and Section 24 says that a certificate of incorporation given by the Registrar should be conclusive evidence that the
Association is a company registered under the Act. As pointed out by my learned brother, Sections 2, Clauses (2) and (15), 4, 5, 11 and 248
indicate that the Indian Companies Act embodies only the law for the ""registration of companies"" and not any portion of the law for the ""registration
of documents,"" for which provision is made in the Indian Registration Act. The wording of Article 112 of the Indian Limitation Act suggests that
what is registered is the ''company'' and not the ""memorandum"" or ""articles of association."" No doubt, there are sections, as already mentioned, in
the Indian Companies Act relating to the registration of these two documents, but on the strength of those sections which deal only with what may
be described as matters incidental to the registration of companies, I do not think it can be said that any portion of the law for the registration of
documents for the time being in force is contained in the Indian Companies Act. If this view is accepted, then Article 115 of the Indian limitation
Act would be the article applicable to a suit by a shareholder against a company, but the learned vakil for the appellant argues that that article is
inapplicable because the memoranda and the articles of association do not constitute a contract between the company and its members and that,
therefore, the proper article which would govern the case is Article 120. As regards the question whether the memoranda and the articles of
association constitute a contract, there has been some conflict of opinion in England, but the weight of authority is decidedly against the view put
forward on behalf of the appellant.
I think it has been rightly held in Ripon Press and Sugar Mill Company, Ltd. Vs. Nama Venkatarama Chetty, , that the right to receive a
dividend arises out of the contract evidenced by the memorandum and the articles of association.
In the circumstances pointed out by my learned brother, I agree that the opinion of the Full Bench may be invited on the questions proposed by
him.
The appeal came on before the Full Bench constituted as above on 27th and 28th October, 1925,
K.N. Rajagopal Sastri for the appellant: There is no specific article in the Limitation Act which covers the case of a simple action in debt. (The
Chief Justice. Is dividend a debt due from the Company?) Yes; it has been so held in (1896) 1 Ch. 559 per Romer, J. The company is not a
trustee. The debt becomes payable on the declaration of the dividend. As there is no specific article, Article 120 applies. (Beasley, J. Why not
Article 62?) Because the money out of which the dividend comes was not, at the moment of its receipt, received for the member''s use. The
company receives profits for its own use: Then the directors (or whoever may be authorized by the articles) decide to devote a portion (or the
whole of it) for dividends. Something has to be done with the profits before they become the share-holders'' money. Perhaps the whole of it may
be set apart as a reserve fund. Unless at the moment of receipt by the defendant the money could be said to be the plaintiff''s, and then and there
payable, Article 62 cannot apply. See 40 Mad 291 (Krishnan, V. If dividends are declared more than 3 years after the receipt of the profits by the
company the action might be barred by Article 62 before the cause of action arose.) That is a reason why Article 62 should not be applied. {The
Chief Justice. What article does the defendant seek to apply?) Article 115. Compensation for breach of contract. {The Chief Justice. That cannot
include a count for a sum certain. The article obviously applies to actions sounding in unliquidated damages). That view has been taken by several
Judges. See 6 Cal. 94 per Ghose, J; and per Sundara Aiyar, J. in 38 Mad. 972 where he protests against the contrary view ""in all humility."" (He
was stopped by the Court.)
P. Satyanarayana Row for the respondent company:
It is no objection that Article 115 is worded compensation for the breach of contract. The same language in Article 116 has been held by the
Privy Council to include sums certain. See 44 Cal. 759 (The Chief Justice. The Privy Council were unwilling to disturb a series of authorities which
had the effect of making a longer period of limitation apply.) But the case is an authority on the language of Article 116. The words in Article 115
are identical and cannot mean a different thing. Further I contend that Article 62 applies. The plaintiff need not be in a position to sue at the date of
receipt. Money paid under a mistake is money had and received, but plaintiff cannot sue until he discovers the mistake. (Krishnan, J. If that case
comes under Article 62, why provide for it in Article 96?) In English Law there is no distinction. See (1914) A C 398. (Krishnan, JIn. English Law
the starting point for limitation is always when the cause of action accrues; and mistake is a part of the cause of action. Under Article 62 the starting
point is when the money is received. So it cannot cover all cases of money had and received under English Law.) There can be a second notional
receipt when the dividend is declared.
Rajagoual Sastri (asked to reply on Article 115): The reasons for the decision in 44 Cal 759 do not hold good lor extending the same
construction to the words in Article 115. (The Chief Justice said that the words being the same in both the Articles 115 and 116, the Court felt
bound to follow the P C decision in respect of Article 115 also.) Then I contend that Art 115 cannot apply, because here there is no contractual
obligation at all. 42 Mad 33 assumes that the obligation to pay dividend is contractual on the part of the company, on the strength of Sections 11
and 39 of the Indian Companies Act, 1882, now Section 21 of the Indian Companies Act, 1913. That S. does not say that the Articles of
Association constitute a contract between the company and the members. It merely says that the articles shall bind the company and the members,
and, so far as the members are concerned, as if they had been signed by each member and contained a covenant on the part of each memberto
observe all the provisions, etc. It is not said that the company shall be bound as if it signed the articles, or as if they contained a covenant on its
part. The company is bound, of course, by its articles; else I had no case. But it is not bound contractually by its articles. It is not so bound as a
fact, because the articles are declared to bind it on registration: Section 21; but the company itself comes into existence as a legal entity only on
registration: Section 23, Indian Companies Act, 1913. On registration of the articles the company is born; and how at the moment of its birth eo
instanti, can it be a contracting party? A person to contract must be in esse, at least for a fraction of a second. That is not the case here. So there is
no contract in point of fact. Nor does Section 21, Indian Companies Act, say, as a statutory fiction, there is a contractual obligation on the part of
company; though it does say so on the part of the members. The S. could have run""shallbind the company and the members as if they contained a
contract between the company and the members."" But that is not the language. You cannot extend a statutory fiction. The Court is entitled and
bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to See per James, L.J. in (1875) 1 Ch. D.
182 and in (1881) 17 Ch. D. 746 and per Earl Cairns in (1884) 9 AC 448. For that you go to the history of the section; the old law, the mischief
felt, the remedy in view and the true reason of the remedy. The reason for the S. which was first Sections 11 & 16, English Companies Act,
1862,_and now Section 14 of the English Companies Consolidation Act, 1908, is found in Robinson''s Executor''s case (1856) 6 De G M, where
it was held that money due by a share-holder to the company was not a specialty debt, and so not entitled to priority in administration of the share-
holder''s estate on his death. So six years later, in 1862, the obligation of the member was as if by specialty, in Sections 11 and 16 of the
Comapnies Act, 1862. This priority in administration of specialties has since been abolished by Hindi Palmer''s (Administration of Estates) Act,
1869, 32 & 33 Vic. Ch 46: See Williams on Executors, Vol. I, Pt. III, Bk. II, Ch. II, Section 3, para. 1; and Leake on contracts, 1911 Edn., Ch.
II, pp. 89 and 96. Bacon, V.C. points out in (1870) 1 R 10 Eq. 629 that it was to get over the difficulty in Robinson''s Executor''s case that the
16th section (Act 1862) was inserted. There was no reason to make it a specialty obligation as regards the company; and it was not so enacted.
The English and Irish decisions support this view. In (1870) I R 5 Eq. 65, Christian L.J. held that the obligation to pay dividend on the part of the
company was a specialty obligation, not because the Act said so (because obviously it did not) but because the share certificate was issued under
the seal of the company. The obligation was composite, found in the articles of association and acknowledged under seal in the share-certificate;
and because of the seal, of the nature of a specialty.
This case has been followed in (1903) 1 Ir. Rep. 512 where it Was argued for the company: Section 16 (1862 Act) does not make the articles
contract under seal binding on the company; and the answer for the share-holder was that because of the company''s admission of the right in a
share certificate under seal, the right became specialty. See also (1904) 1 Ch. 796 per Byrne, J. to the same effect.
The articles are not a contract. (Krishnan, 7. They may be varied by special resolution.) Yes; and the new articles will bind the dissenting
members also. Yet the other side''s contention is that they are a contract. There are obiter dicta both ways in various cases see them collected in
Buckley on Companies (1924); Halsbury on Companies, etc. There are only two cases in point. The Court of Appeal decision in (1899) 2 Ch. 80
is clearly in my favour. Buckley, Q.C. said in that case (Arguendo). Every member as a corporator has a right to say to the company ""you shall
observe these regulations;"" but as an individual he is net entitled to say to the company, ""this is a contract with me which I can enforce."" Lindley,
M.R. accepted this contention. The articles are regulations. ""That is what they are, call them what you like."" The decision in (1915) 1 Ch 881 is
against me. It is a single judge''s decision and (1899) 2 Ch. 80 is not referred to at all. The difficulties suggested above are not met. It is an
empirical attempt to solve a very great conflict in judicial opinion. The case itself may be distinguished on the ground that/there the defendant was a
member, and so within the words of Section 14(English 1908 Act); not, as here, the company itself. I submit therefore Article 115 Limitation Act
cannot apply; and Article 120 applies.
P. Satyanarayana Row in reply: The Irish Cases (1870) I R 5 Eq. 65and the English Case (1904) 1 Ch. 796 all assume that the obligation to
pay dividend is contractual. (The Chief Justice. Assume, but not decide.) The question in those cases was whether the obligation was by a
document under seal. (Krishnan, J. Is there a difference for limitation purposes between a simple debt and?. contractual obligation in English Law?)
(Rajagopal Sastri: No. The only distinction is between parol and specialty obligations. The English Civil Procedure Act, 1833, 3 & 4 Will IV, C.
42, Section 3, provides for actions of debt six years after the cause of such action, except when upon specialty.)(Krishnan, J. so in the English
cases it was immaterial whether the obligation was contractual or not, and the point was not considered.) The case in (1915) 1 Ch. 881 is in point
and clearly in my favour. (The Chief Justice. But not the case of Baring-gould (1899) 2 Ch. 80
The Court expressed the following
Krishnan, J
I agree.
Beasley, J
I agree.