Suit No.

777 of 1865



The Oriental Financial Association (Limited)

v.

The Mercantile Credit and Financial Association (Limited)

Sale of Shares and repurchase for future delivery — Forfeiture — Liability of Company for acts of
Directors.

In January 1865, the plainti s purchased from the defendants 2,000 shares in the defendants’
Company, at 15 per cent premium, for which they paid in cash Rs. 3,20,000; and the defendants
simultaneously agreed to repurchase for future delivery and payment at a xed time in July the
same 2,000 shares at 29 1/2 per cent premium. The contracts for the repurchase were signed by
three directors of the defendants’ Company, and on each was a memorandum, initialed by two of
them, referring to a list of the “share receipts” delivered, with the words, “We are duly to examine
and receive the same at the xed time.” 190 letters of allotment, in the names of several persons
and for various numbers of shares, endorsed by the original allottees, and initialed by one of the
three directors, were, together with receipts for the rst call, handed over to the persons who
acted for the plainti s, by the three directors of the defendants’ Company who made the
contracts.

In April the defendants’ Company made a fresh call payable on the 4th of May. A list of the
names and addresses of the original allottees of what were called “shares in the market,”
(i.e. other than those purchased by the Company itself for cash, or held by it on mortgage)
was made out from the deed of settlement, and notices of forfeiture for non-payment of the
call were sent by post. The original holders of the 190 letters of allotment were included in
the list; but no notice was sent to the plainti s. On the 27th of May all shares upon which
the 2nd call was not paid were declared to be forfeited for the bene t of the Company. The
defendants’ Company, as stated in the Memorandum of Association, was established,
among other objects, for “the purchase and sale of Debentures, Stocks, Shares of Joint
Stock Companies (including the shares of this Company), and other Securities, the making
Loans and Advances on such Securities as the Directors of the Company may think t.”

Held that contracts for the repurchase of the 2,000 shares, being within the scope of the
authority of the directors, the defendants were bound by them; that the defendants were
bound to treat the plainti s as the holders of those shares, and to give them the notice
required by the Articles of Association, and that they were not at liberty to give that notice
to the original allottees, who by the admission of the defendants testi ed by the acts of
their agents in making the contracts, had parted with the shares; that the shares were,
consequently, not legally forfeited and the defendants having refused to accept them, and
they being unsaleable, the plainti s were entitled to recover the full price as damages.

THIS was a suit to recover Rs. 4,36,000, the price of shares, which the defendants refused to
accept.

On the 18th of November, 1865, judgment by default for non-appearance was passed against the
plainti s, which was afterwards (3rd Feb.) set aside under Sec. 119 of Act VIII of 1859, and the
suit ordered to proceeded with (a).

Bayley, McCulloch and Macpherson for the plainti s. 


The Hon’ble J.S. White, (Acting Advocate General) Howard and Green for the defendants. 

The facts su ciently appear in the judgment.

COUCH, C. J. — The plaint in this suit stated that, on or about the 3rd of January 1865, the
plainti s purchased from the defendants, and the defendants sold to the plainti s, 2,000 shares in
the Mercantile Credit and Financial Association at the rate of Rs. 15 per cent premium, and the
plainti s paid to the defendants rupees three lacs and twenty thousand for the same; and that the
defendants, simultaneously with the above mentioned sale, agreed to re-purchase from the
plainti s the same 2,000 shares at the rate of 29 1/2 per cent premium, to be delivered and paid
for between the 1st and 15th days of July then next ensuing; and two agreements in the Guzerathi
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language and character, bearing the date the 3rd of January 1865, and respectively signed by the
duly authorised agents of the defendants in that behalf, each agreement being for one thousand
shares, were executed for the purpose of carrying out the last mentioned contract; and that the
defendants refused to take delivery of the shares; and claimed as damages rupees four lacs and
thirty-six thousand.