Judgment

Yaacob Ismail J

1. In this suit the plaintiff sought the following relief:

   1. An order that the first and third defendants do register the plaintiffs and/or their nominees as the registered owners of 524,420 shares.

   2. All dividends in respect of the shares be paid to the plaintiff.

   3. The bonus shares of 262,210 be registered in plaintiff's name.

   4. Interest on the dividend payable on the shares.

   5. Costs.

   THE FACTS

2. On or about November 1, 1976, the plaintiff received two applications from Malayan Produce Company Sdn Bhd ("MPC") to discount 2 bills of exchange.

3. The bills of exchange were subsequently discounted by the plaintiff. This was done pursuant to an outward bill purchase facility granted to MPC.

4. MPC pledged the following documents with the plaintiff:

   1. Share scripts of 734,420 shares in first defendant. These shares were registered in the name of the second defendant.

   2. Bank transfer form duly executed by the second defendant in respect of these 734,420 shares.

5. MPC instructed the plaintiff to deliver the aforesaid document to California Vegetable Oils Inc ("CVO"). CVO refused to accept the documents. In the circumstances, the plaintiff demanded payment for both the share bills.

6. By letter dated July 19, 1977, the first third party instructed the plaintiff to split the shares in  1,000 shares in each certificate. By letter dated August 18, 1977, the plaintiff sent the shares to the then registrar for the splitting exercise.

7. The shares were split into 6 share certificates. No one objected to the splitting of the shares.

8. From July 15, 1977 to August 17, 1977, some 210,000 shares of the first defendant were sold by the second defendant through one Mr. Foo See Soon (DW2). On September 1, 1977, the plaintiff received instructions from MPC to deliver the 210,000 shares in the first defendant to Hwang & Yusoff Securities, the share brokers, upon payment of RM249,228 on September 1, 1977 and the said sum was credited into the second third party's account. As a result the amount of the remaining shares in question was 524,420 ("the shares").

9. The plaintiff then decided to register its nominees as the registered member to enforce its security in the shares. This was done due to the fact that the plaintiff was unable to obtain full payment from the second third party. 

10. The first third party and second third party authorized the plaintiff to register the shares in its nominees by letter dated February 28, 1978.

11. On March 7, 1978, the plaintiff submitted the shares, together with the duly executed deed of transfer for registration in its nominees name.

12. On March 31, 1978, the plaintiff was informed by the then share registrar that the second defendant objected to the registration of the shares. The reason for the second defendant's objection was given in his solicitors' letter dated March 28, 1978, alleging that the shares were given to one Mr. Patel for safe custody. The second defendant alleged that without his consent, the shares were given to the first third party, who was the chairman of MPC. MPC then pledged the shares with the plaintiff for a facility. As a result of the second defendant's objection, the registration was unsuccessful.

13. The share certificates and transfer form were not returned to the plaintiff after sending the same for registration. The registrar of shares of the first defendant failed to register the transfer of the shares in the plaintiffs nominees.

    THE ISSUES

14. The issues:-

    1. Whether the registrar of shares of the first defendant had rightly refused registration of the shares; and

    2. Is the second defendant estopped from denying the plaintiffs right to register the shares

    A. Whether registrar of shares of the first defendant rightly refused to register shares

15. The registration of shares is governed by the Companies Act 1965. This is the obligation of the company. The power is given to the company whether to register or to refuse registration of the shares. This power should be exercised reasonably. 

16. In Boon Kee Holdings Sdn Bhd v Hotel Gallant Bhd [1991] 3 CLJ 2082 at p 2084 paragraph B-C left column it was stated (citing Lord Reid in Moodie v W Shepherd (Bookbinders) Ltd [1949] 2 AER 1044 @ 1054):

    directors can exercise their right to decline registration only by passing a resolution to that effect.

17. The first defendant has failed to adduce any evidence that there is a positive resolution to refuse registration of the shares in the name of the plaintiffs nominees. The burden of proof is therefore not discharged. 

18. It is to be noted that the first defendant did not object to the registration sought by the plaintiff. The registrar of shares of the first defendant did not refer the transfer of the shares to the first defendant. Therefore, there is no way that the first defendant could have exercised its power to consider the registration.

19. The first defendant's power to refuse registration is subject to s 105 of the Companies Act 1963, which provides:

    If a company refuses to register a transfer of any share debentures or other interests in the company it shall, within one month after the date on which the transfer was lodged with it, send to the transferor and to the transferee notice of the refusal.

20. In Xiamen International Bank v Sing Eng (Pte) Ltd [1993] 3 SLR 228 at p 239 Judith Prakash JC stated:

    This power was, however, subject to s 128(2) of the Act which provides that a company shall not refuse to register a transfer of shares by virtue of any discretion in that behalf conferred by the articles 'unless it has served on the applicant, within one month beginning on the day on which the application was made, a notice in writing stating the facts which are considered to justify refusal in the exercise of that discretion'.

21. The first defendant did not issue any notice of refusal. As such, it must be concluded that there was no refusal from the company to register the shares in the name of the plaintiffs nominees. The registrar of shares of the first defendant had no reason to refuse registration of the shares in the name of the plaintiffs nominees in the absence of such refusal from the first defendant.

22. In Ho Shee Jan v Stephens Properties Sdn Bhd [1986] 2 MLJ 43 at p 47 paragraph E-G (right) Chan J stated: 

    I, therefore, conclude that the board has by unnecessary delay lost its chance of exercising its power of veto against the transfer of the shares to Mr. Ho Shee Jan. It has lost its chance of keeping the registration of Mr. Ho's shares in the company off the register. I, therefore, grant Mr. Ho's application under s 162 of the Companies Act 1965 that the directors may be ordered to register the transfer of the shares. The right of transfer remains intact. The register must be rectified accordingly.

23. The objection to registration of the shares came, not from the first defendant, but from the second defendant. The second defendant is not a proper party to raise the objection regarding the registration. His objection should be disregarded and not acted upon by the registrar. By refusing to register the shares the registrar of shares has acted beyond his power. The registrar had in fact exercised the exclusive power of the first defendant to consider the issue of registration of shares. The registrar must register the shares when the necessary papers for transfer were in order.

24. The registrar of share is entitled to refuse registration of a transfer upon the refusal to register the transfer by the board of directors of the company or when the instrument of transfer is not proper (see s 103 of the Companies Act 1965). None of the circumstances exist in the instant case. The registrar must therefore register the shares.

    B. Is second defendant estopped from denying the plaintiff's right to register shares

25. The second defendant had knowledge that the shares were pledged to the plaintiff but raised no objection.

    Section 182 of the Contracts Act 1950 provides:

    Any notice given to or information obtained by the agent, provided it be given or obtained in the course of the business transacted by him for the principal, shall, as between the principal and third parties, have the same legal consequence as if it had been given to or obtained by the principal.

26. Based on s 182 of the Contracts Act 1950, the fact that the shares were pledged to the plaintiff was made known to the second defendant by Sharma (TPW1). The fact that the second defendant requested the plaintiff to release the 210,000 shares to his broker without objecting to the plaintiffs right at that material time, gave rise to estoppel against the second defendant's assertion that the plaintiff had no right to registration of the shares.

27. By giving the share scripts and blank transfer form to JN Patel and/or the first third party, the second defendant has by his conduct represented that JN Patel and/or the first third party has authority to deal with the shares. 

28. In Pan-Electric Industries Ltd v Overseas Chinese Banking Corp Ltd [1994] 3 SLR 695 at p 705 paragraph H and p 706 paragraph A-C, KC Lai J stated:

    There is a useful summary of the application of estoppel in relation to the commercial context with which we are concerned in the The Law Relating to Estoppel by Representation by Spencer & Tunner (3rd edn, 1977). Paragraph 181 states: Holding out as agent .... 181. The application of the doctrine of estoppel to this species of representation results in the following well-established rule. Where A, by words or act, or by silence or inaction (if there is a duty to speak or act), represents to B, or to the public or a class of which .5 is a member, that X is his (A's) agent, or has his authority, either generally, or for the purposes of a particular transaction or type of business, and B is induced by such representation to alter his position for the worse, A is estopped from afterwards disputing, as against B, that was invested with such agency or authority at the time at which he was so accredited. Illustrations of the operation of this such are abundant and can readily be found in e.g. .... company cases in which the owner of shares or similar securities hands them or other documents of title to a broker together with a transfer executed in blank.

29. At p 704 paragraph F-H in Pan-Electric (above) KC Lai J stated as follows:

    Pan-El had left those shares and the transfer with AAS for the extended period of 10 years. We are of the view that by so doing, Pan-El had put AAS in a position where the latter could deal with those shares. Anyone who dealt with AAS would assume that AAS was clothed with the authority to deal in those shares. The conduct of Pan-El therefore gave rise to a clear representation, which must be implied, that AAS had the implied or ostensible authority to deal in the shares. This was the effect whether the respondents were mortgagees or buyers. It would be against the conscience of Pan-El to be allowed to assert otherwise. The beneficial interest of the respondents as mortgagees in those shares is accordingly unimpeachable.

    CONCLUSION

30. Having considered all the evidence adduced in this case the court finds that the plaintiff has proved its case on a balance of probabilities. The plaintiff bank had obtained the shares validly from the third party. The plaintiffs claim is allowed with costs. The defendant's claim for indemnity against the third party is dismissed with costs since there is no evidence to show that the third party had the right to pledge the shares. Regarding the bonus issues and dividends, the plaintiff is entitled to them in respect of the 524,420 shares. The dividends paid to court are to be paid out to the plaintiff.

Cases

Boon Kee Holdings Sdn Bhd v Hotel Gallant Bhd [1991] 3 CLJ 2082; Ho Shee Jan v Stephens Properties Sdn Bhd [1986] 2 MLJ 43; Pan-Electric Industries Ltd v Overseas Chinese Banking Corp Ltd [ 1994] 3 SLR 695; Xiamen International Bank v Sing Eng (Pte) Ltd [1993] 3 SLR 228

768 All Malaysia Reports [2003] 4 AMR

Legislations

Companies Act 1963: s.103, s.105

Contracts Act 1950: s.182

Representations

DP Naban and BH Yap (Lee Hishammuddin) for plaintiff

G Rajasingam and ]M Lee (Shearn Delamore & Co) for defendants 30

KS Narayanan and Vishnu Kumar (KS Narayanan &c Associates) for third party

Notes

This decision is also reported at [2003] 4 AMR 766