Steel Bros Ltd's articles of association said if a member went bankrupt his shares would be transferred to designated persons at a fair price not above par value.
It requested an injunction against the share transfer at all, or at anything less than a fair value Farwell J rejected Borland Trustee's argument and held the article was valid.
He said the argument that the article was repugnant to absolute ownership needed to assert, wrongly, that a share is a sum of money dealt with by executory limitations.
But in fact a share is an interest and consists of 'a series of mutual covenants entered into by all the shareholders inter se in accordance with section 16 of the Companies Act 1862.
They are likened to the case of a settlor or testator who settles or gives a sum of money subject to executory limitations which are to arise in the future, interpreting the articles as if they provided that if at any time hereafter, during centuries to come, the company should desire the shares of a particular person, not being a manager or assistant, he must sell them.
It was held that the shares were subject to the lien mentioned for the benefit of the company, notwithstanding the interest of the cestuis que trust which was said to be paramount.
[5] A stronger instance of the unlimited extent of personal liability could hardly be cited; the Old East India Company in 1760, or thereabouts, entered into a covenant with the first Lord Clive, that in the event of the company ceasing to be the possessors of the Bengal territories they would repay to Lord Clive, his executors or administrators, a sum of about eight lacs of rupees, which had been transferred to them for certain particular purposes.