1931 (10) TMI 17 - HC - Companies Law

Summary

Issues: Validity of liquidators' appointment under the Indian Companies Act and enforceability of company liabilities.

In this case, an application was made under section 215 of the Indian Companies Act by voluntary liquidators of a company, seeking to enforce payment from shareholders. The company had gone into voluntary liquidation due to inability to meet liabilities. The petition was contested by some shareholders on the grounds that the appointment of liquidators was not valid and that the company had no enforceable liabilities. The contesting shareholders argued that the liquidators were appointed by an extraordinary resolution, which they claimed should have been a special resolution since the company had not commenced business. They also contended that the notice for the extraordinary resolution did not comply with legal requirements, and the resolution was not passed by the requisite majority. The court agreed with these objections, finding that the appointment of liquidators was not valid due to procedural irregularities.

Regarding the enforceability of company liabilities, the court referred to section 103 of the Indian Companies Act, which states that any contract made by a company before it is entitled to commence business is provisional and not binding until that date. As the company had not fulfilled the requirements to commence business, the liabilities claimed by the liquidators, such as debts to the managing director and rent charges, could not be legally enforced. Citing precedents, the court held that these liabilities could not bind the company. Consequently, the court dismissed the petition, ruling that the liquidators had no valid standing to enforce payment from shareholders due to the irregular appointment and the lack of enforceable liabilities.

In terms of costs, the court considered arguments from both sides. The shareholders argued that the liquidators should bear the costs since the company was not legally liable. On the other hand, the liquidators claimed they acted in good faith. The court decided that each party should bear their own costs, considering the overall equity of the situation.