1938 (10) TMI 10 - HC - Companies Law

Summary

Issues Involved:
1. Whether the appellants should be placed upon the list of contributories despite the directors' purported forfeiture of their shares in 1933.
2. Validity of the directors' resolutions and actions regarding the forfeiture of shares.
3. Whether the directors' actions were ultra vires (beyond their powers).
4. The effect of the amended scheme of arrangement on the directors' actions.
5. The possibility of ratification of the directors' actions by shareholders and creditors.
6. The appellants' liability for unpaid calls and interest.

Issue-wise Detailed Analysis:

1. Whether the appellants should be placed upon the list of contributories despite the directors' purported forfeiture of their shares in 1933:
The High Court of Judicature at Lahore determined that the appellants should be placed upon the list of contributories. This decision was based on the finding that the directors' forfeiture of the appellants' shares was ultra vires and of no effect. The directors' actions were inconsistent with clause 6 of the amended scheme of arrangement, and thus, the appellants' names were improperly removed from the register of members.

2. Validity of the directors' resolutions and actions regarding the forfeiture of shares:
The directors' resolutions passed on 18th January 1933, which included making a further call of 5% and requiring payment of the 20% call by 26th February 1933, were found to be invalid. The resolutions were inconsistent with clause 6 of the amended scheme, which fixed specific dates for payment of the calls. The directors had no right to alter these dates or to make the further call payable on 26th February 1933.

3. Whether the directors' actions were ultra vires (beyond their powers):
The directors' actions, including the resolutions of 18th January 1933 and the subsequent forfeiture of shares, were ultra vires the Bank. The amended scheme of arrangement, sanctioned by the Court, was binding on the Bank, its creditors, and shareholders. Any variation of the scheme's terms required Court approval. The directors' attempt to alter the payment dates and offer a compromise was beyond their powers and void.

4. The effect of the amended scheme of arrangement on the directors' actions:
Upon confirmation by the Court, the amended scheme of arrangement became binding and could only be varied by Court order. The scheme fixed the dates for payment of the 20% call made in March 1932 and the 5% call made in January 1933. The directors' resolutions attempting to alter these dates were invalid. The scheme's terms were clear, and the directors' misunderstanding of its effect did not justify their actions.

5. The possibility of ratification of the directors' actions by shareholders and creditors:
The contention that the forfeitures were ratified by shareholders and creditors was rejected. Ratification of an ultra vires act requires the acquiescence of each and every member of the company, with full knowledge of the act's illegality. There was no evidence that shareholders and creditors were aware of the illegality or that they intended to ratify the forfeitures. Mere acquiescence or silence did not constitute ratification.

6. The appellants' liability for unpaid calls and interest:
The appellants' placement on the list of contributories was affirmed. The question of their liability for interest on unpaid calls was not addressed in this judgment and would be determined in the course of the liquidation. The primary issue was whether the forfeitures were valid, and since they were not, the appellants remained liable as contributories.

Conclusion:
The appeals were dismissed with costs. The directors' actions were ultra vires, and the forfeitures were invalid. The appellants were rightly placed on the list of contributories, and any further issues regarding their liability for unpaid calls and interest would be addressed during the liquidation process.