1948 (3) TMI 25 - HC - Companies Law

Summary

Issues Involved:

1. Validity of the forfeiture dated 28th October, 1943.
2. Validity of the allotment dated 15th June, 1942.
3. Validity of the allotment dated 16th January, 1943.
4. Liability of the defendant under the agreement to take qualification shares.
5. Compliance with the statutory requirements for membership under the Companies Act.

Detailed Analysis:

1. Validity of the Forfeiture Dated 28th October, 1943:
The forfeiture of shares is treated strictly by the courts, requiring exact compliance with the procedure outlined in the articles of association. The plaintiffs contended that the forfeiture was based on the non-payment of monies due from the allotment dated 16th January, 1943. However, this allotment was invalid due to the lapse of a reasonable time from the date of the offer by the defendant and the prior invalid allotment dated 15th June, 1942. Consequently, the notice of forfeiture and the subsequent resolution of forfeiture were also invalid. As a result, no fresh cause of action arose under Article 34 of the Articles of Association.

2. Validity of the Allotment Dated 15th June, 1942:
The allotment dated 15th June, 1942, was not made within a reasonable time from the application or offer by the defendant, which was on 11th July, 1941. The lapse of almost a year was deemed unreasonable, making the allotment invalid. Furthermore, once an allotment is made and communicated, it cannot be canceled by the company. The plaintiffs' cancellation of this allotment was therefore not competent.

3. Validity of the Allotment Dated 16th January, 1943:
The subsequent allotment on 16th January, 1943, was also invalid for the same reasons as the previous allotment. The plaintiffs could not validly re-allot the shares after the initial allotment was canceled. This invalid allotment could not serve as a basis for the notice of forfeiture or the resolution of forfeiture.

4. Liability of the Defendant Under the Agreement to Take Qualification Shares:
The defendant had agreed to take up the qualification shares by signing the agreement on 11th July, 1941. However, the cause of action in the plaint was based on the agreement, the allotment, and the forfeiture of the shares. The plaintiffs' counsel argued that the agreement alone should suffice to establish liability. Nevertheless, without the defendant's name being entered in the register of members, the agreement alone did not create the status of membership or the corresponding liability.

5. Compliance with the Statutory Requirements for Membership Under the Companies Act:
Under Section 30(2) of the Companies Act, a person becomes a member only if they agree to become a member and their name is entered in the register of members. The plaintiffs failed to specify the distinctive numbers of the shares allotted to the defendant in the register of members, as required by Sections 28(2) and 31(1)(i) of the Companies Act. Consequently, the defendant did not become a member, and no liability for payment of the share price arose.

Conclusion:
The plaintiffs' claim against the defendant fails on all grounds. The forfeiture and allotments were invalid, and the statutory requirements for membership were not met. Therefore, the suit is dismissed with costs fixed at Rs. 1,500.