1956 (2) TMI 30 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the call made by the company.
2. Compliance with the Articles of Association.
3. Authority and delegation of powers by the directors.
4. Validity of the notice period.
5. Doctrine of ratification.

Issue-wise Detailed Analysis:

1. Validity of the Call Made by the Company:
The defendant, a shareholder of the plaintiff company, contested the validity of a call made by the company for Rs. 40 per share on B class shares. The trial court dismissed the plaintiff's suit, accepting the defendant's contention that the call was not validly made. The plaintiff company appealed the decision.

2. Compliance with the Articles of Association:
The court examined Articles 18 and 19 of the company's Articles of Association. Article 18 allows directors to make calls and specifies that calls may be payable by instalments. Article 19 states that a call is deemed to be made when the directors pass a resolution authorizing it. The court emphasized that the resolution must specify the amount and the time of payment for it to be valid. The resolutions of March 3, 1948, and June 22, 1948, failed to specify the time for payment, making them invalid. The court also noted that the directors were divided on whether the call should be paid in one sum or by instalments.

3. Authority and Delegation of Powers by the Directors:
The court discussed the authority of the directors to delegate their powers. Article 130 allows directors to confer certain powers to a manager or managing director, but the court found that this did not include the power to make calls, as it is a significant power that cannot be delegated. The court concluded that the manager did not have the authority to finalize and issue the notice for the call.

4. Validity of the Notice Period:
The original resolution required a one-month notice period for the call. The notice given on July 7/9, 1948, required payment of the first instalment by August 5, 1948, which was less than one month. The court found this to be insufficient notice, further invalidating the call.

5. Doctrine of Ratification:
The plaintiff company argued that a resolution passed on September 12, 1949, ratified the notice issued by the manager. The court rejected this argument, stating that an invalid resolution could not be rendered valid by subsequent ratification. The resolution of September 12, 1949, did not even purport to ratify the original resolutions making the call.

Conclusion:
The court concluded that the call was not validly made due to the failure to specify the time for payment in the resolutions, the lack of authority for the manager to issue the notice, and the insufficient notice period. The appeal was dismissed, and the trial court's decision to dismiss the plaintiff's suit was upheld.