1965 (4) TMI 54 - HC - Companies Law

Summary

Issues Involved:
1. Status of plaintiffs as subscribers to the memorandum of association.
2. Validity of plaintiffs' removal from the directorship.
3. Compliance with share qualification requirements for directors.

Detailed Analysis:

1. Status of Plaintiffs as Subscribers to the Memorandum of Association:

The main question in the appeal was whether the District Munsiff was right in his view that the plaintiffs were subscribers to the memorandum of association of the first defendant and were among the members of its first board of directors. The plaintiffs claimed they subscribed to the memorandum and articles of association, thus becoming directors. The defendants argued that only defendants Nos. 3 and 4 signed the memorandum and articles due to a name change objection from the Registrar, and the plaintiffs never subscribed to the declaration or agreed to take shares.

The court held that subscribing to a memorandum implies an agreement to form a company and take shares, which the plaintiffs did not do. The plaintiffs' signatures on other pages did not make them subscribers to the declaration, which is the vital part of the memorandum. The court concluded that the plaintiffs were not subscribers to the memorandum and thus not members or directors of the company.

2. Validity of Plaintiffs' Removal from the Directorship:

The plaintiffs argued they were improperly removed from directorship and that the communication to the Registrar of Companies was illegal and ultra vires. The defendants contended that the plaintiffs expressed their unwillingness to continue and were removed by a resolution on March 5, 1959, which was notified to the Registrar.

The District Munsiff found that the plaintiffs were not validly removed and had not expressed unwillingness to continue as directors. However, the High Court concluded that since the plaintiffs were not subscribers to the memorandum, their removal was not relevant to their status as directors.

3. Compliance with Share Qualification Requirements for Directors:

The plaintiffs were required to hold at least fifty shares to qualify as directors. The plaintiffs claimed they tendered the balance of share money, but the second defendant evaded receipt. The defendants argued that the plaintiffs did not apply for or remit the required amount for shares.

The court noted that the plaintiffs did not comply with section 270 of the Companies Act, 1956, which requires directors to obtain their qualification shares within two months of appointment. The plaintiffs did not apply for the requisite shares, as evidenced by the company's general body meeting on February 19, 1959. Therefore, the plaintiffs did not meet the share qualification requirements.

Conclusion:

The appeal was allowed, and the suit was dismissed with costs throughout. The court held that the plaintiffs were not subscribers to the memorandum of association, were not validly appointed as directors, and did not comply with the share qualification requirements.