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TMI Blog1939 (8) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... f the applicants should be entered in the register of the members of the company. In order to understand the dispute between the parties it is necessary to set forth certain facts in the history of the company. The memorandum and articles of association were subscribed by 17 persons on November 18, 1935. The capital authorised was 25 lacs, of which 10 lacs were to be issued. There were to be 20,000 ordinary shares of Rs. 100 each and 5,000 preferential shares of the same value. It was set forth that the qualification of a director was that he must have subscribed for 100 shares and that he must have paid all calls or any other moneys due to the company. Twelve of the signatories of the memorandum and articles of association undertook to purchase 100 shares each and they were to be the first directors of the company. Their names were Madhoramsand, Gurucharan Prasad Khattri, Harnarain Moolchand, Gopal Lal Khanna, Durga Prasad, Bindbasni Prasad, Madangopal Kedia, Vishwanath Prasad Jalan, Vishnushankar, Kedarnath Singh, Thakur Chhedi Singh and Piare Lal Srivastava. It is to be noticed that the applicants are included in the list. Each of the directors undertook in the memorandum to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rasad Khattri, Durga Prasad and Madangopal Kedia, each paid a sum of Rs. 2,000 on January 25, 1936. On January 26, 1936 there was a meeting at which the resignation of Moolchand was accepted and Thakur Chhedi Singh was elected to the board of managing directors, although he had not paid his sum of Rs. 2,000. Moti Chand was elected to the board either under article 89 of the articles of association which gives the directors power to co-opt a qualified share-holder as a director or under article 90 which empowers the directors to elect any shareholder as an honorary director to the board it not being necessary for such director to hold a qualification share. Moti Chand had not paid anything at that time to the company and he was not one of the signatories of the memorandum and articles of association. Then on March 4, 1936, there was another meeting of the directors at which those present were Madhoramsand, Durga Prasad and Madangopal Kedia. No notice of this meeting was sent to those directors who had not paid the sum of Rs. 2.000. Presumably those who had paid had decided that the other directors could no longer act. It was originally set forth in the articles of association that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n no case exceed three. At the same meeting Madangopal Kedia's resignation was accepted and it was decided that the directors should pay another sum of Rs. 2,000, this being the equivalent of the sum which would be payable by members of the public on 100 shares at the time of allotment. On the same date Durga Prasad resigned his position as managing director and Jagannath Prasad and S.N. Mitra were appointed to the board of managing directors. The next date with which we are concerned is December 13, 1936. By that time apparently an application had been made to the Registrar, Joint Stock Companies that the company should be allowed to commence business and a certificate of commencement had been received from the Registrar. On that date the directors present were Gurucharan Prasad, S. N. Mitra, Jagannath Prasad, Shyam Sunder Lal and Durga Prasad. They saw the commencement certificate and decided that they would approach the defaulting directors individually in order to obtain payment. On December 28 at another meeting it was decided that further attempts should be made to obtain payment of this money. These efforts succeeded to some extent because Harnarain Mulchand paid Rs. 2,000 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act under the articles of association unless he had paid the sum of Rs. 4,000 on or before January 26, 1936. If this is the true position, then none of the directors who continued to act on behalf of the company was entitled to do so because none of them had paid Rs. 4,000 on or before January 26, 1936 and those who had acted would render themselves liable to a penalty of Rs. 50 a day under section 85, Sub-section (2) of the Indian Companies Act provided that the argument of the company was correct that sub-section (1) of section 85 applied not only to the purchase of shares but also to the payment for those shares as part of the qualification for directorship under the articles of association. The directors who now purport to represent the company were on the horns of a dilemma. If this original argument of theirs was correct, they were liable at least to a severe penalty and if it was not correct, then they were certainly not entitled to forfeit the shares of the other directors merely because payments were not made on or before January 26, 1936. The company therefore fell back upon the argument that these sums of 20 per cent. corresponding with application money and 20 per cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section 21 of the Indian Companies Act and it was held that the directors were not legally bound to make the payments, but that the Court of Chancery would compel them to pay upon the ground that they had been acting in contravention of the trust which had been reposed in them as directors of the company. The Indian Companies Act seeks to deal with a situation of this kind by the provisions of section 103 which do not allow a company to commence business until every director has paid to the company on each of the shares taken or contracted to be taken by him and for which he is liable to pay in cash a proportion equal to the proportion payable on application and allotment on the shares offered for public subscription. In the case before me the directors who had signed the memorandum of association were bound to pay a sum of Rs. 4,000 each before the company was entitled to commence business. From this it does not necessarily follow that they were liable to forfeiture of their shares if they did not make the payment. As I have already said, there is no term in the articles of association or memorandum by which the signatories contract to pay any sum on any particular date or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and any necessary expenses incurred for promoting and registering the company could have been paid out and the whole matter would have come to an end. The company may say that it should not have been at the mercy of some of its directors, but on the other hand, those directors are equally entitled to say that they should not have been at the mercy of the minority of their body. If the majority were unwilling to proceed with the matter and by their conduct automatically caused the winding up of the company, they were perfectly entitled to do so. I hold that these sums of Rs. 2,000 were never presently due from the applicants and, therefore, that their shares were not liable to forfeiture. I may add that there are provisions for forfeiture in the articles of association and it is at least doubtful whether all the provisions were observed so as to lead to forfeiture even if it could be said that there was a call upon the applicants, but I do not think that it is necessary to go into the details of that matter because I have already held that there was no proper call and for that reason no money was due to be paid at any particular time by the applicants. On the other hand, it see ..... X X X X Extracts X X X X X X X X Extracts X X X X
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