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TMI Blog1952 (9) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ously a letter in which no ground had been given for repudiating the contract for taking up the shares. The company accordingly by its letter of October 4, 1946, asked for the ground on which the allotment was challenged by the applicant. Such ground was supplied by the applicant by her letter dated January 3, 1947, in these terms: "From an inspection taken by me in the office of the Registrar of Companies, I find that in the statement in lieu of prospectus filed by you on the 3rd September, 1946, upon which the allotment made to me on the same day is based, there is no mention made of the minimum subscription upon which the directors will proceed to allotment. This is an illegality and I therefore repudiate the allotment." The statutory meeting of the company was held on March 12, 1947. No proceedings were taken by the applicant for having her name removed from the register of shareholders until the present chamber summons. Section 102(1) of the Indian Companies Act inter alia provides as follows: "An allotment made by a company to an applicant in contravention of the provisions of section 98 or section 101 shall be voidable at the instance of the applicant within one m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d up by appropriate legal proceedings to have the register of shareholders rectified. Against this contention, it is pointed out on behalf of the applicant that the section does not contain any such requirement; and that is perfectly true. But this section in the Indian Companies Act is an exact reproduction of section 5 of the English Companies Act, 1900, which is now section 49 of the English Companies Act, 1948, and in cases decided in England it has been laid down that it is not sufficient for an allottee merely to give notice of avoidance of the allotment but he must take legal proceedings promptly. The earliest of such decisions is to be found in Taite's case, In re . In that case a shareholder gave notice to the company on July 2, 1866, that, unless within three days steps were taken to remove his name from the register of shareholders, he would apply to the court. The directors by their reply of July 3 intimated that they would oppose his application. The shareholder left town and upon his return about the end of August, finding that his name was still on the register of shareholders, he stated that he would apply to the court as soon as the long vacation was over. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have repudiated the contract, but after discovering the misrepresentation he should have taken prompt steps to have his name removed from the register of the company. These cases lay down that an allotment is effectively avoided not merely by giving a notice of repudiation or avoidance but by following it up with legal proceedings taken promptly. So far as the time during which the legal proceedings should be taken is concerned, the Calcutta High Court has by the English decisions; and in C.C.W. Ltd. v. Labanya Mohan, in a suit for rescission of a contract to take shares on grounds of fraud and misrepresentation, Gentle J. held that delay in taking proceedings promptly by the shareholder, provided steps are taken within the statutory period, will not disentitle him to relief, so long as the company is a going concern. It is unnecessary for me to determine whether this view of the law ought to be preferred to the view uniformly adopted in England, because I am not dealing on this chamber summons with the rectification of the register of a company in existence. The company now is in liquidation and different principles have been held to apply in any event to an application by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by statute to pay the calls... What is a proper defence to an action for calls brought against a shareholder? The member being liable qua shareholder to pay the calls, the only plea one would have thought that could be effective would be a plea that he is not a shareholder. The plaintiff alleges that the defendant has a certain status, that of shareholder. The statute says a shareholder must pay the calls. One would expect the plea would be: 'I am not a shareholder.' In substance that is the proper plea. I do not mean that a person must plead and prove that his name has actually been taken off the register, but he must plead that, so far as he is concerned, he has taken steps, and taken them within a reasonable time after discovery of the fraud, to have his name removed from the register. That is all he can do. He cannot take his own name off the register and thereby cease to be a shareholder. He can only invoke the jurisdiction of the court and ask it to do so. If he has done that, and if it turns out ultimately that his name will be removed from the register, the judgment of course dates back to his application, and it will in substance turn out to be true that he has cease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was rejected by the Allahabad High Court and it is against this rejection that the appeal was taken to their Lordships of the Privy Council. In the judgment of their Lordships of the Privy Council delivered by LORD RUSSELL OF KILLOWEN it was assumed that the decision that the agreement between the shareholder and the company included an agreement to take up the shares was illegal and void, and on this basis the judgment proceeds to say (page 378): "...But even with this assumption made in their favour, the appellants cannot, in their Lordships' view, succeed. Whatever may have been the rights and liabilities of the testator before the winding up intervened, the position was altered by the happening of that event. At the commencement of the winding up he was and had for over three years been entered on the register of shareholders as the holder of the shares now in question, with his full knowledge and assent. On the winding up, section 136 of the Indian Companies Act came into play. His liability under that section in respect of the shares was absolute and flowed from the fact of his being on the register in respect of those shares. The original contract may supply the reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent footing. MCCARDIE J. in his judgment in First National Reinsurance Company v. Greenfield referred to the case of Oakes v. Turquand in the following passage: "There is one further marked feature of this body of company decisions, and that is the effect of a winding up order. It is impossible to understand many of these decisions, unless it is remembered that a winding up order since the Act of 1862 bears a special significance and produces specific results upon contracts which have been made for the taking of shares, because, since Oakes v. Turquand, the effect of which is very far reaching, decided the vital principle that when winding up has commenced there is no right to avoid a contract to take shares, the avoidance is not possible, unless there has been either proceedings instituted before the commencement of the winding up, or an agreement that the shareholders shall be bound by the result of other proceedings which have been taken for the avoidance of a contract to take shares." In my opinion, therefore, the applicant having come to court for an avoidance of the contract under section 102 after the liquidation of the company and almost six years after the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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