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TMI Blog1956 (2) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... f one month be given to all B class shareholders to pay the same. The B class shares are of the face value of Rs. 50 and Rs. 10 were paid up, and the defendant held 100 B class shares of this company. Another meeting of the board of directors was held on June 22, 1948, and at this meeting the minutes showed that the opinion of the directors was divided as to the manner of requiring the calls to be paid, and the evidence of the manager Mr. Samant on this point is that the division of the directors was on the question as to whether the call should be for Rs. 40 at one time or whether the call should be by instalments. They were also divided as to what time should be given if the call was to be by instalments. The minutes of this meeting go on to state: "It was therefore resolved that the draft notice be finalised in consultation with the company's solicitors." It is also in the evidence of Mr. Samant that he had produced before the meeting of the board a notice to be sent to the shareholders with regard to this call prepared by the solicitors. In this notice, there were various blanks which were filled in by him, and turning to this draft notice it proceeds on the basis that the call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt on February 14, 1951, which suit ultimately came to be dismissed by the learned Judge. Turning to the articles of association which constitute the contract between the company and the shareholders and according to which a call can be made and the liability for the call can be imposed upon a shareholder, the two material articles are articles 18 and 19. Article 18 provides : "The directors may, from time to time, make such calls as they think fit upon the members in respect of all monies unpaid on the shares held by them respectively, and not by the conditions of allotment thereof made payable at fixed times, and each member shall pay the amount of every call so made on him to the persons and at the time and places appointed by the directors. A call may be made payable by instalments." And article 19 provides : "A call shall be deemed to have been made at the time when the resolution of the directors authorising such call was passed." It is clear that article 18 divides itself into two parts. The first deals with the authority of the directors to make a call and the second deals with the imposition of liability upon the shareholder, and as a condition for imposition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It cannot be disputed that the amount of the call must be mentioned in the resolution. The question in controversy before us has been whether it is equally essential that the time when the call money should be paid by the shareholder should be mentioned in the resolution. Apart from authority, it is difficult to understand how the fixing of the time for the payment of the call is not an essential feature of the making of the call. A call imposes a liability upon a shareholder and that liability only commences from the time when he becomes liable to pay the call, and therefore authorising the call and fixing the amount of the call by themselves do not fix the liability upon the shareholder. It is further necessary that the time when the shareholder should pay the amount should be indicated so that the shareholder knows when he has to pay the amount and he also knows that failure to pay the amount will entail serious consequences. The other two requisites for imposing liability upon the shareholder, viz., the fixing by the directors of the person to whom the payment is to be made and the place where the payment is to be made, are not material requisites. Whatever the place that ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to the fixing of time for the payment of the call. Therefore, the provision that a call should be made payable by instalments by reason of article 19 can only be made by resolution properly passed by the directors. Turning to the first aspect of the matter whether it is essential to indicate the time of payment in the resolution authorising a call, it is not disputed in this case that neither the resolution of March 3, 1948, nor the resolution of June 22, 1948, fixes the time for payment, but what is urged by Mr. Engineer on behalf of the company is that it is not necessary for the validity of a resolution authorising a call that the time for the payment of the call must be stated in the resolution itself. There seems to be some conflict of judicial opinion on this point and it is necessary to briefly consider how the matter stands. The first important pronouncement on this point was in a very early case reported in Newry and Enniskillen Railway v. Edmunds [1848] 2 Ex. 118, 122 ; 154 ER 429 . In that case Baron Parke expressed the opinion that the resolution to make a call need not specify either the time or place for payment; but the directors must appoint a time and pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Law Lord did say at page 694 : "I may add that, as at present advised, I think that the time for the payment of the call could not properly be fixed by a mere verbal direction to the secretary; it ought to be fixed by a formal resolution of the directors." Neither Lord Justice Mellish nor Justice Baggallay expressed any opinion on this matter. This observation of Lord Justice James seems to have started a chain of thought which was contrary to the view taken by Baron Parke and Jessel M.R. as already indicated, and, as we shall presently point out, this indication given by Lord Justice James which is the contrary view seems to have ultimately stabilized itself in England as the correct view of the law. The next case to which reference has been made is the case In re Cawley and Co. [1889] 42 Ch. D. 209 It may be said that the articles which came up for consideration by that court were different from the articles we have to consider here, and Mr. Justice Chitty in the trial court came to the conclusion that inasmuch as there was first a resolution making a call and a subsequent resolution where the time for payment was fixed, taking the two resolutions together there was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... almer's Company Law, page 127, where the learned author says: "In making a call care must, therefore, be taken that the directors making it are duly appointed, and duly qualified, that the meeting of directors has been duly convened, that the proper quorum is present, and that the resolution making the call is duly passed and specifies the amount of the call, the time and place of payment for these are of its essence and to whom the call is to be paid." Therefore, according to this learned author, time and place are both of the essence, apparently following the view of Lord Esher M.R., but he puts the person to whom the call is to be made in a different category. Then turning to Buckley on the Companies Acts, 12th edn., at page 805 the learned author says : "A resolution for a call must state not only the amount of the call, but also the time (or, if payable by instalments, the several times) at which it is to be paid. If the date for payment be left in blank there is no valid call. The time fixed for payment of a call should be fixed by a formal resolution of the directors, not by a mere verbal direction to the secretary." Therefore, Buckley does not attach the same impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether these observations really are of help to Mr. Engineer. At page 30 the learned Chief Justice says: "As matter of construction I can see no justification for reading the conditions necessary to impose liability to pay upon the member into the first part of the article authorising the directors to make a call." We might point out that the articles the learned Chief Justice was considering were identical with articles 18 and 19. It may be said that these are really model articles which are to be found in most articles of association. Then the learned Chief Justice goes on (page 30): "It seems to be that the directors may (as they did in this case) pass a resolution making a call of a particular amount payable at a particular time, and that that resolution constitutes a valid call and fixes the date of the call, although before the payment of the call can be enforced the directors must appoint the persons to whom and the place where the call is to be made." Therefore, the learned Chief Justice emphasises the fact that the resolution constituted a valid cause because it made a call of a particular amount payable at a particular time. Then the learned Chief Justice refers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the call was not specified in the resolution, the resolution was bad anyhow. Then there is a subsequent judgment of a Division Bench in Bhagirath Spinning Weaving Company v. Balaji [1929] 32 Bom. LR 87 , which follows the judgment of Mr. Justice Taraporewala, and the learned Chief Justice dismissed the learned Judge's observation by saying that the learned Judges who decided the case do not mention the terms of the articles which the court had to construe. Then there is rather an illuminating passage in the judgment of the learned Chief Justice at page 34 : "But speaking for myself, I do not think that it is necessary to have a formal resolution of the directors specifying the person to whom, and the place where, a call is to be made. These are minor matters of much less consequence to a shareholder than the fixing of the time for payment, and, as I have pointed out, Sir George Jessel M.R. in Johnson v. Lyttle's Iron Agency [1877] 5 Ch. D. 687 held that even the fixing of time need not be the subject of a formal resolution, though James L. J. differed from this view." Therefore, the learned Chief Justice himself realised the vital distinction between the pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feature of a resolution making a call as fixing of time for payment, and on the evidence of Mr. Samant it is clear that the directors had not made up their minds nor did they know their minds as to whether the call should be paid in one sum or by instalments. Therefore, the directors never resolved that this call should be paid by instalments. Faced with this difficulty Mr. Engineer has relied on the principle of delegation and his contention is that the fixing of the time can be delegated by the directors by a proper resolution to the manager and in his submission the manager has fixed the time by reason of the power delegated to him. Mr. Engineer advanced the proposition which seems to us rather startling that there is nothing in law to prevent the directors from delegating to a manager the power to make a call, and according to him the directors could leave it to the manager to decide whether a call should be made at all, when it should be made and what the amount of the call should be. When one remembers that the power to make a call is in the nature of a trust and it is to be exercised in the interests of the company, it is rather difficult to accept the proposition that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leave it to the manager to exercise the discretion or exercise the authority which the articles require they should exercise, and nothing is more patent than this that the contract between the company and the shareholders which is embodied in the articles requires that the directors must exercise their discretion and decide whether a call should be made at all and the amount of the call, and the time when the call should be made. We refuse to countenance, the contention that such a power could be delegated by the directors to, the manager or to any one else. But really in a sense this argument is academic. We only noticed it because it was strenuously urged before us, because as we have already pointed out even Mr. Engineer concedes that even though there may be a power of delegation under article 130 of the widest character, when we look at article 18 and read it with article 19, a call can only be made by a resolution of the directors, and therefore as far as the making of the call is concerned that is a power or a discretion or an authority which cannot be delegated to the manager or to any one else. It is then urged that when we look at the second resolution of June 22, 1948 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conflict which was present among the directors as to whether the call should be paid in one amount or by instalments. Therefore, if only the finalising in the sense of settling the proper form was left to the manager, then it is clear that the resolution expected the notice to come back to the directors for their imprimatur. The most curious feature of this case is that at no time did the directors ever express their approval to the substance contained in the notice, substanee of the most vital importance, substance with regard to the payment of the call by instalments, substance with regard to the time at which those instalments were to be paid. Nor does this resolution clearly authorise the manager to issue the notice after it was finalised. Mr. Engineer says that this was merely a ministerial act and the notice was issued and the notice purports to have been issued by order of the board of directors. We agree with Mr. Engineer that when a notice issued by an officer of a company purports to have been issued by order of the board of directors, there is a presumption that it was issued pursuant to such an order, and unless the presumption is displaced, the court must act on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e given to all the B class shareholders to pay the call, and Mr. Desai points out that when in fact the notice came to be given on July 7/9, 1948, the shareholder was called upon to pay the first instalment on August 5, 1948, which gave him less than one month's notice. It was attempted to be argued by Mr. Engineer that in law the shareholder could only be proceeded against when he had failed to pay the last instalment and no liability would arise till the date fixed for the payment of the last instalment, and on that basis it was sought to be argued that the notice of July 7/9, really required the payment in law on November 5, 1948, and not August 5, 1948, and therefore the notice was a proper notice. Mr. Desai has rightly drawn our attention to the articles which require calls payable by instalments to be paid at the due date of every instalment and he has also pointed out that not only is there a liability upon the shareholder to pay the instalment on the due date, but the consequence of not paying the instalment on the due date is the liability to have his shares forfeited. Therefore, whatever the decisions on which Mr. Engineer relies lay down and those decisions would only be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequent resolution of June 22, 1948. It is difficult to understand how, if the resolution making the call was invalid, it could be subsequently rendered valid by anything that the directors might do on September 12, 1949. The basis of the call and the basis of the liability of the defendant is the two resolutions on March 3 and June 22, 1948. If those resolutions are invalid, they cannot be rendered valid by the resolution of September 12, 1949. This is not a case where a valid resolution has been passed by some one lacking the necessary authority. In that case the persons with the requisite authority may adopt the resolution validly passed and thereby ratify it. But where the objection to the resolution is not the want of authority but illegality in the very making of it, in the very passing of it, then it is impossible to accept Mr. Engineer's contention that the doctrine of ratification can validate a resolution which when it was passed was invalid. Under the circumstances we are of the opinion that the call was not Validly made and the learned Judge below was right in dismissing the plaintiff's suit. The result will be that the appeal is dismissed with costs. - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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