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TMI Blog1957 (3) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... dented that the names of the respondents are nowhere to be found on the register of the company, nor is there any resolution of the board in that connection. The question, therefore, arises whether the respondents are liable to be placed on the list of contributories in the above circumstances. I shall first refer to the relevant article in this connection which is article 100, and it runs as follows: "The qualification of a director, other than a special director, shall be the holding of ordinary shares in the company of the nominal value of Rs. 10,000. A director may act before acquiring such qualification but that in any case shall acquire the same within two months from his appointment." The other article relevant for the purpose is article 104-A, which says that if such a director fails to obtain within the time specified or ceases thereafter to hold the share qualification necessary for his appointment, he shall ipso facto vacate his office. I shall first refer to section 30, sub-section (2), which defines a member as every other person who agrees to become a member of a company and whose name is entered in its register of members and such a person shall be a member o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain observations stated as follows at page 166 : "He became a director, to my mind, by signing the articles; under section 72 he assented to do so at once. But any possible doubt as to any inference to be drawn from the mere signing is removed by the fact that he actually acted as a director. There is no question as to his having accepted the terms." I must, however, point out that the article there, namely article 71 of that company, says that unless he acquired those shares, he shall be deemed to have taken the said shares from the company and the same shall be forthwith allotted to him accordingly. So that, the only way this case can be distinguished from the case before me is on the language of article 71 of that company which laid down that if he failed to acquire them he shall be deemed to have agreed to take them. The next case is more to the point and that is the case of In re Hercynia Copper Co. [1894] 2 Ch. 403 . In that case, one R. was named in the articles of association of a company and in a prospectus issued by it as one of its first directors. The articles provided that a director's qualification should be the holding of shares of the nominal value of 250 ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Buller Consols [1888] 38 Ch. D. 42. In that case, by the articles of association of a limited company, it was provided that the qualification of a director should be the holding of 250 shares at least and that he might act before acquiring his qualification, but that his office should be vacated if he did not acquire it within three months after his election. J., who had subscribed to the memorandum of association for ten shares, was elected as a director, accepted the office and attended the meetings of directors for more than three months from his election, but never applied for, nor had allotted to him, any other shares than his original ten shares which were standing in his name. It was held that the acceptance of the office of director and the continuing to act after the time by which the qualification ought to have been acquired, did not amount to a contract by J. to take the additional shares requisite for his qualification and that he must be upon the list only for the ten shares. In this case it is clear that a discussion ensued as to whether there was or was not an existing contract between J. and the company. The question was whether there was any agreement with the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and takes office as a director to acquire those shares, which amounts to an implied contract to buy these shares from the company or obtain them elsewhere. As pointed out by Mr. Ghose at page 250, the lapse of time within which the director is bound to qualify only amounts to an offer to take shares and no agreement to take them exists until the offer has been accepted, for example, by placing the director on the register, by resolving to allot the shares to him or by so acting as to show that he has assumed that his offer has been accepted and by both parties acting on that assumption. Here, when the directors acted as directors as indicated by the minutes, it is clear that it was assumed by both parties in these circumstances that the offer had been accepted. So that, not only on a construction of article 100, but on the facts of the case, namely by the directors acting as directors, the offer, to my mind, was accepted and there was a contract, in any event, an implied contract, to acquire these shares. In these circumstances, the respondents cannot succeed in resisting their names being placed on the list of contributories. The list, therefore, as submitted today by the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication, if any, necessary for his appointment. Therefore, treating this matter as one of first impression and construing the articles of association and the corresponding provisions in the Companies Act, the position clearly is this. A director can act for two months without possessing the qualification required under the articles. If he wants to continue after that period, he must have the requisite qualification. If after the period of two months he does not possess the requisite qualification, he automatically vacates office. Therefore, two months' locus penitentiae seems to have been given to a director to acquire the necessary qualification. It is difficult to understand how from these articles and this provision in the Companies Act it is possible to submit that there is a contract between a director and the company that as soon as he is appointed he shall acquire the necessary shares, and that if he does not acquire the shares, the company will allot those shares to him and put him on the register. It would have been possible to take such a view if a director could have acted without the qualification and if he had not automatically vacated office. Then it could have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin which the director must acquire his qualification the clause fixes within the meaning of section 3 of that Act a 'shorter time' than two months, and, accordingly, at the end of the month, the director, if he has not obtained his qualification, vacates office. Now it may be that notwithstanding this the company might act on the clause, and allot him his qualification that is to say, the shares which he agreed to take. But if no allotment is made prior to a winding up, it would seem that the ex-director should not be held liable in a winding up to be placed on the list of contributories for the shares, for, the company not having accepted the offer whilst it was a going concern, it is not just and equitable to place him on the list of contributories in the winding up." Therefore, it is rather significant that even when Palmer is discussing the new Act in the observations just made by him he assumes that the articles contained a clause like 84a and in view of that article he expresses the opinion that notwithstanding the new provision in the Act with regard to the automatic vacating of office, the company may allot shares to the director under this clause. But even there he mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly have obtained his qualification shares where he pleased, came after a reasonable time under a contract to take them from the company, is not easy to follow. It would seem to confound duty with contract." With regard to the present law this learned author is more emphatic and categoric: "The question, however, is now of little importance, as section 182, post, which applies to all companies, whether formed before or after the 1st January, 1901, prescribes the consequences of a director failing to qualify within a specified time, and such consequences appear to be wholly inconsistent with any implication of an agreement by the director to subscribe his qualification shares." Therefore, the view of the learned author is with which we entirely agree that where we find in the law a consequence prescribed for not acquiring the qualifying shares, it is impossible to imply that there was a contract to acquire those shares. Mr. Mathalone has relied on two English decisions. One is Molineaux v. London, Birmingham and Manchester Insurance Co. [1902] 2 KB 589 and Mr. Mathalone tells us that that is the only case he has come across which has dealt with the position arising und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract between him and the company to acquire that qualification. Now, in the case before us the appellants have acted as directors without the qualification shares because in law qualification shares were not necessary and they were authorised to act in law for a period of two months without the necessary qualification. This case would have applied to the facts of our case if the appellants had acted as directors after two months without acquiring the qualification shares. But that case could never have applied to our case because after two months automatically by reason of the law they would have vacated office and they could not have continued to act as directors. There is rather a significant sentence in the judgment of Lord Justice Cozens-Hardy at page 596 where he says : "His position (that is, the position of the plaintiff in the case) is is not the same as it would be if his name were not on the register, and the liquidator were seeking to make him a contributory." Therefore, the other distinguishing feature which Lord Justice Cozens-Hardy has emphasised is that he was dealing with a director who was already a member of the company, his name being on the register, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... majority was that while the majority thought that the director having resigned before three months the provision in the clause that he shall be deemed to have agreed to take the shares did not come into operation. Lord Justice Lindley thought that the more natural and less forced meaning of the article was that once he accepted a directorship, whether he resigned thereafter or not, he should be deemed to have agreed to take the shares from the company. Therefore, neither the judgment of the majority, nor the dissenting judgment of Lord Justice Lindley is of much assistance to the contention of the respondent that the appellants should be put on the list of contributories. The result, therefore, is that we must differ from the view taken by the learned Judge. The appeal will, therefore, be allowed with costs and the order passed by the learned Judge will be set aside. The order for costs passed by the learned Judge will also be set aside and the respondent will be ordered to pay to the appellants the sum of Rs. 120 being costs of the chamber summons. The order for costs against the liquidator is limited to the assets of the company in his hands. Liberty to the appellants' attorn ..... 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