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In Re: Bombay Electrical Company Limited - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai
Decided On
Judge
Reported in(1889)ILR13Bom1
AppellantIn Re: Bombay Electrical Company Limited
Excerpt:
company - director--qualification--qualification shares not paid for by director, but transferred to him by a third person--agreement to take shares--indian companies ant vi of 1882, section 45--signing duplicate memorandum of association after registration of company--effect of such signature only equivalent to a proposal to take shares--acceptance. - - (a) whether the five fully paid up shares obtained from premchand sufficiently satisfied the articles of association as regards the qualification shares of him as director;.....of shares, nor does it appear that the defendant was placed on the register as holder of live unpaid shares. on the other hand, there was no with drawal or cancellation on the part of the defendant. his signature remained unrecalled up to the date of liquidation, and he has never paid for these five shares. meanwhile, on the 24th august 1885, he was named director of the company, and acted as director until the winding-up, attending and receiving fees at thirty-one out of thirty-four meetings. three weeks after he was named director he was placed on the register for five fully paid up shares, which were the proper number of qualification shares for the office of director. the official liquidator in his second affidavit of the 28th april explains that transaction as follows: 'the said.....
Judgment:

Scott, J.

1. I have found this a case of considerable difficulty, as there is no decision exactly in point. The Bombay Electrical Company went into liquidation on the 22nd July 1886, and the Official Liquidator notified on the 26th August 1887 to the defendant, Nusservanji Dadabhoy Katruck, that he was placed on the list of contributories. The circumstances under which he was placed on the list were as follows: He signed a duplicate of the memorandum of association for two shares on the 23rd March 1885, and for three shares on the 22nd June 1885. This was after the registration of the company, which took place on the 5th March 1885. There was no allotment of shares, nor does it appear that the defendant was placed on the register as holder of live unpaid shares. On the other hand, there was no with drawal or cancellation on the part of the defendant. His signature remained unrecalled up to the date of liquidation, and he has never paid for these five shares. Meanwhile, on the 24th August 1885, he was named director of the company, and acted as director until the winding-up, attending and receiving fees at thirty-one out of thirty-four meetings. Three weeks after he was named director he was placed on the register for five fully paid up shares, which were the proper number of qualification shares for the office of director. The Official Liquidator in his second affidavit of the 28th April explains that transaction as follows: 'The said Nusservanji was in reality a director nominated and qualified by the said Premchand Roychand, and the five fully paid up shares standing in his name are part of a number of 100 shares issued to the said Premchand Roychand.'

2. There are two questions in the case: (a) whether the five fully paid up shares obtained from Premchand sufficiently satisfied the articles of association as regards the qualification shares of him as director; (b) whether he is liable on the two lots of two and three shares respectively, inasmuch as he only signed a copy of the memorandum of association for them. On the first question the defendant maintains that he really paid the company for these shares, because the company owed Premchand money and Premchand deducted Rs. 5,000 from the company's debt on account of these shares, which sum Premchand owed defendant. This allegation was not borne out by the facts. It is totally disproved by the liquidator. But the decisions show that the qualification shares need not necessarily be taken from the company. Brown's case L.R. 9 Ch. Ap. 102 decides that it is enough if they are obtained in open market or from a friend within a reasonable time of the acceptance of the office. It is also settled law that they need not be shares for which the qualifying director has paid. In this case the Official Liquidator admits that five fully paid up shares were obtained within three weeks from the beginning of the directorship, and he also admits the defendant was duly qualified.

3. All the cases on the point are to be found in Buckley on Companies, pp. 48, 49, and 50, and it seems to me that, under these circumstances, the defendant director must be held to have duly qualified himself by the registration of the five fully paid up shares.

4. But it remains to consider his obligation as regards the three shares and two shares for which he subscribed a duplicate memorandum after the company had come into legal existence. It is an important fact in the case that the company did not attempt to treat them as qualification shares, as might have been dope at the time the defendant was named director. It is admitted the qualification shares were otherwise provided for. The liability for these fiye unpaid shares is an independent question which entirely turns upon the effect of his signature of the duplicate. Does that constitute an agreement to take shares, or is it only an application for shares P There are two Bombay cases, Anandji Visram v. The Nariad Spinning and Weaving Company, Limited I.L.R. 1 Bom. 320 and The Gujerat spinning and Weaving Co. v. Girdharlal Dalpatram I.L.R. 5 Bom. 425 which dearly lay it down that a signatory of a duplicate of the memorandum of association before registration is not bound as one who has signed the original. I do not think there is any difference in the case because the company was registered before the signatures were given. Those signatures cannot be binding, because they do not amount to a signing of the memorandum itself, and according to the Bombay cases do not, therefore, satisfy the requirements of the section. They do not create the positive agreement which the law has made the necessary consequence of the signature of the real memorandum before registration. They only amount to a proposal. Has there been acceptance? There has, been no allotment. There has been placing on the register. It is unnecessary for me to cite cases in support of the proposition that an application for shares which is not followed by allotment and placing on the register does not bind the applicant. His liability was merely inchoate and never became complete. The Liquidator argued that the consent to become a director created an implied agreement to accept those five unpaid shares. But that is inconsistent with his own statement on affidavit of the real facts of the case, which are, that the defendant qualified for his directorship by the five paid-up shares he obtained from Premchand. I do not think his application for five shares was ever accepted. There was no allotment. Acceptance cannot be legally inferred from the circumstances of the case. The company whilst it was solvent never accepted the defendant's offer to become a shareholder. It is top late now to do go. His name must be removed from the list of contributories, and his costs must be paid out of the assets.


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