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Habib Rowji Vs. Standard Aluminium and Brass Works Limited - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai
Decided On
Case Number O.C.J. Appeal No. 118 of 1924 and Suit No. 2669 of 1924
Judge
Reported inAIR1925Bom321; (1925)27BOMLR574
AppellantHabib Rowji
RespondentStandard Aluminium and Brass Works Limited
DispositionAppeal dismissed
Excerpt:
.....(no. 32) provided that a member whose shares were forfeited continued liable to pay to the company all calls, instalments, interest and expenses in respect of his shares at the time of the forfeiture together with interest thereon. the defendant applied for 100 shares in the plaintiff company; but when the shares were allotted to him, he failed to pay the allotment money, on may 10, 1920. on july 20, 1920, the company made a first call on shares, payable on august 5, 1920; and on january 27, 1921, a second call was made payable on february 20, 1921. the defendant paid neither the allotment nor the call moneys. on april 15, 1921, the company culled upon the defendant to pay the moneys due with interest and intimated that if he failed to pay before may 5, 192], the company would..........in respect of such shares at the time of the forfeiture together with interest thereon, from the time of forfeiture until payment, ab nine per cent, per annum, and the directors may enforce the payment thereof if they think fit.6. it is admitted that but for the provisions of that article if ' the shares' of any member are forfeited he ceases to be a member of the company in respect of the forfeited shares, and so would no longer be liable to pay to the company all moneys which, at the date of forfeiture, were presently payable by him to the company in respect of the shares. it follows that of a member's shares are forfeited and he ceases to be a member of the company, it is only by virtue of article 32 that he becomes a debtor to the company for the amount of calls, instal-amenta,.....
Judgment:

Norman Macleod, Kt., C.J.

1. The plaintiffs were a joint-stock company incorporated on February 27, 1920, under the provisions of the Indian Companies Act VII of 1913, and having their registered office at Thakurdwar without the Fort. The capital of the company was rupees twenty-five lacs divided into 25,000 ordinary shares of the value of Rs. 100 each. On March 31, 1920, the defendant applied for one hundred shares of the said company and duly paid the application money thereon viz., Rs. 1,000. Pursuant to the resolution in that behalf the board of directors of the plaintiff company allotted to the defendant one hundred shares, and the necessary allotment letter duly addressed was duly posted to the defendant. By a resolution passed on July 20, 1910, the board of directors of the plaintiff company made a first call of Rs. 15 per share upon the members of the said company payable on or before August 5, 1920. Due notice of the said resolution was given to the defendant, and he was required to pay the amount of the said call on or before August 5, 1920, at the office of the company. The defendant was further informed that interest at nine per cent, per annum would be charged on the amount of the said call from August 5, 1920, until payment. A further call of Rs. 15 per share payable on or before February 20, 1921, was made by a resolution passed on January 27, 1921, and due notice was given to the defendant. The defendant did not pay the amount due on the allotment or on the calls made by the plaintiff company Accordingly the directors served a notice on the defendant, dated April 15,19211, requiring him to pay the same together with interest therein in accordance with the provisions of the articles of association of the company and stating therein that in the event of nonpayment of the said allotment and call money with interest thereon at nine per cent, within twenty days from the date of the notice, that is, on or before May 5, 1921, the directors would forfeit the shares and proceed to recover the unpaid amount The defendant failed to comply with the requisitions contained in the notice of April 15, 1921, whereupon by a resolution passed on August 8, 1921, by the board of directors the shares held by the defendant were duly forfeited in accordance with the provisions of the articles of association of the company. The plaintiff sought to recover from the defendant the sum of Re. 5,959-5-0 with interest on Rs. 4,694-12-3 at the rate of nine per cent, per annum from July 29, 1924, till judgment.

2. The defendant admitted the statements in the plaint but submitted that the suit as against him was barred by the law of limitation in respect not only of the allotment moneys but also in respect of the first and second calls, inasmuch as the same became due and payable more than three years before the filing of the suit,

3. At the hearing issues were raised whether the claim in respect of the allotment money, the first call and the second call respectively were barred by limitation. The learned Judge held that the plaintiffs' claim to recover all the three amounts was not barred by limitation and passed a decree as prayed.

4. In appeal it has been argued that that decision is wrong, that the suit was in fact a suit for payment of the allotment money and the calls made by the company on the shares, and that as the suit fell under Article 112 of the Indian Limitation Act the suit was barred. It was also argued that although under Article 32 of the articles of association the company was entitled to enforce payment of the allotment money and ' the calls in spite of the defendant's shares having been forfeited, the cause of action was the same, and the period of limitation for the suit was the same as on the original cause of action.

5. Article 32 runs as follows :-

Any member whose shares have been forfeited shall, notwithstanding be liable to pay, and shall forthwith pay to the company, all calls, instalments, interest and expenses owing upon or in respect of such shares at the time of the forfeiture together with interest thereon, from the time of forfeiture until payment, ab nine per cent, per annum, and the directors may enforce the payment thereof if they think fit.

6. It is admitted that but for the provisions of that article if ' the shares' of any member are forfeited he ceases to be a member of the company in respect of the forfeited shares, and so would no longer be liable to pay to the company all moneys which, at the date of forfeiture, were presently payable by him to the company in respect of the shares. It follows that of a member's shares are forfeited and he ceases to be a member of the company, it is only by virtue of Article 32 that he becomes a debtor to the company for the amount of calls, instal-Amenta, interest and expenses due at the time of forfeiture, and it can be said that on that account a new cause of action arises under that special contract between him and the company. The question has not arisen in any reported case as to ' when the period of limitation begins to run for a suit by a company against a lite member for money in respect of calls, instalments and expenses which were due from him at the time his shares were forfeited The learned Judge has relied upon the decision in Slacken's Case (1868) L.R. 3 Ch. App. 412 In that case by the articles of association of the company overdue calls were to carry interest at twenty-five per cent., and, by clause 50, it was provided that the forfeiture of a share should involve the extinction at the time of the forfeiture of all interest in, and all claims and demands against, the company in respect of the share, and all other rights incident to the share but that the shareholder should, notwithstanding be liable, ' to pay to the company all calls owing on such share at the time of such forfeiture.' An action was brought by the company to recover from Stooken the amount due on the shares belonging to him which had been forfeited under clause 0, The company having gone into liquidation after forfeiture Stocken successfully resisted being placed on the list of contributories, but then received a notice in writing, calling upon him to pay to the official liquidator the amount of the call which was due at the time of forfeiture, ' and interest thereon, calculated according to the articles of association and the notice of call issued to the shareholders.' The question then was whether Stocken was bound to pay not only the amount due to the company but also ' interest thereon.' The Master of Rolls decided that no interest was payable. In appeal Lord Cairns C. J. said (p. 414):

I think that the 50th clause of the articles of association, whether it be called a penal clause or not. must receive a strict construction, and that the rights of the parties on one side and the other must depend upon its construction...But whether that be so or not, the construction of that clause, as it seems to me, is reasonably clear. The first part runs thus. The forfeiture of any share shall involve the extinction at the time of the forfeiture of all interest in and all claims and demands against the company in respect of the shares and all other rights incident to the share.' Now suppose the clause has stopped there, and there had been nothing more in the articles. 1 apprehence that clearly no action could, after forfeiture, have been maintained for the recovery of the calls previously due, and that for two reasons. First, I think so in consequence of the words used, namely, that all rights incident to the share are extinguished, which words cannot, in my opinion, be confined to rights against the Company, but must extend to all rights incident to the share. In addition to that, I am strongly disposed to think that the mere fact of a duly authorised forfeiture of shares without anything in the articles defining the effect of forfeiture, would of itself, in the very nature of things, render any proceedings at law for past calls incompetent, because such proceedings must, I apprehend, be on the footing that the person sued was a shareholder in the company; and if his interest in the company had been destroyed, it is by no means clear that the action could be maintained. The following part of the 50th clause shows that the construction which I have put upon the first part is the construction put on it by the framer of the articles; for he evidently thought that if he stopped there any right to proceed for calls would be gone, and he therefore introduces a provision which seems to me to be in substance and in words the creation of a new right.

7. Accordingly it was held that no interest was payable, as no demand had been made for payment with interest after forfeiture on the sum payable under the forfeiture clause. It simply gave an independent right to recover after forfeiture the sum due at the date of forfeiture. That was the sum which appeared to the Court, could be recovered and nothing beyond that.

8. A reference has also been made to the case of Ladies Dress Association v, Pulbrook [1900] 2 Q.B. 376 in which the defendant was sued after the company went into liquidation for the unpaid calls due by him, and it was held that, 'notwithstanding the provisions of Section 38 of the Companies Act, 1882, sub Sections 1, 3, the action was maintainable, inasmuch as the defendant was liable not as a contributory, but as a debtor to the company.'

9. By analogy a reference may also be made to Section 61 of the Indian Companies Act (VI of 1882) which makes it clear that when a company has gone into liquidation 'every present and past member of such company shall be liable to contribute to the assets of the company an amount sufficient for payment of the debts and liabilities of the company, and the costs, charges and expenses of the winding up.' And under Sub-clause (d): 'In the case of a company limited by shares, no contribution shall be required from any member exceeding the amount, if any, unpaid on the shares in respect of which he is liable as a present or past member.' So that when a company goes into liquidation, although as against the members the company's right to recover the money due on the calls may be barred, the members of the company are liable to contribute to the assets of the company to the extent of the amount unpaid on their shares in order that the debts and liabilities of the company should be paid. It seems to me, therefore, that by Article 32 of the Articles of Association, there was a special contract whereby the defendant agreed that in the event of his shares being forfeited ha would be liable to pay to the company all the moneys that were due by him for allotment, calls and further calls made on the shares allotted to him with interest, and it was on that contract that the plaintiffs were suing. The cause of action then arose on August 3, 1921, when the company forfeited the shares, and, therefore, the suit to recover what was due from the defendant on his shares was within time. The appeal, therefore, fails and must be dismissed with costs.

Coyajee, J.

10. I concur. The foundation of the suit is the special contract evidenced by Article 32 of the plaintiff company's articles. On forfeit are of his shares, the defendant ceased to be a member, and the company could not thereafter sue him for past calls. But although his liability to pay such calls came to an end, he incurred, under the terms of Article 32, a fresh liability to 'forth with pay to the company all calls, instalments, interest; and expenses owing upon or in respect of such shares at the time of the forfeiture, together with interest thereon, from the time of forfeiture until payment.' This, in my opinion, was a new obligation giving the company a fresh cause of action against the defendant: and the period of limitation for a suit to enforce this new obligation began to run from the time the shares were forfeited. In this case, the plaintiff company exercised the power of forfeiture on August 3, 1921, and the suit having been instituted on July 31, 1924, is not barred by limitation.


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