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Motilal Chunilal Vs. Thakorlal Chimanlal - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai
Decided On
Case Number First Appeal No. 104 of 1911
Judge
Reported in(1912)14BOMLR648
AppellantMotilal Chunilal
RespondentThakorlal Chimanlal
DispositionAppeal dismissed
Excerpt:
.....subsequent, the liability arises although the condition is never complied with. - - defendant was told that if he and others like him became share-holders the company's shares would be taken up......dividend was paid. defendant was told that if he and others like him became share-holders the company's shares would be taken up. defendant would not have signed the application but for the condition. he never paid anything in respect of the shares, nor was any demand made upon him, nor was he informed that the ten shares had been allotted to him. in cross-examination he said he was president of the agricultural and industrial association of broach, and hat been trying to manage industries in broach. girdharilal desired to increase the reputation of his mill and to take money from the defendant if there was profit. if he had received intimation of the allotment he would have filed it.2. girdharlal is dead, so the matter must be decided on this evidence.3. although a witness in the.....
Judgment:

Russell, J.

1. This suit was brought by the Liquidator of the Narmada Cotton Seed Crushing Co., Ltd., against the defendant Motilal Chunilal to recover calls upon ten shares in that Company of Rs. 100 each. The first question that arises is: Is the defendant a member of the Company By Section 45 of the Indian Companies Act members are (a) subscribers of the Memorandum of Association ; (b) every other person who has agreed with a Company under this Act to become a member of such Company, and whose name is entered on the register of members. The defendant's name was entered on the register of members, so this condition precedent has been complied with : see Tufnell & Ponsonby's case (1885) 29 Ch. D. 421. Did he agree to become a member That is a question of fact (Fry J. in Winstone's case) (1879) 12 Ch. D. 239. The evidence of the defendant is to this effect. He knew Girdharlal pleader who was the agent of the Company and who asked defendant to take ten shares in it, and the defendant signed the application for them, (the application is an Exhibit herein.) Defendant said he was doubtful whether the Company's business would be profitable. Girdharlal said he need not pay for the shares unless dividend was paid. Defendant was told that if he and others like him became share-holders the Company's shares would be taken up. Defendant would not have signed the application but for the condition. He never paid anything in respect of the shares, nor was any demand made upon him, nor was he informed that the ten shares had been allotted to him. In cross-examination he said he was President of the Agricultural and Industrial Association of Broach, and hat been trying to manage industries in Broach. Girdharilal desired to increase the reputation of his Mill and to take money from the defendant if there was profit. If he had received intimation of the allotment he would have filed it.

2. Girdharlal is dead, so the matter must be decided on this evidence.

3. Although a witness in the case K. Narbheram at page 11 says that there was an allotment of shares, the resolution for which was passed on 9-4-08, and accordingly letters allotting shares were sent, still, we must adopt the finding of the Judge in the lower Court that the defendant received no notice that the shares had been allotted to him. The ordinary principles laid down in the Contract Act must apply to the case. And in our opinion when, according to the defendant's statement, ' Girdharlal asked him to take ten shares in the Company and he signed the application for them' the proposal came Tom the Company's agent and was accepted by the defendant. If this view is correct then there was a complete contract between the defendant and the Company's agent (see Section 2(a) and (b), Indian Contract Act, and Sections 3 and 10.) In Nicol's case (1885) 29 Ch. D. 421 it was held that the agreement was not different from agreements in relation to other matters. No particular form 3 required (see Ritso's case) (1877) 4 Ch. D. 774. And it may be expressed or implied and either written or oral: see Bloxam's case (1864) 33 Beav. 529.

4. It was suggested by Mr. Thakore in reply for the defendant hat Girdharlal was not the agent of the Company to make such a proposal. But the fact that the defendant was registered as a share-holder is evidence of ratification by the Company of Girdharlal's action in making the proposal to the defendant. And we have no doubt that in trying to get share-holders to subscribe he was acting within his authority as gent. Our view of the defendant's evidence is that he intended to become a member of the Company and knew that is name would be entered on the register and would be used 3 an inducement to other persons to become members but that he was not to be called upon to pay the money due in respect of the ten shares unless and until the Mill made a profit. No doubt where an application for shares is subject) a condition precedent that condition must be performed to create a liability to take them. But where the application is subject to a condition subsequent the liability arises although the condition is never complied with (see Halsbury's Laws of England, title 'Companies', p. 145 and the cases there cited).

5. Here we find there was a complete and binding agreement on the defendant's part to become a member although there may have been a condition subsequent as to the payment for the shares. Now it appears to us that such a condition subsequent is in direct violation of Section 28 of the Indian Companies Act which is as follows :-

Every share in any Company shall be deemed and taken to have been issued and to be held subject of the payment of the whole amount thereof in cash, unless the same has been otherwise determined by a contract duly made in writing, and filed with the Registrar of Joint Stock Companies at or before the issue of such shares.

6. In re British Farmers Pure Linseed Cake Co. (1878) 7 Ch. D. 533 Jessel M. R. held the meaning of the section to be that ' you are prohibited from contracting that shares issued shall be paid for otherwise than in cash except by a registered contract.' And Lord Blackburn in Burkimhaw v. Nicolls (1878) 3 App. Cas. 1004 said that the twenty-fifth section of the English Act means, no more than this: that no contract by which shares will be considered as duly paid when they are not in fact paid up shall be valid, unless it be registered ; and that ' when there is no such registered contract, the shares are to be payable in cash.' In the present case in the event of the Company not making a profit the shares were not (according to the defendant's evidence) to be paid for at all. In other words in that event the defendant was to be a ' bogus ' shareholder. This, we do not hesitate to say, is opposed to the whole object of the Companies Acts in England and in India.

7. Under these circumstances the defendant, under Section 61 of the Indian Companies Act, is liable for the amount claimed. For ' calls made in the winding up, being calls for something unpaid on the shares, are not a debt due to the Company, but are contributions due by the member under the section. The contribution under it also applied to the unpaid calls made before the winding up; because, although that is a debt due to the Company, it is not the less ' an amount unpaid' (see Clause (d) of the Section) on the shares in respect of which the member is liable:' Jessel M. R. In re Whitehouse & Co. (1878) 9 Ch. D. 595.

8. Mr. Thakore for the appellant relied on several cases. In Gunn's case (1867) L.R. 3 Ch. 40, Gunn applied for the shares and did not, as we have held defendant here did, accept them. And the same in othill's case (1865) L.R. 1 Ch. 85 where no allotment was made.

9. In Ward's case (1870) L.R. 10 Eq. 659 also it was an application by Ward for two hundred shares in respect of which no allotment was made. Reidpath's case (1870) L.R. 11 Eq. 86 does not touch the present one, because there it was held that mere posting of a letter of allotment is no communication to the applicant. In Shackleford's case (1866) L.R. 1 Ch. 567 the application was sent in by Shackleford in answer to which there was no allotment, held, there was no concluded contract by him to take the shares. So also Ex Parte Fletcher (1867) 37 L.J. Ch. 49 does not apply. Looking at what we have said about the facts in this case, these cases, in our opinion, do not apply to the present.

10. On the other hand the present case, it appears to us, falls within Brown and Tucker's cases (1871) L.T.N.S. 654 relied upon by Mr. D. A. Khare for the plaintiffs, where it was held that where the manager of the Company forwarded to Tucker notice that he was entitled to shares in the Company accompanied by a form of application for shares, and Tucker signed the form of application and returned it to the manager, that Tucker was liable as a share-holder, notice of allotment being immaterial.

11. Under these circumstances, the decision of the learned Judge in the Court below is correct and we dismiss the appeal with costs.


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