(1) Defendants 1 to 3 and 8 have appealed from the judgment of the District Munsif of Coimbatore for the plaintiffs declaring that they continued to be directors of Sri Arthanari Transports (P.) Ltd., the first defendant and restraining the defendants from preventing them from exercising their office of directorship and participating in the management of the company. The appeal was originally filed in the court of the Subordinate Judge, Coimbatore, but by an order of this court on the company side it stood transferred to this Court. Though the appeal was valued at Rs. 800 in the first instance, on an application by the appellants, the appeal has been placed before a Division Bench on a view that the value of the subject-matter exceeded Rs. 7,500 under Chapter I, Rule 1, Clause 3(d) of the Appellate Side Rules.
(2) The main question in the appeal is whether the District Munsif was right in his view that the plaintiffs were subscribers to the Memorandum of Association of the first defendant and were among the members of the first board of directors. The first defendant was registered as a company on 16-2-1959.Its registered office was to be in the State of Madras and its primary object was to carry on transport business. It has a share capital of Rs. 1,00,000 divided into thousand shares of Rs. 100 each. The qualification of a director under the Articles would be the holding of at least 50 shares of the company. The plaintiff's case is that they and defendants 2 to 8 had agreed to take 50 shares each for becoming directors and subscribed to the Memorandum of Articles of Association which were registered. The plaintiffs were thus appointed along with defendants 2 to 8 as directors of the company and the fact was mentioned in the Articles themselves. They are entitled to hold office in that capacity for life and are neither removeable, nor do they retire. As directors named in the Articles of Association, there was no allotment as such made in their favour.
The plaintiffs paid Rs. 101 each towards the shares at the inception and tendered the balance of share money for their shares. The second defendant, the managing director, was improperly evading to receive the same. At no time did they state that they were unwilling to be directors; nor were they called upon by the first defendant by notice as required by law, to remit the share money due from them. It was however made out that by resolution of the General Body dated 5-3-1959, the plaintiffs were removed from directorship in accordance with their own wishes, while in point of fact the plaintiffs never expressed any such desire either orally or in writing. To the knowledge of the plaintiffs, no meeting of the Board of Directors had been held for allotment of the balance of shares they had taken and though they understood that the General Body meeting of the shareholders had been called for on 19th March 1960, they had not received any notice of it. The plaintiffs continue to be directors and the declaration sent by the first defendant to the Registrar of Companies that the plaintiffs had ceased to be directors as they desired to be removed and for non-payment of the minimum qualification of directors share value, was improper. The defendants had no right to remove the plaintiffs from their directorship and the communication to the Registrar of Companies was illegal, fraudulent and ultra vires the powers of the company. On these averments, the plaintiffs prayed for a declaration that they continued to be directors of the first defendant company and for an injunction restraining the defendants and enabling the plaintiffs to exercise their office of directorship and participate in the management of the company.
(3) The second defendant filed a written statement, which defendants 1, 3 and 8 have adopted. The rest of the defendants filed a separate written statement supporting the plaintiffs. According to the second defendant, the plaintiffs and defendants 2 to 8 no doubt wanted to form a transport company under name and style of 'Thirumurugan Transport Ltd.'. A 'proposal form' with the names of all the plaintiffs and defendants 2 to 8 signed by all of them was taken to Madras by defendants 3 and 4 on 5th February 1959 for registration of the company. But as there was objection from the Registrar to the name 'Thirumurugan' it was changed into 'Arthanari Transport Pte Ltd.'. The application with the changed name was signed only by defendants 3 and 4 and it is therefore not true that the plaintiffs signed the Memorandum of Articles of Association. By about 16-2-1959 the first plaintiff did not want to be in the company with the changed name. In fact, he floated another company under the name of 'Vijayalakshmi Transport Pte Ltd.'.
Meanwhile plaintiffs 2 to 4 along with the first plaintiff expressed their unwillingness to continue in the company, did not pay any money and withdrew. They gave a letter of consent withdrawing themselves which was left with the fourth defendant but he has colluded with the plaintiffs and suppressed the same. On the strength of this withdrawal, the plaintiffs were removed from directorship on 5-3-1959 and the fact was notified to the Registrar of Companies on 9-3-1959. The second defendant denied that the plaintiffs had paid Rs. 101 each and maintained that the plaintiffs never acquired the status of directors, that they had abandoned the idea of continuing as directors of the company and that, in any case, they had been validly removed and had acquiesced in it. The second defendant added that after the first defendant company was registered, it applied for a stage carriage permit on the route Coimbatore to Vellore, which was granted to it on 23-11-1959. The first plaintiff who got his own company Vijayalakshmi Transports Ltd., registered on 16-2-1959, when the first defendant was registered, applied for and competed with the first defendant in getting the above permit; and frustrated by his defeat, he colluded with the fourth defendant along with plaintiffs 2 to 4 and instituted the suit.
(4) The District Munsif settled five issued on these pleadings and his main findings are all in favour of the plaintiffs, namely, that the plaintiffs must be deemed to be subscribers to the Memorandum and Articles of Association of the first defendant, that they were therefore shareholders as well as first directors, that they had not been validly removed from their office by the resolution dated 5-3-1959 and that though the plaintiffs had not proved that each of them had subscribed Rs. 101 even before the formation of the company, they as well as defendants 2 to 8 constituted the first directors of the company on the clear understanding that each of them would contribute fifty qualification shares but no date had been fixed for payment of the money and at no time the firs defendant called upon the plaintiffs to pay for the shares. The District Munsif therefore held that it was futile on the part of the defendants 1 to 3 and 8 to contend that no shares were allotted to the plaintiffs because they had not formally applied for the same, as defendants 2 to 8 had. There was a further finding by him that it was not proved that the plaintiffs had at any time expressed their unwillingness to continue as directors of the company.
(5) Mr. V. K. Thiruvenkatachari for the appellants does not dispute that the intention of all the parties before and at the time of the registration of the first defendant company was that they should all be members of the first defendant and constitute its first directors. In fact, the evidence for the defence contains admissions to that effect. The second defendant deposed: 'We accepted the plaintiffs 1 to 4 as the directors and obtained their signatures. We only thought of changing the name of the company and not the directors. Even at the time of the registration we had no idea of changing the directors. The plaintiffs were the directors of the company until they gave their letters of resignation'. Nevertheless, the contention for the appellants is that whatever was the intention of the parties, the plaintiffs never in law became members of the first defendant and did not, as a matter of fact, subscribe to the Memorandum and Articles of Association as registered. In any case, say the appellants, the plaintiffs failed to acquire the requisite share qualification to continue as directors. It may be seen that these submissions made before us are somewhat different from those addressed to the court below. The basis for the first contention is this. At the bottom of each of the pages except the last ones in the printed Memorandum of Association and Articles of Association, the plaintiffs as well as the defendants 2 to 8 had each duly signed.
It is also seen that the first defendant's name as changed has been printed and pasted over the original name in the Printed Memorandum and Articles of Association. The last sheet in the memorandum as well as the Articles relates to the actual subscription to the Association and contains the columns as to serial number of the subscribers their names, addresses, occupations and descriptions, number of shares taken by each subscriber and name, address, description and occupation of witness. In the last page in the Memorandum is the declaration followed by the above columus. Only defendants 3 and 4 had subscribed their signatures to the declaration and indicated that each of them had subscribed for fifty shares. Their signatures were attested by a single witness. The position is identical in the last page of the printed articles. With reference to these facts, the argument for the appellants is that the subscribers to the declaration to form themselves into a company and the agreement to take the requisite number of shares in the capital of the company to qualify themselves as directors were only defendants 3 and 4 and that being the case, the plaintiffs who never subscribed to the declaration and signed in token of their desire to form themselves into a company, agreeing to take the requisite number of shares cannot be regarded in law as subscribers to the Memorandum of Association and that therefore they never acquired the status of members or directors of the company.
It is said that the fact that the plaintiffs had signed at the bottom of each of the other pages in the Memorandum and Articles could make no difference to this position. The fact that defendants 3 and 4 only happened to sign the declaration in the Memorandum as well as the Articles before registration appears to be an accident for it was only on the Registrar of the Companies raising an objection to the original name to the company that, it would appear, defendants 3 and 4, in consultation with the second defendant, decided to alter the name of Sri Arthanari Transports P. Ltd. And that this apparently led defendants 3 and 4 to remove the last sheet in the Memorandum as well as the Articles and substitute fresh sheets containing the declaration and the columns. As defendants 3 and 4 alone were deputed to Madras for getting the company registered, they subscribed to the Memorandum and Articles which satisfied the requirement of the minimum number of persons who should join to form a private company. This change of situation obviously occurred in spite of the intention of the plaintiffs and defendants 2 to 8 together to form the company and be its members and first directors.
(6) Section 12 of the Indian Companies Act, 1956, relates to the mode of forming incorporated companies and says that two or more persons associated for any lawful purpose may torm a private company by subscribing their names to a Memorandum of Association and otherwise complying with the requirements of the Act in respect of registration. It is important to note that subscribing their names to a Memorandum of Association' implies an agreement between the persons concerned to associate each other into a body corporate and subscribing in the context means the signing by such persons or their nominees in the Memorandum in token of their agreement to so associate themselves. The signatories are thus parties to the agreement which is in the form of a declaration. A Memorandum of Association of a company is required by S. 14 to be, where it is a private company, in the form prescribed in Table B in Schedule I. This form, after providing for the name of the company, the place of its registered office, its objects limited liability of its members and share capital contains, at the end a declaration:
'We, the several persons whose names and addresses are subscribed are desirous of being formed into a company in pursuance of this memorandum of association and we respectively agree to take the number of shares in the capital of the company set opposite our respective names.'
(7) Then follow the columns relating to the names, addresses, descriptions and occupations of subscribers and the number of shares taken by each subscriber. At the very last comes the column 'witness to the above signatures'. The declaration in that form obviously embodies two matters on which the signatories thereto agree (1) they that is the several members whose names and addresses are subscribed, desire to form themselves into a company in pursuance of the Memorandum and (2) they agree respectively to take the number of shares in the capital of the company set opposite to their respective names. It is plain that those who do not subscribe their signatures to the declaration in token of their desire to form themselves into a company and do not agree to take shares as required in the declaration, cannot be considered to be subscribers to the Memorandum of Association. Section 13 mentions the requirements with respect to a memorandum and two of them are that no subscriber to the Memorandum shall take less than one share and each subscriber of the Memorandum shall take less than one share and each subscriber of the Memorandum shall write opposite to his name the number of shares he takes. Not only the plaintiffs have not subscribed to the declaration but they have not also complied with the last requisite relating to their writing opposite to their names the number of shares they take as subscribers. It is true that by subsection (1) of S. 41, subscribers of the Memorandum of a company shall be deemed to have agreed to become members of the company and on its registration, shall be entered as members in its register of members. But that will be the case only if the plaintiffs were subscribers of the Memorandum and subscription to a Memorandum of Association means not merely signing at every one of its pages but signing their names in token of entering into an agreement both as to the signatories forming themselves into a company but also their undertaking to take the number of shares indicated against their names. We do not think that from the plaintiff's signatures elsewhere in the Memorandum than in token of their being parties to a declaration as to the formation of the association and undertaking to accept the number of shares mentioned, they can be regarded as subscribers to the Memorandum of Association, for, they are not by their signatures parties to the declaration which is the vital part of the Memorandum. We are aware that a certificate of incorporation given by the Registrar in respect of any association shall be conclusive evidence that all the requirements of the Act have been complied with in respect of registration and matters precedent to or incidental thereto. But the conclusiveness engendered by S. 35 does not cover the defect in this case and require that those who have not been parties to the declaration in the Memorandum should nevertheless be regarded as subscribers thereto. It is also true that the Articles of Association simultaneously registered with the Memorandum of Association by one of its clauses mention the plaintiffs as among the first directors. But in our view, this again is not of assistance to the plaintiffs because what governs is the Memorandum of Association and the fact of the plaintiffs' enumeration in the Articles as among the first directors will not make them ipso facto subscribers as to the memorandum. We hold that the plaintiffs factually and in law were not subscribers to the Memorandum. That will suffice to dispose of the appeal.
(8) Even on the alternative contention for the appellants, they should, as we think, succeed. Assuming that the plaintiffs were subscribers to the Memorandum and it may be deemed that each of them had subscribed for a share, they have not complied with S. 270. Under the Articles a director should have 50 shares to qualify himself. Section 271 requires that if a director is not already so qualified on his appointment he must obtain his qualification within two months thereafter. No doubt, under Regulation 64 of the Regulations for management of a company limited by shares in table A of Schedule I to the Act, the number of directors and the names of the first directors shall be determined in writing by the subscribers of the Memorandum or a majority of them. Apparently this explains how the plaintiffs found a place in the Articles as among the first directors. But this is subject to the condition that they should acquire the qualification requisite for a director. The plaintiffs do not appear to have applied for the requisite shares to acquire the qualifications and this is evident from the proceedings of the company's general body meeting on 19-2-1959. The plaintiffs have not stated that they applied at any subsequent dates or remitted the required amount for fifty shares. The effect of the evidence on record is that the plaintiffs took or evinced no active interest in the first defendant-company right through until it succeeded in getting a stage carriage permit.
(9) The appeal is allowed and the suit is dismissed with costs throughout.
(10) Appeal allowed.