1. These appeals arise out of two suits brought by the Pabna Dhanabhandar Co. Ltd. against two persons who are alleged to have been shareholders in another trading company known as the City Bricks Co. Ltd.
2. In December 1920 the City Bricks Company mortgaged all its assets, including its uncalled capital, to the plaintiff company. In April 1923 the plaintiff company sued the City Bricks Company in the mortgage, and in July of that year, while the mortgage suit was still pending, the City Bricks Company decided to so into voluntary liquidation. A liquidator was appointed in November 1923 and was made a party to the mortgage suit in December 1923. The mortgage suit was decreed in April 1924, and in August of that year the entire mortgaged property, including the unpaid share capital, was purchased by the plaintiff 'company in execution of the mortgage decree. ' Meanwhile, on 27th July 1921, (that is to say after the mortgage to the City Bricks Company, but before the institution of the mortgage suit), the directors of the City Bricks Company passed a resolution purporting to call up the unpaid share capital, the date fixed for payment being 31st August 1921.
3. The suits out of which these appeals have arisen are for the enforcement of the call against two of the shareholders of the defunct City Bricks Company, and were instituted on 15th December 1926, the plaintiff company haying acquired the rights of the above City Bricks Company in. respect of the shares in question by virtue of their auction purchase of August 1924. The trial Court dismissed both the suits on the ground that the plaintiff company had not succeeded in establishing that the defendants were co-sharers of the City Bricks Company. On an appeal being taken by the plaintiff company to the District Court, it was held by the lower appellate Court that the defendants were share-holders of the City Bricks Company, but the appeal was nevertheless dismissed on grounds which appear at first sight to be inconsistent, one of the grounds being that the suits were barred by limitation under Article 112, Schedule 1, Lim. Act, and the other being that there had been no valid call and that the plaintiff company had no cause of action. The plaintiff company has now appealed to this Court and the following points have amongst others been urged on its behalf. As regards the cause of action, it is contended that the defendants' liability was not created by the call, but has been in existence ever since the defendants took up the shares in question, and that the plaintiff company have by their auction purchase acquired the right to enforce this liability.
4. As regards limitation, it has been urged on behalf of the plaintiff company that it has not yet begun to run, or at most it has begun to run. from the date of the plaintiff company's auction purchase. It is further contended that the article applicable is Article 120 and not Article 112, though it is really immaterial which article is applicable, the suits having been instituted within three years of the plaintiff company's auction purchase. The appeals first came up for hearing before Cuming, J., who sent the cases back to the lower appellate Court for recording a clear and unmistakable finding as to whether any call had actually been made on the two defendants. The lower appellate Court has accordingly, after a further hearing, recorded a finding to the effect that although the directors passed a resolution purporting to make a call, no notice of call was ever served on the defendants. The lower appellate Court was further of opinion that a mere resolution without proof of service of notice did not constitute a call, and accordingly held that no call had been made on the defendants in these suits. The further hearing of the appeals has accordingly proceeded on the footing that no notice of call was served on the defendants.
5. The plaintiff company having by its auction purchase acquired the rights of the City Bricks Co. in respect of the uncalled capital, it is necessary for the disposal of these appeals to consider what those rights were as against the defendants in these suits. The City Bricks Co. undoubtedly had a right to call on the share-holders to pay up the balance of their share capital, that is, in technical language, to make a call. The right to make a call was however hedged about with various restrictions. What those restrictions were, it is impossible to say, the Articles of Association not having been produced, but it is reasonable to suppose that the unpaid share capital could only be called up for certain purposes and in a certain manner, and apart from any restrictions that may have been imposed by the Articles of Association, it would be contrary to all principles if a call could be enforced without the notice thereof being given to the shareholders concerned. On the company going into liquidation the power to make calls would ordinarily vest either in the Court or in the liquidator, but in the exercise of this power the Court or the liquidator, as the case might be, would have to be guided by the Articles of Association, subject of course to the provisions contained in Part 5, Companies Act. As far as I have been able to ascertain, the Act makes no provision for the exercise of the power to call up unpaid share capital otherwise than in accordance with the Articles of Association and the provisions contained in Part 5. A mere demand by the plaintiff company after its auction purchase cannot therefore take the place of a formal call.
6. The share-holders are no doubt liable to be called upon to pay up the balance of the share capital, but their liability can only be enforced in the manner laid down in the Articles of Association and in the Act itself. Under Section 21, Clause 2 of the Act, the liability of the share holders in respect of the balance due on their shares was undoubtedly a debt due from them to the company, the debt accruing due from the time when their liability commenced, that is, from the time when they first took up their shares. This liability was not however enforceable against the share-holders until a valid notice had been made to them in accordance with the Articles of Association and the provisions of the Act. The mere passing of the resolution cannot in my opinion be regarded as a valid call. Something more is required to constitute a valid call, namely, service of notice in pursuance of the resolution. No such notice having been served on the defendants in these suits, it must be held that their liability to pay the balance due on their shares cannot be enforced in the present proceedings
7. The plaintiffs not having taken the appropriate steps for having notice of call served on the defendants, it must be held to have no cause of action against them. In view of the provisions of Section 229, Companies Act, and of the provisions of Section 28, Clause (6) and of Section 47, Prov. Insol. Act, the plaintiff company were quite within their rights in proceeding with the mortgage suit against the City Bricks Co., even after the company went into liquidation, and inputting the mortgaged property to sale in execution of the decree obtained in that suit, but they have in my opinion misconceived their remedy and have failed to take the proper steps for the realization of their dues. I am not prepared to express any definite opinion as to what the appropriate steps would have been; but I see no reason why the plaintiff company, in their capacity as auction purchasers of the unpaid share capital, should not have applied to the Court either for authority to issue notices of call in the name of the company on such of the shareholders as had not already received any notice, or for a direction on the liquidator to issue the necessary notices. In the alternative, the plaintiff company might have elected to follow one or the other of the courses open to it under Section 47, Prov. Insol. Act. Be that as it may, it is in my opinion perfectly clear that no valid notice of call having been served on the defendants, the plaintiff company have no cause of action against them. In this view of the matter the question of limitation does not arise and it is not necessary to discuss it.
8. I find I have omitted to refer to the preliminary objection urged on behalf of the respondents on the ground that these appeals are incompetent, the amounts claimed being below Rs. 500, and the suits being, so it is said, of a nature cognizable by a Court of Small Causes. In view however of the provisions of Section 159 (2), Companies Act, and of the definition of the term 'contributory' in Section 158 of that Act, I am of opinion that the preliminary objection is without any substance and I have accordingly considered and decided the appeals on the merits. The appeals are dismissed with costs and the judgment and decrees of the lower appellate Court are affirmed. Separate costs are awarded to the respondents in respect of each of the two hearings of the appeals in this Court, viz., the former hearing before Cuming, J., and the present hearing.