1936 (12) TMI 26 - HC - Companies Law

Defendant Liable for Call Money on Shares Despite Attempt to Repudiate

Banwari Lal Versus Kundan Cloth Mills Co. Ltd.

Banwari Lal Versus Kundan Cloth Mills Co. Ltd. - [1937] 7 COMP. CAS. 345 (LAH.) Issues:1. Liability for call money in respect of shares agreed to be taken in a limited company.2. Repudiation of liability before the registration of the company.3. Misrepresentation in signing the memorandum of association.4. Rescission of contract based on misrepresentation.5. Application of English case law in Indian context.6. Dismissal of the second appeal with costs.7. Request for expunging certain remarks from the judgment.Analysis:1. The judgment deals with the issue of the defendant's liability for call money concerning shares agreed to be taken in a limited company. The trial Judge and Senior Sub-Judge held the defendant liable, despite his plea of repudiating the shares before the company's registration. The Lower Courts relied on the case of Machine Exchange Co., In re, to support their decision.2. The defendant contended that he had repudiated liability for the shares before the company's registration. However, the Lower Appellate Court found no misrepresentation in the facts presented. The defendant had signed the memorandum of association agreeing to take up 50 shares, but later sought to cancel them. The Court examined the timeline of events surrounding the registration of the company to determine the validity of the defendant's repudiation.3. The issue of misrepresentation arose concerning the defendant's signing of the memorandum of association. The defendant claimed he signed based on a representation that he could withdraw from the company after consulting his sons. However, the Court found no misrepresentation, as it was established that the defendant was informed that if he did not wish to keep the shares, they would be transferred to someone else or taken by Mr. Kundan Lal.4. The judgment delved into the concept of rescission of contract based on misrepresentation, citing an English case, Lord Lurgan's Case, to elucidate the legal principles involved. The Court emphasized that until the registration of the company, there is no contract in place, and subscribers become members of the company only upon registration, precluding the possibility of rescission based on pre-incorporation misrepresentations.5. The application of English case law in the Indian context was highlighted to establish the legal principles governing the formation of companies and the obligations of subscribers to the memorandum of association. The judgment underscored the consistency of Indian law with English precedents, emphasizing the significance of registration in creating a binding contract between the subscriber and the company.6. Ultimately, the second appeal was dismissed with costs, upholding the lower courts' decision regarding the defendant's liability for the call money in relation to the shares agreed upon in the limited company. The dismissal of the appeal signified the affirmation of the trial Judge and Senior Sub-Judge's rulings on the matter.7. Additionally, the judgment addressed a request for expunging certain remarks from the judgment made by the Senior Sub-Judge regarding the defendant's conduct. The Court deemed the remarks as unjustified and directed their removal, emphasizing the importance of maintaining decorum and avoiding unwarranted remarks about individuals or societal groups not directly involved in the case.