1940 (4) TMI 22 - HC - Companies Law

Court Upholds Shareholders' Liability in Company Liquidation

The court dismissed objections raised by two shareholders regarding their inclusion in the list of contributories by the Official Liquidator in a company ... Company – Membership of and Winding up - Liability as contributories of present and post members Issues:1. Inclusion of two shareholders in the list of contributories by the Official Liquidator.2. Objections raised by the shareholders regarding inducement to become shareholders.3. Legal point raised regarding liability for unpaid calls prior to winding up.Analysis:1. Inclusion of Shareholders in the List of Contributories:The judgment addresses the applications on behalf of two shareholders who objected to their inclusion in the list of contributories by the Official Liquidator in the matter of a company in liquidation. The shareholders, numbered 27 and 28 in the list, raised objections based on inducement by the company's promoter and discrepancies between the draft and final memorandum and articles of association. The court noted that the shareholders had signed the application for shares and became shareholders of the company without raising objections at the time of incorporation. The court accepted the version presented by the company's promoter regarding the events leading to the shareholders' investment.2. Objections of Shareholders and Inducement:The objections raised by the shareholders centered around inducement by the company's promoter, who allegedly made representations that led them to become shareholders. The shareholders claimed that they were assured they would not have to purchase shares or pay money out of their own pockets. However, the court accepted the promoter's denial of these allegations through affidavits. The court emphasized that the shareholders had the opportunity to review the memorandum and articles of association at the time of incorporation and should have raised objections then, rather than after becoming shareholders.3. Legal Point on Liability for Unpaid Calls:A legal point was raised regarding the liability of the shareholders for unpaid calls made by the company before the winding up, which had become barred by limitation. The shareholders argued that they should not be included in the list of contributories due to the limitation on their liability. However, the court referred to Section 156 of the Companies Act, which establishes a new liability for members in the event of winding up. The court cited precedent and confirmed that this new liability arises upon winding up and is not affected by previous calls that may have become barred by limitation. The court rejected the argument that the limitation on previous calls would exempt the shareholders from contributing to the company's assets during the winding up process.In conclusion, the court disallowed the objections raised by the shareholders and ordered their inclusion in the list of contributories. The judgment clarified the legal interpretation of the liability of members in a winding-up scenario and emphasized the new liability created under Section 156 of the Companies Act. The liquidator was granted costs against both shareholders, with a reminder to the taxing officer regarding the consolidation of hearings for both applications.