1947 (12) TMI 7 - DSC - Companies Law

Court affirms call money payment, modifies interest decree & cost allocation, lifts stay order

The court upheld the lower court's decision on the payment of call money but set aside the decree for interest up to the date of the suit. The appeal was ... Company – Membership of, Shares – Power, to issue of at discount, Shares capital – Reduction of and Winding up – Declaration of solvency Issues Involved:1. Signing of the memorandum and articles of association by Raja Jagat Kumar.2. Agreement to purchase 1500 shares.3. Validity of the calls made by the plaintiff.4. Surrender of shares and its acceptance.5. Bar of suit under Section 20 of the Court of Wards Act and general law.6. Fraud in the agreement to purchase shares.7. Entitlement to interest.8. Legality of the liquidation proceedings.9. Necessity of allotment for subscribers of the memorandum of association.Issue-wise Detailed Analysis:1. Signing of the Memorandum and Articles of Association by Raja Jagat Kumar:The court found that Raja Jagat Kumar had indeed signed the memorandum and the articles of association of the company, agreeing to take 1500 shares of Rs. 25 each. The evidence confirmed that his name and the number of shares were noted in the memorandum of association, and he was aware of this at the time of signing.2. Agreement to Purchase 1500 Shares:The court held that Raja Jagat Kumar had agreed to purchase 1500 shares as indicated in the memorandum of association. This was supported by the fact that he signed the memorandum, which explicitly stated the number of shares each subscriber agreed to take.3. Validity of the Calls Made by the Plaintiff:The court found that the calls made by the plaintiff on 27th August 1938, for Rs. 12-8-0 per share, were valid. The directors had the authority to make such calls, and the necessary formalities were followed.4. Surrender of Shares and Its Acceptance:The court held that there was no valid surrender of shares by the Collector of Moradabad, and even if there was an intention to surrender, it was not accepted by the company in a manner that was legally binding. The court emphasized that any such surrender would be ultra vires and illegal without proper authorization and confirmation by the court.5. Bar of Suit under Section 20 of the Court of Wards Act and General Law:The pleas based on Section 20 of the Court of Wards Act and the general law of limitation were negatived. The court found that the suit was not barred by these provisions.6. Fraud in the Agreement to Purchase Shares:The plea of fraud was not pressed in the appeal, and thus, the court did not consider it necessary to address this issue in detail.7. Entitlement to Interest:The court found that the plaintiff was not entitled to interest at the rate of 12% per annum as claimed. There was no evidence that the directors had fixed any rate of interest, and thus, the claim for interest on that basis could not succeed.8. Legality of the Liquidation Proceedings:The court held that the liquidation proceedings were legal and valid. The necessary formalities under Section 207 of the Indian Companies Act were complied with, including the declaration and affidavit by one of the directors.9. Necessity of Allotment for Subscribers of the Memorandum of Association:The court concluded that no formal allotment of shares was necessary for the subscribers of the memorandum of association. The subscribers were deemed to have taken the shares set opposite their names upon the incorporation of the company, making them liable for the calls made.Conclusion:The court upheld the decision of the lower court regarding the payment of the call money but set aside the decree awarding interest up to the date of the suit. The appeal was dismissed with a modification regarding interest, and the parties were ordered to bear costs in proportion to their success and failure. The stay order dated 11th September 1942 was vacated.