Forfeiture of shares and time-barred calls can still create enforceable liability under a valid articles clause.

Allotment of shares was upheld where the applicant had paid the requisite five per cent of the share money with the application, satisfying the statutory condition. The inclusion of time-barred calls in a forfeiture notice did not invalidate the forfeiture because limitation barred the remedy for direct enforcement but did not extinguish the underlying debt; the forfeiture clause could create a fresh contractual liability recoverable after forfeiture. A committee of directors was competent to pass the forfeiture resolution where the articles permitted delegation, consistent with Table A. The contention that the forfeiture clause was penal in character failed, and the company's decree was sustained.

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Issues: (i) whether the allotment of shares was invalid for non-compliance with the requirement of payment of at least five per cent of the share money; (ii) whether inclusion of time-barred calls in the notice of forfeiture invalidated the forfeiture and whether the company could rely on the forfeiture clause for recovery of the amounts due; (iii) whether the resolution of forfeiture passed by a committee of directors was invalid; and (iv) whether the appellant could resist liability on the ground that the forfeiture clause was penal in character.

Issue (i): whether the allotment of shares was invalid for non-compliance with the requirement of payment of at least five per cent of the share money.

Analysis: The evidence was accepted that the appellant had paid Rs. 250 with the application, and that amount represented the requisite five per cent of the share money. The statutory condition governing allotment was therefore satisfied.

Conclusion: The allotment was valid and the objection under section 101 of the Indian Companies Act, 1913 failed against the appellant.

Issue (ii): whether inclusion of time-barred calls in the notice of forfeiture invalidated the forfeiture and whether the company could rely on the forfeiture clause for recovery of the amounts due.

Analysis: The Court held that under section 28 of the Limitation Act, 1908 the expiry of limitation barred the remedy but did not extinguish the underlying right in a case of this nature. The unpaid calls remained debts, and the company could validly forfeit the shares and sue upon the fresh contractual liability created by the forfeiture clause. The forfeiture clause in the articles was treated as effective, not penal, and capable of supporting recovery even in respect of dues that had become time-barred for direct enforcement.

Conclusion: The forfeiture was not invalid on account of the inclusion of time-barred calls, and the appellant remained liable to pay.

Issue (iii): whether the resolution of forfeiture passed by a committee of directors was invalid.

Analysis: The articles permitted delegation of directors' powers to a committee, and that arrangement was consistent with paragraph 91 of Table A of Schedule I to the Indian Companies Act, 1913. On that basis, the committee was competent to pass the forfeiture resolution.

Conclusion: The resolution of forfeiture was valid and the objection against it failed.

Issue (iv): whether the appellant could resist liability on the ground that the forfeiture clause was penal in character.

Analysis: The Court held that the Companies Act recognised forfeiture clauses of this kind and that no authority was shown to support the contention that such a clause offended the law merely because it operated on default. The clause created a contractual liability following forfeiture.

Conclusion: The contention based on section 74 of the Indian Contract Act failed.

Final Conclusion: The decree in favour of the company was upheld, and the appeal was dismissed with costs because the allotment, forfeiture, and resulting liability were all sustained in law.

Ratio Decidendi: Where the underlying default remains a subsisting debt, limitation may bar the remedy for direct enforcement without extinguishing the right, and a valid forfeiture clause in the articles may create a fresh enforceable liability upon forfeiture.

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