Misrepresentation in prospectus and de facto directors: rescission fails, and allotment, calls, and forfeiture remain valid.

A shareholder may rescind a share contract only on pleaded and proved material misrepresentation that induced subscription; mere alleged nondisclosure in a prospectus is insufficient where the statement is promissory and not a false assertion of existing fact. The right to avoid the contract is also lost by prolonged inaction, including allowing the name to remain on the register, and is barred after winding up. Separately, allotment, calls and forfeiture resolutions remain valid where passed by de facto directors protected by a validating article, even if their qualification later failed through non-payment of their own share monies. The challenge therefore failed on both rescission and corporate validity.

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Issues: (i) Whether the shareholders were entitled to rescind the share contract on the basis of alleged misrepresentation and nondisclosure in the prospectus; (ii) whether the allotment, calls, and forfeiture resolutions were invalid because the directors who passed them had ceased to be qualified directors.

Issue (i): Whether the shareholders were entitled to rescind the share contract on the basis of alleged misrepresentation and nondisclosure in the prospectus.

Analysis: A shareholder can avoid a share contract only if a material misrepresentation of fact is pleaded and proved as an inducement to take the shares. The statement relied on in the prospectus was treated as a statement of promise, not a false assertion that shares had already been subscribed. The alleged nondisclosures did not, on the facts found, convert the prospectus into a misrepresentation. Even if a voidable contract could have been avoided, the right to rescind was lost by prolonged inaction, as the shareholders allowed their names to remain on the register and took no active steps to repudiate the contract. The subsequent winding up of the company provided an additional bar against avoidance.

Conclusion: The shareholders were not entitled to rescind the share contract and their objection failed.

Issue (ii): Whether the allotment, calls, and forfeiture resolutions were invalid because the directors who passed them had ceased to be qualified directors.

Analysis: The relevant articles and the validating provision protected acts done by persons acting as directors notwithstanding defects in qualification. The disqualification arose from non-payment of their own share monies, but the appointments themselves were not defective. The directors acted as de facto directors and there was no finding that they knowingly or dishonestly used their position in passing the allotment, call, and forfeiture resolutions. On that footing, the validating article applied and preserved the corporate acts.

Conclusion: The allotment, calls, and forfeiture were valid.

Final Conclusion: The challenge to the suits failed on both the rescission question and the validity of the corporate resolutions, so the decree was made in favour of the official liquidator and the suits were decreed.

Ratio Decidendi: A shareholder may avoid a share contract only on pleaded and proved material misrepresentation, and that right is lost by laches and is barred after winding up, while acts done by de facto directors are protected where the validating article covers defects arising from subsequent disqualification.

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