Memorandum subscription and contributory liability: subscribers became shareholders on incorporation and remained liable after winding up.

Subscription to a company's memorandum of association was treated as taking up the shares stated against the subscriber's name on incorporation, so no separate application or formal allotment was required. On that basis, the subscribers became members and shareholders under the Indian Companies Act, 1913. After the commencement of winding up, a person whose name remained on the register was liable as a contributory under the statute, and could not avoid that liability by relying on the absence of an enforceable allotment contract or on failure to rectify the register before liquidation. The objections to inclusion in the contributory list therefore failed.

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Issues: (i) Whether subscription to the memorandum of association of a company made the appellants members and shareholders on incorporation without any separate application or formal allotment of shares. (ii) Whether, after the commencement of winding up, the appellants could avoid inclusion in the list of contributories on the ground that no enforceable contract of allotment existed or that the register had not been rectified before liquidation.

Issue (i): Whether subscription to the memorandum of association of a company made the appellants members and shareholders on incorporation without any separate application or formal allotment of shares.

Analysis: Section 23(2) of the Indian Companies Act, 1913 provided that on incorporation the subscribers of the memorandum become a body corporate and are members of the company. Section 6 further required each subscriber to take at least one share and to write opposite his name the number of shares taken. Read together, these provisions showed that subscription to the memorandum itself amounted to taking up the shares stated therein, so no separate application or formal allotment was necessary.

Conclusion: The issue was decided against the appellants and in favour of the respondent.

Issue (ii): Whether, after the commencement of winding up, the appellants could avoid inclusion in the list of contributories on the ground that no enforceable contract of allotment existed or that the register had not been rectified before liquidation.

Analysis: The liability of a person whose name remains on the register at the commencement of winding up arises under the statute and not merely from contract. Once winding up intervenes, the position of a subscriber whose name stands on the register is governed by the statutory liability to contribute, and failure to seek rectification before liquidation prevents avoidance of that liability after third-party rights have intervened.

Conclusion: The issue was decided against the appellants and in favour of the respondent.

Final Conclusion: The appellants, as subscribers to the memorandum whose names stood on the company register at the commencement of winding up, remained liable as contributories and their objections to inclusion in the contributory list failed.

Ratio Decidendi: Under the Indian Companies Act, 1913, a subscriber to the memorandum becomes a member and takes the shares stated against his name on incorporation, and upon winding up the liability of a person whose name stands on the register is statutory and arises independently of contract.

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