TMI Blog1933 (12) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... the company is rupees one lac divided into 10,000 shares. The managing agents of the company were Messrs. Sonalker Co. The share money was payable in full on application. Articles 78 and 79 of the articles of association which deal with the qualification of directors read as under: "78. The qualification of a director shall be the holding of shares in the company of the nominal value of Rs. 1,000. 79. A first director may act before acquiring his qualification but shall in any case acquire the same within one month from his appointment; and unless he shall do so, he shall be deemed to have agreed to take the said shares from the company and the same forthwith allotted to him accordingly." The following persons filed before the Registrar of Companies, Bombay, the usual declaration form dated 19th November, 1929, (Exhibit 31/3) testifying under section 84 of the Act their consent to act as directors: (1) R.A. Sonalker of Sonalker Co.; (2) Vazirmal Kewalram C/o Sonalker Co.; (3) Manghanmal Gurnomal of Manghanmal Gurnomal Co.; (4) Dinshaw H. Mehta; (5) Maganlal Shirji of M. Kanji Co.: (6) Visvanatha B. Patel; (7) Shewaram Lekhraj Jumani; (8)Bassarmal Awatrai; (9) Ladhar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (3) Mr. R. A. Sonalker. Notices of resignations; of directors seem to have been given by the managing agents to the Registrar and the declaration submitted on 7th February 1931, shows that all the old directors except the two Sonalker brothers and Ladharam Deomal had resigned before that date and one Jhamandas had been substituted in place of Dinshaw H. Mehta. The company appears to have issued a prospectus although not sanctioned by the Registrar and to have received applications for shares accompanied with money or a part thereof. The prospectus Exhibit 32/11 contains the usual cry of help for Swadeshi concerns and contains inter alia the following three paragraphs: "Present is the opportunate time to purchase suitable steamers of the latest design and equipped with all modern fittings. Such vessels are available at considerably low prices. The managing agents have already placed themselves in communication with the leading ship-brokers as well as ship-builders in Germany and elsewhere and have in their possession plans and estimates of suitable steamers. It is the duty of every Indian brother to patronize Indian concerns as much as possible. The present spirit to encourage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g agents three notices under section 247 (1), Ex. 31-6, dated 10 th November 1930, Exhibit 31-9, dated 29th September, 1931, and Exhibit 31/8, dated 30th October, 1931, informing the company that unless within three months from the date of the notice sufficient cause is shown, the name of the company will be struck off the rolls. The managing agents were however able to induce the Registrar to put off striking the name of the company from the registers. A criminal complaint was filed against the Sonalker Brothers and the police took possession of some of the assets and papers. The Sonalker brothers, however, prevailed upon the complainant to withdraw the complaint and promised a composition. But nothing came out of it, and proceedings were taken in this Court for liquidation of the company. This is briefly the history of this Company which was intended to establish both passenger and cargo traffic between Karachi and the Makran Coast and to supplement the slow Persian Gulf mail steamer run by the B.I.S.N. Company. In order to afford relief to some of the unwary applicants who have parted with their money, the official liquidator is attempting to recover the application money fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prospectus, no liability attached to them, ( e ) That they were not aware of the provisions of article 79 of the articles of association and are not therefore bound by its provisions. I am afraid there is no substance in any of the objections raised on behalf of these opponents. It is well settled that the signatories to the memorandum of association of the company become the first members of the company as from the date of incorporation mentioned in the Registrar's certificate. They are deemed to have agreed to become members of the company and on its registration are to be entered as members in its register of members. But neither this entry nor the allotment of shares is a condition precedent. Each subscriber at once by subscribing irrevocably agrees to take from the company the number of shares placed opposite his signature unless all its share capital has been allotted to other persons. The fact that no shares are allotted to him and that he has ceased to be treated as a member for a considerable time does not relieve him from liability. Halsbury's Laws of England, paras. 380 and 381, Volume 5, Edition 2. In Drummond's case Lord Romilly has said: "The persons signing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has the effect of reducing the capital can be supported only under circumstances which would have justified a forfeiture of the shares, the validity of forfeiture being recognized by the companies Act. In this case at p. 25, Collins, M.R., has said: "I can see no distinction in principle between returning to a shareholder a part of the paid-up capital in exchange for his shares and wiping out his liability for the uncalled-up sum payable thereon. Both methods involve a reduction of the capital which, as Lord Watson pointed out in Trevor v. Whitworth, persons dealing with the company are entitled to rely upon as existing, either as paid-up or as still to be called-up, and such a reduction therefore can only hold good if sanctioned under the conditions prescribed." And at p. 28 he has further said: "The justification of forfeiture rests upon the statute itself, and I think that since Trevor v. Whitworth no authority can be relied on as justifying a surrender having the effect of reducing capital which cannot be supported as a form of forfeiture." At p. 32, Cozen Hardy, L. J., has said: "A company cannot be a shareholder in itself, every surrender of shares, whether ..... 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