TMI Blog1951 (1) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... Films Ltd., was the moving spirit, getting subscribers and shareholders. Under the articles of association, the directors were the normal persons to allot shares. But there is also an article giving wide powers, including, obviously, the power to allot shares, to the managing agents. This Lakshminarayana is alleged by appellant to have been his class-mate and intimate friend. The minutes book shows a meeting of the Board of Directors on 23rd February, 1946, though it is not clear when these directors were elected. The next meeting of the Board of Directors recorded in the minutes book is on 6th April, 1946, when the appellant was elected as the Chairman of the Board of Directors and the fact said to have been intimated to him, though he denied it. It is admitted that the appellant signed an application Exhibit R-1 on 31st March, 1946, applying for five shares of Rs. 1,000 each in Sri Films Ltd. But, according to him, he did so nominally and without any intention at all of taking any share in this company and simply because Lakshminarayana who was his friend and class-mate assured him that the application was only intended to lend prestige to the company, as the appellant was then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iling which the defaulters were to forfeit their shares as a matter of course, and that the appellant's name was removed that day from the list of directors as he was a defaulting shareholder. The appellant went on to say that he considered that his shares stood forfeited automatically, as he did not pay any money within the time fixed, and that he therefore kept quiet without taking any action to remove his name from the register of shareholders under the bona fide impression that nothing further need be done by him. But to his surprise when the company went into liquidation by an order of this court on the Original Side on 4th July, 1949, a notice was sent to him by the Official Receiver on 4th August, 1949, to show cause why his name should not be included in the list of contributories regarding the said sum of Rs. 5,000 due in respect of his five shares. He went and showed cause before the Official Receiver, protesting that he had never intended to be a real shareholder of the company, for the reasons mentioned already, and that, even if he had become a shareholder, he had ceased to be one after the resolution of the company, dated 15th June, 1947, and that he was therefore n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of smaller figures and yet he may not be liable to pay a pie if he sets up and proves the above dishonourable understanding. But it is obvious that any such dishonourable conduct or understanding will not also relieve him from legal liability where it exists otherwise. Mr. V. Ramaswami Ayyar, for the appellant, contended vigorously that there was no valid application for shares by the appellant, and so, no offer capable of being acted on and followed by allotment, as the appellant had not sent at least 5 per cent, of the share money with his application as required under section 101(3) of the Indian Companies Act, section 101(6) expressly making it impossible to waive this condition imposed by section 101(3). This contention took Mr. P. Satyanarayana Raju by surprise, as it had not been urged before Mack, J., the only legal argument put forward before Mack, J., being that there was no resolution allotting the shares to the appellant. But Mr. Satyanarayana Raju soon recovered from the surprise, and discovered that this argument had not been urged before Mack, J., for an excellant reason, namely, that this company was a private company, to which section 101, which is applicable o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him the allotment of these five shares, mentioned the date of his application as 5th April, 1946, instead of the correct date of 31st March, 1946; found in the application itself, and did not mention the date of the allotment and that Exhibit R-4 dated 25th November, 1946, asking him to pay the Rs. 5,000 in pursuance of this promise to Lakshminarayana to do so after his return from Hyderabad, did not also mention the date of the allotment, and that there could have been no real allotment as the allotment, according to the date shown in the register of the shareholders, was made on 31st March, 1946, itself with no visible interval for the company or the directors to pass a resolution allotting the shares to him. This argument is of doubtful validity. If the managing agent, Lakshminarayana, had the right to allot shares, as the articles of association show, he could have allotted them immediately to the appellant and there was sufficient time for such allotment. It is not necessary to produce the order of allotment to prove the validity of an entry in the register of shareholders, though it is desirable to do so. As held by a Bench of the Bombay High Court in Mohamed Akbar v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwise, he forfeits it: see Re Scottish Petroleum Co. Even where a name is pursuant to a void contract placed on the register, delay after knowledge may be fatal: see Re Railway Time Tables Publishing Co. Mr. K.M. Ghosh says at page 347 of his Indian Company Law, 8th edition, as follows: "Before a company goes into liquidation, the liability to contribute is measured by the contractual obligation arising from membership; but, after liquidation, this section (Section 156) imposes new liabilities on the shareholders in respect of unpaid calls made before or after the winding up; and such calls can be recovered, though barred by limitation before the order of winding up was made. The liability of a member under this section in respect of the shares is absolute and flows from the fact of his being on the register of members in respect of those shares. The original contract may supply the reason for his name having been placed there, but after the winding up, his liability arises ex lege and not ex contractu." Mr. Sen Gupta, in his "Indian Company Manual", 4th edition, holds the same view. The above views of the text book writers are amply borne out of authoritative rulings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the delay is more than three years, and the circumstances set up shaky. We have no hesitation in agreeing with the conclusion of Gentle, J., in that case. The same views, as held by the Privy Council and Gentle, J., were expressed by a Bench of the Bombay High Court in Mahomed Akbar v. Official Liquidator, and by a Bench of the Allahabad High Court in Shiromani Sugar Mills Ltd. v. Debi Prasad. So, this contention must fail, especially as winding up has also supervened, adding to the other ground of delay. The last contention urged on behalf of the appellant was that the appellant's shares should have been forfeited and his name removed from the register of the members as per the resolution of the company dated 15th June, 1947. This argument too is untenable. It was admitted that the appellant's shares were not forfeited as a matter of fact as per that resolution, and that the company continued to treat the appellant as a shareholder. So, as per the ruling of Gentle, J., in Guruswami v. Indo-Carnatic Bank, Ltd., with which we fully agree, the appellant cannot object to being included in the list of contributories. In the result, this appeal fails and is dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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