Kanduri Lakshmiah Chetty v. Adoni Electric Supply Co., Ltd.

Sir Lionel Leach, C.J:— These three appeals arise out of different suits filed in the Court of the District Judge of Bellary. The cause of action was the same in each case and as the actions were tried together the trial Court dealt with them in one judgment. It will be convenient to adopt, the same course here.

We will first state the facts in Appeal No. 137 of 1942. The plaintiff is a limited liability company. It was registered on 3rd November 1932 with a nominal capital of Rs. 3,00,000, divided into 3,000 shares of Rs. 100 each. The object for which the company was formed was the supply of electricity to the town of Adoni. The appellant signed the memorandum of association as a subscriber for fifty shares, but the articles of association do not state the date on which a subscriber has to make payment. In Alexander v. Automatic Telephone Company the Court of Appeal held that, in the absence of any special agreement or article requiring a subscriber of the memorandum of association of a company to make some payment on application or allotment, nothing is payable by him in respect of his shares until a call is made upon him. On 20th September 1935 the company wrote to the appellant demanding payment of Rs. 25 per share as money due on application and Rs. 25 per share as money due on allotment. One month's time was given for the payment. The demand was not complied with. On 9th October 1937 the company made a call of twenty-five per cent to be paid on 10th November 1937, and on 3rd August 1938 made another call for the payment of the balance by 11th September 1938. These calls were not met. On 4th October 1939 the company gave notice of forfeiture of the appellant's shares and he was informed that, unless he paid what was owing by him in respect of the fifty shares, with interest at six per cent, before the 31st October, his shares would be forfeited. Article 63 of the, articles of association gives the company the power of forfeiting shares for the non-payment of calls or instalments. This notice was ignored and, on 27th December 1939, the directors passed a resolution forfeiting the appellant's shares. On 4th November 1940 the suit out of which this appeal arises was filed. The appellant advanced numerous pleas in defence. Inter alia he alleged that he had been induced to sign the memorandum of association as the result of fraud practised by the promoter of the company, that the suit was barred by the law of limitation, and that in any event the forfeiture of his shares was unlawful as the requirements of the articles of association had not been complied with. The District Judge found against the appellant on all the issues. Consequently he passed a decree for Rs. 5,000 due on the shares with interest at six per cent from the date of suit. In his memorandum of appeal the appellant raised all the contentions to be found in his written statement, but the only contention which has been pressed at the hearing of the appeal is the one that the forfeiture of the shares was unlawful. The company has filed a memorandum of cross-objections as it contends that the learned District Judge erred in not allowing interest from the date of the respective calls.

The contention that the forfeiture was invalid is well founded. Article 62 of the articles of association states that the notice shall name a day (not being less than fourteen days from the date of the notice) and a place or places on and at which the call or instalment and interest and expenses are to be paid. The notice issued to the appellant did not state where the payment should be made and did not correctly state the dates on which the calls were to be met. For the purpose of calculating interest it was necessary that correct dates should be stated. In Johnson v. Lyttle's Iron Agency the Court of Appeal held that a forfeiture was invalid where the notice claimed interest from the date of the call, instead of from the date fixed for payment. In that case James L.J observed:

“It was the established rule of the Court of Chancery and of the Courts of Common law that no forfeiture of property could be made unless every condition precedent had been strictly and literally complied with. A very little inaccuracy is as fatal as the greatest. Here the notice is inaccurate. It is therefore bad, and the forfeiture is invalid.”

The position is the same here and we must hold that the appellant's shares have not been forfeited.

If the appellant does not pay for his shares, the company can, of course, still forfeit them if it takes proper steps. The appellant is undoubtedly liable to the company in the principal sum of Rs. 5,000 with interest on Rs. 2,500 from 20th October 1935 (the date on which he should have paid the application and allotment money), on Rs. 1250 from 10th November 1937 and on Rs. 1,250 from 11th September 1938. As the appellant has signified his willingness to meet his liability we will vary the decree of the trial Court by declaring that the forfeiture is invalid and that the appellant is entitled to remain on the register as the holder of fifty shares, provided he pays Rs. 5,000, with interest as specified above, and the costs awarded by the lower Court within two months of this date. If he fails to make the payment within the time specified his appeal will stand dismissed with costs and the memorandum of cross-objections will be allowed with costs. To this the appellant agrees.

The facts in Appeal No. 190 of 1942 are the same except that the appellant only subscribed for ten shares. By consent, there will be a similar order passed here. Interest will run in respect of Rs. 500 from 20th October 1935, on Rs. 250 from 10th November 1937 and on Rs. 250 from 11th September 1938. The appellant will also be allowed two months' time in which to pay the principal and interest, plus the costs awarded by the trial Court. If he fails to make such payment in full his appeal will stand dismissed with costs.

The company is the appellant in Appeal No. 216 of 1942. The respondent signed the memorandum of association as a subscriber for ten shares. He pleaded that he was not liable to pay as the promoter of the company had agreed to allot these shares to him for legal services rendered in connection, with the promotion of the company. The District Judge held that the respondent was not liable because he considered that it was a case where strictly legal considerations must give way to equity. He went on to observe:

“My difficulty in finding on this issue arises mainly out of a chaotic muddle industrial concerns so often pass through amongst the mazes of Indian company law without skilled and expert guidance by specialized lawyers who can guide them aright. A broad liberal and sympathetic view therefore, I consider, has to be taken by Courts in dealing with claims such as this, as to apply strict law without invoking equity might result in substantial injustice.”

We certainly cannot subscribe to this opinion. The case has to be decided on the law and only on the law. The respondent subscribed to the memorandum of association and therefore is liable to pay for his shares in cash. If he did in fact enter into an agreement with the promoter of the company under which he was to receive ten shares for his services, the position would not be altered. The decree of the District Judge must be set aside with costs in the trial Court. As the respondent is agreeable to the same order being passed in this case as in the other appeals, there will be a declaration that the respondent is entitled to remain on the register as a holder of ten shares, provided he pays the principal sum of Rs. 1,000 with interest as payable by the appellant in Appeal No. 190 of 1942 and the costs of the company, in the trial Court within two months. In default, the company will get a decree as prayed for, with costs throughout.

G.R