- (1.) AN interesting and important question relating to Company Law arises on this appeal, and the facts that have to ho considered are few and simple. The appellants were appointed on 30-6-1951 as additional Directors of the company in liquidation of which the respondent is the Official Liquidator. The appellants attended two meetings of the Board of Directors on 3-7-1951 and 24-8-1951. On 24-8-1951 a petition was presented for winding up of the company and ultimately an order for winding up was made. On 27-6-1932 the list of con tributaries was settled and a certificate to that effect was issued on 4-2-1953. On 6-7-1956 the Respondent Liquidator applied to the learned Judge for placing the appellants on the list of contributaries. The learned Judge acceded to that application and the appellants have come in appeal.
(2.) UNDER Article 100 of the company, the qualification of a Director is laid down and that qualification is the holding of ordinary shares of the nominal value of Rs. 10,000/-, and the article goes on to state: "a Director may act before acquiring such qualification but that in any case (unless he is a special Director) acquire the same within two months from his appointment". Article 104 deals with the vacating of the office of a Director and Clause (a) provides that the office of the Director shall ipso facto be vacated if he fails to obtain within the time specified in article 100, or any time thereafter ceases to hold, the share qualification necessary for his appointment, The provisions in the Companies Act correspond to these two articles. We are concerned with the old Companies Act, and Section 85 (1) provides: "without prejudice to the restrictions imposed by Section 84, it shall be the duty of every director who is by the articles required to hold a specified share qualification, and who is not already qualified, to obtain his qualification within two months after his appointment, or such shorter time as may be fixed by the articles". And Section 86-I provides that the office of a director shall he vacated if -- (a) he fails to obtain within the time specified in Sub-section (1) of Section 85, or at any time thereafter ceases to hold, the share qualification, if any, necessary for his appointment. Therefore, treating this matter as one of first impression and construing the Articles of Association and the corresponding provisions in the Companies Act, the position clearly is this. A director can act for two months without possessing the qualification required under the articles. If he wants to continue after that period he must have the requisite qualification. If after the period of two months he does not possess the requisite qualification, he automatically vacates office. Therefore, two months' locus penitentiae seems to have been given to a director to acquire the necessary qualification. It is difficult to understand how from these articles and this provision in the Companies Act it is possible to submit that there is a contract between a director and the company that as soon as he is appointed he shall acquire the necessary shares and that if he docs not acquire the shares the company will allot those shares to him and put him on the register. It would have been possible to take such a view if a director could have acted without the qualification and if he had not automatically vacated office. Then it could have been said that inasmuch as the articles acquire a particular qualification and the director has acted without that qualification, in law he must be deemed to have contracted with the company that he would acquire the necessary qualification. But as the articles of the company provide for the vacation of the office of a director acting without qualification, there seems to be no scope for implying a contract on the part of the director to acquire the necessary shares. If Article 104 was not there and if Section 86-I did not find a place in the Companies Act and if there was no automatic vacating of office and if the director had continued in office although he did not acquire the necessary shares within the time limited by Article 100, then there would have been considerable force in the contention that after the period of two months it must be assumed that there was a contract as between the director and the company that he would buy the necessary shares and acquire the requisite qualification.
(3.) NOW, having dealt with our first impression, let us turn to the authorities and see what they have to say about it. We will first turn to Palmer's Company Precedents, but before we deal with this learned author it is necessary to state that prior to the English Companies Act of 1900 there was no provision in the Act for a director who did not acquire the qualification shares to vacate his office. It was only in 1900 that the English Companies Act made this provision which corresponds to the provision in our Act. With tin's background we will see what Palmer has got to say on this question. At page 579 Palmer sets out a clause of model Articles of Association which is 84a and that clause is very significant: "a 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 shares sufficient to make up his qualification from the company, and the same shall be forthwith allotted to him accordingly". Therefore, an implied contract is incorporated by this clause itself, and having stated what the old law was in relation to a clause similar to the one set out, viz. , 84a, the learned author goes on to say: but the Act of 1900 materially affected the operation of the clause, for in specifying one month as the time within which the director must acquire his qualification the clause fixes within the meaning of Section 3 of that Act a shorter time than two months, and accordingly, at the end of the month, the director, if he has not obtained his qualification, vacates office. Now it may be that notwithstanding this the company might act on the clause, and allot him his qualification -- that is to say, the shares which he agreed to take. But if no allotment is made prior to a winding up, it would seem that the ex-director should not be held liable in a winding up to be placed on the list of contributories for the shares, for, the company not having accepted the offer whilst it was a going concern, it is not just and equitable to place him on the list of contributories in winding up". Therefore, it is rather significant that even when Palmer is discussing the new Act in the observations just made by him he assumes that the articles contained a clause like 84a and in view of that article he expresses the opinion that notwithstanding the new provision in the Act with regard to the automatic vacating of office, the company may allot shares to the director under this clause. But even there he makes it clear that it is only the allotting of the shares that the company is deemed to have accepted the offer made by the director accepting office under a clause similar to 84-a, and therefore he says that if there is no allotment and a winding up takes place the director cannot be placed upon the register.;