Case: East &amp; West Insurance Company Limited Vs. Kamala Jayantilal Mehta

2. At a meeting of the board of directors held onthe directors resolved that a further call of Rs. 40/per share on B Class shares of the company and a notice of one month be given to all B class shareholders to pay the same. The B class shares are of the face value of Rs. 50/and 1956 Rs. 10/were paid up, and the defendant held 100 B class shares of this company.Another meeting of the board of directors was held onand at this meeting the minutes showed that the opinion of the directors was divided as to the manner of requiring the calls to be paid, and the evidence of the manager, Mr. Samant, on this point is that the division of the directors was on the question as to whether the call should be for Rs. 40/at one time or whether the call should be by instalments.They were also divided as to what time should be given if the call was to be by instalments. The minutes of this meeting goes on to state :"It was therefore resolved that the draft notice be finalised in consultation with the companys solicitors."It is also in the evidence of Mr. Samant that he had produced before the meeting of the board a notice to be sent to the shareholders with regard to this call prepared by the solicitors.In this notice there were various blanks which were filled in by him, and turning to this draft notice it proceeds on the basis that the call was payable by four instalments and in this draft notice the dates of payment of the instalments are mentioned, the first instalment being payable onthe second onthe third onand the fourth onis not quite clear from the language used in the minutes of this meeting as to what exactly was intended by the expression"It was therefore resolved that the draft notice be finalised in consultation with the companys solicitors."But the evidence of Mr. Samant is that he finalised the draft notice himself and then sent out notices to the shareholders in the form of the draft notice which was the final form of the notice.It is common ground that the final form never came before the board of directors. This particular notice was sent to the defendant on the 7th/9th July 1948 and she was called upon to pay the first instalment onAs she failed to pay the first instalment, another notice was served upon her onby which she was reminded that the first instalment remained unpaid and notice was given to her to pay the remaining three instalments on the due dates, viz., 5th September, 15th October and 5th November 1948. She failed to pay also the second instalment on the due date and a notice was served upon her onreminding her that the two instalments remained unpaid and calling upon her to pay the remaining two instalments on their due dates.A third reminder was sent to her onwhen she had failed to pay the remaining two instalments and she was requested to pay the whole amount of Rs. 4,000/with interest thereon due toy her. Finally, an attorneys notice was given to her onand in this notice it was stated :"By a resolution of the board of directors, datedit was decided that a further sum of Rs. 40/per share be called from B Class shareholders. By another resolution of the board of directors of the company datedit was decided to forward to the shareholders the notice demanding payment of the said call in the manner decided at that time."The letter further says that in pursuance of these resolutions various notices were sent to the defendant and she was called upon to pay the amount. As she failed to comply with this requisition a suit was filed in the city Civil Court onwhich suit ultimately came to be dismissed by the learned Judge.

Court's reasoning:
it is difficult to understand how the fixing of the time for the payment of the call is not an essential feature of the making of the call.A call imposes a liability upon a shareholder and that liability only commences from the time when he becomes liable to pay the call, and therefore authorising the call and fixing the amount of the call by themselves do not fix the liability upon theit is not necessary to fix the person to whom and the place at which payment is to be made by a resolution, it is equally not necessary to fix the time of payment. The fallacy underlying this argument is that although the second part of Art. 18 mentions all these factors, it does not, as already pointed out, indicate how these factors should be appointed by the directors.It may be by a resolution or it may not be, the second part of Art. 18 is silent. Therefore, if any of these factors are essential for the making of a call, then by reason of Art. 19 that factor must form part of a valid resolution making the call.Therefore, there is not much substance in the contention that no distinction can be made as between person and place on the one hand and time on the other, A distinction has to be made because these three factors do not stand on the same footing.Whereas the person to whom the payment is to be made and the place at which the payment is to be made are trifling requirements of no substance and of no consequence, the time at which the payment is to be made is of considerable substance and of great consequence to the shareholder.We might also look at the provision with regard to the call being made payable by instalments. This provision appears at the end of Art. 18 after Art. 18 has dealt with the authority of directors to make the call and the conditions imposing the liability upon the shareholder, and in our opinion this provision relates to the making of the call and therefore it must form part of the resolution authorising the call.This again is a matter of substance. Whether a call should be paid in one sum or by instalments goes to the question of the liability of the shareholder, and therefore this provision is as much of substance as the provision with regard to the fixing of time for the payment of the call.Therefore, the provision that a call should be made payable by instalments by reason of Art. 18 can only be made by resolution properly passed by theis clear that the resolutions on which the plaintiff company relies are not valid resolutions making a call. The first resolution ofmerely mentions the amount, and the period of the notice. The second resolution gives the interesting information that the directors are divided in their view and resolves that" the draft notice be finalised in consultation with the companys solicitors. Therefore, in our opinion apart from any other consideration the two resolutions, even taken together and read together and accepting the view of Mr. Engineer that these two resolutions make a valid call, in our opinion as neither of these two resolutions specifies the time for making the payment they fail to make a valid call as required by law.We are also in agreement with Mr. Desai that these resolutions suffer from another infirmity, and that is that they do not decide that the amount of the call should be paid by instalments. We have already indicated our opinion on a construction of Arts. 18 and 19 that the payment of call by instalment is as essential a feature of a resolution making a call as fixing of time for payment and on the evidence of Mr. Samant it is clear that the directors had not made up their minds nor did they know their minds as to whether the call should be paid in one sum or by instalments. Therefore, the directors never resolved that this call should be paid by instalments.Engineer advanced the proposition which seems to us rather startling that there is nothing in law to prevent the directors from delegating to a manager the power to make a call and according to him the directors could leave it to the manager to decide whether a call should be made at all, when it should be made and what the amount of the call should be.When one remembers that the power to make a call is in the nature of a trust and it is to be exercised in the interests of the company, it is rather difficult to accept the proposition that such an important power which is vested in the directors could be delegated by them to any one and could be exercised by anyArt. 125(3) also, which deals with setting up of a local management outside the place where the head office is situated, the power is given to the directors to delegate to any person appointed as a local manager any of the powers, authorities and discretions for the time being vested in the directors. But when we turn to Art. 130 obviously the intention was to confer upon the directors the right of delegation which was much narrower in its extent than the one referred to in Art. 115 or Art.the normal canon of construction either of a statute or of articles of association is that when different expressions are used they are intended to connote something different, and the draftsman of these articles had Art. 115 and Art. 125(3) before him and having used words of the widest import when he comes to Art. 130 he uses an expression of a narrower application; clearly the intention must be not to refer to every authority and every discretion exercisable by the directors under the articles.It would indeed be a serious view to take that under Art. 130 the directors could leave it to the manager to exercise the discretion or exercise the authority which the articles require they should exercise, and nothing is more patent than this that the contract between the company and the shareholders which is embodied in the articles requires that the directors must exercise their discretion and decide whether a call should be made at all and the amount of the call and the time when the call should be made. We refuse to countenance the contention that such a power could be delegated by the directors to the manager or to any one else. But really in a sense this argument is academic.We only noticed it because it was strenuously urged before us, because as we have already pointed out, even Mr. Engineer concedes that even though there may be a power of delegation under Art. 130 of the widest character when we look at Art. 18 and read it with Art. 19, a call can only be made by a resolution of the directors, and there fore as far as the making of the call is concerned that is a power or a discretion or an authority I which cannot be delegated to the manager or to any onethe resolution ofis very difficult to understand. One thing is clear that the directors could not make up their minds as to whether the call should be paid in one sum or by instalments and the time of the payment of instalments.In view of this position, we fail to understand how it could be seriously urged that by this resolution the directors fixed the time when the payment of the call should bewill accept the evidence of Mr. Samantthere is no reason why we should not, but even accepting that evidence it is impossible to take the view that the board of directors onaccepted the basis of that notice and concurred with the view of the manager which seemed to have been given expression to in the draft notice that the call should be made by instalments and the time when the instalments should be paid.If that had been the position, there was no reason whythe resolution ofshould have proclaimed to the world the disagreement among the directors, nor was it necessary to resolve that the draft notice should be finalised in consultation with the companys solicitors. If the basis of the draft notice was accepted, nothing was simpler than to pass a resolution approving of the draft. But that was not done precisely because the draft was not approved.13. There is further confusion caused by this resolution because it does not state who is to finalise the notice. Mr. Samant does suggest that he was given to understand that he had to go to the solicitors and get the notice finalised. But the expression "finalised" can only refer to the form and not to the substance. This part of the resolution does not seem to have left it to the manager to decide the substance of the notice or to resolve the conflict which was present among the directors as to whether the call should be paid in one amount or by instalments.Therefore, if only the finalising in the sense of settling the proper form was left to the manager, then it is clear that the resolution expected the notice to come back to the directors for their imprimatur. The most curious feature of this case is that at no time did the directors ever express their approval to the substance contained in the notice, substance of the most vital importance, substance with regard to the payment of the call by instalments, substance with regard to the time at which Chose instalments were to be paid. Nor does this resolution clearly authorise the manager to issue the notice after it wasagree with Mr. Engineer that when a notice issued by an officer of a company purports to have been issued by order of the board of directors, there is a presumption that it was issued pursuant to such an order, and unless the presumption is displaced the Court must act on that presumption. But what we are dealing with here is the resolution which is before us and which speaks for itself.We are not concerned with any authority that the directors might have given to the manager independently of this resolution. It was therefore not a formal matter for the directors to decide that the notice should be issued. Having failed to agree on a substantial question, having directed the manager, assuming it was the manager, to finalise the notice in consultation with the Companys solicitors, it was essential that the board of directors, after the notice was finalised, should direct the manager to issue the notice.Therefore, in this case this is not a mere technicality but something which goes to the root of the matter because it shows clearly that the directors never applied their minds to the question of the call being payable by instalments or the time when the instalments should be paid.Therefore, in our opinion, on the terms of this resolution, even assuming it was open to the directors to delegate to the manager the fixing of the time and the decision with regard to instalments, there is no clear delegation established on the terms of this resolution. If the power of delegation is to be exercises, it must be clearly exercised. If the directors do not wish to do what the articles require them to do and leave the doing of it to some one else, they must clearly resolve to that effect.We see nothing inthe resolution ofto indicate that the directors, assuming they had the power of delegation, delegated to the manager not only the finalising of the notice in the sense of seeing that it was in proper form, but the substance of the matter that he was to decide whether the call was payable by instalments and the time when the instalments were to be paid.Therefore, the notice issued by the manager was without authority. Therefore, even on this narrow ground apart from the more important ground that we have considered, there was no authority in the manager, no authority given to him by the directors, to Issue a notice calling upon the share holders to pay the call by instalments and the time when those instalments should be paid.Desai has rightly drawn our attention to the articles, which require calls payable by instalments to be paid at the due date of every instalment and he has also pointed out that not only is there a liability upon the shareholder to pay the instalment on the due date, but the consequence of not paying the instalment on the due date is the liability to have his shares forfeited.Therefore, whatever the decisions on which Mr. Engineer relies lay downand those decisions would only be true with reference to the particular articles thereon the articles that we have before us it is clear that there is a liability upon the shareholder to pay the first instalment on the due date and that liability could have been enforced by the companyand therefore Mr. Desai is right that one months notice was not given to pay the first instalment and to that extent the notice failed to carry out the mandate given bythe resolution ofare two answers given by Mr. Engineer to this contention. One is that even assuming the notice with regard to the first instalment is insufficient, there is no answer with regard to the notice to the second, third and fourth instalments which are all made payable more than one month after the notice, and Mr. Engineer also relied on certain English cases for the purpose of contending that a notice which is irregular does not invalidate the call.We should have thought on first principle that a requirement with regard to a notice being a concession given to the shareholder by the articles, that concession may be waived, but if it is not waived the requirement of the notice must be strictly complied with, and as no plea has been made here of a waiver of the notice by the shareholder, it is difficult to understand how if the notice is bad the Court could uphold the claim for the call. But in our opinion, it is unnecessary to decide the rather interesting question raised by counsel at the Bar.16. Some faint suggestion was also made by Mr. Engineer that the doctrine of ratification would come into play in this case and the doctrine of ratification is relied upon by reason of a resolution to which we have not yet referred, which was passed by the board of directors onand that resolution considered the notice issued by the manager on the 7th/9th July 1948 and resolved to adopt and ratify the said notice in the manner, mode and time of recovering the said unpaid balance of Rs. 40/on each B Class share.Therefore, this was the first time, onthat the directors in their wisdom considered the notice which had been issued as far back as the 7th/9th July 1948. It will be noticed that what has been ratified is the notice and the manner, mode and time of recovering the unpaid balance of Rs.The resolution does not even purport to ratify the resolution making the call onand the subsequent resolution ofis difficult to understand how, if the resolution making the call was invalid, it could be subsequently rendered valid by anything that the directors might do onThe basis of the call and the basis of the liability of the defendant is the two resolutions of the 3rd March andIf those resolutions are invalid, they cannot be rendered valid bythe resolution ofis not a case where a valid resolution has been passed by some one lacking the necessary authority. In that case the persons with the requisite authority may adopt the resolution validly passed and thereby ratify it. But where the objection to the resolution is not the wanting of authority i but illegality in the very making of it, in the very passing of it, then it is impossible to accept Mr. Engineers contention that the doctrine of ratification can validate a resolution which when it was passed was invalid.