1. ' This is an application by Petitioner Syed Hassan Idris Mirza under section 38 of the Companies Act, seeking the following reliefs
(a) that the Register of Member of Messers K. F. Development Corporation Limited he rectified and the name of the Petitioner Syed Hassan Idris Mirza be entered in the Register of Member of the Company.
(b) To direct the respondent No, 1 to issue 100 shares to the petitioner which has been deliberately delayed and or avoided to be issued to the petitioner, on account of no fault of the petitioner.
(c) Any other relief deemed fit and proper.
(d) Costs.
2. ' The brief facts of the case are that, on 9-3-1978, the petitioner, along with respondents Farooq A.G.
3. Khan (respondent No, 2) Azhar All (respondent No, 3) and Salim Ahmad (respondent No, 4) formed a Company in the name of K. F. Development Corporation (respondent No, 1). The petitioner and respondents 2, 3 and 4 signed the Memorandum and the Articles of Association as directoRs, In paragraph 42 of the Articles of Association, the qualifying share of a director of the said Company was fixed at hundred shares of Rs, 100 each, and the said paragraph also provided that the qualifying share shall be obtained by the directors within a period allowed by subsection (I) of section 85 of the Companies Act, which reads as follows :- "(1) 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."
4. ' Needless to say, the period for obtaining the qualifying shares was fixed at two months by paragraph 42 of the Articles of Association.
5. ' It is the case of the petitioner that respondents 2, 3 and 4 had not held any meeting of the directors of the Company and had not got any share certificates printed, and had made no call on the petitioner for obtaining the qualifying shares, and these respondents had excluded the petitioner from the working and affairs of the company. The case of the petitioner then is that, on 31-12-1979, he wrote a letter to the Company in the following terms :- "In the capacity of one of the First Directors of K. F. Development Corporation Ltd., as indicated in Article 50 of its Articles of Association, I have repeatedly asked you to issue me one hundred (100) shares of Rs, 100 each of the said firm. Since these shares have not been issued to me so far I am writing you this letter to request the same.
6. ' Enclosed is cheque No, SRSD 437480 dated 31st December, 1979 drawh on Habib Bank Ltd. In the amount of Rs, 10,000 (Rs, Ten thousand only) to cover the value of 100 shares. I will appreciate it if the said shares are now issued to me without any further delay.''
7. ' A cheque of Rs, 10,000 was also enclosed alongwith the letter. The above letter was replied to by the Company in the terms that the petitioner had failed to acquire the qualifying shares, and therefore, he was neither a director nor a member of the Company under the law. By this letter, the petitioner was asked to wait till the next meeting of the Board of Directors for fresh issue of shares, and, if the Board directed the issuance of shares to the petitioner he was to be informed accordingly. The respondents have placed a photostat copy of a document purporting to be the minutes of the meeting of the Board of Directors held on 10-9-1978, which incorporates the following resolutions of the Board of Directors :- "Resolved that Mr. Saiyed Hassan Idris Mirza be and is hereby removed from the Board of Directors of the Company for not acquiring qualification shares pursuant to clause 42 of the Articles of Association of the Company read with section 85 of the Companies Act, 1913."
8. "Resolved further that the vacancy caused due to disqualification of Mr. Saiyed Hassan Idris Mirza shall not be filled in by the Company for the time being."
9. ' It seems the name of the petitioner had been removed from the register, and the present application also seeks the relief that the name of the petitioner may be re-entered on the register.
10. ' In regard to the petitioner continuing to be a director of the Company, the position is regulated by subsection (1) of section 85 of the Companies Act, and also by paragraph 42 of the Articles of Association. In fact, paragraph 42 makes a reference to section 85 of the Companies Act in regard to the limit of time within which a director had to obtain qualifying shares. Such time is two months and is fixed by the statute. Such time can neither be extended by the Court nor even by a resolution of the Board of Directors of the Company. However, it is the case of the petitioner that the respondents/directors have conducted the affairs of the Company in such a manner that he was disabled from purchasing the qualifying shares. To that extent, the petitioner has produced no document but has only made some allegations, in the memo. Of the application submitted in this Court. It is not necessary to repeat these allegations, because the same have been stated in the opening paragraph of this order. The only document that the petitioner has placed on the record is his letter, dated 31-12-1979 (reproduced above), but even this letter does not show that the petitioner had, at any time, offered to purchase the qualifying shares. It was, in fact easy for the petitioner to have tendered the price of the shares in which case, perhaps, the boot would have been on the other leg, but, in the present circumstances there is nothing to indicate that the petitioner had, by conduct of the respondents, been disabled from obtaining the qualifying shares.
11. On the other hand, the respondents have set up a case that the petitioner is an American National, who was not interested in being a director of this Company, because initially he was not sure, whether the Company would be able to carry on profitable business. It is further averred by the respondents that, now since the petitioner has found that the respondent/company was carrying on lucrative business he wanted to take share in the fruit of the labour and hard work put in by the respondents. Be that as it may, I am in no doubt whatsoever that the shares have not been purchased, compliance has not been made with section 85 of the Companies Act and paragraph 42 of the Articles of Association, nor has the petitioner been disabled from obtaining qualifying shares by the conduct of the respondents. The second prayer of the petitioner, therefore, fails on these grounds.
12. ' The next question is, whether the petitioner continues to be a member of the Company. Under section 30 of the Companies Act, the word "member" is defined. The said provision reads as follows :- "(1) The subscribers of the Memorandum of a Company shall be deemed to have agreed to become members of the Company,and on its registration shall be entered members in its register of membeRs,
(2) Every other person who agrees to, become a member of a Company, and whose name is entered in its register of members, shall be a member of the Company ?"
13. On a plain reading of the above provision, it would appear that, by a legal presumption, and not by a mere fiction a person, subscribing to the Memorandum of the company shall be deemed to have agreed to become " a member of the Company, so that, on registration, his name shall be inserted in the register, and on such insertion, he shall be a member of the Company. There are no two versions in the case that the petitioner did sign the Memorandum of the Company. The sole question that arises is, whether the default, which has resulted in the petitioner ceasing to be a director, also operates to the petitioner ceasing to be a member of the Company. As stated above, the disqualification has been incurred by the petitioner on account of non-compliance with paragraph 42 of the Articles of Association and section 85 (1) of the Companies Act. Subsection (2) of section 85 of the said Act again states the consequences that flow from a director failing to obtain qualifying shares. This provision reads as follows "(2) If, after the expiration of the said period or shcrter time, any unqualified person acts as a director of the Company, he shall be liable to a fine not exceeding fifty rupees. For every day between the expiration of the said period or shorter time and the last day on which it is proved that he acted as a director."
14. ' It would appear, on a plain reading of this provision, that if a director fails to obtain qualification shares within the period stipulated by subsection (1) of section 85, he shall be deemed to be a person not qualified to act as director of the Company, and, if in spite of such disqualification, he acts as director of the Company, he shall be liable to pay a fine. It would thus seem that section 85 deals not only with the director failing to .Obtain qualification, but also provides for the consequences that will follow if such an unqualified person acts, or, purports to .Act as a director.Such unqualified director is completely debarred from acting as a director of the Company. (Underlining is mine). This provision, in no manner. Provides that such a director, who has not obtained qualifying shares, shall also be disqualified from being a member of the Company. A conjoint reading of section 30 and section 85 leads to no other conclusion, except this that a director failing to obtain the qualification B shares shall cease to be a director and be disabled from acting as a director, but he shall continue to be a member of the Company.
15. ' On the above point, in regard to the director continuing to be a member, it would be profitable to make a reference to two judgments of the erstwhile Sind Chief Court. The first judgment was delivered by a learned Single Judge in the case of Naraindas Lahoredas, and is reported in (1). The learned Single Judge was considering the question, whether a person, who has signed the Memorandum of Association becomes a member of the Company and can be saddled with liability, even though he may not have obtained the shares. The learned Single Judge made reference to a wealth of case-law on the subject, and arrived at the following conclusion :- "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 agree to take from the company the number of shares placed opposite his signature unless all its share
(1) AIR 1934 Sind 39 * [Here in italics] ' 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."
16. ' In another case from the same Chief Court the learned Single Judge had based his decision in regard to the liability of the members on the same principle as has been reproduced above. The matter went by way of an appeal before a Division Bench of the said Chief Court, and, in that case, Vazirmal Kewalram and others v. Makran Coast Steam Navigation Co. Ltd. (1), the Division Bench, while dismissing the appeal, approved the principle that had been propounded. It would thus appear that a person by signing the Memorandum of Association becomes the member of the Company, and, therefore, whether shares are allotted to him, or not, and whether he is being treated as a member or not would, not relieve the c person, so signing the Memorandum, from his liability as a contributory continues, and, therefore, if he is to be saddled with responsibility, and liability, it is only reasonable to assume that he shall also have the right to remain a member.
17. ' This application is partly allowed, and a direction is issued that the register be rectified, so that the name of the petitioner is entered as a member of the Company. The relief in regard to direction being given to the respondents to issue shares to the petitioner is not granted. Since success is divided, the parties are left to bear their own costs.
(1) AIR 1938 Sind 187