Making call on shares: legal considerations and provisions

Devesh Pandey (Company Secretary Head Corporate Division)   (183 Points)

05 August 2011  

 


(Relevant Sections: 69, 91, 92(2) and 292(1) (a) of the companies act, 1956)

Ø  The procedure for making call on shares should not  contravene the provisions of Section 69, Section  91, Section 92 (2), Section 292 (1) (a) of The  Companies Act, 1956, SEBI Guidelines for Issue of Capital and Disclosure Requirements, Provisions of Table A in Schedule I of the Companies Act, 1956 and Listing Agreement with the Stock exchange(s).

Ø  Call means a demand by a company under the terms of its articles or terms of issue of shares, requiring the members to pay up fully or in part the unpaid amount of their shares.

Ø  Ordinarily, a part of the nominal value of a share is payable at the time of making the application for  shares and a part on allotment and the remaining  dues could be called up by the company at any point of time by way of making calls for the remaining unpaid part.

Ø  Every step pointed out by the Articles or the terms of the issue should be strictly followed in making a call on the shareholders.

Ø  A company can calls up the balance remaining as and when it’s Board of directors considers it fit. The power of making a call vested in the directors is a fiduciary power to be exercised for the benefit of the company. [Re Cawley & Co. (1889) 42 Ch D 209 (CA)].

Ø  Convene a Board Meeting to pass the resolution calling upon the members to pay the unpaid part of their share capital within certain time period.

Application

Ø  The Companies Act nowhere provides for the amount which a company can demand as call money at a time, and thus provisions of Articles of Association of the company must be followed, and if they are silent the provisions contained in Table A, article 13, should be followed which provides that no call shall exceed one-fourth of the nominal value of the share.

Ø  The amount payable on application on each share shall not be less than 5% of the nominal amount of such share, and it applies both to the first as well as any subsequent public issue.

Ø  In the case of shares issued by a listed company, make sure that call money is according to the limit, if any, stipulated in the SEBI Issue of Capital and Disclosure Requirement

Ø  Calls must be made on a uniform basis on all shares falling under the same class, otherwise it will be void. But shares of the same nominal value on which different amounts have been paid-up shall not be deemed to be of the same class for the aforesaid purpose.

Ø  It is not proper to make full amount of the calls on some members only and not on others, merely because they are dilatory in the payment of previous calls. [Galloway v. Halle Concerts Society (1915) 2 Ch 233].

Ø  In the Board meeting the resolution must be passed taking into account the following details:-
a. The number of shares held by each member;
b. The call money payable on each share and the total amount payable;
c. The date and place of payment;
d. The manner of payment;
e. Interest on delayed payment; and
f. Consequences of failure to the call money, i.e., forfeiture of shares.
Ø  Send the Call Notice to every member who is liable to pay call money specifying the above details, well in advance and strictly in accordance with the provisions of the Articles in all respects.

Ø  In the case of a listed company, get the format of the Call Notice approved from the Regional Stock Exchange and make arrangements for collection of the call money at select branches of the company's bankers and at all places where recognized Stock Exchanges are located. [Listing Agreement]

Ø  In case of Joint shareholding call notice will be sent to the first-named joint holder but since every joint shareholder is a member of the company, all of them are jointly and severally liable to pay the call money.

Filing and Fees

Follow Up
Ø  Reminders should be sent to the shareholders who have not paid call money in response to the first notice, making sure that it inter alia states the:-
a. Interest payable on the delayed payment of the call money; and
b. A warning about forfeiture of the shares for nonpayment of call money.
Ø  Forfeiture of shares for non-payment of calls will be invalid and ultra vires if any of the requirements of the articles is not satisfied or the call has been made in contravention of any provisions of the Companies Act, 1956. [In Re Bengal Electric Lamp Works Ltd. (1942) 12 Comp Cas 238 (Cal); AIR 1942 Cal 516].

Ø  Make entries in the in the Register of Members in respect of call money received, and make necessary endorsement on the share certificates received from the members which must be initialed/signed by the Company Secretary or other authorized officer and duly stamped.

Ø  Particulars in respect of amount called up and unpaid call must be disclosed in the Balance Sheet as required by Schedule VI.

Miscellaneous

Ø  If the Articles of a company so authorize, the company may accept from any member the whole or a part of the amount remaining unpaid on any shares held by him, although it has not been called up, however no voting rights will accrue on such shares.