5 Essential Requisites of Valid Call on Shares (Indian Companies Act, 1956)

1. Resolution at board’s meeting:

A call must be made under a resolution of the board of directors. The resolution must be passed by a competent board of directors, at a properly called and convened board’s meeting. In order to prevent trifling irregularities from invalidating a call, the articles usually contain a clause that some defect in the appointment or qualifications of the directors, will not render the call invalid. If such a clause exists in the articles, call made by the directors will be valid even if some of them may be subsequently found to be disqualified.

2. In accordance with the Articles:

A call must be made in accordance with the provisions of the Articles of Association of the company. If the articles are silent, Table A would apply which has the following rules regarding the making of calls:

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(i) The Board may, from time to time, make calls upon the members in respect of any moneys unpaid on their shares.

(ii) No call shall exceed one-fourth of the nominal value of the share.

(iii) No call shall be payable at least less than one month from the date fixed for the payment of the last preceding call.

(iv) Each member shall, subject to receiving at least 14 days’ notice specifying the time and place of payment shall pay the amount called on his shares.

(v) A call may be revoked or postponed at the discretion of the Board.

3. The amount, place and time of payment:

The resolution must state the amount, time and the place of payment. If this is not done, the resolution is defective and the call made thereon shall be invalid.

4. Bona fide and in the interest of the company:

The power to make calls is in the nature of a trust and must be exercised bona fide by the directors for the benefit of the company. If the call is made by the directors for their own personal advantage, the call shall be taken to have been improperly made. Shareholders, in such a case, can either prevent its enforcement by an injunction of the court, or compel the directors, by an order of the court, to hand over the benefit received by them to the company.

5. Uniformly:

As per section 91, calls on shares must be made on a uniform basis, on all shares falling under the same class. Hence, a call cannot be made on some members only unless they constitute a separate class. If the directors make a call on the shareholders and pay nothing on their own shares in respect of such call, they are guilty of breach of trust.

If a call is invalidly made, a shareholder is not bound to pay it. He can restrain the directors by injunction from forfeiting his shares for the non-payment of such a call or defend an action brought against him by the directors to recover such call.

The joint holders of a share are jointly and severally liable to pay calls. Articles usually provide for charging from shareholders interest on calls in arrears. According to Article 16 of Table A, the rate of interest shall be 5% p.a. or such lower rate as the Board may determine.

Money payable on allotment is not deemed to be a call but the articles may provide that the provisions relating to payment of calls will also apply to such cases.