Section 49 of The Companies Act 2013 – Uniform Calls on Shares

Section 49 of The Companies Act, 2013 reads as –

Calls on shares of same class to be made on uniform basis.

 Where any calls for further share capital are made on the shares of a class, such calls shall be made on a uniform basis on all shares falling under that class.

Explanation.—For the purposes of this section, shares of the same nominal value on which different amounts have been paid-up shall not be deemed to fall under the same class.

In the realm of corporate governance, the equitable treatment of shareholders is paramount. A critical aspect of this equity is encapsulated in Section 49 of the Companies Act, 2013, which mandates that any calls for additional share capital must be made uniformly across all shares of the same class. This provision ensures that all shareholders within a particular class are treated equally, thereby upholding the principles of fairness and transparency in corporate operations.

A ‘call’ on shares refers to a company’s demand for payment of any remaining unpaid amount on shares that have been issued but not fully paid for by shareholders. Companies often issue shares with the provision that a portion of the share price will be paid upfront, while the remaining amount can be called upon as needed. This mechanism allows companies to manage their capital requirements effectively, drawing funds from shareholders in stages rather than in a lump sum.

Uniformity in Calls: The Essence of Section 49

Section 49 stipulates that when a company makes a call for additional capital on shares of a particular class, such calls must be made on a uniform basis for all shares within that class. This means that every shareholder holding shares of the same class is required to pay the same amount per share when a call is made. The objective is to prevent any discrimination among shareholders and to ensure that all are subject to the same terms and conditions concerning their financial obligations to the company.

Explanation: Shares of the Same Class

The explanation to Section 49 clarifies that for the purposes of this section, shares of the same nominal value on which different amounts have been paid-up shall not be deemed to fall under the same class. This implies that even if shares have the same nominal value, they are considered different classes if the paid-up amounts differ. Consequently, calls must be made uniformly within each class of shares, ensuring that shareholders with similar investment stakes are treated equally.

Judicial Interpretations and Case Laws

The judiciary has played a significant role in interpreting the provisions related to calls on shares, reinforcing the principles of fairness and uniformity. Several landmark cases have elucidated the application of these principles:

1. Re, Cawley & Co. (1889) 42 Ch D 209 (Ch): This case highlighted the importance of dating a call. An undated call was deemed ineffective unless a date was assigned through a subsequent resolution, emphasizing procedural compliance in making calls.
2. Dawson v African Consolidated Land and Trading Co. (1898) 1 Ch 6 (CA): The court upheld the validity of a call made with the board’s authority, even when one participating director was disqualified due to lack of qualification shares. This case underscored that minor irregularities do not necessarily invalidate a call, provided the decision is made in good faith.
3. Shiromani Sugar Mills Ltd. v Debi Prasad (1950) 20 Com Cases 296 (All): The court affirmed that a member is liable to pay the full nominal value of their shares, and any unpaid amount constitutes a debt to the company. This reinforces the obligation of shareholders to fulfill their financial commitments as per the terms of their shareholding.

Procedural Requirements for Making Calls

To ensure the validity and enforceability of calls on shares, companies must adhere to specific procedural requirements:

A duly convened meeting of the Board of Directors is essential to approve the call, during which a resolution must be passed specifying the amount to be called on each share, the draft call letter, the timeline for payment, and any other relevant details. Once approved, shareholders must be notified of the call, including the amount due per share, the due date, and the consequences of non-payment. Proper communication ensures transparency and allows shareholders to fulfill their obligations promptly. Additionally, as mandated by Section 49, the call must be applied uniformly to all shares within the same class, ensuring fairness and preventing any preferential treatment or discrimination among shareholders.

Consequences of Non-Compliance

Failure to comply with the procedural requirements or the principles of uniformity can render a call invalid. An invalid call is unenforceable, and shareholders are not obligated to pay the amount demanded. Moreover, shareholders can seek legal remedies, such as injunctions, to prevent the enforcement of invalid calls. However, courts may require shareholders to deposit the disputed amount pending resolution to ensure that the company’s interests are not adversely affected during the dispute.

Implications for Shareholders and Companies

For shareholders, understanding the provisions of Section 49 is crucial to ensure that they are treated fairly and are aware of their financial obligations. It empowers them to challenge any discriminatory or procedurally flawed calls, safeguarding their rights and investments.

For companies, adherence to Section 49 ensures compliance with legal standards, promotes trust among shareholders, and maintains the integrity of corporate governance practices. Uniform calls prevent disputes and potential litigation, allowing companies to manage their capital requirements efficiently and maintain shareholder confidence.

Conclusion on Section 49

Section 49 of the Companies Act, 2013, serves as a cornerstone in ensuring equitable treatment of shareholders concerning calls on shares. By mandating uniformity in calls within the same class of shares, it upholds the principles of fairness and transparency in corporate financial practices. Both companies and shareholders must be cognizant of these provisions to ensure compliance, protect their rights, and foster a trustworthy corporate environment.

Understanding and adhering to the requirements of Section 49 not only ensures legal compliance but also strengthens the foundation of corporate governance, benefiting the company and its shareholders alike.

Bibliography

• Ramaiya, Guide to the Companies Act (19th ed. 2020)
• T Ramappa, Commentary on the Companies Act, 2013 as Amended by the Companies (Amendment) Act, 2015
• Section 49, The Companies Act, 2013
• Re, Cawley & Co. (1889) 42 Ch D 209 (Ch)
• Dawson v African Consolidated Land and Trading Co. (1898) 1 Ch 6 (CA)
• Shiromani Sugar Mills Ltd. v Debi Prasad (1950) 20 Com Cases 296 (All)

This article is presented by CA B K Goyal & Co LLP Chartered Accountants, your trusted partner in audit and compliance solutions. For expert assistance, feel free to contact us.