Meaning of “call on shares”
The term call refers to “an order or demand for payment”. A demand made by a company, under the terms of its articles of incorporation or the terms of the issuance of the share, asking its shareholders to pay up the entire or partial nominal value of their shares is a call on shares.
A share’s nominal or face value is often paid in two instalments: once upon application for shares and once upon allotment. The corporation calls the remaining amount as and when the Board of directors deems it appropriate. Ordinarily, a part of a share’s nominal or face value is payable on the application for shares and a part on the allotment. The company calls up the remaining balance as and when its Board of directors considers it fit. Depending on the amount of funding needed to complete the project, the company issuing the shares may demand payment on a periodic basis. Shareholders may also choose to pay the nominal value of their shares in instalments as and when the firm requests it. The directors’ ability to make a call is a fiduciary power that must be used for the best of the company.
Calls on shares are often covered by provisions in the Articles of the Company. The amount that a Company should demand as call money at a particular time is up to the Board of Directors of the Company and is not regulated by the Companies Act. The Act does not provide any upper or lower limit on the amount. If the articles specify, no call may be for more than what is specified there. In Johnson v. Lyttles Iron Agency, it was held that every procedure outlined in the articles must be strictly followed when making a decision about the shareholders. Additionally, it was held in the case of Re Bengal Electric Lamp Works Ltd. that if any of the requirements of the Articles are not met, the forfeiture of shares for the non-payment of calls will be invalid and ultra vires.
Legislative History of Section 49
Section 91 of the Companies Act of 1956 was the predecessor to Section 49 of the Companies Act of 2013. It has been reproduced in the exact words in the Companies Act 2013. It aims to state clearly that any demands for additional share capital made on shares of a class must be made uniformly on all shares belonging to that class.
It was previously recommended in the Company Law Committee’s Report, and as a result, it was added to the 1956 Act and retained in the 2013 Act. The Joint Committee suggested adding an explanation to clarify that shares, even though they have the same nominal value, will belong to separate classes if the amounts paid up on the shares are different.
Calls on Shares of same class to be made on uniform basis
Section 49 of the Companies Act, 2013 reads,
“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.”
As used in this Section, “same class” refers to shares with the same nominal value and the same amount that has been paid up. A call for additional share capital must be made in a consistent manner on all of the shares belonging to that same class. Therefore, a company is not allowed to make distinctions or show favouritism regarding the amount or time of call payments among shareholders belonging to the same class. This has been upheld in the case of Major Teja Singh v. Liquidator.
If the amount paid up on the shares differs, shares with the same nominal value will belong to different classes. As a result, shares with the same nominal value and the same amount of paid-up capital will be regarded as belonging to the same class of shares. A company is no longer allowed to treat shareholders differently in terms of the amount and timing of calls for payments.
A penalty for violating the guidelines outlined in Section 49 is not expressly specified in this Section. As a result, the provisions of section 450 of the 2013 Act will apply in the event of a default. The company and every officer who is in default will be subject to punishment with a fine that may reach Rs. 10,000, as well as a further fine that might also reach Rs. 1000 for each additional day the contravention persists.
Provisions related to Section 49.
In addition to Section 49, the checklist in Section 91, the Regulations 13 to 18 of Table F (as applicable to a company limited by shares) of Schedule I of the 2013 Act, and Regulations 48, 99, 144 of Provisions of the SEBI (LODR) Regulations, 2015, are to be read together.
As per Section 91 of the Companies Act 2013, it needs to be checked (a) if any calls on shares were made during the year, (b) if so, whether they were made on a uniform basis, and (c) whether the procedures as laid down by the Act and the Articles of the company were followed or not. The various documents that are required are: (a) Register of Calls, if any, and (b) Minutes of Board Meeting.
Calls on shares under the 2013 Act [Regulations 13 to 18 in Table F of Schedule I]
The following lines provide the summary of the relevant regulations in Table F:
The Board may, from time to time, issue calls to the members for any sums due on their shares that are not covered by the conditions of allotment that require payment at specific intervals (whether for the nominal value of the shares or premium). But a call cannot exceed “one-fourth of the nominal value of the share” nor is payable at less than a month from the date of fixture of payment of the last preceding call. Nevertheless, the Board may revoke or postpone a call at its discretion. All calls related to a share must be paid by the joint holders jointly and severally.
Further, suppose a sum called in relation to a share is not paid before or on the day designated for payment thereof. In that case, the person from whom the sum is due shall pay interest on the unpaid balance from the day designated for payment thereof to the time of actual payment at a rate of ten percent annually or, if lower, at such rate as the Board may determine, which may be waived, partly or wholly, at the discretion of the Board.
Additionally, for the purposes of these regulations, any amount, pursuant to the terms of the issue of a share, that becomes due and payable on allotment or at any fixed date, whether on account of the nominal value of the share or by way of premium, shall be deemed to be a call duly made and becomes due and payable on that date when such amount becomes due and payable.
Furthermore, the whole or part of the monies uncalled and unpaid on any shares held by the Board may be received by the Board, if it deems it appropriate, from any member willing to advance the monies.
Provisions of the SEBI (LODR) Regulations, 2015 [Regulations 48, 89, 144]
The Regulations provide the following with respect to the call of shares.
(a) Maximum time: The entire subscription must be called within 12 months of the date of allotment in the issue.
(b) Forfeiture: Equity shares with outstanding calls on them will be forfeited if the call money is not paid within a year.
(c) Monitoring agency: The requirement for calling up the subscription amount within 12 months shall not apply when a monitoring agency has been appointed for an issue.
As seen throughout this article, a company needs to follow the directions as provided under various provisions of the Companies Act. Every procedure has to be duly followed to avoid long legal battles. Moreover, shares being such an important source of capital for a Company, there should not be laxity on the part of the Board of directors, and every decision should be made in accordance with the rules and procedures of the Articles of the Company.
- Companies Act, 2013.
- Companies Act, 1956.
- SEBI (LODR) Regulations, 2015.
- Company Law, by CR Datta
- A Guide to the Companies Act, by A Ramaiya
- Company Secretarial Practice Manual, by KR Chandratre.
- Johnson v. Lyttles Iron Agency, (1877) 5 Ch. D. 687.
- Re Bengal Electric Lamp Works Ltd., AIR 1942 Cal 516.
- Major Teja Singh v. Liquidator, (1961) 31 COMP CASES 573 (Punj.).
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