The Imperial Ice Manufacturing … vs Munchershaw Barjorji Wadia on 3 May, 1889

Bombay High Court
The Imperial Ice Manufacturing … vs Munchershaw Barjorji Wadia on 3 May, 1889
Equivalent citations: (1889) ILR 13 Bom 415
Author: Scott
Bench: C Sargent, Scott


Scott, J.

1. This is a Reference from the Chief Judge of the Small Cause Court, arising out of a suit to recover Rs. 1,085-6 as the amount of two unpaid calls said to be due from the defendant as the registered holder of ten shares in the capital of the plaintiffs’ company. It appears that the defendant in February 1886, signed duplicates of the documents subsequently registered as the memorandum and articles of association when the company was registered in December of the same year. By the duplicate of the memorandum of the association which he signed, he “agreed” to take the number of shares (ten) set opposite his name. He never cancelled that agreement. On the authority of the The Guzerat Spinning and Weaving Company v. Girdharlal Dalpatram I.L.R. Bom. 425 it was admitted that the defendant’s signature to such a document did not constitute him a member of the company under the former part of Section 45 of the Indian Companies Act. But it was argued that the defendant’s agreement with the promoters became on the registration of the company a proposal to the company to take shares which the company accepted by allotment. The only authority cited in favour of this view of the case was a remark made by the Court in the The Imperial Hour Mills Company, Limited v. W.T. Lamb I.L.R. Bom. 627, which was not necessary to the decision, and was only to the effect that, even if such an agreement with the promoters could become equivalent to application to the company, it had been withdrawn before acceptance by allotment. However, a consideration of the authorities hi re Empress Engineering Co. L.R. 16 Ch. Div. 125; Melhado v. Porto Alegre Railway Co. L.R. 9 C.P. 503; Kelner v. Baxter L.R. 2 C.P. 174; Scott v. Lord Ebury L.R. 2 C.P. 255 shows that such a view of the case is inconsistent with the principle there laid down, and which may be stated in the following terms: “There cannot be an effective ratification of a contract by a person or a company not in existence at the time such contract was made.” In the present case there was only a contract with the promoters. It has been decided that a promoter is not an agent for a company before its formation – Lydney and Wigpool Iron Ore Co. v. Bird L.R.33 Ch Div. 85 at p. 91, and this contract did not, therefore, bind the company and could not be held to be made on their behalf. Nor could it be ratified by the company, as the company was not in existence when it was made. I do not think the principle is altered by calling it an application. Whatever it was, whether contract of offer to take shares, it was addressed to the promoters, and not to the company, and the company could not subsequently adopt it, as they were not in existence when it was made, and it was not renewed when the company was established. It was argued that, although ratification was not possible under English law, the Specific Belief Act [Section 23, Clause (h), and Section 27, Clause (e) made it admissable. But these sections were not intended to apply to contracts to take shares, but only to contracts for the working purposes of the company such as would be, in the present case, a contract for the supply of machinery for making ice. They only crystallize the English law as to cases where the company has taken the benefit of a contract but refuses to carry it into full effect: see cases collected in Fry on Specific Performance (2nd ed.), Part II, c. 5, and specially pl. 228 and 229. Moreover, if these Sections of the Specific Belief Act had been made to cover contracts regarding shares with promoters, Section 45 of the Companies Act, which is a more recent enactment, could not have been framed in its present language. As the Section stands, it could not be taken to include a contract made with the promoters. The addition of the wards “with a company” in the Act of 1882 shows clearly that such contracts were not within the intention of the Legislature, nor are they within the plain meaning of the words. We are of opinion, therefore, that the view taken by the Judge as to the effect of the defendant’s agreement in February, 1886, is correct, and that he rightly disposed of the case by his order dismissing the suit with costs. The plaintiff must pay the costs of this reference.

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