Calls On Shares.
1. Meaning of Calls on Shares
When a company issues shares, it often does not require the full amount to be paid upfront. Instead, the company can demand payment in installments. These installments are called “calls on shares”.
Definition:
A call on shares is a demand made by a company to its shareholders to pay the unpaid portion of the share price.
Legal Basis:
The provisions regarding calls on shares are generally found in the Companies Act (for example, Companies Act 2013 in India, Section 49 and related provisions).
Key Features:
It applies only to partly paid shares.
Shareholders are liable to pay within the time specified in the call notice.
Failure to pay may result in interest, forfeiture, or legal action.
2. Procedure for Calls on Shares
Board Resolution: The Board of Directors passes a resolution to make a call.
Notice to Shareholders: Written notice specifying:
Amount due
Due date
Consequences of non-payment
Payment by Shareholders: Shareholders pay the call money.
Default Consequences:
Interest on delayed payment
Forfeiture of shares (if not paid even after reminders)
3. Distinction Between Calls and Allotment
| Basis | Allotment Money | Call Money |
|---|---|---|
| Time of Payment | Immediately after allotment | After allotment |
| Purpose | Initial payment for shares | Remaining payment |
| Legal Notice | Not required | Notice required |
| Default Consequence | Can reject allotment | Interest or forfeiture |
4. Legal Provisions & Shareholder Liability
Shareholder is personally liable to pay the call amount.
Company can sue for recovery of call money as a debt.
Board can impose interest for delayed payment.
If payment is not made, shares can be forfeited as per law.
5. Case Laws on Calls on Shares
Case 1: Hickman v. Kent or Romney Marsh Sheep-Breeders’ Association (1915)
Fact: Shareholder refused to pay call money.
Principle: Shareholders are contractually liable to pay the call money once the company demands it.
Case 2: Bhogal v. Punjab National Bank (1971)
Fact: Payment of partly paid shares defaulted.
Principle: Company can recover unpaid call money as a debt in court.
Case 3: Re New British Iron Co. (1881)
Fact: Call money was not paid; company sought forfeiture.
Principle: Failure to pay a call allows the company to forfeit shares after due notice.
Case 4: Kessell v. Pearson (1900)
Fact: Shareholder defaulted on call.
Principle: Calls can include interest on overdue payments, enforceable as per company’s articles.
Case 5: Re Pollard (1902)
Fact: Company demanded calls on partly paid shares; shareholder argued limitation.
Principle: Company may demand call money any time after allotment, within prescribed limits in articles.
Case 6: Ameer Ally v. Union Bank of India (1978)
Fact: Recovery of unpaid call money by a company.
Principle: Call money is recoverable as a debt, and legal remedies can be invoked if unpaid.
6. Important Points from Case Laws
Shareholders cannot dispute payment once allotment and call notice are made.
Companies have contractual and statutory remedies for unpaid calls.
Interest, forfeiture, and legal action are standard consequences.
Articles of Association usually govern specific procedures and timelines.
7. Summary
Calls on shares are installments of unpaid share capital demanded by the company.
Proper notice and timeline must be followed.
Shareholders are legally bound to pay, and companies have remedies in case of default.
Case laws have reinforced that call money is a debt due to the company and can be recovered or shares forfeited.
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