12. ‘A’ had subscribed memorandum of a company for 100 shares. The company was duly registered but ultimately he took only 10 shares. The company was wound up what is the extent of ‘A’s liability. Explain.

Facts of the Case

‘A’ subscribed to the memorandum of a company for 100 shares at the time of its registration. The company was duly incorporated under the Companies Act, 2013. However, ‘A’ ultimately took only 10 shares instead of the full subscription. Subsequently, the company was wound up. The issue arises regarding the extent of ‘A’s liability for the shares he initially subscribed to but did not fully acquire.

Issues in the Case

1. Whether ‘A’ is liable to pay for the remaining 90 shares not taken by him.
2. Determination of liability under Indian company law provisions, particularly the Companies Act.
3. Whether the liability is limited to the shares actually taken or extends to the shares originally subscribed.

Legal Principles

1. Section 43 of the Companies Act, 2013 – A subscriber to the memorandum is liable to the extent of shares agreed to be taken.
2. Doctrine of Limited Liability – Liability is limited to the nominal value of the shares subscribed and only for the shares actually taken.
3. Case Reference – In T. R. Pratt vs. Secretary of State, the courts held that a subscriber’s liability is limited to the number of shares actually taken unless there is a contractual obligation to take the full subscription.
4. The winding up of the company does not create additional liability beyond the subscribed shares.

Possible Judgement

The court is likely to hold that:

• ‘A’ is liable only for the 10 shares actually taken.
• The remaining 90 shares, though initially subscribed, do not attract liability as the subscription was not completed.
• Therefore, extent of liability = 10 shares only.

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