Facts of the Case
Mr. ‘P’, while he was still a minor, applied for and got his name registered as a shareholder in a company. The company accepted his application and entered his name in the register of members. After attaining the age of majority, Mr. ‘P’ continued to remain on the register and received dividends declared by the company without raising any objection. Subsequently, the company went into liquidation. When calls were made on shareholders to contribute towards the liabilities of the company, Mr. ‘P’ denied his liability on the ground that he was a minor at the time of becoming a shareholder and hence the contract was void and Minor Shareholder Liability.
Issues in the Case
- Whether a minor can be a valid shareholder under Indian law.
- Whether acceptance of dividends after attaining majority amounts to ratification.
- Whether Mr. ‘P’ can deny liability during liquidation proceedings.
- Whether the doctrine of estoppel applies against Mr. ‘P’.
Legal Principles Covered to Support Case Proceeding and Judgements
Under Indian Contract Law, as laid down in Mohori Bibee v. Dharmodas Ghose (1903), a contract with a minor is void ab initio. A minor is incompetent to contract under Section 11 of the Indian Contract Act, 1872.
However, under Company Law, a distinction is made between registration of shares and contractual liability. A minor can hold shares only through a guardian, but cannot be personally liable for calls during minority.
If after attaining majority, the minor accepts dividends, remains silent, and does not repudiate membership, it is considered an implied affirmation of membership. The principle of ratification by conduct applies, even though direct ratification of a void contract is not permitted. Courts have consistently held that continuing as a shareholder after majority creates fresh obligations.
Relevant case law:
- Palaniappa Mudaliar v. Official Liquidator
- Hansraj Gupta v. Asthana & Co.
These cases establish that post-majority conduct determines liability.
Possible Judgement
The court is likely to hold that Mr. ‘P’ is liable as a contributory. By accepting dividends after attaining majority and failing to repudiate his membership, he has knowingly affirmed his status as a shareholder. His conduct amounts to implied acceptance of obligations attached to the shares. Therefore, he cannot deny liability during liquidation proceedings.
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