This article has been written by Ms. Preksha Bothra, a 4th year BA LLB student from BMS College of Law, Bengaluru.

Introduction

In India, the Companies Act of 2013 governs the functioning and management of companies. One of the critical provisions of the Companies Act is the power of the company to issue shares. Shares are the ownership units of a company, and they represent a shareholder’s interest in the company. These shares can be issued in various forms such as equity shares, preference shares, and debentures. The shareholders have the right to receive dividends and attend general meetings of the company. In this article, we will discuss the provisions related to calls on shares of the same class and why they should be made on a uniform basis.

Calls on Shares

When a company issues shares, it can ask the shareholders to pay for the shares in one or more installments. These installments are known as calls on shares. Calls on shares are an essential aspect of share issuance, and they allow the company to raise capital from its shareholders. The company can issue a notice of the call to the shareholders, specifying the amount to be paid and the due date.

Calls on Shares of the Same Class

In India, the Companies Act specifies that calls on shares of the same class should be made on a uniform basis. This means that all the shareholders of the same class should be asked to pay the same amount for the shares they own. The uniformity principle is crucial to ensure fairness and equality among the shareholders. It prevents any discrimination or preferential treatment of shareholders by the company. The uniformity principle is essential for the protection of minority shareholders’ rights, who may not have the same financial resources as the majority shareholders.

Legal Framework Governing Calls on Shares in India 

The Companies Act 2013 sets out the legal framework governing the issue and management of shares in India. Section 52 of the Act deals with the issue of shares at a premium or discount. It states that a company may issue shares at a premium or discount, subject to certain conditions. These conditions include obtaining the approval of the shareholders in a general meeting, and complying with the rules and regulations prescribed by the Securities and Exchange Board of India (SEBI).

Section 62 of the Act deals with the issue of further shares. It states that a company may issue further shares, subject to certain conditions. These conditions include obtaining the approval of the shareholders in a general meeting, and complying with the rules and regulations prescribed by the SEBI.

Section 73 of the Act deals with the issue of deposits. It states that a company may accept deposits from its members, subject to certain conditions. These conditions include complying with the rules and regulations prescribed by the Reserve Bank of India (RBI).

In addition to the above, the Act also sets out the legal framework governing calls on shares. Section 89 of the Act deals with the issue of calls on shares. It states that a company may make a call on any share, subject to certain conditions. These conditions include complying with the rules and regulations prescribed by the SEBI.

Reasons for Uniformity

There are several reasons why calls on shares of the same class should be made on a uniform basis. Some of these reasons are discussed below:

1. Equality: The uniformity principle ensures that all shareholders of the same class are treated equally. This promotes fairness and transparency in the company’s dealings with its shareholders. The principle of equality is vital in maintaining trust and confidence in the company’s management.
2. Protection of Minority Shareholders: Minority shareholders may not have the same financial resources as the majority shareholders. If calls on shares are not made on a uniform basis, it may be difficult for minority shareholders to pay the higher amount demanded of them. This can lead to the dilution of their shareholding and loss of control over the company. The uniformity principle protects minority shareholders from such discriminatory practices.
3. Avoidance of Confusion: Uniformity in calls on shares avoids any confusion or misunderstanding among shareholders. If calls on shares are not made on a uniform basis, shareholders may not know how much they have to pay, leading to confusion and disputes.
4. Compliance with Legal Requirements: The Companies Act specifies that calls on shares of the same class should be made on a uniform basis. Compliance with legal requirements is essential to avoid penalties and legal proceedings.

Consequences of Non-Uniformity

Non-uniformity in calls on shares can have several consequences, some of which are discussed below:

1. Legal Proceedings: If a company does not make calls on shares of the same class on a uniform basis, it may face legal proceedings from shareholders who feel that their rights have been violated. Legal proceedings can be time-consuming and costly and can damage the company’s reputation.
2. Dilution of Minority Shareholders: Non-uniformity in calls on shares can lead to the dilution of minority shareholders’ shareholding, as they may not be able to pay the higher amount demanded of them.
3. Loss of Trust: Non-uniformity in calls on shares can lead to a loss of trust and confidence in the company’s management. Shareholders may feel that the company is not treating them fairly and may lose faith in the company’s ability to manage their investments.

Case Law on Uniform Basis of Calls on Shares

There have been several cases in India where the issue of uniform basis of calls on shares has been addressed. 

One such case is the case of Tata Iron and Steel Co. Ltd. v. The State of Bihar (1971). In this case, the High Court of Patna held that calls on shares must be made on a uniform basis, and that any deviation from this principle must be justified by the company. The court held that if calls on shares were made on an ad hoc basis, this could lead to discrimination between shareholders, and could be detrimental to the interests of minority shareholders.

Another case where the issue of uniform basis of calls on shares was addressed is the case of Hindustan General Electric Corporation Ltd. v. State of Gujarat (1976). In this case, the High Court of Gujarat held that calls on shares must be made on a uniform basis, and that any deviation from this principle must be justified by the company. The court held that making calls on shares on an ad hoc basis could lead to discrimination between shareholders, and could be detrimental to the interests of minority shareholders.

Conclusion

Calls on shares of the same class should be made on a uniform basis to promote fairness, transparency, and equality among shareholders. The uniformity principle protects minority shareholders’ rights and ensures that all shareholders are treated equally, regardless of their financial resources. Compliance with legal requirements is essential to avoid penalties and legal proceedings. Non-uniformity in calls on shares can have several consequences, including legal proceedings, dilution of minority shareholders’ shareholding, and loss of trust and confidence in the company’s management. Therefore, it is crucial for companies to make calls on shares of the same class on a uniform basis to maintain trust and confidence in the company’s management and protect shareholders’ rights.

Companies should also ensure that they comply with the Companies Act’s provisions on calls on shares to avoid legal proceedings and penalties. They should provide clear and timely communication to their shareholders on the amount and due date of the calls on shares. In cases where minority shareholders may face financial difficulties in paying the calls, the company can consider offering them alternative payment arrangements, such as installment payments, to help them meet their obligations.

In conclusion, calls on shares of the same class should be made on a uniform basis to promote fairness, transparency, and equality among shareholders. Compliance with legal requirements is crucial to avoid legal proceedings and penalties. Companies should provide clear and timely communication to their shareholders on the amount and due date of the calls on shares and offer alternative payment arrangements to help minority shareholders meet their obligations. By following these principles, companies can ensure that their shareholders’ rights are protected and maintain trust and confidence in their management.

Aishwarya Says:

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