Page 154 - DCOM106_COMPANY_LAW

Unit 10: Management of Company

However, the mere acting as a director does not import any agreement to take the shares from Notes
the company; but, if in such circumstances he is put on the register by the officers of the company
after the time limit for qualifying has expired (i.e. 2 months after his appointment) and he
continues to act as a director, he is estopped by his conduct from repudiating the shares and will
be liable to pay for them.
The appointment of a director commences from the date on which the result of poll taken to elect
is announced, and the two months are calculated from that date, and not the one on which the
poll was actually taken.
It may be noted that:
The qualification shares can be held by a director even as a trustee, if that fact does not
appear on the register of members, and if the company can deal with the shares as his own.
Also, shares held jointly with any other person is sufficient share qualification. It was held
in Grundy v. Briggs [1910]1 Ch. 444, that unless articles provide otherwise, shares in joint
names entitles any of the joint holders to be appointed as a director. But not more than one
joint holder can be appointed.
The mortgaging of shares does not disqualify a person to be appointed as a director,
unless the articles provide otherwise.

A person who holds requisite qualification shares at the time of his appointment, a
subsequent increase in the amount of share qualification cannot be made applicable to
him [International Cable Co. Re, (1892) 66 LT 253].
Where a director acts without acquiring his qualification shares after the expiry of two months
from the date of his appointment, the company will be bound to third parties for acts of such a
director until the defect in appointment or disqualification is disclosed, and acts done by him
after the disclosure by the company will not bind it. Thus a de facto director is as good a director
as a de jure director so far as persons having no notice of the defect are concerned (s. 290).
As the provisions of s. 270 and s. 272 do not apply to a private company (s. 273), it may or may
not provide in its articles any requirement of share qualification. The articles may thus provide
for share qualification and the amount may be more than 5000.
Further, a private company which is not a subsidiary of a public company may, by its articles,
provide additional qualifications for a director, such as, a person must be a B. Com., or holding
a fixed deposit receipt in his own name issued by the company.

Section 274 has laid down certain disqualifications and therefore, the following persons are
incapable of being appointed directors of any company:
1. A person found by a court to be of unsound mind;

2. An un-discharged insolvent;
3. A person who has applied to be adjudged an insolvent;
4. A person who has been convicted by a court for an offence involving moral turpitude and
sentenced in respect thereof to imprisonment for not less than six months and a period of
five years has not elapsed from the date of the expiry of the sentence;
5. A person who has failed to pay calls on shares held by him whether alone or jointly with
others for six months from the date fixed for the payment;
6. A person who has been disqualified by court under s. 203 which empowers the court to
restrain fraudulent persons from managing companies, unless the leave of the court has
been obtained for his appointment;

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