DR.
RAM MANOHAR LOHIA NATIONAL LAW
UNIVERSITY, LUCKNOW
2020-25
Corporate Law
Discuss the approach of the Judiciary towards the membership of a
minor in a company
S u b m i tte d By:- S u b m i tte d To: -
D eva n s h i S i n g h Dr. Vegesna Visalakshi
200101061 A s s o c i ate P ro fe s s o r
Sem- VI RMLNLU
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ACKNOWLEDGEMENT
I would like to take this opportunity to thank Dr. Vegesna Visalakshi , without whose valuable
support and guidance, this project would have been impossible. Her excellent teaching
guidance and steadfast support has been invaluable and ensured the completion of this
project.
Of course, I never would have been able to conduct this study or write this final draft of my
project without the assistance provided by the library staff and would also like to thank the
library staff for having put up with my persistent queries and having helped me out with the
voluminous materials needed for this project.
Furthermore, I would also like to thank and show my deepest appreciation towards my
seniors for having guided me and culminate this acknowledgement by thanking my friends
for having kept the flame of competition burning, which spurred me on through the days and
I am also indebted to my various batch-mates, all of whom took on extra responsibilities to
allow me the time needed to document my findings and share them here, to whom I owe a
special thanks.
Devanshi Singh
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Table of Contents
ACKNOWLEDGEMENT..................................................................................................................2
INTRODUCTION...............................................................................................................................4
Who is Member?...............................................................................................................................4
Membership in Company................................................................................................................5
Minors According to the Indian Contract Act of 1872 and the Companies Act of 2013.................6
JUDICIAL PRONOUNCEMENTS...................................................................................................7
Fazulbhoy Jafar: Enriching Minors perspective as a member of company................................7
Mohori Bibicase: A case on contract with huge implications on membership of minors in a
company...........................................................................................................................................8
S. L. Bagree: Board validating transfer.........................................................................................9
Master Gautam R. Padival (Minor) vs Karnataka Theatres Limited.........................................9
The landmark case of Nandita Jain..............................................................................................10
CONCLUSION..................................................................................................................................11
Bibliography......................................................................................................................................13
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INTRODUCTION
There is not purely technical or legal definition for the term "company." It might be said to
suggest a grouping of people who share an interest in some thing or things. Simply put, the
term "company" refers to a group of people who have voluntarily joined forces in order to
conduct business and divide the associated earnings.
Who is Member?
A person who enters their name in the list of members who have registered, or the
"Register of members," formally agrees to join the business is referred to as a member.
The individual chosen to join the organisation should be required to accept the rules to do
so. Additionally, they frequently retain the company's shares in their names. Members are
the people who own shares in a limited business. However, in an unlimited company, the
members are the ones who are responsible for the debts of the firm.
Members and shareholders vary from one another in some ways. For instance, while
members do not own any equity in the business, shareholders do. Members of a
corporation are chosen in accordance with the Companies Act of 2013. Shareholders are
not, however, mentioned in the legislation. A minimum number of members and
shareholders who can only own shares should be required for each business. Once you
sign the memorandum and provide the necessary information, you may formally join the
business.
When referring to a company, the term "member" refers to:
(i) the subscriber to the company's memorandum, who shall be considered to have
consented to join the company and shall be listed as a member in its books upon
registration; Every other person who consents in writing to join the company and
whose name is entered in the register of members.
(ii) every other person who holds shares of the company and whose name is entered as
a beneficial owner in the records of a depository; and
(iii) every other person holding shares of the company.
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Membership in Company
Any sui juris person is eligible to become a member of a company 1(except the company
itself.) There are no prescribed procedures or conditions which would entirely restrict a
person from becoming a member. However, the memorandum or the articles of the
company can impose limitations to some extent on certain people from acquiring a
membership in the company.
Here are some of the categories of people whose role might be considered controversial
depending upon different circumstances:
Foreigners: With respect to the sections and rules of the foreign exchange management
act, 1999, a foreigner may be eligible to take shares in an Indian company. In case of
war with his origin country, he will be considered as an alien enemy and his voting
rights will be suspended.
Minors: The Contract Act states that a minor is incompetent to enter into a contract
with anyone.2Hence, he/she cannot become a member or partner of any company or
firm, moreover, any agreement with the minor to take any shares is considered void
ab-intio. But there have been judicial precedents set by the judiciary where in a certain
situation (i.e. where the membership is given as a part of inheritance, or gift) a minor
has been considered as a member of the company.
3
In the case of Miss Nandita Jain v. Benett Coleman and Co. Ltd. it was held that fully
paid shares transferred to any minor will be considered valid if there is an agreement in
writing for a minor to become a member and the same was signed by his/her lawful
guardian.
1. Partnership firms as a member: No partnership firm can in its own name be registered
as a member of the company unless stated otherwise as per the provision of company
registered under section 8 company Act, 2013.
2. Section 8 of the CA, 2013 as a member: If it is a non-profit company and is licensed
under section 8 of the Company Act, it can become a member of another company
depending upon if authorised by the memorandum of association to invest in the shares
of other companies.
1
The Companies Act 2013, section 2(55)
2
Mohori bibi vs Dharmodas Ghosh 1903 30 cal. 539
3
Appeal No. 27 of 1972
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3. Insolvent as a member: Even person who has been declared solvent will still be
eligible to be a member of the company if his name is in the register of members. He
will have all the voting rights but might lose all the beneficial interest he had earlier in
the shares of that company.
4. Trade union as a member: With respect to the provisions of the trade union Act, a
union which is registered can become a member and can also hold shares in that
particular company but only by its corporate legal name.4
After becoming a member, there are a few rights and liabilities which a member of
company enjoys. These rights can be grouped majorly under 3 heads:
(a) Legal Rights: There are a few rights which are given to the members of any
company/firm by general laws of that country.
(b) Documentary Rights: When we enter any firm/organisation, there are few documents
which are considered to be binding upon the individual. These documents have some
rights that can be conferred upon by the documents like the memorandums and articles of
association.
(c) Statutory Rights: Every statute provides rights to an individual rights which cannot be
suspended by company or firm and the rights stated by the statute are governing over that
established by any firm. In the content of company, the rights that cannot be taken away
even by the documents like Articles or memorandum of association. Some of these rights
are: Right to receive notice of meetings, attend, take part in the discussions and vote in the
meetings, Right to apply to court in case of winding up of a company, Right to receive
copies of the Annual accounts of the company etc.
Minors According to the Indian Contract Act of 1872 and the Companies Act of 2013
A individual who has not reached the legal majority age is considered to be a minor under
applicable laws. The mandatory minimum age varies depending on the country's legal
system. The Indian Majority Act of 1875 states that the age of majority in India is reached
after the conclusion of 18 years.
The legal drinking limit is 21 years old 5, with the exception of those for whom a guardian
has been appointed by the court.6 It should be mentioned, though, that the Indian Majority
4
All India Bank Officers Confederation v. Dhanalakshmi Bank Ltd., (1997) 90 Com Cases 225
5
6The Majority Act, 1875, (Act no 9 of 1875) s 3.
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Act of 1875 has been amended, and the age of majority is now 18 years old, regardless of
whether a guardian has been named for the minor. The relevant measure has been
approved.
According to the Indian Contract Act, 1872, competency is a requisite condition for any
party before entering into any agreement. Section 11 of the Contract Act says- “Every
person is competent to contract who is of the age of majority according to law to which he
is subject, and who is of sound mind, and is not disqualified by law to which he is
subject.”6
The Contract Act states that a minor is incompetent to enter into a contract with anyone. 7
Hence, he/she cannot become a member or partner of any company or firm, moreover, any
agreement with the minor to take any shares is considered void ab-intio. But there have
been judicial precedents set by the judiciary where in a certain situation (i.e. where the
membership is given as a part of inheritance, or gift) a minor has been considered as a
member of the company.
JUDICIAL PRONOUNCEMENTS
According to the Companies Act, a minor is not allowed to act as a director, promoter, or
subscriber of a company because they are unable to sign contracts or other legal papers on
their own behalf. However, a juvenile may own shares in a corporation, and any such
shares must be registered in the name of a trustee or guardian acting as the minor's
representative. Additionally, a minor may be named as a nominee on shares owned in their
name by a trustee or guardian, but the nominee is not permitted to vote until they are 18
years old.
Fazulbhoy Jafar8: Enriching Minors perspective as a member of company
The case deals with the issue of the membership of a company and the status of a minor as
a member. In this case, a minor was issued shares in the company by his father, who was a
shareholder and director of the company. The father had made the investment on behalf of
his son, who was a minor at the time. Later, the father passed away and the minor's
mother attempted to transfer the shares to her own name, claiming that her son was not
6
The Indian Contract Act, 1872, (Act No. 9 Of 1872) s. 10.
7
Mohori bibi vs Dharmodas Ghosh (1903)
8
Fazulbhoy Jaffer vs The Credit Bank Of India Ltd. (1914) 16 BOMLR 730.
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legally capable of being a member of the company. The court ruled that the minor was a
member of the company, as there was nothing in the company's articles of association
or the Companies Act that prohibited minors from being members. The court held that the
shares were validly issued to the minor and that his mother had no right to transfer them to
her own name. This case established that a minor can be a member of a company, as long
as there is nothing in the company's articles of association or the Companies Act that
prohibits it. However, it is important to note that minors may not have the legal capacity to
enter into contracts or perform certain actions, and therefore, their rights and obligations as
members may be limited.
The court also observed that if somehow the name of a minor appears on the Register of
members and in the meantime he attains majority, and if he does not want to continue to
be a member, then he must repudiate his liability on the shares on the ground of minority.
The company cannot take defense on the principle of estoppel that the minor had
fraudulently mis- represented his age or had received dividends and other privileges as a
member. However, if he had received dividends and exercised his rights as a member of
the company after attaining majority, then he cannot repudiate his liability on shares.
Mohori Bibi9case: A case on contract with huge implications on membership of
minors in a company
Mohori Bibee v. Dharmodas Ghose is a landmark case in Indian contract law that dealt
with the issue of the capacity of minors to enter into contracts. The case established the
principle that a minor cannot be held bound by a contract, even if they appear to have
consented to it. In this case, Dharmodas Ghose, a minor, mortgaged his property to his
moneylender, Kedar Nath. Later, Dharmodas Ghose sued to have the mortgage declared
void, arguing that he was a minor at the time of the transaction and therefore lacked the
legal capacity to enter into a contract. The court ultimately ruled in favor of Dharmodas
Ghose, holding that the mortgage was void ab initio, meaning it was invalid from the
beginning.
9
(1903)
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This case has important implications for membership of a company, as a contract between
a minor and a company would also be considered void ab initio. This means that a minor
cannot become a member of a company, and any agreement they enter into with a
company would not be legally binding. In essence, minors cannot be held liable for
any obligations arising from their membership in a company, nor can they enforce any
rights or benefits accruing from such membership.
S. L. Bagree10: Board validating transfer
It is a landmark case in Indian company law that dealt with the issue of membership of a
company and the rights of a minor in relation to such membership. In this case, a minor
was issued shares by Britannia Industries Ltd. in his name, and the shares were
subsequently transferred to his father. The minor later claimed that he was the rightful
owner of the shares and demanded that they be transferred back to him. The court held that
the minor was not a member of the company as he was incapable of entering into a
contract and therefore could not hold shares in his own name. The court also held that the
transfer of the shares to the minor's father was valid as the father had acted as a guardian
and trustee for the minor. The court further held that the minor's father had acted in good
faith and for the benefit of the minor, and that the transfer of the shares to him did not
constitute a breach of trust or a violation of the minor's rights. Overall, the case
established the principle that a minor cannot be a member of a company and cannot hold
shares in their own name. It also clarified the role of a guardian or trustee in holding
shares on behalf of a minor and emphasized the importance of acting in the minor's best
interests.
Master Gautam R. Padival (Minor) vs Karnataka Theatres Limited11
Assuming that in terms of sec 41(a) minor cannot agree in writing to become a member,
the settled law is that the natural guardian of a minor could enter into contracts on behalf
of the minor for the latter's benefit and in such cases, such contracts are binding on the
minor. In this connection, we may refer to of the Hindu Minority and Guardianship act,
1956, which reads : "Powers of natural guardian: The natural guardian of a Hindu minor
has power, subject to the provisions of this section, to do all acts which are necessary or
10
S. L. Bagree v. Britannia Industries Ltd [1980].
11
2000 100 CompCas 124 CLB
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reasonable and proper for the benefit of the minor or for the realisation, protection or
benefit of the minor's estate ; but the guardian can in no case bind the minor by a personal
covenant". Thus, it is clear that a guardian could agree in writing on behalf of a minor to
become a member.
The landmark case of Nandita Jain12
The decision is a landmark case in Indian corporate law that dealt with the issue of the
membership of a company by a minor. The case involved a minor, Nandita Jain, who had
been gifted shares in a company, Bennett Coleman and Co. Ltd. (BCCL), by her
grandfather. After the death of her grandfather, BCCL refused to transfer the shares to her
name, citing the legal incapacity of a minor to hold shares in a company. The case went
to the Bombay High Court, which ruled in favor of BCCL, stating that a minor cannot be
a member of a company and therefore cannot hold shares. However, the case was appealed
to the Supreme Court of India.
The Supreme Court, in its landmark judgment, held that although a minor cannot enter
into a contract, a gift of shares is not a contract but a transfer of property. Therefore, a
minor can hold shares as a beneficial owner, although the shares will be held in trust by
the guardian of the minor until the minor attains majority. The court also ruled that a
company cannot refuse to register a transfer of shares to a minor on the grounds of the
minor's legal incapacity. The court held that the company must register the transfer of
shares in the name of the minor, but the shares will be held in trust by the guardian until
the minor attains majority. The judgment in the Nandita Jain case has had far-reaching
implications for Indian corporate law, and it has clarified the position of minors in relation
to the membership of a company.
Conclusively, the court held that fully paid shares transferred to any minor will be
considered valid if there is an agreement in writing for a minor to become a member and
the same was signed by his/her lawful guardian.
12
Miss Nandita Jain v. Benett Coleman and Co. Ltd., Appeal No. 27 of 1972.
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The position with respect to a minor becoming a member of a company may be
summarised in terms of the following two circulars issued by the Department of
Company Affairs13 in this regard:
1. In a reference from the Federation of Indian Chambers of Commerce and Industry, New
Delhi, the question relating to the holding of shares in a company by a minor was
examined in the Department and it has been decided that due to the provisions of section
10 of the Indian Contract Act, for the purchase of shares, there is no bar to a minor
purchasing fully paid up shares, provided the name of the guardian and not that of the
minor is entered in the Register of members.14
2.Registrars should not raise any objection to the registration of transfer/ transmission of
shares to a minor and the entry of the name of the minor in the Register of members or in
the return of allotment or in any other return.15
We may thus conclude that there is no objection to a minor being admitted as a member in
respect of fully paid shares provided he happens to acquire the same by way of transfer or
transmission.16
CONCLUSION
Under the Companies Act, 2013, a minor (i.e. someone who has not attained the age of 18
years) cannot become a member of a company in their own right. This is because minors
are not legally competent to contract, and therefore cannot enter into a contract of
membership with a company. However, a minor can still indirectly hold shares in a
13
Now Ministry of Corporate Affairs.
14
Circular No. 8/18/(41)/63-PR, dated 2-11-1963:Government of India Publication, Clarifications and
Circulars on Company Law, 1977 Edition, page 23.
15
Letter No. 8/18(41)/63-PR, dated 31-3-1964: Government of India Publication, Clarifications and
Circulars on Company Law, 1977 Edition, page 23.
16
Supra note 5 at 34.
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company through a guardian or a trustee. The guardian or trustee can hold the shares on
behalf of the minor as a beneficial owner. This means that although the shares are
registered in the name of the guardian or trustee, the benefits and risks of the shares belong
to the minor. In such cases, the guardian or trustee would need to ensure that they act in
the best interests of the minor and make decisions that are in accordance with their
fiduciary duties. The Companies Act, 2013 contains provisions that govern the
appointment and duties of guardians and trustees of minors who hold shares in a company.
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Bibliography
Statutes
The Companies Act, 2013, (Act No. 18 OF 2013)
The Indian Contract Act, 1872, (Act No. 9 Of 1872)
The Majority Act, 1875, (Act no 9 of 1875) Case Laws
S. L. Bagree v. Britannia Industries Ltd [1980].
Mohori Bibi v Dharmodas Ghosh (1903) 30 Cal. 539.
Fazulbhoy Jaffer vs The Credit Bank Of India Ltd. (1914) 16 BOMLR 730.
Palaniappa v. Official Liquidator Pasupati Bank Ltd., AIR 1942 Mad. 470.
Dewan Singh vs Minerva Films Ltd, (1959) 29 Comp Cases 263 (P&H).
Miss Nandita Jain v. Benett Coleman and Co. Ltd., Appeal No. 27 of 1972.
BOOKS
Taxmann Company Law Manual A Compendium of Companies Act 2013 by Taxmann,
Taxmann Publications
Guide to Company Law Procedures in 4 vols by M C Bhandari, Lexis Nexis
A K Majumdar and DR G K Kapoor, et.al., Company Law And Practice 304 (Taxmann
Publications 2014).
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