12.8.4 (Who may Become a Member)

Subject to the provisions of law, the Memorandum and the Articles, any person sui juris can become a member of a company. The position of certain person in this regard is given below.

            (a) Minor. The position of a minor as a member of a company is summarised as under:

            (i) As a minor is wholly incompetent to enter into a contract [Mohir Bibi v.Dharmodas Ghose, (1903) 30 Cal. 539 (P.C)], an agreement by a minor to  take shares is void and hence, he cannot be a member of a company.

            (ii) If shares are allotted to a minor in response to his application and his name  entered on the Register of members, in ignorance of the fact of minority, the  company can repudiate the allotment and remove his name from the register on coming to know of the minority of the member. The company must repay all money received from him respect of the allotted shares.

            (iii) The minor can also repudiate the allotment during his minority and he shall be returned the amount he paid towards the allotment of shares.

            (iv) If the name of the minor continues on the register of members and neither   party repudiates the allotment, the minor does not incur any liability on the  shares during minority and he cannot be held a contributory at the time of winding up [Fazalbhoy Jaffar v.The Credit Bank of India (I914) 39 Bcom 331].

            (v) If an application for shares is made by a father as guardian of his minor  child and the company registers the shares in the name of the child describing   him as a minor, neither the minor nor the guardian can be placed on the list of  contributories at the time of winding up [Pahaniappa v. Official Liquidator,           Pasupati Bank Ltd., 1942 Mad 470 and 875].

            (vi) If somehow the name of a minor appears on a 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 grounds of minority. The company cannot take defence on the principle of estoppel that  the minor had fraudulently misrepresented 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.

            (vii) In case of transfer of a partly-paid shares to a minor, the company may refuse to register him as a member. In case, the company, in ignorance of the  minority, has permitted the transfer, then the company may remove the name  of the minor and replace it by that of transferor, even though the latter may            have been ignorant of the minority.

            (viii) In case of fully paid shares, minor's name may be admitted in the register of members, if he happens to acquire the same by way of transfer or  transmission. In Deavn Singh v. Minerva Films Ltd. (AIR 1956 Punjab 106),   the Punjab High Court held that there is no legal bar to a minor becoming a             member of a company by acquiring shares (by way of transfer) provided the shares are fully paid-up and no further obligation or liability is attached to  them. Similarly, in S.L Bagree v. Britania Industries Ltd. (1980), Company   Law Board upheld transfer in favour of a minor.

   (b) Company. A company, being an artificial person and a separate legal entity may become a member of another company, if it is so authorised by its memorandum to purchase shares. This is, however, subject to the provisions of s.42. Under this section, a subsidiary company cannot be member of its holding company and any allotment or transfer of shares in a holding company to its subsidiary, or even to a nominee for such subsidiary, is void, except that a subsidiary company may:

            (i) hold shares in the holding company in the capacity of a personal                                     representative of a deceased shareholder, or

            (ii) hold such shares as trustees, (except where the holding company or  another subsidiary is beneficially interested under the trust otherwise than merely by way of the holding company's business), or

            (iii) remain a member of its holding company, if it was a member before April 1, 1956, but may not vote at meetings of a holding company or any class of its members.

As has been mentioned earlier, a company cannot purchase its own shares (s.77) and, therefore, cannot become a member of itself. However, a company may acquire a beneficial interest in its own shares, as by the exercise of its paramount lien on the shares of a member as security for moneys owning by him to the company, or by forfeiture of shares for non-payment of calls.

            (c) A partnership firm: A partnership firm being an unincorporated association and therefore, not having a separate legal entity from the Partners, cannot be registered as a member in the register of members of a company. However, partners, either individually or in their joint names (as joint members) may hold shares in a company as a part of the partnership property. But a partnership firm may become a member of a company registered under s.25 of the Companies Act, 1956 (i.e., associations not for profit).

            (d) A foreigner. As per the Law of Contract, a foreigner can enter into contracts and therefore, can purchase shares in a company but this is subject to the provisions of Foreign Exchange Management Act, 1999 (FEMA).

When the country, of which the foreigner is resident, is at war with India, then the foreigner becomes an alien enemy and therefore, his power of voting at company meetings and his right to receive notices are suspended during the war-period.