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Section 50: Company to accept unpaid share capital, although not called up

Companies Act • Official Statutory Text & Practice Guide

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Act 2013
Section 49 All 470 Sections of Companies Act Section 51
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Company Sec 2(20) Director Sec 2(34) Tribunal Sec 2(90)

Legal Commentary & Landmark Judgments: Section 50

Section 50 of the Companies Act, 2013 permits a company, if authorized by its articles, to accept unpaid share capital from members in advance of calls, while strictly prohibiting the exercise of voting rights on such uncalled advances until the capital becomes formally payable.

  • Statutory Authorization for Calls in Advance: A company may, if authorized by its articles of association, accept from any member the whole or a part of the amount remaining unpaid on any shares held by him, although no part of that amount has been called up by the Board.
  • Statutory Disenfranchisement of Advance Capital: A member paying share capital in advance of calls is statutorily disentitled from exercising any voting rights in respect of the moneys so paid until the same would, but for such payment, become presently payable under a formal call.
  • Character of Advance as Debt with Interest: Moneys paid in advance of calls partake of the character of a loan or debt due to the member; where authorized by the articles (such as Table F), the company may pay interest on advance calls (up to 12% p.a.), and such capital cannot be refunded to the member except upon winding up or lawful capital reduction.
Key Landmark Precedents:
  • Lock v. Queensland Investment and Land Mortgage Co., [1896] AC 461: The House of Lords held that interest on money paid in advance of calls may be lawfully paid out of capital if no profits are available, because advance calls represent a debt due from the company to the shareholder rather than ordinary paid-up capital.
  • In Re: European Central Railway Co. (Sykes' Case), (1872) LR 13 Eq 255: Held that directors cannot abuse the advance call provision by paying up their own uncalled liability in advance on the eve of insolvency to immediately siphon out those funds to pay their director fees or discharge personal liabilities.
  • V.V. Krishna Iyer v. Catholic Bank of India Ltd., AIR 1965 Ker 288: The Kerala High Court held that advance calls rank as unsecured debts in liquidation, entitling the shareholder to repayment with interest ahead of ordinary capital return to members, but carry zero voting rights prior to formal calls.
Courtroom Practice & Strategic Litigation Guidance:

In voting challenges at general meetings, audit the poll sheets to ensure that advance calls paid under Section 50 were excluded from the computation of voting rights. If a chairman counted votes attributed to calls in advance to push through a special resolution, challenge the resolution under Section 241 as illegal and ultra vires Section 50(2).

Section 49 All 470 Sections of Companies Act Section 51