Contributories:

In a winding up, the term ,‟contributory” means a past or present member. Strictly, it means every person liable to contribute to the assets of a company in the event of its being wound up, and includes holders of shares which are fully paid up and for the purposes of all proceedings for determining, and all proceedings prior to the final determination of the persons who are to be deemed contributories . The term „contributory‟ includes any person alleged to be contributory (Section 428).

If a member is once placed on the list of contributories, he is liable to the extent of original shares that remain unpaid, unless he proves that he should not have been placed on the list.

For instance, some applicants consented to become shareholders of a company on the condition that their suggestions should be included in the memorandum and articles of association. Their suggestions, however, were not carried out by the promoters but the applicants signed usual applications for shares which were allotted to them and thereby became shareholders of the company. It was held that it was not open to them to object subsequently to their being shareholders of the company on the ground that the condition had not been fulfilled (East Bengal Sugar Mills Ltd., In re. (1941) 11 Comp. Cas 169).

Liability of contributories as present and past members (Section 426): When a company goes into liquidation, every member, whether past or present, has to contribute to the assets of the company. However, a past member will not be required to contribute in the following circumstances:

(a) If he had ceased to be a member for a period of one year or upwards before the commencement of winding up;

(b) If the debt or liability of the company was contracted or incurred after he ceased to be a member;

(c) If the present members are able to satisfy the contributions required to be made by them under the Act.

There is, however, a limitation on the amount the members may be required to contribute. In the case of a company limited by shares, any past or present member is not required to contribute in excess of the amount, if any, unpaid on the shares in respect of which he is liable as such member.

In the case of a company limited by guarantee, a past or present member is not required to contribute an amount which is in excess of the amount undertaken to be contributed by him to the assets of the company in the event of its being wound up. In the case of a company limited by guarantee but having a share capital, every member (present or past) of the company is liable, in addition to the guaranteed amount, to contribute to the extent of any sum unpaid on any shares held by him as if the company were a company limited by shares.

When any provisions are contained in a policy of insurance or other contract whereby the liability of individual members on the policy or contract is restricted whereby the funds of the company and alone made payable, the liability of the contributory will be subject to such a provision. Dividends, profits or other sums due to a past or present member, must not be treated as debts due from the company payable to that member for setting off the rights of members as against creditors claiming otherwise than in the character of past or present members. But such sums shall be taken in to account for finally adjusting the rights of the contributories per se [Section 426(f) and (g)]. According to Section 426 (g), any debt due to a past member in respect of unclaimed dividends cannot be admitted to rank in competition with the debts due to ordinary creditors [Re. Consolidated Goldfields of New Zealand Ltd. (1953) Ch. 689.]

The liability of a member to be included in the list of contributories is not ex contra ctu but ex lege. This is borne out by Section 426. It provides that the liability of a contributory shall create a debt accruing due from him at the time when his liability commenced, but payable at the time specified in the calls made on him by liquidator. In other words, the liability of a contributory though commencing at the date when he entered into the contract with the company under which he became a member, is only contingent upon the company being wound up, in as much as it is, until a call is made, nothing more than a mere liability to contribute, if necessary, to the assets of the company for payment of the debts due to its creditors and expenses of the winding up. Thus, the liability of a contributory arises ex lege and not ex contractu. The effect of this provision is to give to the liquidator a new cause of action which a company itself might not have. For instance, if the claim of a company for the realisation of any call from a member is barred by limitation, such member becomes liable to pay all that has remained unpaid on his shares including the unpaid calls when the company goes into liquidation [In re East Bengal Sugar Mills Ltd. Supra]. This statutory liability of the contributory is a new liability which arises after the winding-up of a company has started. Therefore, it is no answer to a liquidator‟s claim against any person whose name appears on the register of members that there was an agreement with the directors to exclude this statutory liability [Hansraj Gupta vs. Asthana (1932) P.C. 240].

A director or manager-whether past or present- whose liability under the provisions of the Act is unlimited shall, apart from his liability to contribute as an ordinary member, be liable to make a further contribution as if he were a member of an unlimited company. No further contribution is required of him.

(a) if he has ceased to hold office for a year or more before the commencement of the winding-up;

(b) if the debt was one which the company had contracted after he had ceased to hold office;

(c) subject to the articles, the director or manager shall not be liable to contribute so as to satisfy his debt or liability of the company and the costs, charges and expenses of the winding- up unless the Court deems it necessary (Section 427).

Contributories in case of death or insolvency of member or winding- up of a body corporate which is a member: In the case of death of a member, his legal representative will be liable as contributories whether the death took place before or after his name had been placed on the list of contributories. The assignees of insolvent members are liable as contributories subject to their power of disclaimer. When a body corporate which is a contributory is in the process of a winding-up, it will be represented by its liquidator in regard to its own liability, and the liquidator shall be a contributory subject, however, to his power of disclaimer (Sections 430, 431 and 432).