Sec.270 and sec.274(1)(e) intention of law
This query is : Resolved
16 April 2013
sir,
the intention of 270 is that a knowledgeable person who doesn't have money can become director in the ltd co.co can not bound the person to take high value shares to become director.
but in sec 274(1)(e) disq.if the same person could not pay call money till 6 months after the due date he is disqualified.
i think law has a different intention in the later section.
why?
the intention of 270 is that a knowledgeable person who doesn't have money can become director in the ltd co.co can not bound the person to take high value shares to become director.
but in sec 274(1)(e) disq.if the same person could not pay call money till 6 months after the due date he is disqualified.
i think law has a different intention in the later section.
why?
17 April 2013
There is no problem with intention of law. Actually you have completely misunderstood the intention behind section 270.
Section 270 is all about qualification shares. The concept of qualification shares was introduced to compel new directors to take shares in the company so that their monetary interest created in the company as shareholder of the company. The reason behind creating this monetary interest was to put director under compulsion to work honestly and genuinely in favour of the company. However slowly this section lost its relevance and nowadays very less company carry this clause in their articles.
Section 270 is all about qualification shares. The concept of qualification shares was introduced to compel new directors to take shares in the company so that their monetary interest created in the company as shareholder of the company. The reason behind creating this monetary interest was to put director under compulsion to work honestly and genuinely in favour of the company. However slowly this section lost its relevance and nowadays very less company carry this clause in their articles.
24 April 2013
Respected Sir,
I am not satisfied with your answer.
I am not satisfied with your answer.
23 July 2025
Your query pertains to the **intention of the law** under **Section 270** and **Section 274(1)(e)** of the **Companies Act, 1956** (now mostly superseded by the **Companies Act, 2013**). The query involves a comparison between the **eligibility of a director** and **disqualification** provisions in these two sections.
### Let's break down the **provisions** and the **intention** behind them:
---
### **Section 270 (Eligibility of a Director)**
* **Section 270** (under the old **Companies Act, 1956**) was about the **eligibility of a person** to be appointed as a **director of a company**. It stated that a person who is **knowledgeable** (having the requisite skills, experience, or qualifications) could be appointed as a director, **even if they did not possess financial capacity** (like not having to buy expensive shares to become a director).
* **Intention**: The law's **intention** here is to allow a person who has **knowledge, skills, or experience** to contribute to the company’s growth, regardless of whether they are financially strong. **The emphasis is on expertise and competence** rather than financial ability. This supports the idea that a **director's value should not only be measured by their ability to contribute capital** but also by their knowledge and decision-making capabilities.
---
### **Section 274(1)(e) (Disqualification of Directors)**
* **Section 274(1)(e)** (under the **Companies Act, 1956**) deals with the **disqualification** of directors. It states that a director can be disqualified if they fail to pay **call money** on shares that they have subscribed to, within **6 months** after the due date.
* **Intention**: The law's **intention** here is to prevent **directors from evading their financial commitments** to the company. If a director does not fulfill their **financial obligations** (such as paying for shares they subscribed to), this may signal that they are not serious or committed to the company, hence they should be disqualified from continuing as a director.
---
### **Difference in Intentions Between Section 270 and Section 274(1)(e)**
1. **Eligibility vs Disqualification**:
* **Section 270** allows a person to be a **director** based on **their qualifications and expertise**, even if they don't have immediate financial resources. It is aimed at enhancing the quality of decision-making in companies.
* **Section 274(1)(e)**, however, deals with a **director's financial responsibility** towards the company. It emphasizes that if a director **fails to fulfill their financial duties** (such as paying the due call money on shares), they should be disqualified because it shows a lack of commitment to the company.
2. **Purpose**:
* The **purpose of Section 270** is to allow skilled individuals to **serve as directors** even if they lack the financial means to invest large amounts in the company’s shares.
* The **purpose of Section 274(1)(e)** is to **ensure financial discipline** among directors. A director’s failure to pay call money **undermines their seriousness and financial commitment** to the company, which is why disqualification is imposed.
---
### **Why the Different Intentions?**
* The difference in intentions stems from the **nature of the two sections**:
* **Section 270** is designed to **encourage diversity** in the skillset and expertise of directors. It allows individuals who can contribute to the company in non-financial ways to become part of the company’s governance.
* **Section 274(1)(e)** is focused on **ensuring that directors fulfill their financial responsibilities**. A director who subscribes to shares and fails to pay the call money for more than 6 months after the due date may **damage the financial integrity** of the company. The law ensures that such directors are **disqualified to protect the company’s interests**.
---
### **Summary of the Differences**:
| **Section** | **Purpose/Intention** | **Why the Difference?** |
| --------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- |
| **Section 270** | To allow a **qualified person** (based on knowledge/skills) to be a director without the financial burden of paying for shares. | Focuses on **skills, expertise, and competence** rather than financial resources. |
| **Section 274(1)(e)** | To ensure **financial responsibility** by requiring directors to pay their **call money**. Failure to do so results in **disqualification**. | Emphasizes **commitment** and **financial responsibility** to the company. |
---
### **Conclusion**
* The **intention behind Section 270** is to allow individuals with **expertise** to contribute as directors without being restricted by financial capacity. It ensures **diversity in governance** and that directors are chosen for their **skills**.
* On the other hand, **Section 274(1)(e)** ensures that **directors are financially responsible**, and if they fail to honor their financial commitments (like paying call money), they are disqualified to **protect the company’s interests**.
These two provisions serve **different purposes**, and that's why the law has different intentions for each section.
---
I hope this helps clarify the different **intentions of the law** in these two sections! Let me know if you need further elaboration or assistance with any other queries.
### Let's break down the **provisions** and the **intention** behind them:
---
### **Section 270 (Eligibility of a Director)**
* **Section 270** (under the old **Companies Act, 1956**) was about the **eligibility of a person** to be appointed as a **director of a company**. It stated that a person who is **knowledgeable** (having the requisite skills, experience, or qualifications) could be appointed as a director, **even if they did not possess financial capacity** (like not having to buy expensive shares to become a director).
* **Intention**: The law's **intention** here is to allow a person who has **knowledge, skills, or experience** to contribute to the company’s growth, regardless of whether they are financially strong. **The emphasis is on expertise and competence** rather than financial ability. This supports the idea that a **director's value should not only be measured by their ability to contribute capital** but also by their knowledge and decision-making capabilities.
---
### **Section 274(1)(e) (Disqualification of Directors)**
* **Section 274(1)(e)** (under the **Companies Act, 1956**) deals with the **disqualification** of directors. It states that a director can be disqualified if they fail to pay **call money** on shares that they have subscribed to, within **6 months** after the due date.
* **Intention**: The law's **intention** here is to prevent **directors from evading their financial commitments** to the company. If a director does not fulfill their **financial obligations** (such as paying for shares they subscribed to), this may signal that they are not serious or committed to the company, hence they should be disqualified from continuing as a director.
---
### **Difference in Intentions Between Section 270 and Section 274(1)(e)**
1. **Eligibility vs Disqualification**:
* **Section 270** allows a person to be a **director** based on **their qualifications and expertise**, even if they don't have immediate financial resources. It is aimed at enhancing the quality of decision-making in companies.
* **Section 274(1)(e)**, however, deals with a **director's financial responsibility** towards the company. It emphasizes that if a director **fails to fulfill their financial duties** (such as paying the due call money on shares), they should be disqualified because it shows a lack of commitment to the company.
2. **Purpose**:
* The **purpose of Section 270** is to allow skilled individuals to **serve as directors** even if they lack the financial means to invest large amounts in the company’s shares.
* The **purpose of Section 274(1)(e)** is to **ensure financial discipline** among directors. A director’s failure to pay call money **undermines their seriousness and financial commitment** to the company, which is why disqualification is imposed.
---
### **Why the Different Intentions?**
* The difference in intentions stems from the **nature of the two sections**:
* **Section 270** is designed to **encourage diversity** in the skillset and expertise of directors. It allows individuals who can contribute to the company in non-financial ways to become part of the company’s governance.
* **Section 274(1)(e)** is focused on **ensuring that directors fulfill their financial responsibilities**. A director who subscribes to shares and fails to pay the call money for more than 6 months after the due date may **damage the financial integrity** of the company. The law ensures that such directors are **disqualified to protect the company’s interests**.
---
### **Summary of the Differences**:
| **Section** | **Purpose/Intention** | **Why the Difference?** |
| --------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- |
| **Section 270** | To allow a **qualified person** (based on knowledge/skills) to be a director without the financial burden of paying for shares. | Focuses on **skills, expertise, and competence** rather than financial resources. |
| **Section 274(1)(e)** | To ensure **financial responsibility** by requiring directors to pay their **call money**. Failure to do so results in **disqualification**. | Emphasizes **commitment** and **financial responsibility** to the company. |
---
### **Conclusion**
* The **intention behind Section 270** is to allow individuals with **expertise** to contribute as directors without being restricted by financial capacity. It ensures **diversity in governance** and that directors are chosen for their **skills**.
* On the other hand, **Section 274(1)(e)** ensures that **directors are financially responsible**, and if they fail to honor their financial commitments (like paying call money), they are disqualified to **protect the company’s interests**.
These two provisions serve **different purposes**, and that's why the law has different intentions for each section.
---
I hope this helps clarify the different **intentions of the law** in these two sections! Let me know if you need further elaboration or assistance with any other queries.
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