Can a company forfeit shares for non-payment of calls? If so, explain the procedure of share forfeiture.

Forfeiture of Shares for Non-payment of Calls: An Overview

1. Introduction:
Forfeiture of shares refers to the process by which a company cancels shares that have not been fully paid up by shareholders. This action is taken when shareholders fail to pay the amount due on their shares, known as calls. Forfeiture is a legal remedy available to companies to recover unpaid amounts and protect the interests of other shareholders.

2. Legal Provisions:
The power to forfeit shares is typically provided for in the company's articles of association. It is also governed by the provisions of the Companies Act, 2013, in India. Section 68 of the Act deals with the issue and forfeiture of shares.

3. Conditions for Forfeiture:
Shares can be forfeited if the shareholder fails to pay any call or installment of a call on the due date. The company must follow the procedures outlined in its articles of association and the Companies Act.

4. Procedure of Share Forfeiture:
The procedure for forfeiting shares typically involves the following steps:

• Notice of Call: The company must issue a notice to the shareholder demanding payment of the call or installment due. The notice must specify the amount due, the due date, and the consequences of non-payment, including the possibility of forfeiture.

• Notice of Forfeiture: If the shareholder fails to pay the call or installment within the specified period (usually 14 days), the company can issue a notice of forfeiture. This notice informs the shareholder that their shares will be forfeited if the amount due is not paid within a specified period (usually 14 days).

• Resolution: The board of directors must pass a resolution to forfeit the shares. This resolution should specify the number of shares to be forfeited, the reason for forfeiture, and the date of forfeiture.

• Forfeiture: Once the resolution is passed, the shares are forfeited. The shareholder's name is removed from the register of members, and the shares are reissued or sold by the company.

• Notice of Forfeiture to Registrar: The company must notify the Registrar of Companies (RoC) of the forfeiture within 30 days of the forfeiture.

5. Effect of Forfeiture:

• The shares forfeited by the company become the property of the company.
• The shareholder loses all rights in relation to the forfeited shares, including voting rights and dividend rights.
• The company may reissue or sell the forfeited shares, usually at a later date and at its discretion.

6. Reissue or Sale of Forfeited Shares:

• The forfeited shares can be reissued or sold by the company.
• If the shares are reissued, they must be offered to existing shareholders first, in proportion to their existing shareholding.
• If the shares are sold, the proceeds of the sale are credited to the shareholder's account, and any excess amount is paid to the shareholder.

7. Consequences for Shareholder:

• Forfeiture of shares results in the shareholder losing the value of the forfeited shares and any amounts paid on them.
• The shareholder may also be liable for any outstanding amounts due on the forfeited shares, depending on the terms of the company's articles of association.

8. Conclusion:
Forfeiture of shares is a legal remedy available to companies to recover unpaid amounts from shareholders. The procedure for forfeiting shares must be followed carefully to ensure compliance with the company's articles of association and the Companies Act. Forfeiture protects the interests of other shareholders and ensures that the company's share capital is maintained.