CALL OF SHARES

9. Call on Shares & Forfeiture of Shares

9(a) Call on Shares

Meaning

A company does not collect the entire share price at once. Instead, it calls for payments in installments.

Legal Provisions under Companies Act, 2013

• Section 49: Allows a company to make a call on shares as per its AOA.
  
  

• Articles of Association generally specify the terms and conditions of calls.
  
  

Process of Call on Shares

1. Board Resolution – Directors pass a resolution to demand a call.
   
   

2. Notice to Shareholders – A call letter is sent, mentioning due dates.
   
   

3. Payment Collection – Shareholders must pay the amount within the time specified.
   
   

9(b) Forfeiture of Shares

Meaning

If a shareholder fails to pay call money, the company can forfeit (cancel) their shares. The shareholder loses ownership, and the shares are reissued.

Legal Provisions under Companies Act, 2013

• Section 50: Allows forfeiture only if AOA permits it.
  
  

• Section 56: Requires proper documentation and approval for forfeiture.
  
  

Process of Forfeiture

1. Non-Payment of Call Money – Shareholder fails to pay the call amount.
   
   

2. Notice of Forfeiture – A final warning is issued.
   
   

3. Forfeiture Resolution – The Board passes a resolution, canceling shares.
   
   

Effects of Forfeiture

• Shareholder loses rights over the forfeited shares.
  
  

• The company can reissue forfeited shares.
  
  

• No refund is given for the amount already paid.
  
  

Indian Case Law: Naresh Chandra Sanyal v. Calcutta Stock Exchange (1971)

• The Supreme Court held that forfeiture must be done strictly according to AOA.
  
  

• If the procedure is violated, the forfeiture is invalid.