Basic requirement for valid calls
While making calls the following basic requirements must be satisfied:—
(i) For each call at least 14 days' notice must be given to members.
(ii) Stock exchange(s) shall be advised of the proposal at least 2 days before the Board Meeting. The Stock Exchange(s) normally stipulates that no call shall be made payable within one month after the last call was made but not later than one year from the date of the issue.
(iii) An interval of thirty days is required between two successive calls and not more than twenty five per cent of the nominal value of shares can be called at one time. However, companies may have their own articles and raise the limit.
(iv) The Board of directors has the power to revoke or postpone a call after it is made.
(v) Provision for payment of call in installments can be made only by a resolution of Board. [East & West Insurance Co. Ltd. v Kamla Jayantilal Mehta (1956) 26 Comp Cas 313 (Bom)]
(vi) Joint shareholders are jointly and severally liable for payment of calls.
(vii) If a member fails to pay call money he is liable to pay interest not exceeding the rate specified in the articles or terms of issue. The directors are free to waive the payment of interest.
(viii) If, any member desires to pay the call money in advance, the directors may at their discretion accept and pay interest not exceeding the rate specified in the articles.
(ix) A defaulting member will not have any voting right till call money is paid by him.
Time within which shares are to be made fully paid-up:—
(i) As per the SEBI Guidelines, capital issues henceforth have to be made fully paid-up within 12 months.
(ii) Where the total issue size exceeds Rs. 500 crores:—
(a) It is not necessary to make the capital issue fully paid-up within 12 months.
(b) The amount to be called up on application, allotment and on various calls should not each exceed 25 per cent of the total quantum of the issue.
(c) The company should make arrangements for monitoring of the use of proceeds of the issue by one of the financial institutions.
(d) A copy of the monitoring report must be filed with SEBI by the financial institution and by the company for the purpose of record.
FORFEITURE OF SHARES
Shares may be forfeited if call is not paid within the stipulated time
If a member fails to pay a valid call within the stipulated time, the company may sue him for recovery of the amount of the call after waiting for a reasonable period or may forfeit the shares for non-payment of any call or installment of a call. Thus shares can be forfeited for non-payment of any call or installment of a call if and only if special and clear power in the articles is given to the directors to do so.
Where power is given in the articles, it must be exercised strictly in accordance with the regulations regarding notice, procedure and manner stated therein, otherwise the forfeiture will be void.
The provisions of Table 'A' regarding forfeiture of shares are as under:
Regulation 29 provides that if a member fails to pay any call, or installment of a call, on the day appointed for payment thereof, the Board may, at any time thereafter during such time as any part of the call or installment remains unpaid, serve a notice on him requiring payment of so much of the call or installment as is unpaid, together with any interest which may have accrued.
Regulation 30 state that the notice aforesaid shall specify a further day (not being earlier than the expiry of fourteen days from the date of service of the notice) on or before which the payment required by the notice is to be made and should state that, in the event of non-payment on or before the day so named, the shares in respect of which the call was made will be liable to be forfeited.
Regulation 31 states that if the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may, at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect.
Regulation 32 says that a forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Board thinks fit. At any time before a sale or disposal as aforesaid, the Board may cancel by forfeiture on such terms as it thinks fit.
Regulation 33 provides that a person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares, but shall, notwithstanding the forfeiture, remain liable to pay to the company all moneys which, at the date of forfeiture, were presently payable by him to the company in respect of the shares.
Further that the liability of such person shall cease if and when the company shall have received payment in full of all such moneys in respect of the shares.
Regulation 34 provides that a duly verified declaration in writing that the declarant is a director, the manager or the secretary, of the company, and that a share in the company has been duly forfeited on a date stated in the declaration, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share. The company may receive the consideration, if any, given for the share on any sale or disposal thereof.
The transferee shall thereupon be registered as the holder of the share. The transferee shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share.
Regulation 35 provides that the provisions of these regulations as to forfeiture shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of the share or by way of premium, as if the same had been payable by virtue of a call duly made and notified.
Further, after the shares have been forfeited, an intimation is sent to the shareholder concerned and for sufficient reasons, the forfeiture may be annulled at the discretion of the Board of directors.
Subsection (5) of section 75 provides that that allotment of the shares which are forfeited for non payment of calls is not subject to the requirement of Return of Allotment under Section 75.
Board Resolution for forfeiture of Shares
RESOLVED THAT pursuant to Article No…. of the Articles of Association of the company and other applicable provisions of the Companies Act, 1956, if any, consent of the Board of Directors of the Company be and is hereby accorded for forfeiture of ………….. partly paid up Equity Share of Rs. 10 each on which total Rs. ……………. at the rate of Rs. …. per share remains unpaid on account of Share Capital & Share Premium account due to failure to pay the balance amount of allotment money due thereon as per list of partly paid up shares placed before the Board, duly initialed by the Chairman for the purpose of identification, reproduced hereunder:
Folio NO. No. of Shares Name of Shareholder
“RESOLVED FURTHER THAT the Share Transfer Agent M/s ……………… be and is hereby authorised to make entries in the register of members for giving effect to forfeiture of all the ……………….. partly paid up Shares.”
“RESOLVED FURTHER THAT Shri ………. and Shri…………DSJ, Directors of the Company be and are hereby severally and / or jointly authorised to inform to the Stock Exchanges, SEBI and all such authorities about the decision of the Board for forfeiture of ………………. partly paid up equity shares of the company and to do all such acts, deeds and things as may be necessary, expedient and desirable to give effect to the above resolution.”
NOTICE is hereby given that the Board of directors of the company at their meeting held on …………… have forfeited …………… Equity Shares of Rs. 10 each on account of non-payment of amount due on First Call from the concerned shareholders.
You are advised that please do not transact on any partly paid up shares and return the same to the company for record. Company have also canceled all such shares after forfeiture. If anybody transact in those forfeited shares the company shall not be responsible to such transactions.
By Order of the Board
Declaration in respect of forfeiture of shares
I, SKJ Director of ABC Ltd. solemnly and sincerely declare that:—
1. The persons whose names and addresses are given in Annexure 1 were on ....... the registered shareholder of the Company (hereinafter referred to as "defaulting Equity Shareholders")
2. On .................... a call for unpaid allotment money on shares to be paid on or before ....... was made and accordingly notice of such call was duly given to the defaulting Equity Shareholder.
3. On .........,………,……. reminder letters to pay the allotment money were sent to all the defaulting shareholders who failed to pay the allotment money before the due date.
4. The defaulting Equity Shareholders having failed to pay the call by the appointed day notices in writing were given to them on ..... followed by a reminder dated ...... informing them that on their failure to pay the allotment money their shares would be forfeited.
5. The defaulting Equity Shareholders having failed to pay such unpaid allotment money, their shares were duly forfeited by the Board of directors at its meeting held on .......... and notices of such forfeiture were given to the defaulting Equity shareholders.
6. The Company is now entitled by Articles .......... of its Articles of Association to sell such forfeited shares. AND as per Article........ of Articles of Association of the Company, I make this solemn declaration conscientiously having the same to be true.