Re-issue of forfeited shares by a private company

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Querist : Anonymous

Querist : Anonymous (Querist)

29 June 2013 In case of re-issue of forfeited shares by a private limited company, it is true that a board resolution will suffice.

But my further question is what is the further procedure i.e. are we also required to comply with the provisons relating to transfer of shares.

Ajay Mishra

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30 June 2013 Hi

PROCEDURE FOR FORFEITURE OF SHARES
1. A forfeiture of any share must be done on the authority of the Board of Directors, or of committee thereof, if authorised by articles of associations for the purpose, by its resolution. The resolution should provide for a notice to be given to the shareholder concerned before the forfeiture is actually effected in pursuance of the resolution, requiring payment of so much of the calls as is unpaid, together with any interest which may have accrued.
2. The notice threatening forfeiture in pursuance of the Board Resolution must be given in accordance with the provisions of the articles. The notice aforesaid shall:
- name a further day (not being earlier than the expiry of 14 days from the date of service of notice) on or before which the payment required by the notice is to be made; and
- 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.
3. The notice must;
- specify clearly the amount payable on account of unpaid call money as well as interest accrued , if any, and other expenses.
- mentioned the day on or before which the amount specified ought to be paid, not being earlier than 14 days from the date of service of notice
- contain an unambiguous statement to the effect that in the effect of failure to pay the specified amount latest on the appointed day, the shares in respect of which the amount remain un paid would be liable to be forfeited.
4. The notice threatening forfeiture as contemplated in Regulation 29 of Table A must be served in accordance with the provisions of section 53 of the Companies Act, 1956.
5. If the call money is not paid in response to such notice threatening forfeiture, the company may, at any time thereafter, before the payment required by the notice has been made, forfeit the shares by a resolution of the Board to the effect.
6. It is common practice to publish a notice of forfeiture in newspapers so that the members of the public are made aware of the forfeiture and cautioned not to deal in the forfeited shares.
7. A further notice after the shares are forfeited is not necessary. However, it is advisable and a common practice to give a notice of the shares having been forfeited to the concerned shareholders by registered post.
8. Regulation 34 of Table A provides for a verified declaration in writing to be issued under the signature of director, manager or secretary of the company that a share in the company has been duly forfeited on a date stated in declaration. The declaration so made shall be conclusive evidence of the facts stated therein as against all persons claiming to be entitled to the shares forfeited. The accidental not receipt of notice of forfeiture by the defaulter is not a ground for relief against forfeiture regularly effected.
9. The fact of the forfeiture will be entered in the Register of Members and the name of the concerned shareholder as a member of the company will be deleted from the register.
10. Notify the Stock Exchange at which the securities of the Company are listed about such forfeiture of shares.

Ajay Mishra

Ajay Mishra (Expert)
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30 June 2013
Circumstances in which Forfeiture of shares cannot be made
The shares can be forfeited only of non-payment of calls and not for any other debt due from a member. Non-payment of calls is not the only reason for which shares can be forfeited; a company by its articles may provide for other grounds also. [Naresh Chandra Sanyal v Calcutta Stock Exchange Association Ltd. (1971) 41 Comp Cas 51 (SC)].
Shares of the shareholders who were running business of the company, cannot be forfeited for losses suffered by company. [Dilbhajan Singh v New Samundri Transport Co. (P) Ltd. (1985) 58 Comp Cas 247 (P&H)].
CLB (now Tribunal) cannot direct forfeiture of shares acquired in violation of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations. [Aska Investments (P) Ltd. v Grob Tea Co. Ltd. (2005) 61 SCL 134 (Cal)].

Ajay Mishra

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30 June 2013
Forfeiture can be effected by a Board resolution:

Forfeiture will be effected by means of a Board resolution. Notice precedent to forfeiture must be given to the defaulting shareholder. In the matter of forfeiture of shares, technicalities must be strictly observed. "The defect in the notice, though slight, invalidates it and is fatal to the forfeiture", as held by the Supreme Court in Public Passengers Service Ltd. v Khadar AIR 1966 SC 439.
In Sulochana Nathany v Hindustan Malleables & Forgings Ltd. (2001) CLC 448 (CLB), it was held that to constitute a valid forfeiture articles should give such powers to the directors. There should be notice of forfeiture and power should be exercised following the procedure prescribed in the articles.

Intimation for forfeiture of shares
Further, articles generally provide that 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.

Querist : Anonymous

Querist : Anonymous (Querist)

02 July 2013 Sir my question is regarding re-issue of forfeited shares

Ajay Mishra

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02 July 2013 Re-Issue of Forfeited Shares
Where a company had lien on fully paid shares belonging to the deceased shareholder, it is obligatory on the company to give notice of its sale to the legal representative of the deceased shareholder, but if this is not done the sale would nevertheless be a valid sale.
Shares forfeited by a company may either be cancelled or re-issued to another person at the discretion of the Board. Generally, such shares are re-issued at a discount which cannot exceed the amount already paid on such shares provided that the total of the sum paid by the original owner of the shares together with the re-issue price is not less than the par value. This is done by a Board resolution.
After the money due is received from the new allottee, the company executes a transfer deed and issues a share certificate, and if the original holder has already surrendered the share certificate, it is duly transferred, otherwise after a public notice in a newspaper, a new share certificate is issued.

Ajay Mishra

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02 July 2013
Re-issue/Disposal of Forfeited Shares: No Allotment Return (Form-2) to be Filed

According to section 75 (1) of the Companies Act, 1956, a company is required to file a return of allotment of shares and not for-reissued of forfeited shares. Allotment is, appropriation of the previously un appropriated capital of the company, of a certain number of shares to certain person. Till such allotment, the shares do not exist as such. However, in the case of forfeited shares, they had already been allotteed and they had come into existence at the time of their allotment and their forfeiture is a proof of their existence. Therefore, no return of allotment is required to be filed with ROC by a company at the time of re-issue or disposal of forfeited shares. [Sri Gopal Jalan and Co. V. Calcutta Stock Exchange Association ( 1963) 33 Com. Case 862: AIR 1964 SC 250].