Company Law

CASE LAWS ON FORFEITURE OF SHARES

 

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COMPANY LAW

CASE LAWS ON FORFEITURE OF SHARES.

 

 

  • Sha Mulchand & Co. vs. Jawahar Mills Ltd.[1]: The Court held that even a slight irregularity in effecting a forfeiture could be harmful eventually making the said forfeiture as null and void. The aggrieved shareholder is entitled to bring an action for setting aside the said transactions and can also claim damages. Mere waiver or acquiescence will not deprive him of his rights against the invalid forfeiture. Further, it was also held that once the shares are forfeited no more notice or intimation is required about the forfeiture.

 

  • Public Passenger Services Ltd. vs. M.A. Khader[2]: It was stated in this case that a proper notice is a condition precedent to the forfeiture and a slightest defect in the notice can render the forfeiture as invalid.

 

  • Re Exparto Trading Co.[3]: This case declared that where 2 directors of a particular company are allotted qualification shares without any payment and subsequently on the request of those directors the Board of Directors passes a resolution for forfeiting the shares so held by them then such a forfeiture will not be valid in the eyes of law. Thus the directors holding the above shares would be liable to pay to the nominal value of the shares.

 

  • Shah J. in Naresh Chandra Sanyal vs. Calcutta Stock Exchange Assn. Ltd.[4]:  It was held in this case that as per provisions of Regulation 29 of Table A (corresponding Regulation 28 of Table F of Schedule I of the Companies Act, 2013) shares can only be forfeited against non-payment of any call or installments of such call. However, the company may incorporate any additional grounds for forfeiture in its Article of Associations.
  • Linkmen Services (P) Ltd. vs. Tapas Sinha[5]: In this the company had amended its articles for the following purposes:
  1. Forfeiting shares of the defaulting shareholders
  2. Expelling the members for deserting the company by not doing business with it.

The amendment was challenged by the respondent on grounds of oppression. The Company Law Board {CLB} (replaced by Tribunal in the 2013 Act) stated that the articles of association could not empower the company to forfeit the shares on account of dues other than unpaid calls. The appellant had appealed to the High Court wherein it was held that the decision of the CLB would not prevail on the grounds that the articles of a company are not alien to corporate jurisprudence and they are legally empowered to forfeit the shares.

 

  • Hope vs. International Finance Society[6]: It was stated that if an article of company authorizes its directors to forfeit the shares  of shareholder, who in turn proceeds with an action against the company or its directors, by making full payment of the market value of the shares then such a clause would be invalid as it was against the rights of the shareholders.

 

  • Johnson vs. Lyttle’s Iron Agency[7]: It was held in this case the notice of forfeiture should rightly mention in it that the payment of interest is required to be made from the date of the call.

 

  • Sparks vs. Liverpool Water Works Co.[8]: It was held in this case that accidental non receipt of notice of forfeiture by the defaulter will not be a ground for relief against forfeiture regularly effected.

 

 

Written by- Shajeeda Tajdeen

[1] 1953 23 Com Cases 1 (SC)

[2] 1966 1 Comp LJ 1

[3] (1879) 12 Ch. D 191

[4] AIR 1971 SC 422

[5] (2008) 83 SCL 143 (CAL)

[6] (1876) 4 Ch. D 598

[7] 1877 Ch. D 191

[8] 1807 13 Ves  428

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