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Written by Porus Confectioner, a career banker with 25 years experience in banking/ financial services and has completed the DEABL from NUJS Kolkata.


A major source of stable financing of a companies activities is the raising of capital from owners through the issue of equity shares.  The Memorandum and Articles state the amount of capital in terms of shares and their value and number.  The maximum amount of share capital that may be raised by the company from the public is called “ Authorised “ capital. Generally companies issue only a part of this authorized capital for the public subscription which is termed “ Issued Capital”. A part of this issued Capital may be subscribed to by public and is  “ Subscribed Capital “.    The subscription could be “Fully” or “Partly Paid” which constitutes “ Paid Up Capital “.   A portion of the share capital may be Partly Paid and the balance called up at a future date.

It is that portion of Capital that being “Called Up “ and payable by the shareholder at a Future Date that is the focal point of this discussion.  Whenever a particular amount is “ Called Up “ and a shareholder fails to pay the amount, it is known as Unpaid Calls or Calls in Arrears. Such calls may be paid within the stipulated time or the shares may be canceled or forfeited. Here we discuss the legal implications of equity shares which are Called Up and may not have been paid in time and therefore may be forfeited.

Main Discussion 

The law relating to Forfeiture and Reissue of shares in India is covered under the following Acts and Rules :

  • Companies Act 2013 – Sections 61 – 68 and amendments 2017, Sections 13 – 18 Table F of Schedule I and 28 – 36 Table F Schedule I or Provision is to be included in Articles of Association of the Company.
  • SEBI ( Disclosure and Investor Protection ) Guidelines, 2000.
  • Stock Exchange – Listing Agreements

Forfeiture of Shares is the policy and process by which a members name is struck off the register of shareholders by virtue of non-payment of sums payable on calls on shares or any other reason as may be prescribed in the Articles of Association. Please note that forfeiture is penal in nature.

In accordance with Sections 28 – 30, if a member fails to pay any call or installment of a call, on the day appointed for such payment, the board may at any time thereafter, subject to being authorised by the Articles of Association, by resolution, send a notice to the shareholder stating as follows :

  1. A future date, not more than 14 days from the date of the notice, by which time payment must be made, including any interest thereon,
  2. In the event of non-payment of calls as per notice, the shares may be forfeited

Where the requirement of the notice of payment are not complied with, by defaulting shareholders, the Board of Directors may, thereafter, take next steps to arrange for forfeiture and subsequent cancellation and forfeiture of shares or by notice. The Board is also empowered, by resolution, to give further time where necessary.   The notice to the shareholder should unequivocally state that the effect of failure to pay by share-holder would result in forfeiture of the share.  Any irregularity, either in the content or service of the notice would invalidate forfeiture of shares – Bhagwandas Garg Vs. Canara Bank Ltd (1981) 51. Comp.Cas. 38 A.P.    Forfeiture should also be for a Bonafide purpose and not to relieve the shareholder from liability Abdul Karim Vs Sirpur Paper Mills (1969 ) 1 Comp LJ 144 39 Comp. Cas. 33 A.P.    It is advisable to state in the notice clearly that shares will stand forfeited in the event of no payment. All appropriate details should be included.

It is also a common practice for Companies to publish the information in a prominent newspaper with all details of payment to be made by the shareholder ( Notice of Forfeiture ). Further, by way of caution, once forfeiture is decided on, the company can also give all details of forfeited shares in the newspaper as a final announcement.  SEBI disclosure rules require that all calls should be structured in such a way that the entire subscription money is called within a maximum of 12 months of allotment.

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The effect of forfeiture is as follows :

  1. The shareholder, on forfeiture of shares, ceases to be a member of the company and any amounts already received on the shares are not repayable to shareholder
  2. The company if it deems fit, may sue the member for recovery on unpaid calls
  3. The shares may be disposed of and resold at discount ( the discount must not exceed the actual amount forfeited on the shares.) The share may also be re-issued at a premium, par value or discount.  Again, the amount of discount on re-issue cannot exceed amount forfeited on shares.
  4. In the event of company liquidation, the shareholder who has not paid calls can be put on the list of contributors to the company.

A verified Declaration, by the Director, Manager or Secretary of the company that the shares in the company have been forfeited on a date stated in the Declaration, will be the “ conclusive “ evidence of forfeit of shares, against any claims made on the securities. Once forfeited, shares become company property.

The process to re-issue is as follows :

The shares, thus forfeited, may either be canceled or re-issued.  The forfeiture of shares does not necessarily reduce the share capital since they may be re-issued.  In accordance with Listing Agreements, the concerned Stock Exchanges where the shares are listed may need to be notified of the details of the shareholders whose names have been forfeited along with the appropriate enclosures, including a copy of the announcement in the newspapers.

According to the Articles of Association, Articles 29 to 32, the Board of Directors have the power to Re-issue the shares, and this power cannot be delegated by the Board of Directors to any committee.

The Board of Directors may take up the Reissue of shares at the same Board Meeting as a forfeiture or at a subsequent Board Meeting. The Board may pass an Ordinary Resolution at the meeting for such forfeited shares to be re-issued to other persons.  The shares may be issued at a discount which does not exceed the amount already paid on such shares such that the total of the sum paid by the original owner and re-issue price is not less than the par value.  Since this is a reissue of shares and not an allotment, there is no requirement to file an application for Reissue with Registrar of Companies ( Sri Gopal Jalan V Calcutta Stock Exchange Ltd (1963 ) 33 COM. Case 862: AIR 1964 SC 250).

The company can receive the consideration given for the share resale to the new shareholder and issue to the shares to him. The transferee shareholder may then be registered as the holder of the shares in the register of members and other records. The validity of the shares held by the transferee will not be affected by any previous irregularity or invalidity in the proceedings for forfeiture or resale.

It is important to note that, where the shares are being reissued favoring an existing shareholder, whose name appears on the list of members,  no further approvals are required. However, where the shares are sold and re-issued to members whose names are not on the existing member list, the Board has to obtain the consent of the appropriate stock exchange on which shares are listed and the approval of existing shareholders in General Meeting before such securities may be re-issued.

It is important that the company and the auditors concerned check the following :

  1. Ascertain that Articles of Association authorize Board to reissue forfeited shares
  2. Check and ensure Board Resolution passed by the Board of Directors at meeting for forfeiture and re-issue are accurate
  3. Ensure correct accounting entries for forfeiting and re-issue
  4. Check and certify the Return of Allotment to be filed with Registrar and other Regulatory Bodies


The above summarises the law relating to forfeiture and reissue of securities.  From a viewpoint of actual practice, companies prefer to have the shares fully Paid up along with premiums at the time of issue rather than stretch the share payment over one or two calls as has been the practice in the past. Accordingly, the need for follow up and failure to pay is considerably reduced or is non-existent. Even in cases where shares Monies are “ Called Up “ and remain outstanding, companies wait for such cases to accumulate and then pass a resolution, obtain Stock Exchange approvals and general body approvals once a year at the Annual General Meeting. However, today the option also exists to have the same voting process done by electronic voting (  e-voting ), for which appropriate provisions have been incorporated in the Companies Act 2013. The practice with regard to forfeiting and re-issue is fairly established in law and practice and there is no substantial change in practice or laws relating to this in Companies Act 2013 or the earlier Act of 1956.


  • Companies Act 2013 and explanations
  • SEBI: Disclosure and Investor Protection) Guidelines 2000
  • Listing Agreement Excerpts
  • Discussions with practicing Companies Secretaries and Chie Financial

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