School of legal studies department of law

COURSE TITLE: CORPORATE LAW COURSE

CODE: IL-C-502
ASSIGNMENT ON: FORFEITURE &
SURRENDER OF SHARES

SUBMITTED BY:
NAME : ZAKIR HUSSAIN LONE
ENROLL NO.: 1707CUKMR55
SEMESETER: 5th

COURSE : BALLB (5YEARS)

SUBMITTED WITH REGARDS ,

TO,
PROF. DR. YOUSUF DAR
DEPARTMENT OF LAW SCHOOL OF LEGAL STUDIES, CENTRAL UNIVERSITY OF
KASHMIR.
 Table of Contents

Meaning ..........................................................................................................................................1
Effect for Forfeiture ......................................................................................................................1
Procedure of forfeiture of Shares .................................................................................................1
Surrender of Shares .......................................................................................................................2
Conditions Relating to the Acceptance of Surrender of Shares ................................................2
Effect of Surrender ............................................................................................................... 2 .....2

Refrences ...................................................................................................................................4
MEANING
If a shareholder fails to pay the due amount of allotment or any call on shares issued by the
company, the Board of directors may decide to cancel his/her membership of the company. With
the cancellation, the defaulting shareholder also loses the amount paid by him/her on such shares.
Thus, when a shareholder is deprived of his/her membership due to non-payment of calls, it is
known as forfeiture of shares.
The result of forfeiture of shares is Cancellation of membership of the shareholder. Reduction of
issued share Capital of the company
when on non-payment of money called on shares, the shares of a holder are forfeited, it is called
forfeiture, it is a penalizing action, law provides the guidelines for carrying out this procedure........
whereas surrender is an intentional act of the holder when he accepts that he can’t pay the called
money hence wants to give up his holding, law doesn’t provide any guidelines for this...

Forfeiture of shares refers to cancellation of shares by the company issued to the shareholders for
non-payment of money called upon shares
If any shareholder fails to pay the amount due on allotment or on any call within the specified
period, the directors may cancel his share. this is called forfeiture of shares.
EFFECT OF FORFEITURE
1. A person whose shares have been forfeited would cease to be a member of the company, in
respect of those shares.
2. A person whose shares have been forfeited would notwithstanding the forfeiture, remain liable
to pay to the company all moneys, which at the date of forfeiture were payable by him to the
company in respect of the shares.
The liability of the defaulting member shall not cease till the company receives the full payment
which is due in respect of shares. The name of the defaulting member will be placed as a past
member on the list of contributories if a winding up of the company commences within one year
of the date of forfeiture.
PROCEDURE OF FORFEITURE OF SHARES
The authority to forfeit shares is given to the Board of Directors in Articles of Association of the
company. The Board of Directors has to give at least 14 day notice to the defaulting members
calling upon them to pay outstanding amount with or without interest as the case may be before
the specified date. The notice must also state that if the shareholders fail to remit the amount
mentioned therein within the stipulated period, their shares will be forfeited. If they still fail to pay
the amount within the specified period of time, the Board of Directors of the company may decide
to forfeit such shares by passing a resolution. The decision regarding the forfeiture of shares should
be communicated to the concerned allottees and should be asked to return the allotment letters and
share certificates of the forfeited shares to the company.

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SURRENDER OF SHARES
Generally speaking, a surrender of shares is a return of the shares by the shareholders to the
company for the purpose of cancelling them. Like forfeiture of shares, surrender of shares resulted
in the reduction of capital. Forfeiture is recognized by law but surrender is not. There is no
reference of surrender of shares in the companies Act but usually the articles of the company
authorize the director to accept the surrender of shares where they can be brought within the rule
relating to forfeiture or otherwise permitted under the law. Surrender of shares also permitted by
the courts in certain conditions on the ground that they have practically the same effect as
forfeiture, the main difference being that forfeiture is a proceeding in invitum and surrender a
proceeding taken with the consent of the shareholder who is unable to retain or pay future calls on
the shares.
A surrender of partly paid shares not liable to forfeiture is unlawful because of many reason, viz.,
it exempts the shareholder from further liability respecting his shares it amounts to transaction of
sale and purchase, and it is reduction of capital without the leave of the court.
The surrender of shares that involves no actual reduction of capital is not illegal. The reduction of
capital must be actual and substantial and not theoretical and fanciful. A company can accept
surrender of old shares in exchange for new shares with preferential rights of dividends any
repayment of capital. This is permissible, for the company is not distributing any of its assets as
consideration for the surrender. But the amount credited as paid up on the new shares must not
exceed the amount paid up on the surrender ones.
CONDITIONS RELATING TO THE ACCEPTANCE OF SURRENDER OF SHARES
Subject to the authorization by the articles, directors have to observe following conditions for the
acceptance of surrender of shares-
(a) If the surrender is in exchange for other shares of the same nominal value. In such situation the
surrender does not result in the reduction of share capital and thereby, leave of the court is not
required.
(b) Where the forfeiture of share is justified, the directors may accept surrender instead of going
through the formalities of forfeiture.
If the articles of the company permitted the acceptance of surrender of shares on a ground other
than above stated the provisions of the articles would be ultra-virus and void and the acceptance
of the surrenders by the director will be invalid.
Surrender should not be used as a device for relieving a shareholder from his liability. It is in the
nature of trust to be exercised in good faith for the benefit of the company.
EFFECT OF SURRENDER
The effect of a surrender is the same as that of forfeiture. A person whose shares have been
surrendered shall cease to be a member in respect of the shares surrendered. However, he may be
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placed in “B” list of contributory, if the company wound up within 12 months from the date of the
surrender. Moreover, after valid surrender the shares become the property of the company and
therefore, they may be sold or re-issue if articles confer on it such a power. If the company wishes
to cancel the surrendered shares, so as to prevent their re-issue, it can do so only under the
provisions dealt with relating to reduction of capital with the sanction of the court.
Surrender of shares in exchange for the issues of new shares with different rights are not common
nowadays, because the variation of rights can usually be effected under a provision in the articles
without an exchange of shares taking place at all. Consequently, the only surrenders likely to be
met within practice are gratuitous surrenders of fully paid shares made in order to increase the
market value of the company’s other shares. But, instead of accepting a gratuitous surrender of
fully paid shares a company may have them transferred to trustees for itself.

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Bibliography
Dar, Yousuf. Class Notes. (2022)

Sing, Avtar. Company Law. Ed. 12th Eastern Book Company (EBC).

Youtube. ipleader

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