Forfeiture and Surrender of Shares :
Forfeiture is the remedy for non-payment of calls or instalments of call or other sums as premiums due in respect of shares. Such a power can be exercised only if the articles expressly so provide and the procedure laid down there under is strictly adhered to. The effect of the forfeiture of a member’s share is that he ceases to be a member. If the shares are partly paid, then he is discharged from the liability as shareholder to pay the balance of the amount due on the shares. (But the articles may reserve the liability in respect of sums already called up but not yet paid by him, in which case this creates new liability and he will be liable to these sums as an ordinary debtor and not as a shareholder). Limitation begins to run from the date of forfeiture.
You have already noted that a company can forfeit shares for non-payment of calls only if it has taken power (most companies do so take) in the articles for the purpose. Further, in Naresh Chandra Sanyal v. Calcutta Stock Exchange Association Ltd. [1971] Comp. case 51 (S.C.),the shares of the stock broker of the Exchange were forfeited for not carrying out his commitment with his client. In this case it has been held that forfeiture of shares of non-compliance with any other engagement than to pay calls is also valid, provided the articles stipulate so. Nonetheless directors should exercise this power carefully, for in the case of any irregularity, the dispossessed shareholder may have the forfeiture annulled. The power of forfeiture is required to be exercised bona fide, in the interest of the company; it must not be collusive or fraudulent.
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 shares.
The articles of companies, however, often empower the directors to accept the surrender of shares. Courts too recognise in on the principle that it relieves the directors of the necessity to go through the formality relating to forfeiture. Although surrender and forfeiture have almost the same effect, yet they differ from each other. Surrender is effected with the assent of the shareholder, whereas forfeiture is a proceeding in invitum (i.e., against a reluctant shareholder) [Trevor vs. White-work (1887) 12 App. Case. 417]. But a surrender of shares not fully paid can only be accepted where forfeiture would be justified [Bellerly and Rawland and Marwoods Steamship Co. (1902) 2 Ch. 14].
Where the company pays any consideration for the surrender of partly paid up shares, the will be invalid, in as much as it will amount to purchase by the company of its own shares. Unless there are special circumstances, e.g.,where the surrender is a part of compromise. Every surrender of shares, whether or not fully paid up, involves reduction of capital, which is unlawful without the sanction of the Court.
Thus, it may be right to say that surrender of shares in a company is a shortcut to forfeiture.