Meaning:

It means return of the partly paid shares by the shareholders voluntarily to the company for cancellation of the shares for which no payment will be made by the company.

• It is opposite 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 is against a reluctant shareholder.
• Empowered by Article of Association : The articles of companies, often empower the directors to accept the surrender of shares. Courts also recognised it on the principle that it relieves the directors of the necessity to go through the formalities relating to forfeiture.
• Shortcut: Surrender of shares in a company operates as a shortcut to forfeiture.

Circumstances for accepting Surrender of Shares:

• Surrender is possible only when forfeiture is justified. Since , partly paid shares can be forfeited , there is no bar on accepting surrender of partly paid shares.

• Fully Paid shares : Generally company cannot accept such surrender , However , surrender is permissible if it is in exchange for new shares of same nominal value with different rights that is there is a replacement of capital and no reduction.

Reissue: Surrendered shares may be re-issued in the same way as forfeited shares. If this is done, reduction in capital will not occur.

No consideration: shall be paid by the company in exchange of surrendered shares as it would amount to purchase of its own share, which is specifically prohibited u/s 67 of Companies Act, 2013.

INVALID SURRENDER OF SHARES:

• If surrender of shares involves reduction of capital then Court permission is necessary.
• If it amounts to a purchase by the company of its own shares.
• If it releases the members from further liability in respect of shares. As held in the case of Collector of Muradabad vs Equity Insurance Co. Muradabad Vs Equity Insurance Co.)

Examples :

Moon star Ltd” is authorised by its articles to accept the whole or any part of the amount of remaining unpaid calls from any member although no part of that amount has been called up. Mr. ‘A’, a shareholder of the Moon star Ltd., deposits in advance the remaining amount due on his shares without any calls made by “Moon star Ltd”

Referring to the provisions of the Companies Act, 2013, state the rights and liabilities of Mr. A, which will arise on the payment of calls made in advance.

Or

Sanjeev , a shareholder, holding 2000 shares of Rs. 100 per share of Touchwood Pharma Ltd.

The company has called and collected Rs. 60 per share. Sujeev has paid Rs. 40 per share (the balance amount not yet demanded by the company) as calls in advance. At the time of AGM of the company, he demanded that he is entitled to vote in respect of the advance money paid by him. The directors of the company rejected his demand. He claimed for refund of calls in advance amount paid by him with interest.

Examine the validity of Sanjeev’s claim for voting or refund of money with interest with reference to the provisions of the Companies Act, 2013.

Section 50 of the companies Act 2013 – Company to accept unpaid share capital although not called up.

As per Sec. 50(1), A company may, if so authorised by its articles, accept from any member, the whole or a part of the amount remaining unpaid on any shares held by him, even if no part of that amount has been called up. Hence, the Companies Act recognizes the right of a company to receive calls in advance provided it is authorized by its Articles to do so.

However, sec 50(2) further provides that a member of the company limited by shares shall not be entitled to any voting rights in respect of the amount paid by him in advance until that amount has been called up.

Consequences of payment of calls in advance are as follows:

• Voting rights: The shareholder is not entitled to voting rights in respect of the moneys so paid by him until such payment become presently payable.
• Liability extinguished: The shareholder’s liability to the company in respect of the call for which the amount is paid is extinguished.
• Interest: The shareholder is entitled to claim interest on the amount of the call to the extent payable according to AOA. If there are no profits, it must be paid out of capital, because shareholder becomes the creditor of the company in respect of this amount.
• Not refundable: The amount received in advance of calls is not refundable.
• Priority: In the event of winding up the shareholder ranks after the creditors, but must be paid his amount with interest, if any before the other shareholders are paid off.
• Duly exercised power: The power to receive the payment in advance of calls must be exercised in the general interest and for the benefit of the company (Syke’s case).

Analysis: As per Sec 50(2) Mr. A will not derive any additional voting rights by virtue of such advance calls paid by him.

Conclusion for First Question: For first In the given Case Mr. A, has deposited in advance then remaining amount due on his shares withou any calls made by ‘Moon star Ltd’. Moon star Ltd’ was authorized to accept the unpaid calls by its articles. Hence, there is no irregularity in the transaction.

Conclusion for Second Question: Therefore, according to the above provisions:- Sanjeev is not entitled to vote in respect of the moneys so paid by him until the same would,

but for such payment, become presently payable. As per the provisions of law, the amount received in advance of calls is not refundable.

However, Sanjeev is entitled to claim interest on the amount of the call to the extent payable according to the AOA. If there are no profits, it must be paid out of capital, because shareholder becomes the creditor of the company in respect of this amount.

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