Is Forfeiture of MLSP’s Shares Compliant with Company Act, 2063?

Question from sanam, Is Forfeiture of MLSP’s Shares Compliant with Company Act, 2063?

Answer from AI:

Forfeiture of shares is a process where a company can remove a shareholder’s ownership of shares if they fail to pay the called amount or other financial obligations. This process is governed by the Companies Act, 2063, and the company’s Memorandum of Association (MOA).

Legal Framework for Share Forfeiture

Under the Companies Act, 2063, a company can forfeit shares if:
1. The shareholder fails to pay the called amount within the specified time.
2. The company provides due notice to the shareholder regarding the payment.

The MOA of the company, specifically Clause 9, typically outlines the contractual right to forfeit shares if the called sum is not paid even after the share call notification is sent.

Procedural Requirements

For the forfeiture to be compliant with the Companies Act, 2063, the following steps must be followed:

1. The company must issue a share call notification to the shareholder, specifying the amount due and the deadline for payment.
2. If the shareholder fails to pay within the given time frame, the company must provide a second notice, giving the shareholder another opportunity to pay.
3. The decision to forfeit shares must be made collectively by the Board of Directors (BOD), requiring a quorum of 51% of directors.
4. If the quorum is not met in the first meeting, Section 97(5) mandates providing a second notice for calling a Board meeting.

Case Law and Foreign Practices

In foreign court practice, such as the case of Atlasview Ltd vs. Brightview Ltd (2020), a company can forfeit shares in line with the Companies Act and its MOA when shareholders ignore a share call notification and miss the payment deadline.

Potential Violations and Irregularities

In the case of MLSP’s shares, there are potential violations of shareholder rights protected under Section 30 of the Companies Act. Specifically:

• The managing director alone passed the resolution for forfeiture without following the proper procedure, indicating procedural irregularity.
• The decision was not made collectively by the BOD, and the required quorum was not met.
• No second notice for calling a Board meeting was provided as mandated by Section 97(5).

Recommendations

Given the procedural irregularities, it is crucial to consult with a legal professional to ensure compliance with the Companies Act, 2063. Legal advice might be necessary to:

• Review the company’s MOA and the specific clauses related to share forfeiture.
• Ensure that all procedural requirements are met before proceeding with forfeiture.
• Address any potential violations of shareholder rights.

For more detailed information, you can refer to the [Companies Act, 2063](https://www.lawcommission.gov.np/en/archives/category/documents/prevailing-law/statutes-acts/companies-act-2063-2006) and other relevant legal resources.

Remember, this information is for general guidance, and it is always best to seek personalized advice from a legal professional.