Forfeiture of membership shares is valid under articles, but surplus sale proceeds cannot be retained beyond lawful dues.

An exchange's articles can validly authorise forfeiture of a member's fully paid-up share for breach of membership obligations where the governing statute does not prohibit such forfeiture, and the articles operate as a binding contractual scheme. A forfeiture made under that scheme is not invalid merely because the share was fully paid-up or because the proceedings led to expulsion and declaration of default, provided natural justice was observed. However, the exchange cannot retain any surplus realised on sale of the forfeited share beyond the amount lawfully due to satisfy the member's liabilities; forfeiture is only a means of enforcing contractual obligations and cannot be used for unjust enrichment.

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Issues: (i) Whether the exchange's articles validly empowered forfeiture of a member's fully paid-up share for default in complying with a committee decision and related obligations; (ii) whether the forfeiture proceedings were vitiated for breach of natural justice; (iii) whether the exchange could sell the forfeited share and retain the entire sale proceeds after satisfying the member's liabilities.

Issue (i): Whether the exchange's articles validly empowered forfeiture of a member's fully paid-up share for default in complying with a committee decision and related obligations.

Analysis: The articles of association constituted a binding contract between the exchange and its members, and the Companies Act did not prohibit forfeiture of a share for breach of obligations other than non-payment of calls. The forfeiture contemplated by the articles did not amount to an unlawful reduction of capital because the forfeited share remained available only for re-disposal. The contractual scheme permitting forfeiture on specified defaults was therefore enforceable.

Conclusion: The forfeiture provisions in the articles were valid and enforceable, and this issue was decided against the appellant.

Issue (ii): Whether the forfeiture proceedings were vitiated for breach of natural justice.

Analysis: Notice of the complaints and committee meetings had been given through letters and the exchange notice board, and the appellant had opportunities to appear and contest the matter at the relevant stages. The record did not establish any procedural unfairness that would invalidate the resolutions declaring him a defaulter, expelling him, or forfeiting his share.

Conclusion: The proceedings were not vitiated by breach of natural justice, and this issue was decided against the appellant.

Issue (iii): Whether the exchange could sell the forfeited share and retain the entire sale proceeds after satisfying the member's liabilities.

Analysis: The articles authorised sale or re-disposal of the forfeited share to realise amounts due, but they did not authorise the exchange to appropriate any surplus after discharge of the member's liabilities. The forfeiture power was contractual and penal in character, and the principle underlying section 74 of the Indian Contract Act required that only the amount due or reasonable compensation could be retained. Retention of the balance would in substance permit the exchange to acquire the share for the amount of the member's obligations, which was impermissible.

Conclusion: The exchange was not entitled to retain the surplus, and the appellant was entitled to the balance remaining after liquidation of enforceable liabilities, with interest as directed.

Final Conclusion: The decree was set aside and the matter was remitted for determination of the appellant's enforceable liabilities and for payment of the balance, if any, due to him after such adjustment.

Ratio Decidendi: A company or association may validly forfeit a member's share under its articles for breach of membership obligations where the governing statute does not prohibit such forfeiture, but it cannot appropriate the surplus realised on disposal of the forfeited share beyond the amount lawfully due, since forfeiture operates only as a means of enforcing contractual obligations and not as a device for unjust enrichment.

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