Non receipt of subscribers money and forfeiture

[CA Adarsh]

Can We forfeiture of shares in case non receipt of subscriber's money from Promoter cum Director of Private limited company at incorporation and Still INC-20A is not filed?

Or Else remedy does private company if above subscriber`s does not part of the company now?

[YAGAY andSUN]

The situation you're describing involves non-receipt of the subscriber's money from a Promoter-cum-Director of a Private Limited Company at the time of incorporation and the fact that INC-20A (the Declaration of Commencement of Business) has not been filed yet. Let's break down the issue and examine possible remedies and actions.

1. Non-receipt of Subscriber’s Money at Incorporation:

At the time of incorporating a Private Limited Company, subscribers to the memorandum are required to pay the agreed share capital. If a Promoter-cum-Director has subscribed to shares but has failed to pay the subscription amount, this could be a significant issue. Under the Companies Act, 2013, the company is required to obtain the full subscription from its promoters or subscribers for the shares they have taken. However, the key question is whether forfeiture of shares can be initiated due to non-receipt of the subscriber's money.

2. Forfeiture of Shares:

• Forfeiture of shares is typically governed by Section 55 of the Companies Act, 2013, which allows for the forfeiture of shares if the shareholder fails to pay the required money, usually after issuing a notice.
• Forfeiture is a process that is most commonly used when shareholders default on payment of calls on shares after the company has been incorporated and the shares are already issued.
• However, since the subscription money is due at the time of incorporation, forfeiting shares in the traditional sense isn't typically applicable at this stage unless the shares have been fully issued and the payment has been demanded but not made.

In the case where the Promoter-cum-Director has not paid the subscription money, the company has a few options:

• Non-issue of shares: The company can decide not to issue the shares until the money is received.
• Legal action: The company may also seek legal action for non-payment, which may include claiming the subscription money or pursuing the forfeiture process if the subscription money was taken in advance.

3. Filing of INC-20A (Declaration of Commencement of Business):

• Section 10A of the Companies Act, 2013 mandates that a company must file the INC-20A form to commence business within 180 days from the date of incorporation.
• The filing of INC-20A requires that the company has received full payment of the subscription money from the subscribers to the memorandum. Therefore, if the Promoter-cum-Director has not paid the subscription money, the company cannot file INC-20A.
• If the INC-20A has not been filed yet due to this non-payment, the company may be in violation of Section 10A, which could lead to penalties or the company being struck off.

4. What If the Subscriber Is No Longer Part of the Company?:

If the Promoter-cum-Director (who is also the subscriber) is no longer part of the company or is unwilling to pay the subscription money, several steps can be taken:

• Remove the subscriber's name: The company could take steps to remove the subscriber or replace them with another individual willing to take up the shares and make the necessary payment.
• Issue new shares: The company can issue new shares to a different person who will pay the necessary subscription amount. This can be done in accordance with the Articles of Association (AoA) of the company and the provisions of the Companies Act.
• Amend the memorandum: In case the subscriber no longer wants to be part of the company, the company may amend its Memorandum of Association (MOA) and Articles of Association (AOA) to reflect the changes.
• Legal action: If there is a breach of contract regarding the non-payment of shares, legal recourse may be taken against the promoter or subscriber who has failed to meet the obligation.

5. Remedies and Steps for Private Company:

In case the subscriber(s) are no longer part of the company or there is a failure to receive payment, the following remedies may be considered:

• Rectify the shareholding: The company can take steps to rectify the issue of non-payment by either replacing the subscribers or pursuing a legal remedy.
• Reissue the shares: The company could issue new shares to new subscribers (if necessary) and ensure full payment is received before filing INC-20A.
• File INC-20A: Once the full payment is received from the subscribers, INC-20A can be filed to legally commence the business.

Conclusion:

• Forfeiture of shares due to non-receipt of subscription money at incorporation is not the standard approach, but the company can deal with the issue by either removing or replacing the defaulting subscriber (Promoter-cum-Director).
• The company must ensure that full payment is received from the subscribers before filing INC-20A, and if necessary, the company may need to take legal action to recover the subscription money or amend its shareholder base.
• If the subscriber is no longer involved in the company, the company can issue new shares or take the necessary steps to comply with the regulatory requirements.

If the situation is complex, it might be beneficial to consult with a company secretary or legal advisor to handle the incorporation issues and ensure compliance with the Companies Act.

AI Summary

Non payment of subscription: company may withhold share issuance and pursue replacement or legal recovery measures. Non receipt of subscription money at incorporation prevents lawful commencement of business because INC 20A requires full payment; forfeiture is a post issuance remedy and is not the standard route for unpaid subscriptions at incorporation. The company should withhold issuance or rescind allotment until payment, replace the defaulting subscriber or reissue shares to paying persons, and pursue contractual remedies if appropriate, ensuring compliance with the Articles of Association and statutory commencement requirements before filing the declaration to commence business.