Consider the following statements:
Assertion (A): If a shareholder fails to pay the amount of one or more calls on his shares, the company may forfeit his shares.
Reason (R): Even after the forfeiture of shares, that shareholders is responsible to pay the amount due from him until the company receives full amount on those shares.
Now select your answer according to the coding scheme given below :

Question

Consider the following statements: 
Assertion (A): If a shareholder fails to pay the amount of one or more calls on his shares, the company may forfeit his shares. 
Reason (R): Even after the forfeiture of shares, that shareholders is responsible to pay the amount due from him until the company receives full amount on those shares.
Now select your answer according to the coding scheme given below :

Accepted Answer

The correct option is 2: Both A and R are true but R is not the correct explanation of A.

Both Assertion (A) and Reason (R) are factually correct and established provisions under the law relating to a company's share capital. Assertion (A) is true because the company, if authorized by its Articles of Association, has the power to forfeit shares as a penalty for the non-payment of calls (Calls-in-Arrears). Reason (R) is also true, as the former shareholder's liability for the unpaid call money continues even after forfeiture, serving to protect the company from loss until the shares are reissued for a value that covers the entire nominal amount. The relationship is incorrect because the continuing liability (R) is a legal *consequence* that follows the act of forfeiture (A), not the *justification* or *reason* for the company's power to forfeit in the first place. Therefore, while both statements are individually sound, the Reason does not correctly explain the Assertion.

The incorrect option is Both A and R are true and R is the correct explanation of A.
This option is incorrect because it fails to distinguish between the cause and the effect of the legal provisions. The fundamental *reason* for forfeiture (A) is the shareholder's breach of contract (failing to pay the call), which activates a punitive right granted by the Articles of Association. The liability mentioned in the Reason (R) is a specific, remedial *effect* of the forfeiture, designed to ensure the company recovers the full face value of the shares. A consequence cannot logically explain the underlying cause, making this linkage incorrect.

The incorrect option is A is true but R is false.
This option is incorrect because the Reason (R) is a true statement in company law. The legal provision for the continuing liability of a former shareholder for unpaid calls is crucial. It ensures that the company's claim on the face value of the share is not simply extinguished by the forfeiture, which allows for the subsequent re-issue of the shares without fully sacrificing the company’s capital structure. Therefore, stating that R is false is incorrect.

The incorrect option is A is false but R is true.
This option is incorrect because the Assertion (A) is a core principle of company accounting. The power to forfeit shares is explicitly provided as a remedy for a shareholder's default in paying call money. Forfeiture is a drastic measure but a standard practice used by companies to deal with calls in arrears, provided the procedure is meticulously followed as per the Articles of Association and the Companies Act. Therefore, Assertion (A) is true.