Section 106 of the Companies Act, 2013
Here is a detailed explanation of Section 106 of the Companies Act, 2013:
📘 Section 106 – Restriction on Exercise of Voting Rights
This section empowers a company to restrict a member’s voting rights under certain conditions, typically related to non-payment of calls on shares.
🔍 Key Provisions of Section 106
1. Articles May Restrict Voting Rights
A company's Articles of Association (AoA) may restrict or prohibit a member from exercising voting rights if:
They have not paid calls or other sums due on shares held by them.
The amount due must be payable to the company in respect of such shares.
2. Conditions for Restriction
The restriction is valid only if provided in the articles.
It applies only to shares on which the payment is due, not to all shares held by the member.
3. No Discrimination
Such restrictions must be uniformly applicable to all members under similar circumstances — the company cannot target specific individuals unfairly.
📌 Illustration
If Mr. X holds 1,000 shares of a company and hasn't paid the final call on 400 shares, then — if the company’s articles contain a clause as per Section 106 — he may be barred from voting on those 400 shares, but not on the remaining 600 shares.
⚖️ Purpose of Section 106
To ensure that only fully paid shareholders participate in decision-making.
To protect the company’s financial interest by encouraging timely payment.
✅ Key Takeaway
The restriction on voting rights for unpaid share calls is not automatic under the Act; it is only enforceable if the company’s Articles of Association contain such a clause.
RELATED Blog
0 comments