CS Alok Singh (Advocacy) 29 October 2012

Is it possible to withdraw bonus issue by b r ?

I am facing a practical problem, regarding the withdrawl of bonus issue... as the bonus issue procedure was carried by the company, Thus, the E form 23 ( was filed with MCA for registering resolutions relevant to bonus issue i .e. : -

a) Increase in authorized capital u/s 31 of the act

b) alteration of article 3 and insertion of article 217 in article of association u/s 3 of the act.

Now due to insufficient profits , board shows its inablity to issue bonus shares. what is the remedy in such situation ?

"As per my reserch, regarding bonus issue, the only provision is Section 205(3) of the Companies Act, 1956 which states that “there is no prohibition on a company to capitalize its profits or reserves for the purpose of issuing fully paid-up bonus shares or paying up any amount, for the time being unpaid, on any shares held by the members of the company.”

Please note, that no where in section 205 it is written that special resolution or member’s approval is required for issuing bonus shares. Also, section 192 silent about bonus issue which specifically defines the items for the registration of special resolutions. Hence procedurally bonus shares can be issued by approval of board of director only as according to AoA of the company. (read 15.1.7 of SEBI DIP guidelines of bonus issue) But no resolution specifically of bonus issue got registered with MCA. As we have not registered any resolution of bonus issue with RoC / MCA, there is no non compliance with these authorities if we have not issued bonus shares issue later on.

In given situation the only compliance remain is to take approval of board again in the meeting next BM for withdrawal of bonus issue due to lack of profits or reserves.

Please guide me if i am wrong... your contrary views in this issue are cordially invited

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4 Replies

Vishal Gehrana (Advocate) 03 November 2012

Mr. Alok,

What is the procedure of issuing bonus shares is that first you have to see whether a company is eligible to make such isssue or not as per its AOA. After completing the above mentioned requirement, the company has to check its reserves to ascertain that it has enough fund for such issue. If the above two things are in positive then after fixing the conditions and contents of the issue, the company must convene the meeting of its BODs and should approve the issuing of such issue by ordinary majority. Thereafter, a notice of EGM has to be issued to the shareholders with all the relevant documents. If the shareholders have passed ordinary resoluction in such EGM then in BODs meeting the procedure relating to the allotment can be done.

I would suggest you to please also go through Regulation 95 (Chapter IX) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 together with section 81 of the Companies Act, 1956.

CS Alok Singh (Advocacy) 03 November 2012

Dear Vishal,

Thanks for your views but i think you have over read the given issue.

All the given procedure has already been completed in a company , now due to insufficienty of funds, as balance sheet of current year end is in loss, borad decided to recall the bonus issue

This query is related to withdrawl of bonus issue on which the provisions are silent.

Vishal Gehrana (Advocate) 03 November 2012

Dear Alok,

I amy be wrong but if you read the SEBI (ICDR) Regulations, 2009, regulation 95(2) says that once you announce the decision to make a bonus issue,, you cannot withdraw it. However, if teh announcement is not there, you can do so. That is why I specified regulation 95 in my previous answer.

CS Alok Singh (Advocacy) 04 November 2012

Thanks Vishal,

I agree that once the decision to make a bonus issue is announced, the issue can not be withdrawn as per SEBI (ICDR) Regulations, 2009, regulation 95(2). this is applicable to all listed companies.

now my issue is : -

Does this applicablity extend to unlisted or say closely held company also?

What if, in notice we call class meeting for bonus issue and later we can show that the resolution is not passed in closely held companies?

in such case, even if articles were alterd or authorised capital was increased then also bonus issue can be withdran as shareholder's have not given thier vote to it.