Rajendran Nallusamy
(Advocate)
01 April 2008
The following sections from the companies act will throw some light on the subject
80. Power to issue redeemable preference shares
(1) Subject to the provisions of this section, a company limited by shares may, if so authorised by its articles, issue preference shares which are, or at the option of the company are to be liable, to be redeemed:
Provided that-
(a) no such shares shall be redeemed except out of profits of the company which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purposes of the redemption;
(b) no such shares shall be redeemed unless they are fully paid;
(c) the premium, if any, payable on redemption shall have been provided for out of the profits of the company or out of the company's 1[security premium account], before the shares are redeemed;
(d) where any such shares are redeemed otherwise than out of the proceeds of a fresh issue, there shall, out of profits which would otherwise have been available for dividend, be transferred to a reserve fund, to be called 2[the capital redemption reserve account], a sum equal to the nominal amount of the shares redeemed; and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if 2[the capital redemption reserve account] were paid-up share capital of the company.
(2) Subject to the provisions of this section, the redemption of preference shares thereunder may be effected on such terms and in such manner as may be provided by the articles of the company.
(3) The redemption of preference shares under this section by a company shall not be taken as reducing the amount of its authorised share capital.
(4) Wherein pursuance of this section, a company has redeemed or is about to redeem any preference shares, it shall have power to issue shares up to the nominal amount of the shares redeemed or to be redeemed as if those shares had never been issued; and accordingly the share capital of the company shall not, for the purpose of calculating the fees payable under 3[section 611], be deemed to be increased by the issue of shares in pursuance of this sub-section:
Provided that, where new shares are issued before the redemption of the old shares, the new shares shall not, so far as relates to stamp duty, be deemed to have been issued in pursuance of this sub-section unless the old shares are redeemed within one month after the issue of the new shares.
(5) 2[The capital redemption reserve account] may, notwithstanding anything in this section, be applied by the company, in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares.
4[(5A) Notwithstanding anything contained in this Act, no company limited by shares shall, after the commencement of the Companies (Amendment) Act, 1996, issue any preference share which is irredeemable or is redeemable after the expiry of a period of twenty years from the date of its issue.]
(6) If a company fails to comply with the provisions of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to 5[ten thousand rupees].
1. Subs. by Act 21 of 1999, sec. 7, for "shares premium account" (w.r.e.f. 31-10-1998).
2. Substituted by Act 65 of 1960, sec. 23, for "the capital redemption reserve fund" (w.e.f. 28-12-1960).
3. Substituted by Act 65 of 1960, sec. 23, for "section 601" (w.e.f. 28-12-1960).
4. Sub-section (5A) ins. by Act 31 of 1988, sec. 13 (w.e.f. 15-6-1988) and subs. by Act 5 of 1997, sec. 5 (w.e.f. 1-3-1997).
5. Substituted by Act 53 of 2000, sec. 35, for "one thousand rupess" (w.e.f. 13-12-2000)
80A.. Redemption of irredeemable preference shares, etc.
1[80A. Redemption of irredeemable preference shares, etc.
(1) Notwithstanding anything contained in the terms of issue of any preference shares, every preference share issued before the commencement of the Companies (Amendment) Act, 1988,-
(a) which is irredeemable, shall be redeemed by the company within a period not exceeding five years from such commencement, or
(b) which is not redeemable before the expiry of ten years from the date of issue thereon in accordance with the terms of its issue and which had not been redeemed before such commencement, shall be redeemed by the company on the date on which such share is due for redemption or within a period not exceeding ten years from such commencement, whichever is earlier:
Provided that where a company is not in a position to redeem any such share within the period aforesaid and to pay the dividend, if any, due thereon (such shares being hereinafter referred to as unredeemed preference shares), it may, with the consent of the 2[Tribunal], on a petition made by it in this behalf and notwithstanding anything contained in this Act, issue further redeemable preference shares equal to the amounts due (including the dividend thereon), in respect of the unredeemed preference shares, and on the issue of such further redeemable preference shares, the unredeemed shares shall be deemed to have been redeemed.
(2) Nothing contained in section 106 or any scheme referred to in sections 391 to 395, or in any scheme made under section 396, shall be deemed to confer power on any class of shareholders by resolution or on 3[any court or the Tribunal] or the Central Government to vary or modify the provisions of this section.
(3) If any default is made in complying with the provisions of this section,-
(a) The company making such default shall be punishable with fine which may extend to 4[ten thousand rupees] for every day during which such default continues; and
(b) Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine.]
1. Inserted by Act 31 of 1988, sec. 14 (w.e.f. 15-6-1988).
2. Subs by Act 11 of 2003, sec. 13, for "Company Law Board".
3. Substituted by Act 11 of 2003, sec. 13, for "any Court".
4. subs. by Act 53 of 2000, sec. 36, for "one thousand rupees" (w.e.f. 13-12-2000)
