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Kindly specify if nothing is specified about redeemable/irredeemable pref

shares, do we consider the same as redeemable shares

ofcourse, concept of irredeemable pref shares has been omitted by Companies


Act from 1988. Now All shares arepref shares irredeemable.

see following points

1. A company limited by shares can issue redeemable preference shares subject to the
provisions of Sec. 80 of the Act. Such an issue must also be authorized by the Articles of
the company.

2. With effect from 1st March 1997 a company cannot issue irredeemable preference
shares or shares which can be redeemed beyond a period of 20 years (Amendment Act,
1996).
[See 80-5 (A)]
3. A company is permitted to carry out redemption from only two sources. They are:
(a) Profits of the company which would otherwise be available for dividend.
(b) Proceeds of fresh issue of shares made for the purpose of redemption.
The section rules out any other source such as issue of debentures, borrowing from banks
and
other financial institutions for carrying out redemption.

4. Where shares are redeemed from out of profits otherwise available for dividend, a sum
equal to the nominal value of the shares redeemed must be transferred ‘Capital
Redemption Reserve Account’.
5. Only fully paid preference shares are to be redeemed. If partly paid shares are to be
redeemed, call must be made first and then redemption must be carried out.
6. Redemption may be at par or at premium according to the terms of issue. If redemption
is at premium, such premium must be met out of profits or the balance in ‘security
premium account’.
7. Capital Redemption Reserve Account is available only for the purpose of issue of
bonus shares. This reserve must be kept intact unless otherwise sanctioned by the court.
8. Redemption of redeemable preference shares does not result in the reduction of
authorized capital of the company. To the extent reduction has taken place, company can
issue further shares, as if those shares had never been issued.
9. If new shares are issued for the purpose of redemption, it will not amount to increase in
capital.
10. Subject to the provisions of this section, redemption must be carried out in
accordance with the terms provided in the Articles of the company.
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)