Issuance of OCRPS

Issue & redemption of Preference Shares under the provisions of Companies Act, 2013 is
governed by Section 55 to the Act and Rule 9 & 10 of Companies (Share Capital and
Debenture) Rules, 2014.
Issue of the preference shares are restricted to certain extant. Issue of preference shares may
be made either through Rights Issue, ESOP or Preferential Allotment under Section 62 of the
Companies Act, 2013
Issue of Preference shares through Rights Issue under Section 62(1)(a) is only to the existing
Equity Share holders.

I. Procedure for Issue of Preference Shares under Section 62(1)(a) of the Companies
Act, 2013 and Companies (Share Capital and Debenture) Rules, 2014.
1) AoA should authorises the issue of Preference Shares. If AOA does not authorise for
the issue of preference shares then conduct the general meeting and pass a Special
Resolution for alteration of AOA for including of an article for issue of preference
shares. File Form MGT – 14 for intimating the ROC for alteration of AOA along with
the resolution passed at the meeting and altered AOA.1
2) Ensure that the company, at the time of such issue of preference shares, has no
subsisting default in the redemption of preference shares issued either before or after
the commencement of this Act or in payment of dividend due on any preference
shares.2
3) Call for a Board Meeting with 7 days notice 3 to discuss the issue of Preference shares
and issue notice calling for general meeting under Section 100 of the Act, authorising
such person to issue Notice for the meeting.
4) Issue Notice for the general meeting with clear 21 days notice period. 4 If in any case,
criteria of 21 days notice period is not possible then the shorter notice consent from at
least 95% Equity Shareholders should be taken for holding the general meeting within
the shorter notice.
5) Explanatory statement to the notice issued u/s 102 of the Act shall as per rule 9(3) of
Companies (Share Capital and Debentures) Rules, 2014 inter-alia provide the
complete material facts concerned with and relevant to the issue of such shares,
including –
a. The size of the issue and number of preference shares to be issued and
nominal value of each share;

1
Pursuant to 117(1) of The Companies Act, 2013 and Rule 24 of The Companies (Management and
Administration) Rules, 2014
2
Rule 9(1)(b), Companies (Share Capital and Debentures) Rules, 2014
3
S.173(3), The Companies Act, 2013
Provided that a meeting of the Board may be called at shorter notice to transact urgent business subject to the
condition that at least one independent director, if any, shall be present at the meeting:
Provided further that in case of absence of independent directors from such a meeting of the Board, decisions
taken at such a meeting shall be circulated to all the directors and shall be final only on ratification thereof by at
least one independent director, if any.
4
S.101, The Companies Act 2013.
 b. The nature of such shares i.e. cumulative or non-cumulative, participating or
non-participating, convertible or non-convertible;
c. The objectives of the issue;
d. The manner of the issue of shares;
e. The price at which such shares are proposed to be issued;
f. The basis on which such price has been arrived at;
g. The terms of the issue, including terms and rates of dividend on each shares,
etc.;
h. The terms of redemption, including the tenure of redemption, redemption of
shares at premium and if the preference shares are convertible, the terms of
conversion;
i. The manner and modes of redemption;
j. The current shareholding pattern of the company;
k. The expected dilution in equity share capital upon conversion of preference
shares.
6) Hold the general meeting and pass the special resolution for issue of Preference
Shares.5 The resolution passed for the issue shall as per Rule 9(2) 6 shall set out the
following particulars in respect of the following matters relating to such shares,
namely –
a. the priority with respect to payment of dividend or repayment of capital vis-a-
vis equity shares;
b. the participation in surplus funds;
c. the participation in surplus assets and profits, on winding-up which may
remain after the entire capital has been repaid;
d. the payment of dividend on cumulative or non-cumulative basis;
e. the conversion of preference shares into equity shares;
f. the voting rights;
g. the redemption of preference shares.
7) After passing the resolution file the resolution along with the explanatory statement
issued along with the resolution in Form MGT-14 within 30 days of passing the
resolution with the filing fee as provided in the Act and rules made there under, for
registration of the same.7
8) Convene a Board Meeting to issue Letter of Offer for the rights issue to the existing
Equity share holders which shall also include the rights of renunciation. 8 The offer
should be open for not less than 15 days or such less number of days as may be
prescribed9 and not more than 30 days. The letter shall be dispatched through
registered post or speed post or through electronic mode or courier or any other mode
having proof of delivery to all the existing shareholders at least three days before the
opening of the issue
5
Rule 9(1)(a), Companies (Share Capital and Debentures) Rules, 2014.
6
The Companies (Share Capital and Debentures) Rules, 2014.
7
117(1) of The Companies Act, 2013 and Rule 24 of The Companies (Management and Administration) Rules,
2014
8
S.62(1)(a)(i) & (ii), Companies Act, 2013.
9
7 Days as prescribed under rule 12A of Companies (Share Capital and Debentures) Rules, 2014
 9) File Form PAS-3 with ROC with the resolution and the list of allottees in Table A &
B within 30 days of passing the resolution in the board meeting with prescribed filing
fee.10
10) the Register of Members maintained under section 88 shall contain the particulars in
respect of such preference share holder(s).11

II. Redemption of preference shares

S.55(2) state that a company authorised by its articles can issue preference shares which are
liable to be redeemed within period of twenty years.

Conditions for redemption of preference shares

1) Shares which are to be redeemed, must be fully paid up.
2) Proviso (a) to S.55(2) state that shares shall be redeemed out of profits of the
company or out of proceeds of fresh issue of shares. If the preference shares are
redeemed out of reserves of the Company, then a sum equal to the nominal amount of
shares is to be transferred to CRR (Capital Redemption Reserve Account). CRR can
be utilized only for the purpose of Issue of Bonus Shares.
3) A company may redeem its preference shares only on the terms on which they were
issued or as varied after due approval of preference shareholders under section 48 of
the Act and the preference shares may be redeemed:-12
a. at a fixed time or on the happening of a particular event;
b. any time at the company’s option; or
c. any time at the shareholder’s option
4) In the case of the prescribed class of companies whose financial statements do comply
with section 133, the premium, if, paid on redemption of preference shares, shall be
paid before redemption of such shares. In the event that such companies do not
comply with the accounting standards in accordance with the provisions of Section
133, the premium paid shall be provided for out of the profits of the company or out
of the company‘s securities premium account, before such shares are redeemed.13
5) The premium, if, to be paid on preference shares issued on or before the
commencement of this Act may be paid out of profits or already balance lying into
securities premium account.
6) Where a company is not in a position to redeem any preference shares or to
pay dividend, if any, on such shares in accordance with the terms of issue (such shares
hereinafter referred to as unredeemed preference shares), it may, with the consent of
the holders of three-fourths in value of such preference shares and with the approval
of the Tribunal on a petition made by it in this behalf, issue further redeemable
preference shares equal to the amount due, including the dividend thereon, in respect
of the unredeemed preference shares, and on the issue of such further redeemable
10
Section 39(4) of the Companies Act, 2013 and rule 12 of Companies (Prospectus and Allotment of Securities)
Rules, 2014.
11
Rule 9(4), Companies (Share Capital and Debentures) Rules, 2014.
12
Rule 9(6) of SCD Rules 2014
13
S.55(2)(d), Companies Act 2013.
 preference shares, the unredeemed preference shares shall be deemed to have been
redeemed:
Provided that the Tribunal shall, while giving approval under this sub-section, order
the redemption forthwith of preference shares held by such persons who have not
consented to the issue of further redeemable preference shares.14

Procedure for redemption of OCRPS

The Companies Act and rules are silent on procedure of redemption of preference shares.
Only requirement given is that Form No. SH.7 has to be filed with the RoC - S.64(c) r/w rule
15 of the Companies (Share Capital and Debentures) Rules, 2014

III. Penalties for non-compliance

 Under S.15, Companies Act, 2013, Every alteration made in the memorandum or
articles of a company shall be noted in every copy of the memorandum or articles, as
the case may be. Failure to do so will make the company and every officer who is in
default liable to a penalty of one thousand rupees for every copy of the memorandum
or articles issued without such alteration.
 In case of any default under S.39 in filing PAS-3 with ROC, the company and its
officer who is in default shall be liable to a penalty, for each default, of one thousand
rupees for each day during which such default continues or one lakh rupees,
whichever is less.
 If a company and any officer of the company who is in default contravenes S.64
(filing form SH. 7), it or he shall be punishable with fine which may extend to one
thousand rupees for each day during which such default continues, or five lakh
rupees, whichever is less.
 If a company does not maintain a register of members or debenture-holders or other
security holders or fails to maintain them in accordance with the provisions of S.88,
the company and every officer of the company who is in default shall be punishable
with fine which shall not be less than fifty thousand rupees but which may extend to
three lakh rupees and where the failure is a continuing one, with a further fine which
may extend to one thousand rupees for every day, after the first during which the
failure continues.
 Non compliance with filing special resolution for issuance of preference shares under
S.117 of Companies Act will result in the company punishable with fine which shall
not be less than five lakh rupees but which may extend to twenty-five lakh rupees and
every officer of the company who is in default, including liquidator of the company, if
any, shall be punishable with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees
 Every officer of the company whose duty is to give notice under S.173 of the board
meeting and who fails to do so shall be liable to a penalty of twenty-five thousand
rupees.

14
S.55(3), Companies Act, 2013
 If any default is made in complying with the provisions of S. 102 (Explanatory
statement to the notice), every promoter, director, manager or other key managerial
personnel who is in default shall be punishable with fine which may extend to fifty
thousand rupees or five times the amount of benefit accruing to the promoter, director,
manager or other key managerial personnel or any of his relatives, whichever is more.
 If any default is made in compliance with any of the provisions of Companies
(Management & Administration) Rules,2014, the company and every officers or such
other person who is in default shall be punishable with fine which may extend to five
thousand rupees and where the contravention is a continuing one, with a further fine
which may extend to five hundred rupees for every day after the first during which
such contravention continues.