ISSUE AND REDEMPTION OF PREFERENCE SHARES (SECTION 55):

No company limited by shares shall issue any preference shares which are irredeemable.

All these preference shares shall be redeemable within a period not exceeding twenty years from
the date of their issue subject to such conditions as may be prescribed.

However a company may issue preference shares for a period exceeding twenty years for
infrastructure projects subject to the redemption of such percentage of shares as may be
prescribed on an annual basis at the option of such preferential shareholders.

These shall be conditions for issue of preference shares –

(a) Preference shares shall be redeemed only out of the profit of the company which would
otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the
purpose of such redemption;

(b) Only fully paid preference shares shall be redeemed;

(c) Where such shares are proposed to be redeemed out of the profits of the company, there shall
out of such profits be transferred a sum equal to the nominal amount of shares to be redeemed to
a reserve, called Capital Redemption Reserve Account. The provision of this Act relating to
reduction of shares capital of a company shall apply as it the Capital Redemption Reserve
Account were paid – up share capital of the company. subject to provisions of this section.

(d) In case of such class of companies as may be prescribed and whose financial statement
comply with the accounting standard, the premium, if any payable on redemption shall be
provided for out of the profits of the company, before the shares are redeemed. The premium if
any payable on redemption of any preference shares issued on or before the commencement of
this Act by any such company shall be provided for out of the profits of the company or pout of
the company’s securities premium account before such shares are redeemed. In case of other
companies the premium, if any, payable on redemption shall be provided for out of the profits of
the company or put of the company’s securities premium account, before such shares are
redeemed.

Where company is not in a position to redeem any preference share or to pay dividend, if any; it
may issue further redeemable preference shares equal to the amount sue including dividend
thereon, in respect of the unredeemed preference shares and on issue of such further redeemed
preference shares, the unredeemed preference shares shall be deemed to have redeemed. This
means, preference shares may be redeemed by issuing further preference shares. The conditions
to be fulfilled are –

(i) Consent of the holders of three – fourths in value of such preference shares, and

(ii) With the approval of the Tribunal on petition made in this behalf.
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

This further issue shall not be deemed to be an increase or a reduction in the share capital of the
company.

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.

In future post, we will discuss issues related to transfer and transmission of securities.

Please note: I welcome your comments and feedback. This blog post is not a professional advice.
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