Procedure For Redemption of Preference Shares Under Companies Act, 2013

• Section 55 of the Companies Act, 2013
• Read with Rule 9 of the Companies (Share Capital and Debentures) Rules, 2014.
• Terms of issue as approved by the shareholders

• Ensure that the Articles of Association of the company permit the redemption of preference shares.
• If not, alter the AOA by passing a special resolution under Section 14 of the Companies Act, 2013.

• Check the terms (redemption period, rate, mode, etc.) of issue of the preference shares.
• Ensure the shares are redeemable as per Section 55 of The Companies Act 2013

As per Section 55(2), preference shares can be redeemed:

· 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 purpose of redemption 

Note: If redemption is done out of profits, a Capital Redemption Reserve (CRR) equal to the nominal value of shares redeemed must be created. 

Pass the following resolutions:

1. Approve redemption of preference shares.

2. Approve notice of general meeting (if shareholder approval is required).

3. Authorize necessary filings and execution of documents.

Check if shareholder approval is required (e.g., if new issue of shares or capital restructuring is involved). 

If the AoA alteration or issuance of new shares or restructuring is involved, pass:

• Special Resolution for alteration or new issue
• Ordinary Resolution for redemption (if terms require shareholder approval) 

If redeeming out of fresh issue of shares file form PAS-3 with the ROC for return of allotment.

within 15 days of allotment

Ensure availability of:

• Profits available for dividend, or
• Proceeds of fresh issue of shares

Calculate premium on redemption, if any, and ensure it is paid out of profits or securities premium account.

• Pay the face value (and premium, if applicable) to the preference shareholders
• Redemption must be in accordance with Section 55.

(Ensure that fully paid-up shares only are redeemed. Partly paid shares must first be fully paid before redemption.)

• Transfer an amount equal to the nominal value of shares redeemed to Capital Redemption Reserve (CRR) account.
• CRR can only be used for issuance of fully paid bonus shares.

• File form SH-7 with the ROC within 30 days.
• Redemption details to be filed in the annual return (Form MGT-7/7A) and in financial statements (form AOC-4) of the respective financial year. 

• Update Register of Members and Register of Preference Shareholders.
• Update share capital structure in Books of Accounts. 

• Disclosure in financial statements towards – Amount redeemed, Creation of CRR and Source of funds used for redemption etc.
• Ensure audit compliance and reporting as per Schedule III of the Companies Act.