NCLT Ahmedabad Allows Reissue of Preference Shares as Redemption Profits Were Unavailable

In re Electrotherm (India) Limited (NCLT Ahmedabad)

The National Company Law Tribunal considered a petition filed by Electrotherm (India) Limited under Section 55(3) of the Companies Act, 2013 seeking approval to issue and allot 1,20,00,000 6% Non-Cumulative Redeemable Preference Shares (NCRPS) of ₹10 each to its existing preference shareholders in lieu of unredeemed preference shares that had become due for redemption. The company also sought a declaration that, upon such issue, the existing unredeemed preference shares would be deemed redeemed and that the transaction would not amount to an increase or reduction of share capital.

The company stated that it had originally issued the NCRPS during 2005 pursuant to shareholders’ resolutions. In 2006, after obtaining consent from all preference shareholders, the Board varied the redemption terms so that the shares became redeemable not earlier than two years and not later than twenty years from their respective dates of allotment. Consequently, 1,20,00,000 preference shares became due for redemption during March, April and May 2025.

According to the company, although it earned revenue of ₹4,271.50 crore and net profit of ₹319.43 crore during FY 2023-24, it continued to carry accumulated losses of ₹1,424.06 crore and negative retained earnings. It relied upon proviso (a) to Section 55(2) and the fourth proviso to Section 123(1) of the Companies Act, 2013, submitting that preference shares could be redeemed only out of profits available for dividend or proceeds of a fresh issue, and that carried-forward losses prevented declaration of dividend. The company therefore asserted that it was legally unable to redeem the preference shares out of profits and sought approval under Section 55(3).