Share is a share in the Share capital of the Company. Shares and Debentures are movable properties transferable in the manner provided in the Articles of Association of the Company. The Companies Act will apply to Shares, but if nothing has been mentioned in the Act, then the Sales of Goods Act’s provisions will apply to Shares.
According to Section 43 of The Companies Act 2013, there are 2 kinds of Shares i.e. Equity Shares (Equity Shares with equal voting rights and Equity Shares with Differential Voting Rights) and Preference Shares. Preference Shares are those shares who has preference over the Equity Shares in terms of Dividend and on repayment of capital during the Winding up of the Company.
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Unlike Equity Shares having 1voting right per share, DVR shares carry more than or less than one voting right per share. However, the prospect of earning a high rate of Dividend compensates for this concession.
1. According to Rule 4 of Share Capital & Debenture Rules 2014, the AOA of the company gives the power to issue shares having DVR. If not then by passing a special resolution AOA may be altered by the Company.
(Standard Rule- File MGT 14 to the ROC within 30 days of passing the SR.)
1. Ordinary Resolution has to be passed, taking approval of shareholders to issue DVR. The voting power in respect of DVR shares of the company shall not exceed 74% of the total voting power in respect of equity shares with DVR issued at any point in time.
2. The Company has not defaulted in filing its Financial Statements in AOC 4 and Annual Returns in MGT 7 in the last 3 preceding Financial years.
3. The Company shall have no Existing Default in the following:-
Payment of Declared Dividend(Equity);
Repayment of matured Deposits or Interest;
Redemption of Preference Share;
Redemption of Debenture or Interests;
Interest on Payment of Dividend;
4. The Company has not defaulted in the past 5 years:-
Payment of Dividend on Preference shares;
Repayment of any term loan from PFIs or Banks;
Employee Statutory Dues;
Transferring the amount to IEPF( Investor Education Protection Fund)
However, the Company may issue DVR upon expiry of 5 years from the end of the financial year in which default was made good.
5. The Company has not been penalized by by Court or Tribunal during the last 3 years in the following acts:- RBI Act, 1934, SEBI Act, 1992, Securities Contracts (Regulation) Act, 1956, Foreign Exchange Management Act (FEMA), 1999, or any other special Act, under which such companies are being regulated by sectoral regulators.
According to Section 53 of the Companies Act 2013 Co cannot issue shares at discounts. Any share issued at a discount shall be void.
Exceptions to the above are:-
- Sweat Equity shares
- If a company is unable to repay its debt, then in pursuance of a Debt Restructuring Scheme in accordance to RBI Guidelines.
Where a Company fails to comply with the provisions of this section, such Company and Officer in default shall be liable to a penalty of the amount equal to the amount raised through the issue of shares at a discount or ₹5,00,000.
When a company issues shares at premium, a sum equal to the amount of premium shall be transferred to a separate account known as Securities Premium Account and the provisions relating to reduction of share capital shall apply as if the securities premium account were the PUSC of the Company.
Uses of Securities Premium Account
As per Section 52(2) of the Companies Act 2013, it generally cannot be used for any other purpose other than the following:-
1. Issue of fully paid up Bonus shares
2. To write off preliminary expenses
3. To write off commission paid and discount allowed on issue of share or debenture.
4. Redemption of Preference Share or Debentures
5. Buyback of shares
Case Laws to its Exception
In the case of M/s. Essel Finance Business Loans Limited, the NCLT Mumbai Bench approved the company’s petition to reduce its Securities Premium Account from ₹1,78,03,59,300 to ₹82,22,87,842. The NCLT’s approval allowed the company to adjust its financial statements by offsetting past losses against the securities premium, thereby improving its financial position.
Similarly, in the case of M/s. Essel Corporate Resources Private Limited, the NCLT Mumbai Bench permitted the company to utilize its Securities Premium Account to write off the debit balance of its Retained Earnings. This adjustment was sanctioned to align the company’s financial statements more accurately with its current financial status.
Therefore with NCLT’s approval, companies can utilize their Securities Premium Account to write off accumulated losses or adjust retained earnings, providing an exception to the provisions of Section 52 of the Companies Act, 2013.
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