Power to issue redeemable preference shares : A company limited by shares, if authorised by its articles, may issue preference shares which are liable to be redeemed at the option of the company before or on an appointed date. However, after the commencement of the Companies (Amendment) Act, 1996 no company limited by shares shall issue any preference share which is irredeemable or is redeemable after the expiry of a period of 20 years from the date of its issue. So long as the shares are not redeemed, the terms of redemption or conversion must be stated in the balance sheet together with the earliest date of redemption or conversion. In the matter of redemption of shares the auditor should confirm that the requirements of Section 80 have been complied with, viz. :
- that the shares redeemed were fully paid up;
- that the shares were redeemed out of profit available for distribution as dividend or out of proceeds of a fresh issue made for purpose of redemption;
- that the premium if any, on redemption, was provided for either out of the Securities Premium Account or out of divisible profits of the company; and
- that if the shares were redeemed out of profits, otherwise available for dividend, an amount equal to nominal amount of shares redeemed has been transferred to the Capital Redemption Reserve Account.
The Capital Redemption Reserve Account is treated as part of capital in the same way as Securities Premium Account. It cannot, therefore, be applied except for paying up unissued share capital of the company to be issued to members as fully paid up bonus shares.
Redemption of irredeemable preference shares : Section 80-A inserted by the Companies (Amendment) Act, 1988 requires that irrespective of the fact anything contained in the terms of issue of any preference shares, every preference share issued before the commencement of this said Act, which is irredeemable shall be redeemed by the company within a period not exceeding 5 years from the date of due thereon in accordance with the terms of its issue and which had not been redeemed before such commencement be redeemed by the company on the date of which such share is due for redemption or within a period not exceeding 10 years from such commencement whichever is earlier.
Provided that where a company is not in a position to redeem any such share within the period aforesaid and to pay the dividend, if any, due thereon (such shares being hereinafter refer to as unredeemed preference shares), the company may with the consent of the Tribunal on a petition made by it in this behalf and not withstanding anything contained in this Act, issue further redeemable preference shares equal to the amounts due to (including the dividend due thereon) in respect of the unredeemed preference shares and on the issue of such further redeemable preference shares, the unredeemed shares shall be deemed to have been redeemed.