Share premium cannot be used to write off bad debts absent clear statutory authority in banking capital reduction.

A share premium account under section 78 of the Companies Act, 1956 is deemed paid-up share capital only for the limited reduction procedure under sections 100 to 105, and that fiction cannot be extended to let a banking company use it as a reserve fund or write off bad debts. Section 100 permits reduction of share capital only where authorised by the articles and otherwise lawful, while the Banking Regulation Act requires maintenance and reporting of reserve fund appropriations but does not authorise transfer of share premium for loss adjustment. The proposed minute was therefore not confirmable, because the accounting treatment was unauthorised and contrary to public interest.

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Issues: Whether the share premium account of a banking company could be utilised to make provision for bad and doubtful debts or to write off irrecoverable bad debts, and whether the proposed minute for such utilisation could be confirmed under the provisions governing reduction of share capital.

Analysis: The share premium account under section 78 of the Companies Act, 1956 is treated as paid-up share capital only for the limited purpose of the reduction procedure under sections 100 to 105. That deeming fiction cannot be extended so as to permit a banking company to treat share premium as a reserve fund or to appropriate it for writing off losses or bad debts. The provisions of section 100 authorise reduction of share capital only in the situations specified therein and only if such reduction is authorised by the articles and otherwise lawful. The Banking Regulation Act, 1949 obliges a banking company to maintain a reserve fund out of profits and to report appropriation from reserve fund or share premium account, but it does not authorise transfer of share premium to reserve fund or its use as a general loss-adjustment account. In the case of a banking company, the Court must also consider public interest and cannot mechanically approve a minute that would weaken the company's financial base or distort its accounts.

Conclusion: The proposed utilisation of the share premium account for writing off bad debts was not authorised by law and the minute could not be confirmed.

Final Conclusion: The petition failed and the requested reduction-related approval was refused because the proposed accounting treatment was illegal and unfair in the statutory framework.

Ratio Decidendi: The statutory fiction treating share premium as paid-up capital is confined to the reduction-of-capital procedure and cannot be enlarged to permit a banking company to apply share premium towards writing off losses or bad debts absent clear legal authorisation.

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