TaxTMI 
TaxTMI 
2003 (11) TMI 349
X X X X Extracts X X X X
X X X X Extracts X X X X
....90 consisting of Rs. 1,57,50,439 equity shares of Rs. 10 each fully paid up and Rs. 27,50,000 fully paid up preference shares of Rs. 100 each. 3. The Balance sheet of the petitioner company as of 31st March, 2002 (annexed as Exhibit C-1 to the petition) shows that the petitioner has issued four types of preference shares as detailed below : Type Nos. Total value (Rupees) (1) 10.5% redeemable cumulative preference shares of Rs. 100 (Series N Preference shares) 2,50,000 2,50,00,000 (2) 10.75% redeemable cumulative preference shares of Rs. 100 (Series M Preference shares) 25,00,000 25,00,00,000 (3) 11.50% redeemable cumulative preference shares of Rs. 100 1,38,000 1,38,00,000 (4) 12.5% redeemable cumulative preference shares of Rs. 100 30,000 30,00,000 4. During the period between 1st April, 2002 and 30th September, 2002 the petitioner has redeemed 1,10,000 numbers of 11.5 per cent redeemable cumulative preference shares (i.e. part of shares mentioned at Sr. No. 3 above) and 30,000 numbers of 12 per cent redeemable cumulative preference shares (i.e. all of the shares mentioned at Sr. No. 4 above). As per the affidavit dated 8th July, 2003 sworn in by Mr. Arun Bhatt, M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....000 numbers of 10.5 per cent redeemable preference shares of series N (hereinafter referred to series N preference shares) were issued and allotted to Excell Mines and Industries on 16th September, 1999. All the shares are comprised in one share certificate bearing No. P/N/1 and stand in the name of Excell Mines and Industries Limited under Folio No. PREF/N/1. Copy of the said share certificate is annexed as F3 to the petition. The terms and conditions of the issue of the preference shares printed on the reverse side of the share certificate show that they have maturity period of 10 years from the date of allotment. On or after 30th September, 2002 the petitioner company as well as the or the share- holders have an option of early redemption to be exercised by giving one month's notice to other party. 7. From the terms of issue of series M and N preference shares, it is clear that the said shares are redeemable after 30th September, 2002 at the option of the petitioner or the shareholders by giving one month's notice. By a resolution passed in the meeting of the Board of Directors of the petitioner company held on 31st October, 2002 the petitioner company resolved to redeem all th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be redeemed : Provided that- (a )no such shares shall be redeemed except 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 purposes of the redemption; (b)no such shares shall be redeemed unless they are fully paid; (c )the premium if any, payable on redemption shall have been provided for out of the profits of the company or out of the company's security premium account before the shares are redeemed; (d)where any such shares are redeemed otherwise than out of the proceeds of a fresh issue, there shall, out of profits which would otherwise have been available, for dividend, be transferred to a reserve fund, to be called the capital redemption reserve account a sum equal to the nominal amount of the shares redeemed; and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the capital redemption reserve account were paid up share capital of the company. (2) Subject to the provisions of this section, the redemption of preference shares thereunder may be effected on such terms and in such manner as may....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wan submitted that redemption of preference shares amounts to a reduction of capital and can also be undertaken following general provi-sions for reduction of capital of any type equity or preference by following the provisions of section 100 of the Companies Act. According to Mr. Diwan, section 80 is a special provision which does not exclude general provisions relating to reduction contained in sections 100 to 104 of the Act. 10. Section 100 of the Companies Act reads as under : "100. Special resolution for reduction of share capital.-(1) Subject to confirmation by the Court, a company limited by shares or a company limited by guarantee and having a share capital, may, if so authorised by its articles, by special resolution, reduce its share capital in any way; and in particular and without prejudice to the generality of the foregoing power, may- (a )extinguish or reduce the liability on any of its shares in respect of share capital not paid-up; (b)either with or without extinguishing or reducing liability on any of its shares, cancel any paid up share capital which is lost, or in unrepresented by available assets; or (c )either with or without extinguishing or reducing liab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tal. The capital is not allowed to be reduced without permission and sanction of the court under section 100 of the Act. Section 100 applies to reduction of types of capital. Under section 86 of the Act, the share capital of the company can consist of only two types namely equity and preference share capital. By the Companies (Amendment) Act, 2000 equity capital is permitted to be of two types. Section 100 applies for reduction of any type of the capital of the company. Section100 makes no distinction between the preference share capital and the equity share capital. Thus, the equity share capital as well as the preference share capital of a company can be reduced in any way, if authorised by the articles, by a special resolution of the company subject to sanction of the court. The preference share capital of a company is generally redeemable and after introduction of section 80A by the Companies (Amendment) Act, 1988 even irredeemable shares issued prior to the amendment are made redeemable and have to be redeemed by the company within the time prescribed therein. A stranger dealing with the company therefore knows and understands that the preference share capital would be redeeme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er out of proceeds of a fresh issue of capital or out of the profits of a company which would otherwise be available for payment of dividend. In the former case, as the capital of the company is maintained, no permission of the court is necessary. In the latter case provisions as to the reduction of the shares capital are made applicable by virtue of proviso (d) to sub-section (1) of section 80. 14. Under clause (c ) of sub-section (1) of section 100, a company can pay back to the shareholder any paid up share capital which is in exercise of wants of the company. Redemption of the preference shares is nothing but paying back to the shareholders their preference share capital. This can be done subject to confirmation by the court if the capital is in excess of the wants of the company and the company is so authorised by its Articles and the company passes a special resolution to that effect. In my opinion, therefore preference shares can be redeemed not only in accordance with section 80 but, also in accordance with the provisions of section 100 of the Act. If the shares are to be redeemed not out of the fresh issue of shares made for that purpose nor out of the profits which would....