redeem the preference shares

inability of company to
Shares becomes.
Cs
Sometimes the redemption of Preterence due
that. The solution to this bu ththe tg
pany is not position to redeem
in a
discussed in the Companies Act, 2013. The sub-section
tion (3).
(3) of
problem
that section 55
Companies Act, 2013 provides
"11cre a conmpany is not in a position
l10 redeem any preferenco
h the termsol
on such shares in accordance with terms :
shar or
a r diridend, ifany,
slhares hereinafter veferred to as unredeemed preference shareciue sq
it ay, (suk
fissue
the consent of the holders of three-fourths in value of such preferen
may, hwiul
and with tlhe approval of the Tribunal on a petilion made by it in t h e
issue further redeenmable preference shares equal to the amount due i a
the dividend thereon, in respect of the unredeemed preference sh
0n the issue of such further redeemable preference shares, the
the unrod and
unredeemed
preference shares shall be deemed to have been redeemed"
The first proviso to this sub-section states that
The Tribunal shall, while giving approval under this sub-section, order th
redemption forthwith of preference shares hela by such persons who have nu
consented to the issue of further redeemable preference shares"
In nut-shell the above provisions may be summarized as under:
1. If company is not in a position to redeem its preference shares then
further new redeemable preference shares can be issued subject to two
conditions:
(a) To obtain the consent of the preference shareholders holding
3/4th in value, and
(6) Toobtain approval of the Tribunal on a petition madeby company
in this behalf.
2. The new redeemable preference shares may also be issued for arreas
of dividend such preference shares.
on

3. The Tribunal may order the

redemption of preference shares heldhave
by
dissenting preference shareholders. ie. those shareholders v s tor
not consented to the issue of
further redeemable preference snal
redemption purposes.
4. On the issue of such
shares, the unredeemed preference shares
deemed to have been redeemed.
Example 19 : [When company is not in a position to Pay to Preference >a
erence Shareholders

X Limited is going through

tough circumstances. The redemption or >,o.124 Prel
to rede
ence Shares of F 100 each is due ition o
at par. But the
them. The two years dividend is also in company is not in a pos abo
dilemma
arrears. The companyy is
1s in
in a ofrelated

the legal position. Suggest the aaw

situation in
company to come out of the sit view of rela
e n c es h a r e

provisions Companies Act, 2013. What would be the number of

of
preic
 if all
sissued if
be
issued the preference shareholders agree to the scheme proposed by the
to
under of
55(3) Companies Act, 2013?
section
any

ion: The sub-sectionis (3)

Solution: of section 55 of Companies Act, 2013 deals with the
due for
e where the company not in a position to redeem its preference shares consent
demption. In tthe light of this provision, the company is advised to obtain the
redemption. In
reference shareholders with 4th value and also approval of the Tribunal. The two
issued for the
ar's dividends are also in arrears. "The new preference shares may be
nominal value of preference shares along with the arrears of dividend.
to be redeemed

Number of Preference Shares to be issued:

Determination of
of Preference Shares (5,000 @ 7 100) 5,00,000
Nominal Value
in a r r e a r s (5,00,000 @ 12% for 2 Yrs.) 1,20,000
Preference Dividend
Preference Shareholders 6,20,000
TotalAmount due to

Shares to be issued = Rs.6,20,000 6.200 Preference Shares @

No. of Preference 100
7100 each