The Companies Act, 1956
80. Power to issue redeemable preference shares.
1[80. Power to issue redeemable preference shares. (1) Subject to the provisions of this section, a company limited by shares may, if so authorised by its articles, issue preference shares which are, or at the option of the company are to be liable, to be redeemed:
(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 2 [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 3 [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 3[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 be provided by the articles of the company.
(3) The redemption of preference shares under this section by a company shall not be taken as reducing the amount of its authorised share capital.
(4) Where in pursuance of this section, a company has redeemed or is about to redeem any preference shares, it shall have power to issue shares up to the nominal amount of the shares redeemed or to be redeemed as if those shares had never been issued; and accordingly the share capital of the company shall not, for the purpose of calculating the fees payable under 4 [section 611], be deemed to be increased by the issue of shares in pursuance of this sub-section:
Provided that, where new shares are issued before the redemption of the old shares, the new shares shall not, so far as relates to stamp duty, be deemed to have been issued in pursuance of this sub-section unless the old shares are redeemed within one months after the issue of the new shares.
(5) 3[The capital redemption reserve account] may, notwithstanding anything in this section, be applied by the company, in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares.
5 [(5A) Notwithstanding anything contained in this Act, no company limited by shares shall, after the commencement of the Companies (Amendment) Act, 1996, issue any preference share which is irredeemable or is redeemable after the expiry of a period of twenty years from the date of its issue.]
(6) If a company fails to comply with the provisions of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to 6 [ten thousand rupees].
1.Subs. by Act 31 of 1988, sec. 12, for the heading “Redeemable preference shares” (w.e.f. 15-6-1988).
2. Subs. by Act 21 of 1999, sec. 7, for “share premium account” (w.r.e.f. 31-10-1998).
3. Subs. by Act 65 of 1960, sec. 23, for “the capital redemption reserve fund” (w.e.f. 28-12-1960).
4.Subs. by Act 65 of 1960, sec. 23, for “section 601” (w.e.f. 28-12-1960).
5. Subs. by Act 5 of 1997, sec. 5, for sub-section (5A) (w.e.f. 1-3-1997). Earlier sub-section (5A) was inserted by Act 31 of 1988, sec. 13 (w.e.f. 15-6-1988).
6.Subs. by Act 53 of 2000, sec. 35, for “one thousand rupees” (w.e.f. 13-12-2000)