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The Companies Act, 1956

Title : The Companies Act, 1956

Year : 1956



(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:-

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's1*[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 called2*[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 if2*[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 there under 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 under3[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)2*[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.

4*[(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 to5*[ten thousand rupees].

80A -6* Redemption of irredeemable preference shares, etc.

(1) Notwithstanding anything contained in the terms of issue of any preference shares, every preference share issued before the commencement of the Companies (Amendment) Act, 1988,-

(a) Which is irredeemable, shall be redeemed by the company within a period not exceeding five years from such commencement, or

(b) Which is not redeemable before the expiry of ten years from the sate of issue thereon in accordance with the terms of its issue and which had not been redeemed before such commencement, shall be redeemed by the company on the date on which such share is due for redemption or within a period not exceeding ten 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 referred to as unredeemed preference shares), it may, with the consent of the7*[Tribunal], on a petition made by it in this behalf and notwithstanding anything contained in this Act, issue further redeemable preference shares equal to the amounts due (including the dividend 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.

(2) Nothing contained in section 106 or any scheme referred to in sections 391 to 395, or in any scheme made under section 396, shall be deemed to confer power on any class of shareholders by resolution or on8*[any court or the Tribunal] of the Central Government to vary or modify the provisions of this section.

(3) If any default is made in complying with the provisions of this section,-

(a) The company making such default shall be punishable with fine which may extend to9*[ten thousand rupees] for every day during which such default continues; and

(b) Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine.]

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1. Substituted by Act 21 of 1999, Section 7, for "share premium account" (w.r.e.f. 31-10-1998).

2. Substituted by Act 65 of 1960, Section 23, for "the capital redemption reserve fund" (w.e.f. 28-12-1960).

3. Substituted by Act 65 of 1960, Section 23, for "section 601" (w.e.f. 28-12-1960).

4. Sub-section (5A) Inserted by Act 31 of 1988, Section 13 (w.e.f. 15-6-1988) and Substituted by Act 5 of 1997, Section 5 (w.e.f. 1-3-1997).

5. Substituted by Act 53 of 2000, Section 35, for "one thousand rupees" (w.e.f. 13-12-2000).

6. Inserted by Act 31 of 1988, Section 14 (w.e.f. 15-6-1988).

7. Substituted by Act 11 of 2003, Section 13, for "Company Law Board".

8. Substituted by Act 11 of 2003, Section 13, for "any court".

9. Substituted by Act 53 of 2000, Section 36, for "one thousand rupees" (w.e.f. 13-12-2000).

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(1)1*[Where at any time after the expiry of two years from the formation of a company or at any time after the expiry of one year from the allotment of shares in that company made for the first time after its formation, whichever is earlier, it is proposed to increase the subscribed capital of the company by allotment of further shares, then, -]

(a) Such2*[further] shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid up on those shares at that date;

(b) The offer aforesaid shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days from the date of the offer within which the offer, if not accepted, will be deemed to have been declined;

(c) Unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice referred to in clause (b) shall contain a statement of this right;

(d) After the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of directors may dispose of them in such manner as they mink most beneficial to the company.

Explanation.-In this sub-section "equity share capital" and "equity shares" have the same meaning as in section 85.

3*[(1A) Notwithstanding anything contained in sub-section (1), the further shares aforesaid may be offered to any persons [whether or not those persons include the person referred to in clause (c) of sub-section (1)] in any manner whatsoever -

(a) If a special resolution to that effect is passed by the company in general meeting, or

(b) Where no such special resolution is passed, if the votes cast (whether on a show of hands, or on a poll, as the case may be) in favour of the proposal contained in the resolution moved in that general meeting (including the casting vote, if any of the Chairman) by members who, being entitled so to do, vote in person, or where proxies are allowed, by proxy, exceed the votes, if any, cast against the proposal by members so entitled and voting and the Central Government is satisfied, on an application made by the Board of directors in this behalf, that the proposal is most beneficial to the company.]

(2) Nothing in clause (c) of sub-section (1) shall be deemed -

(a) To extend the time within which the offer should be accepted; or

(b) To authorise any person to exercise the right of renunciation for a second time on the ground that the person in whose favour the renunciation was first made has declined to take the shares comprised in the renunciation.

4*[(3) Nothing in this section shall apply -

(a) To a private company; or

(b) To the increase of the subscribed capital of a public company caused by the exercise of an option attached to debentures issued or loans raised by the company -

(i) To convert such debentures or loans into shares in the company, or

(ii) To subscribe for shares in the company:

5*[Provided that the terms of issue of such debentures or the terms of such loans include a term providing for such option and such term-

(a) Either has been approved by the Central Government before the issue of debentures or the raising of the loans, or is in conformity with the rules, if any made by that Government in this behalf; and

(b) In the case of debentures or loans other than debentures issued to, or loans obtained from, the Government or any institution specified by the Central Government in this behalf, has also been approved by a special resolution passed by the company in general meeting before the issue of the debentures or the raising of the loans.]]

6*[(4) Notwithstanding anything contained in the foregoing provisions of this section, where any debentures have been issued to, or loans have been obtained from the Government by a company, whether such debentures have been issued or loans have been obtained before or after the commencement of the Companies (Amendment) Act, 1963, the Central Government may, if in its opinion it is necessary in the public interest so to do, by order, direct that such debentures or loans or any part thereof shall be converted into shares in the company on such terms and conditions as appear to that Government to be reasonable in the circumstances of the case, even if the terms of issue of such debentures or the terms of such loans do not include a term providing for an option for such conversion.

(5) In determining the terms and conditions of such conversion, the Central Government shall have due regard to the following circumstances, that is to say, the financial position of the company, the terms of issue of the debentures or the terms of the loans, as the case may be, the rate of interest payable on the debentures or the loans, the capital of the company, its loan liabilities, its reserves, its profits during the preceding five years and the current market price of the shares in the company.

(6) A copy of every order proposed to be issued by the Central Government under sub-section (4) shall be laid in draft before each House of Parliament while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions.

(7) If the terms and conditions of such conversion are not acceptable to the company, the company may, within thirty days from the date of communication to it of such order or within such further time as may be granted by the court prefer an appeal to the court in regard to such terms and conditions and the decision of the court on such appeal and, subject only to such decision, the order of the Central Government under sub-section (4) shall be final and conclusive.]

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1. Substituted by Act 65 of 1960, Section 24, for certain words (w.e.f. 28-12-1960).

2. Substituted by Act 65 of 1960, Section 24, for "new" (w.e.f. 28-12-1960).

3. Inserted by Act 65 of 1960, Section 24 (w.e.f. 28-12-1960).

4. Substituted by Act 65 of 1960, Section 24, for sub-section (3) (w.e.f. 28-12-1960).

5. Substituted by Act 53 of 1963, Section 5, for the proviso (w.e.f. 1-1-1964).

6. Inserted by Act 53 of 1963, Section 5 (w.e.f. 1-1-1964).

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The1*[shares or debentures] other interest of any member in a company shall be movable property, transferable in the manner provided by the articles of the company.

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1. Substituted by Act 21 of 1999, section 8, for "shares" (w.r.e.f. 31-10-1988).
 
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Each share in a company having a share capital shall be distinguished by its appropriate number.

Provided that nothing in this section shall apply to the shares held with a depository.]
 
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1. Section 83 omitted by Act 22 of 1996, Section 30 and Schedule (w.r.e.f. 20-9-1995) and Inserted by Act 8 of 1997, Section 9 (w.r.e.f. 15-1-1997).
 
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1*[(1)] A certificate, under the common seal of the company, specifying any shares held by any member, shall be prima facie evidence of the title of the member to such shares.

2*[(2) A certificate may be renewed or a duplicate of a certificate may be issued if such certificate-

(a) Is proved to have been lost or destroyed, or

(b) Having been defected or mutilated or torn is surrendered to the company.

(3) If a company with intent to defraud renews a certificate or issues a duplicate thereof, the company shall be punishable with fine which may extend to ten thousand rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to3*[one lakh rupees], or with both.

(4) Notwithstanding anything contained in the articles of association of a company, the manner of issue or renewal of a certificate or issue of a duplicate thereof, the form of a certificate (original or renewed) or of a duplicate thereof, the particulars to be entered in the register of members or in the register of renewed or duplicate certificates, the form of such registers, the fee on payment of which, the terms and conditions if any (including terms and conditions as to evidence and indemnity and the payment of out-of-pocket expenses incurred by a company in investigating evidence) on which a certificate may be renewed or a duplicate thereof may be issued, shall be such as may be prescribed.]
 
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1. Section 84 re-numbered as sub-section (1) of that section by Act 65 of 1960, Section 25 (w.e.f. 28-12-1960).

2. Inserted by Act 65 of 1960, Section 25 (w.e.f. 28-12-1960).

3. Substituted by Act 53 of 2000, Section 37, for "ten thousand rupees" (w.e.f. 13-12-2000).

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(1) "Preference share capital" means, with reference to any company limited by shares, whether formed before or after the commencement of this Act, that part of the share capital of the company which fulfills both the following requirements, namely:-

(a) That as respects dividends, it carries or will carry a preferential right to be paid a fixed amount or an amount calculated at a fixed rate, which may be either free of or subject to income-tax; and

(b) That as respects capital, it carries or will carry, on a winding up or repayment of capital, a preferential right to be repaid the amount of the capital paid up or deemed to have been paid up, whether or not there is a preferential right to the payment of either or both of the following amounts, namely:-

(i) Any money remaining unpaid, in respect of the amounts specified in clause (a), up to the date of the winding up or repayment of capital; and

(ii) Any fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company.

Explanation.-Capital shall be deemed to be preference capital, notwithstanding that it is entitled to either of both of the following rights, namely:-

(i) That, as respects dividends, in addition to the preferential right to the amount specified in clause (a), it has a right to participate, whether fully or to a limited extent, with capital not entitled to the preferential right aforesaid;

(ii) That, as respects capital, in addition to the preferential right to the repayment, on a winding up, of the amounts specified in clause (b); it has a right to participate, whether fully or to a limited extent, with capital not entitled to that preferential right in any surplus which may remain after the entire capital has been repaid.

(2) "Equity share capital" means, with reference to any such company, all share capital which is not preference share capital.
(3) The expressions "preference share" and "equity share" shall be construed accordingly.
Last updated on August, 2016

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