Company law sec 78

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

14 September 2012 Dear All,

If the company has invested share premium amount of preference shares for purchase of equity shares of any other organisation by mistake last year what are the ways to rectify the said mistake.

Querist : Anonymous

Querist : Anonymous (Querist)

15 September 2012 Hi,

Please guide.

Querist : Anonymous

Querist : Anonymous (Querist)

15 September 2012 Hi,

Please guide.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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19 July 2024 Section 78 of the Companies Act, 2013 deals with the utilization of securities premium account. If a company has mistakenly utilized the share premium amount meant for preference shares to purchase equity shares of another organization, here’s how the mistake can be rectified:

1. **Rectification by Transfer**: The company can rectify the mistake by transferring an amount equal to the sum utilized (from the preference share premium) back to the securities premium account. This transfer must be done from profits not otherwise available for dividend or from the proceeds of a fresh issue of shares made for the purpose.

2. **Approval**: The rectification must be approved by the company’s board of directors and shareholders in a general meeting. A resolution needs to be passed authorizing the transfer of funds back to the securities premium account.

3. **Documentation**: The company should maintain proper documentation of the rectification process, including board resolutions, shareholders' resolutions, and entries made in the books of accounts reflecting the transfer of funds.

4. **Compliance**: Ensure compliance with all applicable provisions of the Companies Act, 2013, and rules prescribed thereunder. Any procedural requirements must be adhered to, including filing necessary forms with the Registrar of Companies (ROC) if required.

5. **Consultation with Professionals**: It is advisable to consult with legal and financial professionals to ensure compliance and to handle any complexities that may arise during the rectification process.

By following these steps, the company can rectify the mistake of utilizing preference share premium for purchasing equity shares and bring its accounts into compliance with the Companies Act, 2013. This ensures transparency and proper utilization of funds as per legal requirements.

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