Section 52 of companies act, 2013

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

17 December 2014 Can anyone explain the meaning of below provision of section 52 (1) of companies act, 2013 (Application of premiums received on issue of shares):

.......... and the provisions of this Act relating to reduction of share capital of a company shall, except as provided in this section, apply as if the securities premium account were the paid-up share capital of the company.

Thanks

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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23 July 2025 Certainly! Let’s break down the meaning of Section 52(1) of the Companies Act, 2013, specifically the part:

"...and the provisions of this Act relating to reduction of share capital of a company shall, except as provided in this section, apply as if the securities premium account were the paid-up share capital of the company."

🔍 Context: What is the Securities Premium Account?
When a company issues shares at a price higher than their face value, the extra amount received is called securities premium.
Example:
If face value of a share is ₹10, and it’s issued at ₹15, then ₹5 is the premium.

This premium is credited to a separate account called the Securities Premium Account, which is treated similarly to paid-up share capital in terms of its restricted use.

🧾 Section 52(1) Summary:
The securities premium received on share issues must be credited to a separate account (the Securities Premium Account).

This amount can’t be used freely like other profits. It has specific permitted uses (listed in Section 52(2), like issuing bonus shares, writing off expenses, etc.).

The critical part you asked about says:
The rules for reducing share capital under the Companies Act (which are quite strict and regulated) will apply to the securities premium account as if it were paid-up capital, except where this section itself allows certain uses.

✅ Meaning in Simple Terms:
You can only use the money in the Securities Premium Account for specific purposes (given in Section 52(2)) without following the procedure for reduction of share capital (which is a formal and complex process under Section 66 of the Act).

BUT, if you try to use the Securities Premium Account in any other way, the law will treat it just like paid-up capital, meaning:

You must go through the share capital reduction process, which includes:

Getting approval from shareholders and the Tribunal (NCLT)

Informing creditors

Following other legal formalities

📝 Example:
Let’s say a company has ₹10 crore in its Securities Premium Account.

If it wants to use ₹2 crore to issue bonus shares — ✅ Allowed directly under Section 52(2)

But if it wants to distribute it to shareholders or write off losses not allowed under Section 52(2) — ❌ Not allowed directly

The company would need to follow the share capital reduction process under Section 66.

🔐 Conclusion:
The law treats the Securities Premium Account almost like paid-up share capital to protect creditors and shareholders, ensuring it’s not misused. Only specific exceptions in Section 52(2) are allowed without formal capital reduction.

Let me know if you want help with those permitted uses too!

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