Section 78

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Avinash Soni (Querist)
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31 October 2012 Fees paid to Roc for increase in authorised share capital of Rs. 2 lacs, can it be adjusted against the security premium account.

Security premium is received on allotment of shares camed into existence after increase in authorised share capital.

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Ajay Mishra

Ajay Mishra (Expert)
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31 October 2012 Hi

Securities premium amount can not be adjusted again ROC expenses. It will be uses only for the benefit of shareholders.

Ajay Mishra

Ajay Mishra (Expert)
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31 October 2012
Utilisation of share premium account:

The security premium account may, notwithstanding anything contained in para 5, supra, be applied by the company—
(i) in paying up un-issued securities of the company to be issued to members of the company as fully paid bonus securities;
(ii) in writing off the preliminary expenses of the company;
(iii) in writing off the expenses of, or the commission paid or discount allowed on, any issue of securities or debentures of the company; or
(iv) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company.

Ajay Mishra

Ajay Mishra (Expert)
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31 October 2012
Share premium account is not a reserve fund

Share premium account or security premium account, though treated as paid-capital of company for a limited purpose, cannot be treated as reserve fund and, therefore, a company cannot write off its loses against share premium account unless it is permitted by law. Unless and until there is diminution of share capital and corresponding reduction in share premium account, no company can be allowed to write off or adjust loss against share premium account. Company court cannot mechanically approve minute of banking company to adjust its cumulative losses against share premium, especially when such company has already appropriated all reserves for writing off its losses and bad debt. [Global Trust Bank Ltd., In re (2005) 57 SCL 164 (AP)].
In terms of section 78 and section 100 unless and until there is diminution of share capital and corresponding reduction of share premium account, no company can be allowed to write off or adjust loss against share premium account. Unless articles of association of company permit utilization of share premium account for purposes other than section 78(2), company cannot pass resolution to that effect, nor
company court can approve such a resolution. If subscribed share capital in another company is lost or not properly represented by assets, same would not fall u/s 78, read with section 100. Where articles of association of petitioner company did not specifically permit utilization of share premium account for purposes other than those mentioned in section 78, share premium account could not be utilized for setting off of loss incurred due to investment in another company and therefore, petition seeking approval of resolution to that effect was to be dismissed. [Hyderabad Industries Ltd., In re (2004) 53 SCL 376 (AP)].

Avinash Soni

Avinash Soni (Querist)
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31 October 2012 But section 78 (2) ( iii) specifcally say that share premium can be utilised for " expenses incurred for issue of shares"

Ajay Mishra

Ajay Mishra (Expert)
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31 October 2012 Hi

But your expenses is for Increase of Authorised share capital which is already happened before issue of shares.

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