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Use of share premium

This query is : Resolved 
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(Querist)
13 June 2012 Dear Experts,

A company has Rs. 7 Crore in share premium account and invested the same amount in other companies.

Is this allowed? Is sec 78 is not violated?

Is it beneficial to purchase this company?
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ARUN KUMAR MAITRA

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ARUN KUMAR MAITRA (Expert)
13 June 2012 Vide Section 78(2) in The Companies Act, 1956
(2) The share premium account may, notwithstanding anything in sub- section (1), be applied by the company-
(a) in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; or
(d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company.

Therefore , utilisation of Share Premium amount for any other purpose would amount to Reduction of Capital.
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