Capital redemption reserve

Co Act 2013 1114 views 2 replies

veeraraghavan

under articleship

35 Points Joined January 2014

As per S.55 of the Companies Act 2013, CRR equivalent to Nominal Value of Preferance Shares Redeemed shall be created out of Reserves available for Distribuion as dividend.

My Queries are as follows:

In Case of inadequacy of Reserves for Creation of CRR, what can the company do?
If company has redeemed without Creation of CRR , what is the penalty?
Section also specifies that CRR has to be created if Redemption is made out of profits only. Are there any other methods of Redemption and what's the Difference between the above and those methods?
Can inadequacy of profits for CRR Creation be considered as company being in a position not able to redeem the shares or pay dividend as per sub section 3 of Sec 55 & thereafter follow the procedures mentioned under that subsection?
For Creation of CRR whether Balance of reserves available for dividend should be considered from last audited Financials or as computed before the day of redemption or creation of CRR?

Kindly resolve the above queries & Participation from anyone is appreciated.

Replies (2)

P C Agrawal

Registered independent director Past Ch

8229 Points Joined March 2007

1. In case of inadequacy of profit, you may extend redemption period with the approval of members under the Act.

2. In case of default penalty u/s 450 will be applicable.

3. There is no other method if the shares are redeemed out of profit.

3. Sec.55(3) is not yet notified.

4. Balance in P&L available for dividend can be used. If the Board is certain of the current year profit, the same can be considered as profit available for dividend (since interim dividend can be declared by the Board out of such profit.).

veeraraghavan

under articleship

35 Points Joined January 2014

@ P C AGARWAL : Thank you for the clarifications. Can you slightly stress more on the first point wherein what will happen if the members does not approve for postponement of redemption? Is there any other section/case law/department clarification for dealing with such situations?