12 August 2022
Can a Company redeem its Optionally Convertible Preference Shares (OCPS) at Discount, if so what procedures need to be followed and what are its requirements and limitations.
10 July 2024
Yes, a company can redeem its Optionally Convertible Preference Shares (OCPS) at a discount under certain conditions and subject to specific procedures and requirements. Here’s a detailed explanation:
### Redemption of Optionally Convertible Preference Shares (OCPS) at Discount
**1. Legal Provisions:** - According to Section 55 of the Companies Act, 2013, shares may be issued at a discount provided certain conditions are met. - Optionally Convertible Preference Shares are a special category of preference shares that have an option to convert into equity shares at the discretion of either the shareholder or the company.
**2. Redemption at Discount:** - Companies Act, 2013 allows a company to issue shares at a discount, subject to compliance with Section 53 and 54 of the Act. - For redemption of OCPS at a discount, the company must follow the provisions specified under Section 53 and 54, which include the requirement to issue shares at a discount being authorized by a special resolution passed in a general meeting of the company.
**3. Procedure and Requirements:** - **Authorization:** The redemption of OCPS at a discount must be specifically authorized by a special resolution passed in a general meeting of the company. This resolution must specify the terms and conditions of the redemption, including the discount rate. - **Approval by Board:** The Board of Directors must approve the redemption proposal, including the terms and conditions of the discount. - **Approval by Shareholders:** After the Board approval, the company must convene a general meeting and obtain approval through a special resolution passed by the shareholders. - **ROC Filing:** Once the special resolution is passed, the company must file the resolution with the Registrar of Companies (ROC) within 30 days of passing the resolution. - **Crediting to Capital Redemption Reserve:** The amount of the discount allowed on redemption must be transferred to the Capital Redemption Reserve Account as per Section 77A of the Companies Act, 1956 (if applicable).
**4. Limitations and Considerations:** - **Compliance:** The company must comply with all statutory provisions of the Companies Act and any other applicable laws. - **Approval Requirements:** Special resolution is mandatory for redemption at a discount. It must be passed by shareholders in a general meeting. - **Notification to Shareholders:** Shareholders must be notified of the terms and conditions of the redemption, including the discount rate. - **Regulatory Approval:** Depending on the circumstances and the amount of the discount, regulatory approvals may be required from authorities like the Reserve Bank of India (RBI) or Securities and Exchange Board of India (SEBI), if applicable.
**5. Documentation:** - Drafting and execution of a special resolution. - Filing of necessary forms and resolutions with the Registrar of Companies (ROC). - Amendments to the Articles of Association, if required.
### Conclusion
Redemption of Optionally Convertible Preference Shares (OCPS) at a discount is permitted under the Companies Act, 2013, provided it is authorized by a special resolution passed in a general meeting of the company. The process involves adherence to legal requirements, approvals from shareholders, and compliance with filing obligations with the ROC. It’s advisable to consult with a legal professional or company secretary to ensure all statutory requirements are met before proceeding with the redemption at a discount.
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