07 December 2011
Under Companies Act, 1956 section 78 it has been specifically stated as to how the securities premium account should be mandatorily used. Please read the said section below:-
78. Application of premiums received on issue of shares.—
(1) Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called “the [securities] premium account”; and the provisions of this Act relating to the reduction of the [securities] capital of a company shall, except as provided in this section apply as if the [securities] premium account were paid-up [securities] capital of the company.
(2) The [securities] 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.
(3) Where a company has, before the commencement of this Act, issued any shares at a premium, this section shall apply as if the shares had been issued after the commencement of this Act:
Provided that any part of the premiums which has been so applied that it does not at the commencement of this Act form an identifiable part of the company’s reserves within the meaning of Schedule VI shall be disregarded in determining the sum to be included in the [securities] premium account.
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