Question related allotment

Dear Parveen,

CORRECT

Thanks Uma Devi. But my doubt is i have made the remdemption first then allotment but the law says remdemption can be made only out of fresh issue.

The following conditions must be fulfilled for redemption of redeemable preference shares:

— The shares to be redeemed must be fully paid up;

— Redemption can be effected only out of profits which would otherwise have been available for dividend, or out of the proceeds of a fresh issue of shares made for the purpose of redemption;

— The premium payable, if any, on the redemption shall be provided for out of the profits of the company or out of the company’s securities premium account. Such provision shall be made before the shares are redeemed;

— If the redemption is out of the proceeds of a fresh issue of shares, the issue shall have been made specifically or inter-alia for the purpose of the redemption;

— If the redemption is out of distributable profits, the profits equivalent to the nominal amount of the shares redeemed must be transferred to capital redemption reserve account.

Unless the terms of the issue provide for conversion of preference shares into equity shares, the preference shares have to be redeemed only in cash.

The sanction of the court under section 100 of the Act would be necessary where preference shares are to be redeemed out of capital redemption reserve account created out of the profits of the company.

Two independent procedures are available to a company for redemption of preference shares. It may redeem the shares by following the procedure laid down under section 80 of the Act which is a special provision meant for redemption of preference shares or it may take recourse to the general provision under section 100 of the Act which is applicable for reduction of any capital including preference capital, in any manner