Section 208 - payment of interest out of capital

praveen (Chartered Accountant) (6971 Points)

18 February 2011

Please explain me about what is Payment of interest out of capital

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CA Sumat Singhal (Credit Analyst/ Financial Services/ Accounts & Finance) (3677 Points)
Replied 18 February 2011

Power of company to pay interest out of capital in certain cases.—

(1) Where any shares in a company are issued for the purpose of raising money

to defray the expenses of the construction of any work or building, or the

provision of any plant, which cannot be made profitable for a lengthy period, the

company may—

(a) pay interest on so much of that share capital as is for the time being paidup,

for the period and subject to the conditions and restrictions

mentioned in sub-sections (2) to (7); and

(b) charge the sum so paid by way of interest, to capital as part of the cost of

construction of the work or building, or the provision of the plant.

(2) No such payment shall be made unless it is authorised by the articles or

by a special resolution.

(3) No such payment, whether authorised by the articles or by special

resolution, shall be made without the previous sanction of the Central Government.

regards, sumat singhal

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