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Whether Premium on preference shares can be refunded in cash

CA Pavithra S (Chartered Accountant) (92 Points)

01 July 2010

Hi all,

I have a question relating to Premium received on issue of preference shares.

A Pvt Ltd received the premium on issue of preference shares (which are convertible pref shares), Later some year the company wants to issue equity shares to the preference shareholders at par and premium received on issued preference shares can be refunded in cash during that time ?

Or else only Section 78 applies- utilization of security premium.

Awaiting reply.

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9 Replies

Max Payne (employed) (2569 Points)
Replied 01 July 2010

Hi u r right that section 78 applies - we can use the security premium only for the limited purposes specified in that section.

As per my knowledge, only when the company is liquidated, the amount standing in the security premium can be distributed in cash to the shareholders.

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Amit Sarawgi (C.A. Final & Arical) (101 Points)
Replied 01 July 2010

No, Company can not pay the premium in cash to them according to Sec. 78. They can issue Equity Shares at premium.

and Share Call money can received only by Bank no Cash transaction are allowed.

praveen (Chartered Accountant) (6971 Points)
Replied 01 July 2010

ya cash cannot be paid

Yogesh Bhatt (Company Secretary) (475 Points)
Replied 01 July 2010

we can use the security premium only for the limited purposes specified in that section 78.

neha AWASTHI (hh) (230 Points)
Replied 01 July 2010

(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 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.

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CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 01 July 2010

Agreed with the learned members Securities Premium Account can be used for limited purposes as mentioned under section 78.

Rakesh Kumar (B.Com ( H ) Pursuing CA Final ) (327 Points)
Replied 02 July 2010

As per sec 78 premium received on issue of securities cannot be refunded in cash..but only can b utilised in writing off preliminary expenses..or discount or commission on issue shares n debentures, for paying premium on redemption of pref.shrs or debentures, utilised for issue of fully paid bonus shares...