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CS Executive · Company Law and Practice · Distribution of Profits

Himalaya Pharma Ltd has authority in its articles, a Board recommendation, and a general meeting resolution for a bonus issue. It has paid all interest on its debt securities, but it has defaulted in depositing the employees' provident fund contribution for the last quarter. Which statement is correct?

Himalaya Pharma cannot proceed. Section 63(2)(d) requires that the company has not defaulted in statutory dues of employees such as provident fund, gratuity and bonus. Having paid debt interest satisfies only clause (c) and does not cure the provident fund default.

  1. AIt may proceed, as only default on debt securities matters
  2. BIt may proceed if the default is cured after allotment
  3. CIt may proceed if it issues the shares in lieu of the dividend
  4. DIt cannot capitalise reserves for bonus shares because of the default in employees' statutory duesCorrect

Explanation

Section 63(2)(d) bars capitalisation if the company has defaulted in statutory dues of employees such as provident fund, gratuity and bonus. Clause (c) separately covers deposits and debt securities, so clearing the debt interest does not help. Section 63(3) also forbids bonus in lieu of dividend.

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