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CA Intermediate · Corporate and Other Laws · Share Capital and Debentures

Himalaya Textiles Ltd, an unlisted public company, has an authorised capital of Rs 10 crore. Its articles authorise it to issue preference shares. The board proposes to issue redeemable preference shares with a redemption period of 25 years from the date of issue, for a manufacturing activity that is not an infrastructure project. Under the Companies Act, 2013, what is the legal position?

The issue is not permitted. Under the Companies Act, 2013, redeemable preference shares must be redeemed within 20 years of issue. A longer period is allowed only for infrastructure projects, and the articles cannot override this limit, so a 25-year period for a manufacturing company is invalid.

  1. AThe issue is valid because the redemption period may be any period fixed by the articles
  2. BThe issue is not permitted because preference shares cannot be redeemed after 20 years, except for specified infrastructure projectsCorrect
  3. CThe issue is valid if the Tribunal approves the 25-year period
  4. DThe issue is valid only if the shares are fully convertible into equity shares at the option of the company

Explanation

A company limited by shares may issue preference shares redeemable within a maximum of 20 years from the date of issue. A longer period is allowed only for companies engaged in infrastructure projects, which is not the case here. The articles cannot override this statutory limit, so option A is wrong.

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