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CS Executive · Capital Market and Securities Laws · Issue of Capital and Disclosure Requirements

Kaveri Engineering Ltd wants to issue bonus shares. Its articles authorise it and the Board has recommended the issue. However, the company has defaulted in paying interest on its debentures. What is the position under the Companies Act, 2013?

The company cannot issue bonus shares. Section 63(2)(c) of the Companies Act, 2013 requires that the company has not defaulted in payment of interest or principal on fixed deposits or debt securities. General meeting approval does not cure this default condition.

  1. AIt may issue bonus shares if the general meeting approves
  2. BIt may issue bonus shares if the default is cured within one year after allotment
  3. CIt may issue bonus shares only to promoters
  4. DIt cannot capitalise reserves for bonus shares while the default subsistsCorrect

Explanation

Section 63(2)(c) says a company cannot capitalise profits or reserves for bonus shares unless it has not defaulted in payment of interest or principal on fixed deposits or debt securities. Shareholder approval does not override this condition, so option one is wrong.

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