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

Kaveri Foods Pvt Ltd issued 5,000 preference shares of Rs 100 each in 2015 with a stated redemption period of 25 years. The company is not an infrastructure company. A director argues that this is permissible because the articles authorise it. What is the correct position under the Companies Act, 2013?

The issue is not valid. Under the Companies Act, 2013 preference shares cannot be issued redeemable beyond twenty years, except for prescribed infrastructure companies. Kaveri Foods is not an infrastructure company, and the articles or a special resolution cannot override this statutory limit.

  1. AValid, as the articles can fix any redemption period
  2. BValid, if the shareholders pass a special resolution
  3. CNot valid, because preference shares cannot be issued for redemption beyond 20 years, except in specified infrastructure casesCorrect
  4. DValid, if the Tribunal approves the period

Explanation

A company cannot issue preference shares redeemable after more than 20 years from the date of issue, except for companies engaged in infrastructure projects, which may do so subject to prescribed conditions. Kaveri Foods is not such a company, so a 25-year term is not allowed whatever the articles say. The articles cannot override the statute.

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