Skip to content

CS Executive · Company Law and Practice · Distribution of Profits

Meera Engineering Ltd has an articles clause authorising capitalisation of profits, and the Board has recommended a bonus issue. The company has, however, defaulted in paying the provident fund contribution of its employees. Can it proceed with the bonus issue?

The company cannot proceed. Under section 63(2)(d), a company that has defaulted in statutory dues of employees, such as provident fund contribution, gratuity and bonus, cannot capitalise profits or reserves for bonus shares. Authorisation in the articles and a Board recommendation do not remove this bar.

  1. AYes, because the articles authorise it and the Board has recommended it
  2. BYes, if the general meeting passes a special resolution
  3. CYes, if the default is disclosed in the notice of the meeting
  4. DNo, because it has defaulted in payment of statutory dues of employees such as provident fundCorrect

Explanation

Section 63(2)(d) bars capitalisation if the company has defaulted in statutory dues of employees such as provident fund, gratuity and bonus. The articles and Board recommendation are only some of the conditions, and all must be satisfied. A special resolution or disclosure does not cure the default.

Did you get it right without looking?

One question tells you little. A timed set on Distribution of Profits shows your real accuracy, how long you take and where you lose marks.

Practise Distribution of ProfitsFree diagnostic mock

More Distribution of Profits questions