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CS Executive · Company Law and Practice · Distribution of Profits

Orion Steels Ltd has a capital redemption reserve account balance of ₹3 crore created on redemption of preference shares. The Board wants to use it to issue bonus shares to equity members. Which statement is correct?

The capital redemption reserve can be applied in paying up unissued shares to be issued to members as fully paid bonus shares. Section 55(4) allows this despite other restrictions, and section 63(1)(iii) lists it as a source. Bonus shares still cannot be issued in lieu of dividend.

  1. AIt cannot be used because the reserve is treated as paid-up share capital
  2. BIt can be applied in paying up unissued shares to be issued as fully paid bonus sharesCorrect
  3. CIt can be used only to issue bonus shares in lieu of dividend
  4. DIt can be used only after the Tribunal approves a reduction of share capital

Explanation

Section 55(4) says the capital redemption reserve account may be applied in paying up unissued shares to be issued to members as fully paid bonus shares. Section 63(1)(iii) also lists it as a source. Bonus shares cannot be issued in lieu of dividend under section 63(3), and no Tribunal approval is needed for this use.

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