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

Sunrise Pharma Ltd has issued 20,000 preference shares of ₹100 each. The company now wants to issue further preference shares carrying a right to redeem them after 25 years from the date of issue. Under the Companies Act, 2013, which statement is correct?

The issue is not permitted. Preference shares cannot be issued with redemption beyond 20 years from the date of issue. The exception is for companies setting up and financing infrastructure projects, and a pharma company does not qualify, so a 25-year term is invalid.

  1. AThe issue is valid provided shares are redeemed only out of capital
  2. BThe issue is valid since there is no upper limit for redemption of preference shares
  3. CThe issue is valid only if the Tribunal approves the redemption period
  4. DThe issue is not permitted, because preference shares generally cannot be issued for more than 20 years, except for infrastructure projectsCorrect

Explanation

A company cannot issue preference shares redeemable beyond 20 years from the date of issue, except for companies engaged in setting up and financing infrastructure projects, which may issue them for longer, subject to conditions. Here the company is a pharma firm and proposes 25 years, so it is not permitted. Tribunal approval does not remove the 20-year limit.

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