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2008 (9) TMI 557 - HC - Companies LawScheme of Arrangement - Application of Share premium - Held that:- As it is clear that a company has the option to either transfer more than the requisite 10 per cent of its current profits to reserve (where it declares a dividend in excess of 20 per cent) or to carry the same forward in the Profit and Loss Account. It is also clear that the said reserve is a ‘free reserve’ which means, that there is no lien marked on, or obligation or limitation attached to such reserves. The company is not prohibited by any provision of the Act or the Rules from dealing with its free reserves in a manner, which is not opposed to any provision of the law. Pertinently, what the petitioner proposes to do is to firstly transfer to the Profit and Loss Account and then to disburse as special dividend, only that part of the General Reserves which are in excess of the statutorily required amount of General Reserve that it is obliged to maintain. The amount of ₹ 430,857,000 that it is proposing to disburse as special dividend from the out of the General Reserve by transferring the same to the Profit and Loss Account does not reduce the statutorily required level of General Reserve that the petitioner company is obliged to maintain. The said amounts, which are now sought to be disbursed as special dividend are assets of the company. A company is entitled to distribute its assets to its shareholders, as permitted by law. As the scheme has been approved by the shareholders by overwhelming majority and the secured creditors have given their consent to the same. No objection has been raised by any unsecured creditor despite notice. Therefore, see no impediment in the petitioner company transferring the amount of ₹ 430,857,000 from the General Reserves to the Profit and Loss Account of the company for being disbursed as special dividend to the shareholders.Therefore, sanction the scheme proposed by the petitioner company.
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