TMI Blog2000 (2) TMI 783X X X X Extracts X X X X X X X X Extracts X X X X ..... e value (Rs.) 8-10-1984 19,000 19,00,000 25-12-1985 10,891 10,89,100 15-11-1986 2,665 2,66,500 8-12-1988 4,349 4,34,900 1-12-1990 7,250 7,25,000 44,155 44,15,500". The first three categories of preference shares had a maturity period of 12 years while the remaining two categories of shares had a maturity period of ten years and they carried a dividend of 4 per cent. 3. On 3-10-1996, the appellant filed a petition under section 80A seeking consent of respondent No. 1 for issuance of 4 per cent redeemable preference shares equal to the amount due in respect of the unredeemed preference shares. The new shares were to have a ten year maturity period from the date of issue. 4. Some of the preference shareholders contested the petition of the appellant and pleaded for its dismissal by contending that the petition filed by them under sections 397 and 398 of the Act was pending before respondent No. 1 and they were not interested in the allotment of fresh redeemable preference shares. They prayed that either the appellant should pay the amount du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of higher dividend, the appellant is estopped from questioning the impugned condition. 7. We have thoughtfully considered the respective submissions. A careful reading of the order under challenge shows that after considering the averments made in the petition filed by the appellant under section 80A, respondent No. 1 held that the last two sets of preference shares cannot be considered for giving consent because the same were issued after the commencement of the Companies (Amendment) Act, 1988. It further held that the second and third categories of preference shares would become due for redemption only in December, 1997, and June, 1998 and therefore, it was not an appropriate stage for accepting the prayer of the company in respect of those shares. With respect to the first set of 19,000 preference shares, respondent No. 1 observed that as against the capital and reserves and surplus of the company amounting to Rs. 321.61 lakhs the accumulated losses were to the tune of Rs. 290.25 lakhs and it had also contingent liabilities in the form of dividend payable on preference shares for a number of years. Respondent No. 1 further noted that depreciation for the period from 1-4-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "80. Power to issue redeemable preference shares. (1) Subject to the provision of this section, a company limited by shares may, if so authorised by its articles, issue preference shares which are, or at the option of the company are to be liable, to be redeemed : Provided that ( a )no such shares shall be redeemed except out of the profits of the company which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purposes of the redemption; ( b )no such shares shall be redeemed unless they are fully paid; ( c )the premium, if any, payable on redemption shall have been pro vided for out of the profits of the company or out of the company's share premium account, before the shares are redeemed; ( d )where any such shares are redeemed otherwise than out of the proceeds of a fresh issue, there shall, out of profits which would otherwise have been available for dividend, be transferred to a reserve fund, to be called the capital redemption reserve account, a sum equal to the nominal amount of the shares redeemed; and the provisions of this Act relating to the reduction of the share capital of a company shall, except as pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of issue thereon in accordance with the terms of its issue and which had not been redeemed before such commencement, shall be redeemed by the company on the date on which such share is due for redemption or within a period not exceeding ten years from such commencement, whichever is earlier: Provided that where a company is not in a position to redeem any such share within the period aforesaid and to pay the dividend, if any, due thereon (such shares being hereinafter referred to as unredeemed preference shares), it may, with the consent of the Company Law Board, on a petition made by it in this behalf and notwithstanding anything contained in this Act, issue further redeemable preference shares equal to the amounts due (including the dividend thereon) in respect of the unredeemed preference shares, and on the issue of such further redeemable preference shares, the unredeemed shares shall be deemed to have been redeemed. (2) Nothing contained in section 106 or any scheme referred to in sections 391 to 395, or in any scheme made under section 396, shall be deemed to confer power on any class of shareholders by resolution or on any court or the Central Government to vary or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovides for dealing with the cases of default in complying with the provisions of section 80A. 12. The above analysis of sections 80 and 80A shows that the latter provision was enacted by Parliament to bail out those companies which were facing financial crunch and were not in a position to redeem the preference shares. For achieving this object, respondent No. 1 was invested with the power to give consent to the company's proposal for issuance of further redeemable preference shares equal to the amount due (including the dividend thereof) in respect of the unredeemed preference shares. By obtaining such consent, the concerned company could postpone its liability towards the holders of redeemable preference shares and thereby get breathing time. In our opinion, the nature of power vested in respondent No. 1 under section 80A to give consent for issuance of redeemable preference shares is very wide and pervasive and is not hedged in with any restriction. This implies that respondent No. 1 could give consent with or without conditions and the court can interfere with the discretion exercised by it only if the conditions are arbitrary, unreasonable or capricious. Therefore, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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