Section 52: application of securities premium

Introduction

Section 52 ring-fences share premium. The reduction-of-capital provisions apply to the securities premium account as if it were paid-up share capital, except as the section provides.

Sub-section (2) lists general permitted uses. Sub-section (3) gives a narrower list for a prescribed class of companies whose financial statements comply with the accounting standards prescribed for that class under section 133.

Key takeaways

Credit the account

Whenever shares are issued at a premium, whether for cash or otherwise, transfer a sum equal to the aggregate premium received to the securities premium account.

• India Code — consolidated Companies Act, 2013, section 52
• Gazette of India — Companies Act, 2013 (No. 18 of 2013) as enacted
• MCA e-book — Companies Act, 2013, current version

General permitted uses

Under section 52(2), the account may be applied towards fully paid bonus shares from unissued shares; writing off preliminary expenses; writing off expenses of, or commission paid or discount allowed on, any issue of shares or debentures; providing for premium payable on redemption of redeemable preference shares or debentures; or buying back the company’s own shares or other securities under section 68.

Uses for the prescribed class

For a class of companies prescribed under section 52(3) whose financial statements comply with the accounting standards prescribed for that class under section 133, the account may be applied only to fully paid bonus equity shares, writing off expenses of or commission or discount on any issue of equity shares, or a buy-back under section 68. Identify from the current rules whether the company falls in the prescribed class.

Any other use is a reduction

A use outside the permitted list engages the provisions on reduction of share capital, because section 52(1) applies them as if the account were paid-up share capital.

Practical preparation

Record premium on every issue; determine whether the company is in the prescribed class under section 52(3); match each proposed use to the applicable list; treat any other use as a capital reduction.

Commencement and amendment record

Section 52 came into force on 1 April 2014 under S.O. 902(E) dated 26 March 2014. India Code’s consolidated text shows no amendment to this section, and the Companies (Amendment) Acts of 2015, 2017, 2019 and 2020 contain no amending instruction for it.

• eGazette — S.O. 902(E), 26 March 2014 (commencement from 1 April 2014)

Practical checklist

Glossary

Securities premium account

The account to which premium received on an issue of shares is transferred under section 52(1).

Bonus shares

Fully paid shares issued to members from unissued shares, a permitted use of the account.

Frequently asked questions