Business Daily from THE HINDU group of publications
Sunday, Jul 02, 2006
Business Daily from THE HINDU group of publications Sunday, Jul 02, 2006 |
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Company Law Corporate - Bonus Announcements ICAI for bar on bonus issues from revaluation reserves K.R. Srivats
A guidance note issued by the ICAI states that bonus shares cannot be issued through capitalisation of revaluation reserves.
HIGHLIGHTING THE ROLE: The Union Minister for Company Affairs, Mr P.C. Gupta (right), with the ICAI President, Mr T.N. Manoharan, at a conference on `Role of Accountancy Profession in Promoting Economic & Social Development', in the Capital on Saturday.
New Delhi , July 1 The Institute of Chartered Accountants of India (ICAI) has decided to suggest to the Government that the company law be amended to explicitly specify that private companies cannot issue bonus shares through capitalisation of revaluation reserves. Speaking to Business Line, Mr T.N. Manoharan, President of ICAI, said: "The central council discussed this issue at its recent meeting. While appreciating and accepting the decision of Supreme Court, we have decided to suggest to the Ministry of Company Affairs that changes be made in the law to ensure that companies are not allowed to issue bonus shares out of revaluation reserves." He added that issuance of bonus shares out of revaluation reserves was not a corporate best practice and that there has to be an "explicit prohibition" on such actions under the Companies Act. A guidance note issued by the ICAI states that bonus shares cannot be issued through capitalisation of revaluation reserves. The apex court of the country had last year upheld a judgment of a High Court, which had in a case held that the respondent company (an unlisted private company) was entitled to issue bonus shares out of revaluation reserves. It was observed in the apex court's judgment that proviso to Section 205(3) of the Companies Act permits capitalisation of profits or reserve of a company for the purpose of issuing fully paid up bonus shares or paying up any amount for the time being unpaid on any shares held by the members of the company. It was, therefore, held that the Companies Act specifically permits utilisation of reserve arising from revaluation of assets for the purpose of issuing fully paid-up bonus shares.
More Stories on : Company Law | Bonus Announcements | Accountancy | Corporate Governance
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