1. Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the premium received on those shares shall be transferred to a “securities premium account” and the provisions of this Act relating to reduction of share capital of a company shall, except as provided in this section, apply as if the securities premium account were the paid-up share capital of the company.
2. Notwithstanding anything contained in sub-section (1 ), the securities premium account may be applied by the company—
a. towards the issue of unissued shares of the company to the members of the company as fully paid bonus shares;
b. in writing off the preliminary expenses of the company;
c. in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company;
d. in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company; or
e. for the purchase of its own shares or other securities under section 68.
3. The securities premium account may, notwithstanding anything contained in sub-sections (1 ) and (2 ), be applied by such class of companies, as may be prescribed and whose financial statement comply with the accounting standards prescribed for such class of companies under section 133,
a. in paying up unissued equity shares of the company to be issued to members of the company as fully paid bonus shares; or
b. in writing off the expenses of or the commission paid or discount allowed on any issue of equity shares of the company; or
c. for the purchase of its own shares or other securities under section 68.
Legal Commentary & Landmark Judgments: Section 52
Section 52 of the Companies Act, 2013 mandates the transfer of all share premiums to a dedicated 'Securities Premium Account' and strictly circumscribes its permissible applications, applying capital reduction procedures to any unapproved utilization.
During forensic audits or restructuring schemes, verify that the securities premium account is never utilized to write off operational business losses, bad debts, or to pay dividends. Any application outside Section 52(2) requires a full-fledged capital reduction petition before the NCLT under Section 66; failure to do so will result in immediate rejection by the NCLT and RoC.