Issue of Further Redeemable Preference Shares for Unredeemed Shares (Section 55(3))
# Issue of Further Redeemable Preference Shares [Section 55(3)]
## When this Provision Applies
Where a company is NOT in a position to:
Redeem any preference shares, OR
Pay dividend on such preference shares (called unredeemed preference shares)
in accordance with the terms of issue.
## What the Company May Do
The company may issue further redeemable preference shares to the holders of unredeemed preference shares.
## Conditions for Such Fresh Issue
Requirement
Detail
Amount
Equal to the amount due, including the dividend thereon
Consent
Consent of holders of three-fourths (3/4) in value of unredeemed preference shares
Approval
Approval of the Tribunal (NCLT) on petition by the company
## Legal Effect
Once the further redeemable preference shares are issued, the unredeemed preference shares shall be deemed to have been redeemed.
## Treatment of Non-Consenting Shareholders
In respect of preference shareholders who have NOT consented to the issue of further redeemable preference shares, the Tribunal shall order the redemption forthwith while granting approval under Section 55(3).
Worked example
### Example 1
Example 1: ABC Ltd. has 1,00,000 outstanding 8% preference shares of ₹100 each due for redemption but lacks funds. Total amount due (including dividend) = ₹1,08,00,000. With consent of holders representing at least 75% in value AND NCLT approval, ABC Ltd. may issue fresh redeemable preference shares of ₹1.08 crores. Non-consenting holders — NCLT will order forthwith redemption of their shares.
### Example 2
Example 2 — Consent Threshold: If only 60% (by value) of unredeemed preference shareholders consent, the company CANNOT proceed under Section 55(3) since the 3/4 threshold is not met.
⚠️ Common exam mistakes
Calculating consent by number of shareholders instead of by VALUE of shares held.
Forgetting that NCLT approval is mandatory in addition to shareholder consent.
Missing that the amount must include dividend due, not just face value.
Overlooking that non-consenting shareholders are entitled to forthwith redemption — they cannot be forced to accept new shares.
Bare-Act text Section 55(3) · Companies Act, 2013 · click to expand
Section 55(3) — Where a company is not in a position to redeem any preference shares or to pay dividend, if any, on such shares in accordance with the terms of issue, it may, with the consent of the holders of three-fourths in value of such preference shares and with the approval of the Tribunal on a petition made by it in this behalf, issue further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of the unredeemed preference shares, and on the issue of such further redeemable preference shares, the unredeemed preference shares shall be deemed to have been redeemed.