# Issue of Further Redeemable Preference Shares

## When a Company Cannot Redeem or Pay Dividend

### Triggering Situation

Where a company is not in a position:

to redeem any preference shares, OR
to pay dividend on such preference shares,

in accordance with the terms of issue — these are called 'unredeemed preference shares'.

## The Remedy: Further Issue

The company may issue further redeemable preference shares to holders of unredeemed preference shares.

### Conditions to be Satisfied

#	Condition
1	Issue must be equal to the amount due, including dividend thereon
2	Consent of holders of three-fourths (3/4) in value of such unredeemed preference shares
3	Approval of the Tribunal (NCLT) on a petition made by the company

## Legal Effect

On fulfilling the above, the unredeemed preference shares shall be deemed to have been redeemed.

## Treatment of Non-Consenting Shareholders

For preference shareholders who do not consent to the further issue:

The Tribunal, while granting approval under Section 55(3), shall order redemption forthwith of their shares.

## Flowchart Summary

```

Company unable to redeem / pay dividend

↓

Issue further redeemable preference shares

↓

To unredeemed preference shareholders (equal to amount due + dividend)

↓

3/4 in value consent + NCLT approval

↓

Old unredeemed pref shares DEEMED REDEEMED

↓

Non-consenting shareholders → Tribunal orders immediate redemption

```

Worked example

### Example 1

Example 1:

ABC Ltd has 1,00,000 unredeemed preference shares of ₹100 each with dividend arrears of ₹10 lakh. The company cannot redeem due to insufficient profits.

Total due = ₹1,00,00,000 + ₹10,00,000 = ₹1,10,00,000
ABC may issue further redeemable preference shares of ₹1.1 crore to existing holders.
Required: 75% of holders by value must consent, plus NCLT approval.

### Example 2

Example 2 — Dissenting Shareholders:

In the above case, holders of 20,000 pref shares (worth ₹20 lakh) refuse consent. What happens?

Answer: NCLT, while approving the scheme for consenting shareholders, will order immediate redemption of the 20,000 shares of dissenting holders.

⚠️ Common exam mistakes

Stating consent threshold as 'majority' or '3/4 in number' — it is 3/4 in VALUE of unredeemed shares.
Forgetting that NCLT approval is mandatory in addition to shareholder consent.
Overlooking that dissenting shareholders must be paid off — the company cannot force them into the new scheme.
Confusing this provision with Section 62 (further issue of shares) — Section 55(3) is specifically for unredeemed preference 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 (such shares hereinafter referred to as unredeemed preference shares), 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.

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Issue of Further Redeemable Preference Shares (Section 55(3))

Worked example

⚠️ Common exam mistakes