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The Companies Act, 1956

Prospectus and Allotment and Other Matters Relating to Issue of Shares or Debentures (55 to 81)

Section 78 Application of premiums received on issue of securities.

Section 78 Application of premiums received on issue of securities. 

(1) Where a company issues securities at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those securities shall be transferred to an account, to be called "the securities premium account"; and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the securities premium account were paid-up securities capital of the company.

(2)The securities premium account may, notwithstanding anything in sub-section (1), be applied by the company-

(a) in paying up unissued securities of the company to be issued to members of the company as fully paid bonus securities;

(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 securities or debentures of the company; or

(d) in providing for the premium payable on the redemption of any redeemable preference securities or of any debentures of the company.

(3) Where a company has, before the commencement of this Act, issued any shares at a premium, this section shall apply as if the securities had been issued after the commencement of this Act:

Provided that any part of the premiums which has been so applied that it does not at the commencement of this Act form an identifiable part of the company's reserves within the meaning of Schedule VI, shall be disregarded in determining the sum to be included in the securities premium account.