Whether the value of Preference Shares can be included while computing “net worth” under the Companies Act, 2013? – Teq Green Power XIII Pvt. Ltd. Vs. REMC Ltd. – Delhi High Court

Hon’ble High Court held that (i) A perusal of Section 55 provides that preference shares cannot be redeemed within the share capital of the company. It means that other than two sources i.e., out of profits and out of proceeds of fresh issue of shares, no other source can be used for redemption of preference shares.
(ii) Calculation of net worth and drawing up of a balance sheet are therefore separate concepts. It is well settled that if the preference shares are not redeemed, the holder of the preference shares does not assume the status of a creditor.
(iii) Balance sheet is not an indicator of the true net worth of a company. Balance sheet reflects the share capital of a company and its treatment as an asset or liability to the company on the date of preparation of the balance sheet.
(iv) Only when the preference shares are redeemable at the instance of the shareholders then only the preference shares can be called as a liability and not in all cases. Preference shares are redeemed out of profits or out of a fresh issue meant for the purpose and not from the existing share capital.
(v) The preference shares in question are preference shares redeemable at the instance of the issuer without any fixed term or tenure attached to these shares. Such shares would form part of paid-up share capital which in turn is a component of net worth. We are therefore of the opinion that the shares in question can form a part of the net worth within the scheme and mandate of the Companies Act.

Whether the value of Preference Shares can be included while computing “net worth” under the Companies Act, 2013? – Teq Green Power XIII Pvt. Ltd. Vs. REMC Ltd. – Delhi High Court Read Post »