Section 63: Issue of bonus shares
This section explains the rules for issuing bonus shares to a company's members.
The section, clause by clause
What the section says
In plain terms
(1)A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of—
A company can issue fully paid-up bonus shares to its members from its free reserves, securities premium account, or capital redemption reserve account, as long as the reserves were not created by revaluing assets.
(1)(i)its free reserves;
(1)(ii)the securities premium account; or
(1)(iii)the capital redemption reserve account:
provisoProvided that no issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets.
(2)No company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares under sub-section (1), unless—
A company can only issue bonus shares if it is allowed to do so by its articles, has been authorised by a general meeting, has paid all its debts and employee dues, and has made all partly paid-up shares fully paid-up.
(2)(a)it is authorised by its articles;
(2)(b)it has, on the recommendation of the Board, been authorised in the general meeting of the company;
(2)(c)it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it;
(2)(d)it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus;
(2)(e)the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up;
(2)(f)it complies with such conditions as may be prescribed.
(3)The bonus shares shall not be issued in lieu of dividend.
Bonus shares cannot be issued as a replacement for dividend payments.
The right-hand column is written from the section text, not quoted from it, and it has no legal force. Where the two differ, the left-hand column is the law.
Amendment notes
- 1. Subs. by Act 22 of 2019, s. 10, for sub-section (2) (w.e.f. 2-11-2018).
- 2. Subs. by Act 29 of 2020, s. 12, for “one thousand rupees” (w.e.f. 21-12-2020).
- 3. Subs. by s. 12, ibid., for “or five lakh rupees whichever is less” (w.e.f. 21-12-2020).
Search the whole Act, or ask it a question, in the interactive browser.
Reproduced from the official India Code print for reference. Check the current text on India Code before you rely on it, and read the section alongside its Rules. Nothing here is legal advice.