Maxi-Capitals Ltd. redeemed its outstanding Redeemable Preference Shares of ₹5 crore out of its General Reserves. Accordingly, it transferred ₹5 crore to the Capital Redemption Reserve (CRR) Account as per Section 55 of the Companies Act, 2013. The Board now has accumulated losses of ₹1 crore and needs working capital. It proposes to: (i) use ₹1 crore of the CRR to write off the accumulated losses, and (ii) use the remaining ₹4 crore of the CRR to convert its existing partly paid-up equity shares into fully paid-up shares by adjusting the final call money. Which of the following statements correctly identifies the statutory limitations on the use of the CRR Account under Section 55 and the corresponding corporate action(s) that are strictly prohibited in this scenario?

Question

Accepted Answer

Both proposed uses are strictly prohibited, as the CRR account can only be applied in issuing unissued shares of the company to members as fully paid bonus shares.

Answer

Both proposed uses are permitted, provided the Articles of Association of the company authorize such utilization.

Answer

Only the use of CRR to write off accumulated losses is prohibited; the company can use the remaining CRR balance to convert partly paid-up equity shares into fully paid-up shares.

Answer

Only the use of CRR to convert partly paid-up shares is prohibited, while using CRR to write off accumulated losses is permitted with a special resolution.

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