KARUN PANDEY

Contemporary Statutory law

Governing the Doctrine of Capital
Maintenance
1) Financial assistance:
58 (2) : No company limited by shares other than private
company or a subsidiary company of a public company,
shall give whether directly or indirectly, and whether by
means of a loan guarantee the provision of security or
otherwise any financial assistance for the purpose of or in
connection with a purchase made or to be made by any
person of any shares in the company:

Provided that nothing in this section shall, where the lending

of money is part of the ordinary business of a company, be
taken to prohibit the lending of money by the company in
the ordinary course of its business.
2)Purchase of own share: A company limited by shares is
not generally entitled to buy its own shares unless they
follow the proper procedure of it prescribed under the
provisions of the Companies Act, 1994. However, a
company can buy its own shares out of its profit capital
as per the Companies Act, 1994.
58) Restriction on purchase by company or loans by
Company for purchase of its own shares
No company limited by shares shall have power to buy its
own shares or the shares of a public company of which it is
a subsidiary company, unless the consequent reduction of
capital is effected and sanctioned in the manner provided
by sections 59 to 70.

If a company acts in contravention of this section, the

company, are every officer of the company who is
knowingly and willfully in default shall be liable to a fine
not exceeding five thousand taka.
4)Reduction of Capital: Every creditor shall be entitled
to bring objection to the court against that reduction.
The Court if satisfied with respect to every creditor of
the company who under this Act is entitled to object to
the reduction, that either consent to the reduction has
been obtained or his debt or claim has been
discharged or has been determined or has been
secured may make an order confirming the reduction
on such terms and conditions as it thinks
59. Reduction of share capital.
(1) Subject to confirmation by the Court, a company limited by shares, if so
authorised by its articles, may by special resolution reduce its share capital in
any way, and in particular the company may, as part of this general power--
(a) extinguish or reduce the liability on any of its shares in respect of share capital
not paid-up;
(b) either with or without extinguishing or reducing liability on any of its shares,
cancel any paid-up share capital which is lost or presented by available assets;
(c) either with or without extinguishing or reducing liability on any of its shares,
pay off any paid-up share capital which is in excess of the wants of the
company;
(d) so far as is necessary, alter its memorandum by reducing the amount of its
share capital and of its shares accordingly.
(2) A special resolution under this section is in this Act called a resolution or
reducing share capital.
4) DIVIDEND
No dividend shall be paid otherwise than out of
profits of the year or any other undistributed profits.

pay dividend in proportion to the amount paid-up

on each share where a larger amount is paid-up on
some shares than on others. sec52 (iii)
SINGAPORE
The Companies (Amendment) Act 2005 has reformed
the law of Singapore on capital maintenance
substantially. It has, inter alia, enabled a company that
satisfies the requisite solvency tests to reduce capital,
engage in financial assistance and share buyback. It is
argued that whilst the reforms have reduced
compliance costs, the failure to bring the solvency-
based reforms to their logical conclusion has made
Singapore laws on capital maintenance incoherent.