Use this route only for the statutory inability
If a company cannot redeem preference shares or pay the applicable dividend according to the issue terms, Companies Act section 55(3) permits further redeemable preference shares subject to consent of holders representing at least three-fourths of the value of the affected preference shares and Tribunal approval on the company's petition. Ordinary redemption funding under section 55(2) is a different question. A board resolution or majority by headcount does not substitute for these conditions.
Read the applicable text: Companies Act, 2013, section 55 National Company Law Tribunal Rules, 2016, Rule 69 and Annexure B.
Build a value-weighted consent schedule
Identify the relevant unredeemed securities, holder, class, attributable value and valid consent. Tie the denominator to the affected population, and keep consent dates and signatory authority. If there are different classes or disputed holdings, establish the appropriate grouping and value basis before counting. A silence or an expired authorisation should not be treated as affirmative consent. Keep holder counts and the percentage of holders consenting separately for the Rule 69 petition particulars; neither replaces the value-based statutory test.
Reconcile the amount due and reserve cash for nonconsenting holders
Section 55(3) measures the further shares by the amount due in respect of the unredeemed shares, including dividend thereon. Reconcile principal and dividends actually due under the original terms, and avoid counting unpaid amounts twice. The Tribunal, while approving, must order forthwith redemption of the shares of persons who did not consent. Plan liquidity and reconcile that population separately. The examples assume the order distinguishes replacement and cash populations as stated.
Prepare Form NCLT.1 under Rule 69
The NCLT Rules, 2016 prescribe Form NCLT.1 and Annexure B documents for the petition. Compile registration and capital structure, charter authority, total shares issued, details and terms of unredeemed or dividend-affected shares, consent counts and values, and consent dates. Reconcile each total to the share records, dividend working and signed approvals. Annexure B calls for the charter documents, existing issue terms, the board and general meeting resolutions for the further issue, the latest audited financial statements with the relevant reports, verification affidavit, fee evidence and representation documents. Check the current registry instructions for filing mechanics. Rule 69 provides for a hearing before the Tribunal decides whether to approve the petition.
Apply the legal effect only when the further shares are issued
Approval is not itself deemed redemption. On the actual issue of further redeemable preference shares under the approved route, the replaced unredeemed shares are deemed redeemed. The statutory explanation says that issue or redemption under this section is not deemed an increase or reduction of share capital. Keep the issue record, separate cash redemption proof and the post-order register reconciliation.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Exactly three-fourths by value
Eligible holdings total ₹80 lakh by the agreed value basis. Valid consent covers ₹60 lakh, or 75%. The value threshold is met, subject to the other statutory and approval conditions.
Illustrative example 2: Headcount overstates support
Nine of ten holders agree, but hold only ₹68 lakh of ₹100 lakh affected value. Consent is 68%, leaving ₹7 lakh of value short of the threshold.
Illustrative example 3: Unverified consent excluded
Affected value is ₹60 lakh and apparent consent is ₹48 lakh, including an unsupported ₹5 lakh sign-off. Verified consent is ₹43 lakh against the ₹45 lakh threshold, short by ₹2 lakh.
Illustrative example 4: Replacement amount includes due dividend
Assume consenting holdings have ₹75 lakh principal and ₹6 lakh dividends due. The proposed amount for further shares is ₹81 lakh, subject to the approved terms and order.
Illustrative example 5: Cash plan for the nonconsenting population
Assume an order requires immediate redemption of ₹20 lakh of nonconsenting shares plus ₹1.5 lakh of separately established dividend due under the stated terms. Plan ₹21.5 lakh cash; ₹12 lakh available leaves a ₹9.5 lakh gap.
Illustrative example 6: Replacement units reconciled
An approved ₹30 lakh replacement amount is represented by further redeemable shares issued at ₹100 each under the assumed terms. That is 30,000 shares; match the total to holder-level allotments.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify affected shares | Issue terms, maturity and dividend evidence |
| 2 | Evidence inability to pay | Treasury forecast and board papers |
| 3 | Fix the affected population | Class register and denominator working |
| 4 | Verify holder authority | Ownership records and signed consents |
| 5 | Calculate consent by value | Holder and value schedules |
| 6 | Calculate the amount due | Principal and dividend reconciliation |
| 7 | Fund nonconsenting redemptions | Holder list and cash availability |
| 8 | Prepare the petition | Form NCLT.1 and Rule 69 documents |
| 9 | Execute the Tribunal order | Actual issue and redemption evidence |
| 10 | Close shareholder records | Old and new securities reconciliation |
Sixteen practitioner FAQs
1. Is ordinary redemption the same route?
No. Section 55(3) addresses inability and an approved further issue.
2. Is consent by headcount enough?
The threshold is by value.
3. Is exactly 75% enough for the value test?
It meets three-fourths; approval and other conditions still apply.
4. Can abstention be counted as consent?
Use affirmative supported consents.
5. Should consent from other classes enter the numerator?
Use the affected securities and obtain a class-specific analysis where needed.
6. What if a holder signs through a representative?
Verify the representative's authority.
7. Is unpaid dividend always zero until actually paid?
Determine the amount due under the terms and relevant legal facts.
8. Can the further issue ignore the amount due?
Section 55(3) ties the issue to that amount, including due dividend.
9. What form does Rule 69 name?
Form NCLT.1.
10. Should the articles be included?
Rule 69 calls for the charter provisions authorising the issue.
11. Does consent eliminate the Tribunal petition?
No. Tribunal approval is a separate requirement.
12. Can a dissenting holder be rolled over?
The proviso requires the Tribunal to order forthwith redemption of nonconsenting holdings.
13. Does the order itself trigger deemed redemption?
The statutory trigger is issue of the further shares.
14. Does this route automatically change share capital?
The statutory explanation provides that the issue or redemption is not deemed an increase or reduction.
15. Can the same dividend be counted twice?
Reconcile due, paid and proposed amounts by holder.
16. Which records close the file?
The order, issue records, proof of cash redemptions and reconciled register.
Official sources
Companies Act, 2013, section 55 National Company Law Tribunal Rules, 2016, Rule 69 and Annexure B