Section 378ZJ Companies Act 2013 - Issue of Bonus Shares
Section 378ZJ of the Companies Act, 2013 forms part of the special statutory framework for Producer Companies. It permits a Producer Company to issue bonus shares from its general reserves, subject to the recommendation of its Board and approval by resolution in the general meeting.
Text of Section 378ZJ - Issue of Bonus Shares
Any Producer Company may, upon recommendation of the Board and passing of resolution in the general meeting, issue bonus shares by capitalisation of amounts from general reserves referred to in section 378Z-I in proportion to the shares held by the Members on the date of the issue of such shares.
Legislative note: Section 378ZJ was inserted by section 52 of the Companies (Amendment) Act, 2020 (Act 29 of 2020) and came into force on 11 February 2021.
Meaning and Scope of Section 378ZJ
Section 378ZJ creates a specific mechanism for the issue of bonus shares by a Producer Company. A bonus issue under this provision does not involve a fresh cash payment by Members. Instead, an eligible amount standing in the general reserves is capitalised and converted into shares for existing Members.
The provision links the source of the bonus issue to the general reserves maintained under Section 378Z-I. The bonus shares must be distributed proportionately according to the shares held by each Member on the date of issue.
Conditions for Issue of Bonus Shares by a Producer Company
- Producer Company: The issuing entity must be a Producer Company governed by the relevant provisions of Chapter XXIA of the Companies Act, 2013.
- Board recommendation: The proposal to issue bonus shares must first be recommended by the Board.
- General meeting resolution: A resolution approving the bonus issue must be passed in the general meeting.
- Source of capitalisation: The bonus shares are issued by capitalising amounts from the general reserves referred to in Section 378Z-I.
- Proportionate allotment: Shares are to be issued in proportion to the shares held by Members on the date of the issue.
Section 378Z-I - General and Other Reserves
Section 378Z-I requires every Producer Company to maintain a general reserve in every financial year, in addition to any reserve that may be specified in its articles. Section 378ZJ expressly identifies this general reserve as the source from which amounts may be capitalised for a bonus issue.
Relationship with the General Bonus Share Provision
Section 63 of the Companies Act, 2013 contains the general statutory provisions governing issue of bonus shares by companies. Section 378ZJ separately addresses bonus shares in the specific context of Producer Companies and expressly identifies the general reserves under Section 378Z-I, Board recommendation, general meeting approval and proportionate issue to Members. The applicable provisions of the Act, the company's articles and relevant rules should therefore be checked together before implementing a bonus issue.
Practical Effect of Section 378ZJ
The provision enables accumulated general reserves of a Producer Company to be converted into share capital for the benefit of existing Members. Because the allotment is proportionate to existing shareholdings, the section is designed to preserve the relative shareholding position of Members at the date of issue, subject to compliance with the Act and the company's governing documents.