ABC Ltd. is engaged in the manufacture of ayurvedic medicines, sales are good. Over the years, it has built a good reputation in the market made the huge profits and its Balance Sheet as at 31st March, 2023 shows the fol

According to section 63(1) of the Companies Act, 2013 , a company may issue fully paid-up bonus shares to its members. in any manner whatsoever, out of- (Sources) Its free reserves Securities premium account The capital redemption reserve account No issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets Conditions for issue of Bonus Shares In terms of section 63(2) of the Companies Act, 2013 , no company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares, unless- Authorisation in AOA: It is authorised by its articles. Passing of Ordinary Resolution: It has, on the recommendation of the Board, been authorised in the general meeting of the company. No defaults: It has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it; it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus. Fully paid-up shares: The partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up. The company which has once announced the decision of its Board recommending a bonus issue, shall not subsequently withdraw the same. No issue in lieu of dividend: The bonus shares shall not be issued in lieu of dividend. Maximum number of shares to be issued: The company proposes to issue 1 bonus share for every 2 equity shares. The issued and fully paid-up shares are 10,00,000. Hence, the company wants to issue 5,00,000 shares, the face value of which will be ₹50,00,000 and reserve of equal amount is required. As per Section 71 of the Companies Act, 2013 , where the company has created a debenture redemption reserve account, the amount credited to such account shall not be utilised by the company except for the redemption of debentures. The aggregate of eligible reserves come to ₹40,00,000 (₹30,00,000+10,00,000). Hence, sufficient reserves are not available and the company cannot implement its proposal to issue 1 bonus share for every 2 shares.