USE OF INNOVATIVE FINANCIAL PRODUCT BY SIYARAM SILK MILLS TO ISSUE BONUS PREFERENCE SHARES, FUNDED ENTIRELY FROM GENERAL RESERVES, TO ITS EQUITY SHAREHOLDERS

 USE OF INNOVATIVE FINANCIAL PRODUCT BY SIYARAM SILK MILLS TO ISSUE BONUS PREFERENCE SHARES, FUNDED ENTIRELY FROM GENERAL RESERVES, TO ITS EQUITY SHAREHOLDERS

FOR THE ATTENTION OF CFO’S ABOUT NEW FINANCIAL PRODUCT

FACTS

Siyaram Silk Mills has secured NCLT Mumbai’s approval under Section 230 of the Companies Act, 2013 for a unique Scheme of Arrangement that issues bonus preference shares to equity shareholders, funded entirely from general reserves. The scheme became effective on 30 July 2026, with a record date fixed as 22 August 2026.

KEY HIGHLIGHTS OF THE SCHEME

TRIBUNAL APPROVAL:

·     Sanctioned by NCLT Mumbai Bench on 21 July 2026.

·     Filed with RoC via Form INC-28, effective from 30 July 2026.

FUNDING SOURCE:

Entirely from general reserves (no cash outflow).

ENTITLEMENT STRUCTURE:

For every 1 equity share of ₹2 face value, shareholders receive:

·     Series I: 4 cumulative non-convertible redeemable preference shares (NCRPS), ₹10 face value, 9% dividend, redeemable within 3 years.

·     Series II: 3 cumulative NCRPS, ₹10 face value, 9% dividend, redeemable within 5 years.

LEGAL & REGULATORY CONTEXT

SECTION 230, COMPANIES ACT, 2013:

·     Provides for compromises/arrangements between a company and its shareholders/creditors.

·     Typically used for mergers, demergers, or restructuring; here innovatively applied for issuing bonus preference shares.

ADVANTAGES OF BONUS PREFERENCE SHARES

This approach is particularly advantageous because:

1. No cash is removed from the company at issuance; it is a book entry, not a payout. The “release of assets” occurs only at redemption.

2. Shareholders receive a listed, tradeable instrument. If they require liquidity, they can sell in the market. If not, they hold a preference share with its own rights.

3. This method directs surplus reserves to shareholders while preserving the company’s cash cushion for lenders and operations. The Tribunal specifically noted that this was not detrimental to other stakeholders.

4. It underwent the full Section 230 process, including shareholder and creditor meetings, Regional Director scrutiny, SEBI and stock exchange observation letters, making it a fully sanctioned and low-risk structure.

The significant takeaway for corporate lawyers and CFOs is that Section 230 is no longer limited to mergers, demergers and restructurings. It is increasingly being utilised as a strategic tool for capital allocation, functioning as a hybrid between a dividend and a buyback that provides companies greater control over timing and cash impact.

It is worth observing whether more financially robust listed companies begin to adopt this approach.

GOVERNANCE INSIGHT

This scheme demonstrates creative use of Section 230 beyond mergers/demergers, showing how companies can restructure reserves to reward shareholders.

 It also highlights NCLT’s willingness to sanction innovative capital structuring, provided statutory safeguards are met.

 

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