(1) No company limited by shares shall, after the commencement of this Act, issue any preference shares which are irredeemable.

(2) A company limited by shares may, if so authorised by its articles, issue preference shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue subject to such conditions as may be prescribed:

Provided that a company may issue preference shares for a period exceeding twenty years for infrastructure projects, subject to the redemption of such percentage of shares as may be prescribed on an annual basis at the option of such preferential shareholders.

(3) No company shall issue preference shares, unless there is, in the articles of the company, a provision for the redemption of such shares and such shares shall be redeemed—

1. at a fixed time or on the happening of a particular event;
2. during the lifetime of the company; and
3. either at a fixed premium or at par.

(4) The redemption of preference shares under this section by a company shall be made—

1. out of profits of the company which would otherwise be available for dividend; or
2. out of the proceeds of a fresh issue of shares made for the purposes of such redemption.

(5) Where any such shares are redeemed otherwise than out of the proceeds of a fresh issue, there shall, out of profits which would otherwise have been available for dividend, be transferred, a sum equal to the nominal amount of the shares redeemed, to a reserve, to be called the "Capital Redemption Reserve Account" and the provisions of this Act relating to reduction of share capital of a company shall, except as provided in this section, apply as if the Capital Redemption Reserve Account were paid-up share capital of the company.