Incorporation of Companies and related matters-essential characteristics of companies

56. (1) Before a distribution is made by a company to

any shareholder, such distribution shall —

(a) be authorised by the board under subsection (2); and

(b) unless the company’s articles provide otherwise, be approved by the shareholders by ordinary resolution.

(2) The board of a company may authorise a distribution at such time and in such amount as it considers appropriate, where it is satisfied that the company will, immediately after the distribution is made satisfy the solvency test, provided that such board obtains a certificate of solvency from the auditors.

(3) The directors who vote in favour of a distribution shall sign a certificate setting that in their opinion, the company will satisfy the solvency test immediately after the distribution is made.

(4) In applying the solvency test for the purposes of this section, “debts” includes fixed preferential returns on shares ranking ahead of those in respect of which a distribution is made, except where the fixed preferential return is expressed to be subject to the power of the board to authorise distributions.

(5) A director who fails to comply with the requirements of subsection (2) shall be guilty of an offence and be liable on conviction to a fine not exceeding two hundred thousand rupees.