Section 326, The Companies Act, 2009

(1) The directors may, before recommending anydividend, set aside out of the profits of the company such sums as they think proper as a reserve or reserves which shall, at their discretion , be applicable for any purpose to which the profits of the company may be properly applied, and pending such application may, also at their discretion, either be employed in the business of the company or be invested in such investments (other than shares of the company) as the directors may from time to time think fit; and the directors may also without placing them to reserve, carry forward any profits which they may think prudent not to distribute. (2) The company in general meeting may upon the recommendation of the directors, resolve that it is desirable to capitalise any part of the amount for the time being standing to the credit of any of the company’s reserve accounts or to the credit of the profit and loss account or otherwise available for distribution. (3) Such sum may be set free for distribution among the members who would have been entitled to dividends in the same proportions on condition that the dividends be not paid in cash but be applied either in or towards paying up any amounts for the time being unpaid on any shares held by such members respectively or paying up in full unissued shares or debentures of the company to be allotted and distributed to creditors as fully paid up. (4) The company may decide by a resolution what part is to be distributed in cash or in shares and the directors shall give effect to such resolution. (5) Share premium account and a capital redemption reserve fund may, for the purposes of this subsection, only be applied in the paying up of unissued shares to be issued to members of the company as fully paid bonus shares. (6) Where a resolution under subsections (2) and (4) is passed, the directors shall make all appropriations and applications of the undivided profits resolved to be capitalised thereby, and all allotments and issues of fully-paid up shares or debentures, if any, and generally do all acts and things required to give effect to it. (7) The directors shall have power to make such provision by the issue of fractional certificates or by payment in cash or otherwise as they think fit in the case of shares or debentures becoming distributable in fractions. (8) Any person may be authorised by the directors to enter on behalf of all the members entitled under this section into an agreement with the company- (a) to provide for the allotment to each of the members respectively, credited as fully paid up, of any further shares or debentures to which they may be entitled upon such capitalisation; or (b) for the payment up by the company on their behalf, of the amounts or any part of the amounts remaining unpaid on their existing shares; and any agreement made under such authority shall be effective and binding on all the members.