When securities like shares and debentures are issued to public more than their face value the excess is called security premium. As per the Section 78 of the Companies Act 1956, the amount of securities premium can be used by the company for the following purposes
(i) For paying up unissued shares of the company to be issued to members (shareholders) of the company as fully paid bonus share.
(ii) For writing off the preliminary expenses of the company.
(iii) For writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company.
(iv) For paying up the premium that is to be payable on redemption of preference shares or debentures of the company.
(v) Further, as per the Section 77A, the securities premium amount can also be utilised by the company to buy-back its own shares.