Can Compulsory Convertible Preference Shares (CCPS) be Issued Under Right Issue?
Answer – is No
Reason: In case of issue of Preference Shares company have to comply Section 62 along with Rule 13 & Section 55 along with Rule 9, However Section 62 (1) (a) & (b) don’t restrict to follow the Right Issue process but Section 62 (1) (c ) which talk about “to any persons, if it is authorised by a special resolution, whether or not those persons include the persons referred to in clause (a) or clause (b),” And Section 55 and rule 9 which is specifically deal with Issue and Redemption of Preference Shares the Rule 9 (1) (a) clearly state that “the issue of such shares has been authorized by passing a special resolution in the general meeting of the company” Means to issue Preference Shares every company have to pass special resolution and if any shares which are being issue after passing special resolution, its become necessary to comply all three section i.e. Section (42, 55 & 62) and their respective rule (14, 9 and rule 13)
Text of rule 13
’’ (1) For the purposes of clause (c) of sub-section (1) of section 62, If authorized by a special resolution passed in a general meeting, shares may be issued by any company in any manner whatsoever including by way of a preferential offer, to any persons whether or not those persons include the persons referred to in clause (a) or clause (b) of sub-section (1) of section 62 and such issue on preferential basis should also comply with conditions laid down in section 42 (private placement) of the Act: ‘’
Hence the CCPS can’t be issued Under Right Issue, and company have to follow the process Private placement and Preferential allotment
Now Company also Need to
- Call EGM,
- Pass Special Resolution
- Filing of Form MGT-14
- Issue of form PAS-4 (offer letter)
- Valuation Report
- Payment deposit in separate bank account
- and as prescribed under rule 9,13 & 14
Author Bio
I disagree with the above. CCPS can be issued on a rights basis. Only thing that you have to pass a special resolution u/s 55 to issue preference shares but it does not mean that CCPS cannot be issued on a rights basis.
Dear Professional, Can you please explain your point ? as per you if a company which is going to issue CCPS very first time can offer the share under the right issue and there is no need to follow section 42, 55 and respective rules, valuation report also not required ? but as per my opinion if company has already issued CCPS in that case further issue may be done through right issue but not in case of first time issue of CCPS….rest correct me
Dear Vishant,
Which provision restricts a company for issuing CCPS by way of rights issue?
I agree with you