Section 62: Further Issue of Shares (Right Issue of Shares)

Introduction: The concept of the rights issue of shares under Section 62 of Companies Act, 2013 offers a strategic avenue for companies looking to increase their subscribed capital. This procedure enables existing shareholders to purchase additional shares, maintaining their proportionate ownership in the company. The process is delineated by specific steps, including the issuance of a letter of offer, a defined acceptance period, and adherence to legal and regulatory requirements, ensuring fairness and transparency in the capital augmentation process. Understanding the intricacies of the rights issue is crucial for both companies and shareholders to navigate this opportunity efficiently.

RIGHT ISSUE OF SHARES: –

1. If at any time, a company proposes to increase its subscribed capital by issue of further shares, such shares would be offered first to the existing shareholders on proportionate basis. Such issue of shares is known as rights issue of shares.

2. A letter of offer is required to be sent to such shareholders at least 3 days before the issue opens.

3. Right issue shall remain open for a minimum period of 7 15 days and for a maximum period of 30 days, in which shareholders shall decide whether they wish to subscribe to the shares or not. However, if 90% of the members of a private limited company have given their consent either in writing or through electronic mode, time limit for acceptance of offer by existing shareholders may be less than 15 days.

4. The shareholders may either accept, refuse, or renounce the offer made to them provided the same is warranted by the terms of the articles. In case of no reply, the offer shall be treated as declined.

5. If the offer is given to some other persons other than the existing shareholders, the following conditions are required to be met.

i. A special resolution in the general meeting shall be passed to that effect.

ii. The company has obtained a valuation report from the registered valuer to determine the value of such shares.

6. The provisions of section 62 are applicable to all types of companies except the Nidhi companies

Exceptions:-

1. The above provisions are not applicable in case of conversion of loans or debentures into share of the company.

2. In the public interest, if government has issued directions for the conversions of debentures or loans obtained from any government into the shares.

PROCEDURE FOR RIGHTS ISSUE: –

1. Check whether the rights issue results in increase of authorized capital.

2. If so, call a board meeting to approve the notice of General meeting to pass necessary special resolutions at the general meeting to amend Memorandum/Articles of Association.

3. Convene the general Meeting and obtain shareholders’ approval through Special Resolution.

4. This notice shall be dispatched through Registered post or speed post or through electronic mode to all the existing shareholders at least three days before the opening of the issue. However, in case of private companies in case 90% of members have given their consent in writing or in electronic mode, the lesser period than the specified period shall apply.

5. The offer must be accepted within 7 days and not exceeding 30 days from the date of the offer.

6. The shares declined by the existing shareholder can be disposed off by the company in manner which is not disadvantageous to the shareholders and the company.

7. Once the allotment is made, the company shall within 30 days of allotment, file with the Registrar return of allotment in Form PAS3.

8. Deliver the share certificates of allotted shares within a period of 2 months from the date of allotment.

9. Intimate the details of the allotment of shares to the Depository immediately on allotment of such shares.

Conclusion: Executing a rights issue under Section 62 is a nuanced process that requires meticulous attention to legal requirements, shareholder communication, and procedural timelines. By adhering to the outlined steps—from obtaining necessary approvals and valuations to fulfilling documentation and allotment obligations—companies can successfully increase their subscribed capital. This not only provides an opportunity for growth and expansion but also strengthens the relationship with existing shareholders by offering them a chance to reinforce their investment. For companies and shareholders alike, understanding and participating in a rights issue can be a mutually beneficial endeavor, fostering growth and ensuring a balanced approach to capital management.