CS Kundan Kumar Mishra

INTRODUCTION:

A rights issue is directly offered to all existing shareholders of the Company in proportion to their current holding. The company also set a time limit for the shareholder to buy the shares. Companies pursue Rights Issue as an avenue to raise funds for various reasons, ranging from expansion or acquisitions to paying down debts.

Section 62 of Companies Act, 2013 contains provisions on “further issue of capital”, and enacts the principle of pre-emptive rights of shareholders of a company to subscribe to new shares of the company.

Provisions of Section 62 of Companies Act, 2013 are mandatory for all Private companies, public companies, listed as well as unlisted companies.

RELEVANT PROVISIONS OF COMPANIES ACT-2013:

Sec 62 (1) Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered :

(a) to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely:—

(i) the offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined;

(ii) unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice referred to in clause (i) shall contain a statement of this right;

(iii) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not dis-advantageous to the shareholders and the company;

PROCEDURE FOR ALLOTMENT OF SHARES ON RIGHT ISSUE BASIS :

  • Issue notice in writing to every Director at least seven days’ before convening the Board meeting. [Sec 173 (3)]
  • Convene a Board Meeting
  • Pass a Board resolution for approving “Letter of offer”. The offer letter shall include right of renunciation also.
  • Dispatch Letter of offer to all existing shareholders through registered post or speed post or through electronic mode at least three days before the opening of the issue.
  • Receive acceptance, renunciations, rejection of rights from shareholders.
  • Issue notice in writing to every Director at least seven days’ before convening the Board meeting. [Sec 173 (3)]
  • Convene a Board Meeting
  • Pass Board resolution for approving allotment and issue of shares.
  • File with Registrar a return of allotment in E-Form PAS-3 within 30 days of allotment of shares.
  • File E-form MGT 14 within 30 days of Issue of securities.

OTHER INFORMATION:

  • Letter of offer shall specify the number of shares offered and other information and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined;
  • Attach with E-Form PAS-3 (i) Board Resolution for allotment and issue of share. (ii) Letter of offer (iii) List of Allottees
  • List of Allottees attached with E-Form PAS-3 shall state the names, address, occupation, if any, of the shareholder and number of securities allotted to each of the allottees and the list shall be certified by the signatory of the Form PAS-3 as being complete and correct as per the records of the company.

Disclaimer: Statements and opinions expressed in articles are those of the author’s personal views. While every care has been taken in the compilation of this information and every attempt made to present up-to-date and accurate information, we cannot guarantee that inaccuracies will not occur.

(The Author is an Associate Member of the Institute of Company Secretaries of India and can be reached at Mob: +91-9899208090, cskundanmishra@gmail.com)

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20 Comments

  1. Samar says:

    1. Whether a Board Resolution is needed for approval of renunciation from the existing
    members and offering the shares so renounced to the renuoncee?
    2. Should there be a fresh offer period for acceptance of renounced shares? or the
    applicant (the person in whose favour the renouncement was made) can apply for the
    renounced shares in the earlier (i.e.first) offer period itself?

  2. vinodnaredi says:

    Can the company still make preferential allotment if the condition stipulated in section 62(3) have not been complied with i.e. the company hasn’t passed a SR and take loan and now it wants to convert its loans into equity shares ? please reply ASAP

  3. saroja says:

    Conversion of Unsecured loans taken from Directors and their relatives of a private limited company to equity share capital is allowed under Companies act, 2013?
    What is the procedure?

    These loans were taken in Nov 2015, which were not fall under meaning of deposit.

  4. ameet says:

    What happens if there is right issue of 2 for 3 shares and a shareholder is holding only single share,how shares would be allotted to shareholder holding single share?

  5. Kundan Kr Mishra says:

    Hi Karthik & Digesh Shah,

    Unsecured loan from Directors can be converted in equity shares, provided that there is an option of such conversion in loan agreement, you need to follow the procedure of section 62 (3), it will not be covered under “Right Issue “.

    Statements and opinions expressed are of my personal views.

  6. Kundan Kr Mishra says:

    Hi Pratima Hirani

    Offer for allotment for right issue be made by simple hand delivery is not valid, it should be through registered post, speed post or through electronic mode.

  7. Digesh Shah says:

    Dear Sir,

    Can unsecured loan of Directors in company convert in equity shares as under section 62(3) of the Companies Act, 2013?

  8. Karthik says:

    Hello Sir,

    Can Unsecured loan given to company by a director be converted into shares being allotted to that director under a ‘RIGHTS ISSUE’?

  9. Kundan Kr Mishra says:

    I have been asked by many people that whether in case of A PRIVATE LIMITED COMPANY , the offeree of new sharescan exercises his rights to renounce the shares offered to him in favour of any other person , i.e, other than the existing shareholder of the company.

    My interpretation is:

    That this clause cannot apply to a private limited company which continues to retain its Articles of Association the restrictions contained in s. 2(68)of Companies Act, 2013, If this clause were to apply, it would be open to the offerees to renounce the shares in favour of non-members and thereby to infringe the provisions of the articles. An offer of shares giving a member the right to renounce the shares in favour of any other person is bound to result in infringement of the article relating to the matters specified in s. 2(68)because such a right can be renounced in favour of a non-member and is, in effect, an invitation to the public to subscribe to the shares of the company.

    Statements and opinions expressed are of my personal views. Other Views are also Solicited.

  10. Kundan Kr Mishra says:

    WE have to allot shares within 60 days or refund within fifteen days from the date of completion of sixty days, otherwise such amount shall be treated as a deposit.

  11. sks says:

    Dear all,

    Whether period of 60 days applicable for section 62. What would be course of action , if company allots shares after 60 days of receipt of application money. Further what is the consequences of filling FC-GPR after 30 days of allotment?

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