Section 23 of the Companies Act, 2013 (‘CA, 2013’) provides the ways in which a public company or a private company ‘may’ issue securities. It is to be noted that there was no corresponding provision under the Companies Act, 1956.
This is the first time when Indian Company law has consolidated in one place, the modes by which a company, be it a public company or a private company, may issue securities. Means, both, a public company and a private company may issue securities by way of a private placement, bonus issue and a rights issue i.e. without accessing members of the pubic. However, it is only a public company that may make an offer of securities to members of the public. Such an issue of securities to members of public would require the publication of a prospectus.
CA, 2013 became effective in stages over the period between 2013 and 2014. Chapter III of the 2013 Act deals with prospectus and allotment of securities and is split into two parts. Part I of Chapter III of CA, 2013 relates to ‘Public Offer’ and Part II of Chapter III of CA, 2013 relates to ‘Private Placement’. Chapter IV of CA 2013 pertains to share capital and debentures. Under CA, 2013 if a company wishes to issue any securities, it will, essentially, find itself going through and complying with these two chapters.
Section 23 of CA, 2013, prescribes the manner in which a Private Company and a Public Company ‘may’ issue ‘securities’. Sub-section (1) of Section 23 of CA, 2013 lists out the modes by which a public company may issue securities, while sub-section (2) of Section 23 of the CA, 2013 lists out the modes by which a private company may issue securities. Sub-clause (b) of sub-section (1) of Section 23 permits a public company to issue securities by way of private placement. In case the shares of the company are listed, such a public listed company can make a private placement, referred to as preferential allotment under Chapter V of the SEBI (CDR) Regulations, 2018.
The relevant provisions of Section 23 of CA, 2013 may be read as under:
“Public offer and private placement
23. (1) A public company may issue securities-
(a) to public through prospectus (herein referred to as “public offer”) by complying with the provisions of this Part; or
(b) through private placement by complying with the provisions of Part II of this Chapter; or
(c) through a rights issue or a bonus issue in accordance with the provisions of this Act and in case of a listed company or a company which intends to get its securities listed also with the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the rules and regulations made thereunder.
(2) A private company may issue securities-
(a) by way of rights issue or bonus issue in accordance with the provisions of this Act; or
(b) through private placement by complying with the provisions of Part II of this Chapter.”
As mentioned above, Section 23 of CA, 2013, prescribes the manner in which a private company and a public company ‘may’ issue securities. But question herein raise that what would be the exact interpretation of word ‘may’ used in section 23. Whether the word ‘may’ should be used as in its sense as the word ‘shall’? To guide, please note that Hon’ble Supreme Court stated, in Sarla Goel and ors vs. Kishan Chand (2009) 7 SCC 658, that “it is well settled that whether the word ‘may’ shall be used as “Shall”, would depend upon the intention of the legislature.”
* Section 23 of CA, 2013 was notified through two notifications. Section 23(1)(a) and (c) was notified vide SO 2754(E) dated 12-09-2013 and has been in effect from 12-09-2013. Section 23(1)(b) and Section 23(2), were notified vide SO 902(E) dated 26-03-2014 and has been in effect from 01-04-2014.
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