Provisions related to Right Issue of Shares under Companies Act, 2013

As per the provisions of clause (a) of sub-section 1 of section 62 of the Companies Act, 2013, where at any time, a Company having a share capital proposes to increase its subscribed capital by the issue of further shares, then such shares shall always be offered 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, unless a resolution authorizing the issue of further shares other than to the holders of equity shares as mentioned above is passed.

Eligible Shareholders:

All the persons, holding equity share capital, in terms of clause (a) of sub-section 1 of section 62 of the Companies Act, 2013, as on the record date are eligible and shall be offered shares on right basis.

Procedure:

Following is the procedure for issue of shares on right basis-

Notice of Board Meeting:

Firstly, notice calling the Board Meeting shall be issued to all the Directors at least 7 days before the date of Board Meeting along with the agenda and other related note as required under section 173 of the Companies Act, 2013 read with the Secretarial Standard-1.

Holding of Board Meeting:

On the date specified in the notice, the Board Meeting shall be convened and the Board will consider and approve the following:

• Proposal of issue of shares on right basis
• Price at which shares to be issued including Premium, if any
• Draft Letter of Offer for Right Issue
• Terms of Right Issue
• Record Date
• Any other ancillary matter

Filing of MGT-14:

In case of public Companies the resolution approving the issue of shares on Right basis shall be filed with the concerned Registrar of Companies in E-Form-MGT-14 within 30 days of passing of such resolution.

Issue of Offer Letter:

The Offer Letter shall be dispatched by registered post or by speed post or through electronic mode to all the existing equity shareholders of the Company, at least three days before the opening of the issue.

However, as per the recent exemptions given to private Companies, if the 90% or more shareholders of the private Company give their consent then in such case the period lesser then the specified above shall be applicable.

Share Application Form shall also be attached with the Offer Letter.

Tendering Period:

The Right Issue Offer shall be open for at least 15 days but shall not remain open for more than 30 days from the date of the offer, if the offer is not accepted within the time prescribed, than such offer shall be deemed to have been declined.

However, as per the recent exemptions given to private Companies, if the 90% or more shareholders of the private Company give their consent then in such case the period lesser then the specified above shall be applicable.

Right of Renunciation:

Unless the articles otherwise provide, the Right Issue Offer shall be deemed to include a right to renounce the shares offered in favor of any other person. The Offer Letter shall also contain this statement.

Decline of Offer:

If any shareholder, to whom the Right Offer is made, declines the offer or does not accept the offer, than in such cases, the Board shall have the power to dispose of such shares offered, in any manner, which is in the best interest of the Company and the Shareholders.

Receipt of Funds:

The Shareholders, who accept the offer, shall pay the amount as indicated in the Offer Letter or the amount to the extent of shares accepted, as the case may be to the Company, at the time of accepting the offer.

It is pertinent to note here that such shares must be issued within 60 days of the receipt of the funds.

Issue of Notice of Board Meeting and Convening of Board Meeting:

After closure of the issue the Board Meeting shall be Convened on due notice as per the details prescribed above to consider and approve the allotment of shares.

Allotment in case of Foreign Shareholder:

If there is any foreign shareholder, than receipt of funds towards issue of shares from such foreign shareholder shall amount to FDI, hence the Company shall also be required to file Form FC-GPR with the RBI within 30 days of the allotment of the shares. (For detailed note on issue of shares to foreign person, kindly write me back to my mail id given at the end.)

Filing of Return of Allotment:

After allotment, the Company is required to file a return in the E-Form- PAS-3 with the concerned Registrar of Companies along with the complete list of Shareholders within 30 days of allotment of shares.

Issue of Share Certificate:

After allotment the Company shall issue the share certificate as per the provisions and the time prescribed under section 46 of the Companies Act, 2013.

The author is the Company Secretary from Delhi and can be contacted at [email protected]/ 08430645653.