Section 62: Further issue of share capital

Applicability of Section 62: To all companies except Nidhi Companies.

Where at any time a company having a share capital proposes to increase its subscribed capital by issue of further shares to persons, such shares shall be offered - 

1. To equity shareholders: To the holders of equity shares of the company in proportion to the paid up share capital on those shares, by sending a letter of offer.

                                                     Conditions

• Notice of Letter of Offer: The letter of offer shall be sent by notice specifying the total number of shares offered by giving not less than 15 days time up to the maximum of 30 days from the date of offer, within which if the offer if not accepted, is deemed to have been declined; 
• Dispatch of Notice: The notice shall be dispatched through registered post or speed post or through electronic mode to all the existing shareholders at least 3 days before the opening of issue.
• Renunciation of right: Unless provided by the articles, the offer 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 letter of offer shall contain a statement of this right.
• Disposal of unsubscribed shares: After the expiry of the time specified in the letter of offer, or on receipt of earlier intimation from the person to whom such notice is give, with regard to refusal to accept the offer, the Board of Directors may dispose of them in such manner which is not disadvantageous to the shareholders and the Company;

2. Under ESOP: To the employees under the scheme of Employees’ Stock Option Plan, subject to the special resolution passed by the company & subject to such conditions as prescribed under Rule 12 of Share Capital & Debenture Rules, 2014;

According to Section 2(37) of Companies Act, 2013, “employees’ stock option” means the option given to the directors, officers or employees of a company or of its holding company or subsidiary company or companies, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price;

3. Issue on preferential basis: by preferential issue to any persons, if authorized by special resolution whether or not such persons are included in (1) or (2) above, either for cash or for consideration other than cash, if the price of such shares is determined by valuation report of a registered valuer subject to the conditions prescribed in Rule 13 of Share Capital & Debenture Rules, 2014;

For listed companies: As per SEBI (ICDR) Regulations, 2009

Exclusions from Section 62 (As per Section 62(3))

Nothing in this section shall apply to the increase in subscribed share capital of the company caused - 

i.  by exercise of an option as a term attached to the debentures issued;

ii. loan raised by the company to convert such debentures or loan into shares.

Subject to the condition that the terms of issue of such debentures or loans have been pre-approved through a special resolution passed in the general meeting.

Section 62(4): Conversion of loan & debentures into shares, if government considers necessary

In case such debentures have been issued or loan has been raised from any Government, by the company, and where the government in public interest considers it necessary, it may, by an order, direct such debentures or loans or any part thereof, to be converted into shares on such terms and conditions as government considers it reasonable, even if the terms of issue of such debentures or loan raised do not include the option of conversion.

In case the terms and conditions, as prescribed by the government are not acceptable to the company, it may within 60 days from the date of communication of such order by the government, appeal to the Tribunal, which shall pass an order as it deems fit, after hearing the company & the government. 

Points considered by the government in determining the terms & conditions:

1. Financial position of the company;

2. Terms of issue of debentures or loan;

3. Rate of interest payable on debentures or loan;

4. Other matters as necessary.

Increase in Authorized share Capital subject to conversion of debentures or loans into shares:

As per Section 62(6), where the government has made an order directing the conversion of debentures or loan into shares, and where no appeal has been preferred to the Tribunal, as mentioned above, or where such appeal has been dismissed, the memorandum of the company shall stand altered in case such an order has an effect of increasing the authorized share capital of the company, and the authorized share capital of the company shall stand increased by the amount equal to the amount of the value of shares which such debentures or loans or part thereof has been converted into.

References: Companies Act, 2013

Contact:

CS Divyanshu Bansal
Email ID: divyanshubansal401@gmail.com