Amended and updated notes on section 62 of Companies Act 2013. Detail discussion on provisions and rules related to further issue of share capital.
Chapter IV (Sections 43–72) of the Companies Act, 2013 (CA 2013) deals with the provisions related to share capital and debentures. Section 62 of CA 2013 provides for further issue of share capital.
Recently, we have discussed in detail section 61 (Power of limited company to alter its share capital) of CA 2013. Today, we learn the provisions of section 62 of Companies Act 2013.
The provisions of section 62 are effective from 1-April-2014. You may refer Notification No. S.O. 902(E) issued dated 27-03-2014. In this article, you will learn detail of the provisions of section 62 of the Companies Act 2013 read with the Companies (Share Capital and Debentures) Rules, 2014.
| Name of Act | The Companies Act 2013 |
|---|---|
| Enacted by | Parliament of India |
| Administered by | Ministry of Corporate Affairs (MCA) |
| Number of Chapters | 29 |
| Number of Sections | 484 (470-43+57) |
| Number of Schedules | 7 |
| You are reading: | |
| Chapter No. | IV |
| Chapter Name | Share Capital and Debentures |
| Section No. | 62 |
| Section Name | Further issue of share capital |
| Monthly Updated Edition | Company Law PDF |
Section 62 of Companies Act 2013: Further issue of share capital
Section 62 shall come into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27.03.2014 except sub-sections (4) to (6) which shall come into force on 1st June, 2016 vide Notification No. S.O. 1934(E) issued dated 01.06.2016.
Section 62(1) of Companies Act
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 [or such lesser number of days as may be prescribed] 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;
(b) to employees under a scheme of employees’ stock option, subject to special resolution passed by company and subject to such conditions as may be prescribed; or
(c) to any persons, if it is authorised by a special resolution, whether or not those persons include the persons referred to in clause (a) or clause (b), either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer, subject to the compliance with the applicable provisions of Chapter III and any other conditions as may be prescribed.
[Amendment made in sub-clause(i) of clause(a) of sub-section(1) of section 62. The highlighted words has been inserted w.e.f. 22-01-2021 by the Companies (Amendment) Act, 2020 vide MCA Notification No. S.O. 325(E) issued dated 22.01.2021.]
Section 62(2) of Companies Act
The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be dispatched through registered post or speed post or through electronic mode or courier or any other mode having proof of delivery to all the existing shareholders at least three days before the opening of the issue.
[As per General Circular No. 21/2020 dated 11th May, 2020, a listed company which comply with the Circular (Number SEBI/HO/CFD/DIL2/ CIR/P/2020/78) issued by SEBI on 6th May, 2020, inability to dispatch the notice referred to in section 62(1)(a)(i) read with section 62(2) for rights issue to their shareholders through registered post or speed post or courier would not be viewed as violation of section 62(2)].
Section 62(3) of Companies Act
Nothing in this section shall apply to the increase of the subscribed capital of a company caused by the exercise of an option as a term attached to the debentures issued or loan raised by the company to convert such debentures or loans into shares in the company:
Provided that the terms of issue of such debentures or loan containing such an option have been approved before the issue of such debentures or the raising of loan by a special resolution passed by the company in general meeting.
Section 62(4) of Companies Act
Notwithstanding anything contained in sub-section (3), where any debentures have been issued, or loan has been obtained from any Government by a company, and if that Government considers it necessary in the public interest so to do, it may, by order, direct that such debentures or loans or any part thereof shall be converted into shares in the company on such terms and conditions as appear to the Government to be reasonable in the circumstances of the case even if terms of the issue of such debentures or the raising of such loans do not include a term for providing for an option for such conversion:
Provided that where the terms and conditions of such conversion are not acceptable to the company, it may, within sixty days from the date of communication of such order, appeal to the Tribunal which shall after hearing the company and the Government pass such order as it deems fit.
Section 62(5) of Companies Act
In determining the terms and conditions of conversion under sub-section (4), the Government shall have due regard to the financial position of the company, the terms of issue of debentures or loans, as the case may be, the rate of interest payable on such debentures or loans and such other matters as it may consider necessary.
Section 62(6) of Companies Act
Where the Government has, by an order made under sub-section (4), directed that any debenture or loan or any part thereof shall be converted into shares in a company and where no appeal has been preferred to the Tribunal under sub-section (4) or where such appeal has been dismissed, the memorandum of such company shall, where such order has the effect of increasing the authorised share capital of the company, stand altered and the authorised share capital of such company shall stand increased by an amount equal to the amount of the value of shares which such debentures or loans or part thereof has been converted into.
Exception/ Modification/ Adaptation:
1) In case of Private company, sub-clause (i) of clause (a) of sub-section (1) and sub-section (2) of section 62 shall apply with following modifications:
In clause (a), in sub-clause (i), the following proviso shall be inserted, namely:
Provided that notwithstanding anything contained in this sub-clause and sub-section (2) of this section, in case ninety per cent. of the members of a private company have given their consent in writing or in electronic mode, the periods lesser than those specified in the said sub-clause or sub-section shall apply. – Notification No. G.S.R. 464(E) dated 5th June, 2015.
2) In case of Private company, in clause (b) of subsection (1) of section 62, for the words “special resolution”, the words “ordinary resolution” shall be substituted. – Notification No. G.S.R. 464(E) dated 5th June, 2015.
3) In case of Nidhis, section 62 shall not apply. – Notification No. G.S.R. 465(E) dated 5th June, 2015.
4) In clause (a) of sub-section (1) of section 62, the following proviso shall be inserted, namely: –
“Provided that notwithstanding anything contained in sub-clause (i), in case of a Specified IFSC public company, the periods lesser than those specified in the said sub-clause shall apply if ninety per cent. of the members have given their consent in writing or in electronic mode.”. –Notification No. G.S.R. 08(E) dated 4th January, 2017.
5) In case of a Specified IFSC public company, in clause (b) of subsection (1) of section 62, for the words “special resolution” read as “ordinary resolution”. –Notification No. G.S.R. 08(E) dated 4th January, 2017.