[Opinion] Consequences of Offering Rights Issue at a Discount in Violation of the Companies Act, 2013
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- 2 Min Read
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- Last Updated on 2 May, 2023
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Prof R Balakrishnan – [2023] 150 taxmann.com 6 (Article)
1. Prohibition in the issue of shares at a discount
As per the provisions of the Companies Act 2013, a company is prohibited to issue equity and preference shares at a discount. In case, a company violates the provisions of the Act, then the regulators can take penal actions against such a company and its officers who are in default by levying penalty. Such penalty amount could be equal to the amount that the company has raised by issuing such shares at a discount or five lakh rupees, whichever is less. Apart from this, the company also has to return all the money that is raised with an interest of 12% per annum from the date of issue of the shares to the shareholders.
From the framework of the Companies Act 2013, it is clear that a company shall not issue shares at a discount and any share issued by a company at a discount price shall be void.
2. Provision under the Companies Act 2013 relating to prohibition on the issue of shares at a discount
The following are the relevant provision relating to this case as per the provisions of the Companies Act 2013.
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Abstracts of provisions of the Act & Rules
section 53 of the Companies Act 2013
Prohibition on the issue of shares at a discount
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| Section | Provision |
| 53 (1) | Except as provided in section 54, a company shall not issue shares at a discount |
| 53 (2) | Any share issued by a company at a discounted price shall be void. |
| 53 (3) | where any company…………………………………. and the company shall also be liable to refund all monies received with interest at the rate of twelve per cent per annum from the date of issue of such shares to the persons to whom such shares have been issued. |
3. Penal provisions in case of default in complying with section 53 of the Act
Sub-section (3) of section 53 is the relevant section for penal provisions and as per this section where any company fails to comply with the provisions of this section, such company and every officer who is in default shall be liable to a penalty which may extend to an amount equal to the amount raised through the issue of shares at a discount or five lakh rupees, whichever is less, and the company shall also be liable to refund all monies received with interest at the rate of twelve per cent per annum from the date of issue of such shares to the persons to whom such shares have been issued.
4. Consequences of any default
To understand the consequences of any default while complying with the provisions of section 53 of the Companies Act 2013 relating to the prohibition of issue of shares at a discount, let us go through the decided case law by the Registrar of Companies, Mumbai vide his order dated 31st March 2023 in the matter of M/s. Constro Solutions Limited
Click Here To Read The Full Article
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