Section 62 (rights issue, ESOS, preferential allotment) shall NOT apply to increases in subscribed capital arising from conversion of:
Debentures (per the conditions of issue), OR
Loans raised (per the conditions of grant)
…provided the terms and conditions for such conversion were:
1. Approved by the company in a general meeting by special resolution, AND
2. Done prior to the issue of debentures or grant of the loan.
## Route 2: Compulsory Conversion by Government Order [Section 62(4)]
The Central Government may, by order, direct conversion (in full or part) of:
Debentures issued to the Government, OR
Loans obtained from the Government
…into shares of the company, on such terms and conditions as the Government deems reasonable, even if the original issue terms did not provide for conversion, if the Government considers it necessary in the public interest.
### Remedy Against Hostile Conversion (Proviso to 62(4))
If the terms are unacceptable, the company may appeal to the Tribunal (NCLT) within 60 days from the date of communication of the order. The Tribunal, after hearing both the company and the Government, shall pass such order as it deems fit.
## Factors the Government Considers [Section 62(5)]
While fixing terms and conditions of conversion, the Government shall consider:
The financial position of the company;
The terms of issue of debentures or loans;
The rate of interest payable on such debentures or loans;
Such other matters as it may consider necessary.
## Automatic Increase in Authorised Capital [Section 62(6)]
Where conversion happens under sub-section (4), the authorised share capital of the company shall stand increased by an amount equal to the value of shares issued, and the memorandum shall stand altered automatically — no separate procedure needed.
Worked example
### Example 1
Example (Route 1): In 2020, MNO Ltd. issued ₹100 crore convertible debentures to public, with the terms of issue (approved by special resolution before issue) providing for conversion into equity after 5 years. In 2025, when these debentures convert into equity, Section 62 procedural requirements (rights offer, etc.) do NOT apply. Subscribed capital simply increases by the converted amount.
### Example 2
Example (Route 2): ABC Ltd. has obtained a ₹500 crore loan from the Central Government. The original loan agreement does NOT contain any conversion clause. In 2026, the Government, citing public interest (e.g., the company being a strategic asset), orders conversion of ₹200 crore of the loan into equity. If ABC Ltd. finds the terms unreasonable, it must appeal to NCLT within 60 days. If no appeal is made (or NCLT confirms the order), the authorised capital stands automatically increased by ₹200 crore and the MoA stands altered.
⚠️ Common exam mistakes
Forgetting that for Route 1 (voluntary conversion), the special resolution must precede the debenture issue/loan grant — retrospective approval will not validate the exemption.
Confusing the 60-day appeal window (Section 62(4) proviso) with the general 30-day timelines under other sections.
Missing that under Route 2, conversion can be ordered even WITHOUT any pre-existing conversion clause in the loan/debenture terms.
Failing to recognise that under Section 62(6), the authorised capital and MoA stand automatically altered — no separate Section 61 process is required.
Bare-Act text Section 62(3), (4), (5) and (6) of the Companies Act, 2013 · The Companies Act, 2013 · click to expand
Section 62(3): 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): 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.