Further Issue of Share Capital - Rights Issue [Section 62(1)(a)]
# Rights Issue under Section 62(1)(a)
## Concept
When a company having share capital wants to increase its subscribed capital by issuing further shares, it must first offer those shares to its existing equity shareholders. This is the principle of pre-emptive rights — it protects the proportional ownership of existing shareholders from dilution.
## Who Gets the Offer?
The shares must be offered to:
Persons holding equity shares on the date of the offer
In proportion to their paid-up capital on those shares
> Note: While determining proportion, 'as nearly as the circumstances admit' is acceptable. Exact mathematical proportion is not always possible (e.g., fractional shares).
## Manner of Offer — Letter of Offer (Notice)
The offer must be made by sending a letter of offer in the form of a notice which must specify:
Requirement
Particulars
(i) Number of shares
Number of shares being offered
(ii) Time to accept
Not less than 15 days, not more than 30 days from the date of offer
(iii) Consequence of non-acceptance
If not accepted within time, deemed to be declined
(iv) Right of renunciation
Right to renounce all or any shares in favour of another person (unless articles provide otherwise)
### Special Time Periods
Rule 12A (Share Capital and Debentures Rules, 2014): Time period shall not be less than 7 days from date of offer.
Private Company / Specified IFSC Public Company: A shorter period is acceptable if 90% of members have consented in writing or electronically.
## Dispatch of Notice [Section 62(2)]
The notice shall be dispatched through:
Registered post, OR
Speed post, OR
Electronic mode, OR
Courier, OR
Any other mode having proof of delivery
…to all existing shareholders at least 3 days before the opening of the issue.
> Private Company exception: Shorter notice period acceptable if 90% members consent in writing/electronic mode.
## What If Offer is Declined?
If the existing holder declines (or doesn't accept within the specified time), the Board of Directors may dispose of such shares in a manner that is not disadvantageous to the shareholders and the company.
## Non-Applicability
Section 62 shall not apply to a Nidhi Company. However, Nidhi Companies must still ensure shareholder interests are protected.
Worked example
### Example 1
Example: ABC Ltd. has 1,00,000 issued equity shares held proportionately by 4 shareholders. It now wants to issue 20,000 additional shares. Under Section 62(1)(a), it must first offer these 20,000 shares to existing shareholders in proportion to their paid-up holdings. Each shareholder gets a letter of offer specifying: (i) number of shares offered, (ii) acceptance window of, say, 20 days, (iii) that non-acceptance = declined, (iv) the right to renounce. If a shareholder declines, the Board may allot those declined shares to others in a non-disadvantageous manner.
### Example 2
Example: XYZ Pvt. Ltd., a private company, wants to make a rights issue but on a short timeline. It can specify an offer acceptance period of less than 15 days (e.g., 7 days) if 90% of its members give their consent in writing or in electronic mode for such shorter period.
⚠️ Common exam mistakes
Confusing the dispatch period (at least 3 days before opening of issue under Section 62(2)) with the acceptance period (15-30 days under Section 62(1)(a)(i)) — they are different time limits.
Forgetting that Rule 12A allows the acceptance period to be as short as 7 days (not 15) from the date of offer.
Assuming the right of renunciation always exists — it does not apply if the articles provide otherwise.
Treating a non-response as acceptance — silence is deemed to be a declined offer.
Applying Section 62 to a Nidhi Company — it is exempt.
Bare-Act text Section 62(1)(a) and 62(2) of the Companies Act, 2013 · The Companies Act, 2013 · click to expand
Section 62(1)(a): 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 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: (i) the offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days 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 disadvantageous to the shareholders and the company.