# Section 53 — Prohibition on Issue of Shares at Discount

## General Rule

Except as provided in Section 54 (Sweat Equity Shares), a company shall NOT issue shares at a discount.

## Consequences of Violation

Any such issue shall be void.
Company must refund the money received with interest @ 12% p.a. from the date of issue.

## Penalty

Fine on Company / Officers: Amount raised by such issue or ₹5 lakhs, whichever is lower (subject to amendments).

## Exception

A company may issue shares at discount to creditors, when there is a conversion of debt into equity under:

1. A statutory resolution plan, or

2. A debt restructuring scheme.

Worked example

### Example 1

Example: ABC Ltd issues 1,000 equity shares of ₹100 FV at ₹80 each (discount of ₹20). Is this valid?

Answer: No. Under Section 53, the issue is void. The company must refund ₹80,000 with interest @ 12% p.a. from date of issue. Fine may also be imposed.

Example 2: PQR Ltd, under a debt restructuring scheme approved as per law, converts ₹50 lakhs of debt into equity at a discount.

Answer: Valid. This falls within the exception for conversion of debt to equity under a statutory resolution / debt restructuring scheme.

⚠️ Common exam mistakes

Confusing sweat equity shares (Section 54) with prohibited discount issues.
Forgetting the 12% p.a. interest refund obligation.
Missing the debt restructuring exception.

Bare-Act text Section 53 · Companies Act, 2013 · click to expand

Section 53 of the Companies Act, 2013 — Prohibition on issue of shares at discount.

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Section 53 - Prohibition on Issue of Shares at Discount

Worked example

⚠️ Common exam mistakes