# Further Issue of Share Capital (Section 62)

## 1. Modes of Further Issue

When a company with share capital plans to increase its subscribed capital, the shares shall be offered:

### (a) Rights Issue (To Existing Equity Shareholders)

Offered in proportion to paid-up capital held on the offer date.
Only Board Resolution is required (no GM approval).

### (b) ESOP (Employee Stock Option Scheme)

Requires Special Resolution.
Employee Stock Option = right granted to directors, officers, or employees of the company (or its holding/subsidiary) to buy/subscribe shares at a pre-determined price in future.

#### Cases where Ordinary Resolution suffices:

A private company that has not defaulted in filing financial statements (Section 137) or annual return (Section 92).
A Specified IFSC Public Company.

#### Listed Companies:

Must follow SEBI's Share Based Employee Benefits Regulations, 2014.

### (c) Preferential Allotment (To Any Other Persons)

Requires Special Resolution.
Can be for cash or non-cash consideration.
For non-cash, price must be determined by valuation report from a registered valuer (Rule 13).

## 2. Letter of Offer Requirements (Rights Issue)

The letter of offer must:

Specify the number of shares offered.
Specify time period for acceptance: minimum 15 days and maximum 30 days (a shorter period of minimum 7 days may be prescribed).
State that if offer is not accepted within the time, it shall be deemed declined.
Confirm right to renounce shares in favour of another person (unless restricted by AOA).

### Special Notes:

If a shareholder declines or doesn't respond, BOD may dispose of those shares in a manner not disadvantageous to shareholders or the company.
Proportions must be as fair as possible.
For Private Companies and Specified IFSC Public Companies: A shorter acceptance period is allowed if 90% of members consent in writing/electronically.

## 3. Length of Notice

Notice to be sent at least 3 days before the issue opens.
Dispatch modes: registered post, speed post, electronic mode, courier, or any method providing proof of delivery.
For private companies: shorter notice allowed if 90% members consent.

## 4. Conversion of Debentures/Loans into Shares - Exception

### When Section 62 does NOT apply:

If debenture or loan is converted into equity shares:

Terms and conditions are predefined, AND
Approved in GM by Special Resolution BEFORE debenture is issued or loan granted.

### CG-Directed Conversion (Sub-sections 4-6):

The government can order conversion of:

Debentures issued to government, or loans granted by government,
Fully or partially into shares,
If necessary in public interest,
On reasonable terms,
Even if original terms do not allow conversion.

### Remedy Against Forced Conversion:

Company can appeal to Tribunal within 60 days of receiving the order.
Tribunal will hear both parties and pass appropriate order.

### Factors Government Must Consider:

Company's financial position
Original debenture/loan terms
Interest rate on debentures/loans
Any other relevant factors

### Effect on Authorised Capital:

Authorised share capital automatically increases by value of converted shares.
MOA stands altered accordingly.

### Exemption for Nidhi Companies:

Section 62 does NOT apply to Nidhi Companies.
However, they must protect shareholders' interests.

Worked example

### Example 1

Example 1 (Rights Issue): ABC Ltd plans to issue 1 lakh additional equity shares. Mr. X holds 10,000 shares (10% of existing paid-up capital). What is his entitlement under rights issue?

Solution: Mr. X is entitled to be offered 10% of the new shares, i.e., 10,000 shares, proportionate to his paid-up capital.

### Example 2

Example 2 (Acceptance period): A company sends a rights offer letter on 1st April with acceptance period of 10 days. Is this valid?

Solution: No. Minimum acceptance period must be 15 days (or 7 days if prescribed). However, for a private company, a shorter period is allowed if 90% of members consent.

### Example 3

Example 3 (Debenture conversion): XYZ Ltd issued debentures convertible into equity. Terms were not predefined and not approved by SR. Now company wants to convert.

Solution: Section 62 applies. The conversion must follow Section 62 procedure (offering to existing shareholders, ESOP, or preferential allotment via SR). The exception applies only when terms are predefined and pre-approved by SR.

⚠️ Common exam mistakes

Believing GM approval is needed for rights issue - only Board Resolution is needed.
Assuming Special Resolution is always needed for ESOP - Ordinary Resolution suffices for eligible private companies and Specified IFSC Public Companies.
Forgetting the 15-30 day acceptance window (7 days minimum if prescribed).
Missing the registered valuer requirement for non-cash consideration in preferential allotment.
Confusing the 3-day notice period with acceptance period.
Ignoring the automatic increase in authorised capital on CG-directed conversion.

Bare-Act text Section 62 · Companies Act, 2013 · click to expand

Section 62(1) - 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 are holders of equity shares in proportion to the paid-up share capital; (b) to employees under a scheme of employees' stock option subject to special resolution; (c) to any persons, if authorised by special resolution, either for cash or for consideration other than cash.

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Further Issue of Share Capital and Preferential Allotment (Section 62)

Worked example

⚠️ Common exam mistakes