Compulsory Conversion of Debentures / Government Loan into Shares [Section 62(4)–(6)]
## Compulsory Conversion of Debentures or Government Loan into Shares
Where a company issues debentures or takes a loan from Government, the Government may, in public interest, order the conversion of such debentures/loan into shares of the company — even if the original terms did not provide a conversion option.
### Consequences of Conversion
The authorised share capital of the company stands increased by an amount equal to the value of the shares issued upon conversion.
The MOA stands altered accordingly (no further procedure required).
### Government's Decision-Making Factors
The Government, while determining terms and conditions of conversion, shall consider:
Financial position of the company;
Terms of issue of the debentures / loan;
Interest payable on the debentures / loan; and
Other relevant matters.
### Company's Remedy
If the conversion terms are not acceptable to the company, it may:
Appeal to the NCLT within 60 days of communication of the order; and
NCLT shall pass such order as it deems fit.
### Exemption
This provision is not applicable to a Nidhi Company.
Worked example
### Example 1
Example: X Ltd. takes a ₹100 crore loan from the Central Government. After 3 years, the Government, citing public interest, orders that ₹40 crore of the loan be converted into equity shares. X Ltd. believes the terms are unreasonable. What can X Ltd. do?
Solution: X Ltd. may appeal to the NCLT within 60 days of communication of the Government's order. NCLT will pass such order as it deems fit. The authorised capital of X Ltd. will stand automatically increased and the MOA stands altered to the extent of conversion.
⚠️ Common exam mistakes
Assuming Government can convert debentures/loan only if the original terms provided a conversion option — Section 62(4) overrides this.
Forgetting that conversion automatically increases authorised capital and alters MOA — no separate SR or amendment is needed.
Missing the 60-day window for appealing to NCLT.
Bare-Act text Section 62(4) to 62(6) · Companies Act, 2013 · click to expand
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.