Conversion of Convertible Debentures / Government Loans — Sections 62(2) and 62(3)
# Conversion of Debentures into Shares
## Section 62(2) — Conversion of Convertible Debentures
Nothing in Section 62(1) shall apply on conversion of convertible debentures provided that such convertible debenture issue was approved by a Special Resolution of members at the time of issue.
### Implication
No fresh SR / fresh offer process is needed at the time of conversion.
The approval given at the time of initial issue suffices for the subsequent conversion into shares.
## Section 62(3) — Conversion of Debentures / Loans from Government
Where a company has obtained any debenture or loan from the Government, the Government may, in the public interest, by order, direct conversion of such debenture or loan into shares of the company.
### Key Features
1. Power lies with the Central Government.
2. Must be exercised in public interest.
3. The order may direct that the whole or any part of such debenture/loan be converted into shares.
4. The terms of conversion shall be such as the Government considers reasonable in the circumstances.
5. The company is not required to follow the Section 62(1) process — the conversion is by force of the Government's order.
### Appeal
If the company is aggrieved by the terms (e.g., conversion rate / valuation), it may appeal to the Tribunal (NCLT) for review of the terms.
Worked example
### Example 1
Example 1 (Section 62(2)): ABC Ltd. issued 1,00,000 convertible debentures in 2024 with the approval of members by SR, with conversion date in 2027. In 2027, when conversion happens, ABC Ltd. need NOT pass a fresh SR — the original SR governs the conversion.
### Example 2
Example 2 (Section 62(3)): PQR Ltd. has taken a loan of ₹500 crores from the Central Government. The Government, finding it in public interest, directs that ₹200 crores of the loan be converted into equity shares at a stated price. PQR Ltd. must comply. If aggrieved by the terms (say, conversion price below market), PQR Ltd. may appeal to NCLT.
⚠️ Common exam mistakes
Insisting on a fresh SR at conversion stage under Section 62(2) — not required, provided SR was taken at issue stage.
Believing the company can refuse Government-directed conversion under Section 62(3) — it cannot; the remedy is to appeal to NCLT for review of terms (not for refusal).
Confusing Section 62(2) (convertible debentures generally) with Section 62(3) (specific Government debentures/loans).
Bare-Act text Sections 62(2) and 62(3) · Companies Act, 2013 · click to expand
(2) Nothing in clause (c) of sub-section (1) 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. (3) Notwithstanding anything contained in sub-section (1) or sub-section (2), 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.