Further Issue of Share Capital — Rights Issue [Section 62(1)(a)]
# Rights Issue — Section 62(1)(a)
## Meaning
A Rights Issue is the issue of further shares to the existing equity shareholders (ESH) on a proportionate basis (in proportion to their existing shareholding).
## Procedure
### Step 1: Letter of Offer
Company must issue a Letter of Offer specifying:
Number of shares offered
Time limit within which the offer must be accepted (failing which it is deemed declined)
Right of renunciation (unless AOA provides otherwise)
### Step 2: Mode of Dispatch
Letter of offer must be sent through:
Registered Post, OR
Speed Post, OR
Courier, OR
Electronic mode
…with proof of delivery.
### Step 3: Timing of Dispatch
Must be dispatched to all existing ESH at least 3 days prior to opening of the offer.
### Step 4: Time Limit for Acceptance
Minimum: 15 days (or such lesser number as may be prescribed)
Maximum: 30 days
#### Special Relaxation for Private Companies
In case of a Private Company, if 90% of members give their consent (in writing or electronic mode), the offer period may be shortened. (The prescribed lesser period is 7 days.)
## Acceptance / Renunciation
The offer may be accepted, OR
Renounced in favour of another person (unless AOA provides otherwise).
## Consequence of Non-Acceptance / Non-Renunciation
If the offer is not accepted or renounced within the time limit:
1. It shall be deemed to have been declined.
2. Thereafter, the Board shall dispose of such shares in a manner that is not disadvantageous to the shareholders and the company (i.e., advantageous to both).
Worked example
### Example 1
Example 1: Beta Ltd. (public company) plans a rights issue. It sends letters of offer by speed post on 1st June. The earliest the offer can open is 4th June (3 days later). The acceptance window must be at least 15 days and not more than 30 days.
### Example 2
Example 2: A private company has 10 members. 9 of them (90%) consent to a shorter notice. The offer period can be reduced — minimum becoming 7 days instead of 15.
### Example 3
Example 3: Mr. A holds 1,000 equity shares in XYZ Ltd. and is offered 200 rights shares. He neither accepts nor renounces in 30 days. Result: Offer deemed declined. Board may now sell these 200 shares to any other person, but the price/terms must benefit (or at least not disadvantage) the company and its shareholders.
⚠️ Common exam mistakes
Forgetting that the letter of offer must reach shareholders at least 3 days before the offer opens.
Confusing the minimum (15 days) with the relaxed private-company minimum (7 days with 90% consent).
Assuming renunciation is automatic — it is allowed unless AOA provides otherwise.
Believing the Board can freely sell unsubscribed rights shares — they must do so in a manner not disadvantageous to the company and shareholders.
Bare-Act text Section 62(1)(a) · Companies Act, 2013 · click to expand
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, namely:— (i) the offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days or such lesser number of days as may be prescribed 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 dis-advantageous to the shareholders and the company.