# Prohibition on Issue of Shares at Discount — Section 53

## General Rule

Where the issue price is lower than the face value of shares, such issue is called issue at discount and the differential amount is discount.

Section 53 PROHIBITS such issue — any share issued at a discount shall be void.

## Exceptions — Issue at Discount Permitted

### 1. Sweat Equity Shares (Section 54)

Sweat equity shares can be issued at discount.

### 2. Conversion of Debt under Resolution Plan/Debt Restructuring

A company may issue shares at discount to its creditors when their debt is converted into shares pursuant to —

a Statutory Resolution Plan, OR
a Debt Restructuring Scheme

In accordance with any guidelines/directions/regulations of the RBI under the RBI Act, 1934 or the Banking Regulation Act, 1949.

## Penalty for Contravention [Section 53(3)]

Liable Party	Penalty
Company	Refund all monies received with interest @ 12% p.a. from the date of issue of such shares
Every officer in default	Penalty up to an amount equal to the amount raised through the discounted issue OR ₹5,00,000, whichever is less

Worked example

### Example 1

Example 1 — Void issue:

ABC Ltd issues 10,000 equity shares of face value ₹10 at ₹8 (without invoking any exception). The issue is VOID. The company must refund the ₹80,000 received with 12% p.a. interest. Officers in default are penalised up to ₹80,000 or ₹5,00,000 — whichever is LESS, i.e., ₹80,000.

### Example 2

Example 2 — Permitted discount via debt restructuring:

XYZ Ltd, under an RBI-approved debt restructuring scheme, converts ₹50 crore of bank debt into equity shares of face value ₹10 at ₹6 per share. This discounted issue is permitted under Section 53(2A) and is valid.

### Example 3

Example 3 — Penalty calculation:

If the discounted issue raised ₹10 lakh, the officer's penalty is the lower of ₹10,00,000 or ₹5,00,000 = ₹5,00,000.

⚠️ Common exam mistakes

Confusing 'issue at discount' with 'issue below market price' — Section 53 looks at face value, not market price.
Forgetting that sweat equity shares (Sec 54) are an exception and can validly be issued at discount.
Reading the officer's penalty as the GREATER of the two figures — it is the LESSER.
Forgetting the 12% p.a. interest the company must pay on the refund.
Assuming all debt-to-equity conversions are permitted — only those under statutory resolution plan or RBI-regulated debt restructuring are allowed at discount.

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

Section 53(1): Except as provided in section 54, a company shall not issue shares at a discount. Section 53(2): Any share issued by a company at a discounted price shall be void. Section 53(2A): Notwithstanding anything contained in sub-sections (1) and (2), a company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act, 1934 or the Banking (Regulation) Act, 1949.

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Prohibition on Issue of Shares at Discount (Section 53)

Worked example

⚠️ Common exam mistakes