## Section 53 – Shares Issued at a Discount
The Companies Act, 2013 prohibits companies from issuing shares at a price below face value (discount), with very limited exceptions.
### The General Rule
> A company shall not issue shares at a discount.
### Consequences of Violation
| Consequence | Detail |
|---|---|
| Shares are void | Any share issued at a discount is treated as if never validly issued |
| Penalty on company | Penalty up to the amount raised through discounted shares, OR ₹5 lakhs, whichever is less |
| Penalty on officers in default | Same penalty as above (up to amount raised or ₹5 lakhs, whichever is less) |
| Refund obligation | Company must refund all monies received with interest at 12% p.a. from the date of issue |
### Exceptions (When Discount Issue is Permitted)
Exception 1: Sweat Equity Shares
- Under Section 54, sweat equity shares may be issued at a discount to employees/directors as a form of compensation
Exception 2: Debt Restructuring
- A company may issue shares at a discount to its creditors when debt is converted into equity shares under:
- A statutory resolution plan, OR
- A debt restructuring scheme
- Pursuant to guidelines/directions of the Reserve Bank of India (under RBI Act, 1934 or Banking Regulation Act, 1949)
### Auditor's Role
If the auditor finds shares are proposed to be or have been issued below face value (other than in permitted categories), they must:
1. Object to/qualify the financial statements
2. Report under CARO if applicable
3. Advise management of the legal consequences