Prohibition on Issue of Shares at Discount

4.1 Sub-section (1) of Section 53 of the Act prohibits issue of shares at a discount. Sub-section (2) makes the issue of shares at a discounted price void. The Committee noted that the use of the words “discounted price” could be interpreted to mean a price lower than the market value of shares, and not lower than its nominal value, as intended in sub-section (1). To remove the ambiguity, it recommended that the word ‘discount’, may replace the words “discounted price” in the provision.

4.2 It was noted that Companies Act 1956 allowed companies to issue shares at a discount with the prior approval of the Company Law Board (CLB) though this facility was hardly used. The Committee felt that to enable restructuring of a distressed company, when the debt of such a company is converted into shares in accordance with any debt restructuring guidelines specified by Reserve Bank of India (Strategic Debt Restructuring Scheme issued by RBI vide Circular dated 8.06.2015), a company may issue shares at a discount to a creditor referred to in, and as per the guidelines.

Further Issue of Share Capital

4.3 Section 62 of the Act deals with the further issue of share capital. Sub-section (2) requires the notice with regard to offers on rights basis to be despatched through registered post, or speed post, or an electronic mode. The stakeholders had suggested additionally allowing courier and hand delivery as a mode. The Committee felt that with multiple modes of delivery being allowed, companies would be able to leverage these, without undermining the requirement of ensuring delivery. Thus, it was recommended that any mode of delivery that would provide irrefutable/certain proof of delivery, be allowed.

Issue of shares at discount: clarification and limited restructuring exception; delivery of rights offers allowed by provable modes. Prohibition on issuance of shares at a discount is clarified by substituting 'discounted price' with discount to denote prohibition below nominal value; a narrow exception is recommended to permit issuance at a discount to creditors under specified debt restructuring frameworks. For further issue of share capital, the Committee recommends expanding permitted delivery methods for rights offers to any mode that provides irrefutable proof of delivery, including courier or hand delivery, to ensure certainty of receipt.