Declaration and payment of Dividend

4.9 - Issue of shares at a Discount (Sec. 53)

Prohibition on issue of shares at a discount

Penalty in case of contravention A company shall not issue shares at a discount, except in the case of an issue of Sweat equity shares given u/s 54 of the Companies Act, 2013. Any share issued by a company at a discount shall be void. Point to Remember A company may issue shares at 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 RBI under the RBI Act, 1934 or Banking (Regulation) Act, 1949. Company and every officer who is in default shall be liable to a penalty which may extend to an amount equal to an amount raised through the issue of shares at a discount or ₹ 5 Lakh, whichever is less; and The Company shall also be liable to refund all monies received with interest at the rate of 12% p.a. from the date of issue of such shares to the persons to whom such shares have been issued.

Important Questions Q. No. 6: ABC Limited is a public company incorporated in New Delhi. The Board of Directors of the company wants to bring a public issue of 1,00,000 equity shares of ₹ 10 each. The BOD has appointed an underwriter for this issue for ensuring the minimum subscription of the issue. The underwriter advised the BOD that due to current economic situation of the country it would be better if the company offers these shares at a discount of ₹ 1 per share to ensure full subscription of this public issue. The Board of directors agreed to the suggestion of underwriter and offered the shares at a discount of ₹ 1 per share. The issue was fully subscribed and the shares were allotted to the applicants in due course. Decide whether the issue of shares as mentioned above is valid or not as per Sec. 53 of Companies Act, 2013. What would be your answer in the above case if the shares are issued to employees as sweat equity shares? [Nov. 20 (3 Marks)] HINT: Refer Sec. 53. Issue of shares at discount is not valid. In case the shares have been issued to employees as Sweat equity shares, then the issue of shares at discount is valid. Q. No. 7: State the reasons for issue of shares at premium or discount. Also write in brief the purposes for which the securities premium account can be utilized? [Jan. 21 (5 Marks)] HINT: Refer Sec. 52 and 53.

4.10 - Issue of Sweat Equity Shares (Sec. 54)

Meaning of Sweat Equity Shares – Sec. 2(88) Sweat equity shares” means such equity shares as are issued by a company to its directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

Conditions A company may issue Sweat equity shares of a class of shares already issued, if the following conditions are fulfilled, namely: (a) the issue is authorised by a special resolution passed by the company;