Prohibition on Issue of Shares at Discount

Often Shares are issued at a premium. Sometimes the situation arises where we decide to issue shares at a discount. Discounted prices may be offered when a private limited company is not able to pay its debts and offer its share to its creditors.

Company Act 2013 strictly prohibited public and private limited companies from issuing shares at a discounted price. It invites penalties and imprisonment for directors.

Recently changes were made to the penalty provisions. Section 53 levies a penalty equal to the amount raised by the issue of shares at a discount of Rs. 5 lakh, whichever is lower.

Public and Private Limited Company shall also be liable to refund the money received with interest at 12% per annum from the date of issue of the shares. So never think of the discounted price. You have so many options for issuing shares.

Section 53 of the Companies Act 2013

(1) Except as provided in section 54, a company shall not issue shares at a discount.(2) Any share issued by a company at a [discount] price shall be void.

[(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].

Substituted by the Companies (Amendment) Ordinance,2019 dated 14.01.2019    [Companies (Amendment) Ordinance 2018 is repealed on 12th January 2019] 

In section 53,for sub-section (3),

“(3) Where any company fails to comply with the provisions of this section, such company and every officer who is in default shall be liable to a penalty which may extend to an amount equal to the amount raised through the issue of shares at a discount or five lakh rupees, whichever is less, and the company shall also be liable to refund all monies received with interest at the rate of twelve per cent. per annum from the date of issue of such shares to the persons to whom such shares have been issued.”

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