Further Issue of Share Capital: Section 62

Further issue of share capital under section 62 of the Companies Act, 2013 is the statutory route a company takes when it wants to increase its subscribed capital by issuing more shares. The section offers three doors: existing equity holders first, employees under a stock option scheme, or any persons at all if a special resolution says so and a registered valuer prices it. Everything a rights issue or a preferential allotment does in the market starts here.

What are the three routes for a further issue of share capital?

A further issue of share capital under section 62(1) must go down one of three routes, and the first is the default the other two carve out of:

Clause (c) carries an added compliance condition. The words requiring the valuation report to be that "of a registered valuer, subject to the compliance with the applicable provisions of Chapter III and any other conditions as may be prescribed" were substituted for the narrower original by the Companies (Amendment) Act, 2017 (Act 1 of 2018), section 14, with effect from 9 February 2018. Chapter III is the prospectus and allotment chapter, so a clause (c) issue is measured against it as well. What is a registered valuer covers who may sign that report.

The offer window, and what happens at the end of it

Section 62(1)(a)(i) sets the offer notice's two boundaries. The notice must specify the number of shares offered and limit a time not being less than fifteen days, or such lesser number of days as may be prescribed, and not exceeding thirty days from the date of the offer, within which the offer, if not accepted, shall be deemed to have been declined.

The lower bound is no longer fixed by the statute alone. The words "or such lesser number of days as may be prescribed" were inserted by the Companies (Amendment) Act, 2020 (Act 29 of 2020), section 11, with effect from 22 January 2021. Fifteen days remains the floor unless the rules made under the section prescribe a shorter one, in which case the prescribed number governs.

Section 62(1)(a)(iii) covers what the Board may do with shares nobody took: after the notice period expires, or on earlier intimation that the offeree declines, the Board of Directors may dispose of them in such manner which is not disadvantageous to the shareholders and the company. That is a standard, not a free hand.

Renunciation is the default, not the exception

Section 62(1)(a)(ii) is the sub-clause that makes a rights entitlement tradable in substance. Unless the articles of the company otherwise provide, the offer is deemed to include a right exercisable by the person concerned to renounce the shares offered to him, or any of them, in favour of any other person, and the clause (i) notice must contain a statement of that right.

Section 62(2) then fixes how the notice travels: dispatched through registered post or speed post or through electronic mode or courier or any other mode having proof of delivery, to all existing shareholders at least three days before the opening of the issue. Sub-section (2) was substituted in this form by the Companies (Amendment) Act, 2017 (Act 1 of 2018), section 14, with effect from 9 February 2018.

The conversion carve-outs in sub-sections (3), (4) and (6)

Section 62(3) takes conversions outside the section entirely. Nothing in section 62 applies to an increase in subscribed capital caused by exercising an option attached to debentures issued or a loan raised, to convert them into shares, provided the terms of issue containing that option were approved before the issue or the borrowing by a special resolution passed in general meeting.

Section 62(4) is the government override. Where debentures have been issued or a loan obtained from any Government, and that Government considers it necessary in the public interest, it may direct conversion into shares on terms it considers reasonable even where the original terms carried no conversion option. The proviso gives the company sixty days from the communication of the order to appeal to the Tribunal, which decides after hearing the company and the Government. Section 62(5) requires the Government, in fixing those terms, to have due regard to the company's financial position, the terms of issue, the interest rate and other matters it considers necessary.

Section 62(6) handles the arithmetic that follows. Where such an order has been made and no appeal was preferred, or the appeal was dismissed, and the order has the effect of increasing the authorised share capital, the memorandum stands altered and the authorised share capital stands increased by an amount equal to the value of the shares the debentures or loan were converted into.

Where section 62 meets the market rules

Section 62 is the company-law layer. For a listed company a second layer sits on top of it.

• What is a rights issue covers the market process built on clause (a).
• What is a preferential allotment covers the clause (c) route as it is run by a listed issuer.
• What is an ESOP covers the clause (b) route.
• Private placement under section 42 is the other statutory issue route, and it excludes clause (b) employees from its own count.

A further issue of share capital is a corporate action, not a signal. Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.