Question

Assertion (A): Debentures cannot be issued at discount whereas shares can be issued at discount.

Reason (R): The Companies Act, 2013 does not allow issue of shares at discount unless they are issued as ESOPS.

In the context of above two statements, which of the below options is correct?

Options

• Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).

• Assertion (A) is incorrect but Reason (R) is correct.

• Both Assertion (A) and Reason (R) are incorrect.

Answer 1

Assertion (A) is incorrect but Reason (R) is correct.

Explanation:

• Assertion (A) is incorrect: The rule is actually the exact opposite. According to the Companies Act, 2013, debentures can be issued at a discount, but shares cannot be issued at a discount to the general public.
• Reason (R) is correct: Section 53 of the Companies Act, 2013 strictly prohibits companies from issuing shares at a discount. The only legal exception is the issue of shares to employees or directors (specifically Sweat Equity Shares under Section 54, which are conceptually related to ESOPs)