Question

State clearly the conditions under which a company can issue shares at a discount.

Answer 1

According to Section 53 of the Companies Act, 2013, a company cannot issue shares at a discount to the general public. Any such issue is completely void. However, a company can issue shares at a discount under the following two exceptions and conditions:

1. Condition for Sweat Equity Shares (Section 54):
   • Shares can be issued at a discount only to the company’s permanent employees or directors.
   • The issue must be authorised by a Special Resolution passed at the company’s General Meeting.
   • The resolution must clearly specify the number of shares, the current market price, and the class of directors or employees.
2. Condition for Debt Restructuring Schemes:
   • Shares can be issued at a discount to financial creditors, such as banks and other financial institutions.
   • This is allowed only when the company’s outstanding debt is converted into shares.
   • The issue must be addressed in accordance with a resolution plan or debt restructuring scheme approved by the Reserve Bank of India (RBI).
3. Condition for Failure/Non-Compliance:
   • If a company violates these rules, it must refund the entire amount to the applicants.
   • The money must be refunded with interest at 12% per annum from the date of receipt.
   • The company will also face a penalty equal to the amount raised or ₹ 5,000,000, whichever is less.