WHAT IS RIGHT ISSUE

As per Section 62(1)(a) of the Companies Act, 2013, a right issue is explained as follows:

62(1) Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered—

(a) to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely:—

(i) the offer shall be made by notice specifying the number of shares offered and limiting 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;

(ii) unless the articles of the company otherwise provide, the offer aforesaid shall be 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 notice referred to in clause (i) shall contain a statement of this right;

(iii) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not dis-advantageous to the shareholders and the company;

Conditions for Right Issue of Shares under 62(1)(a):

1. Offer to equity shareholders: Shares shall first be offered to the persons who at the date of the offer are equity shareholders.
2. Notice to the shareholders for subscription and offer period: The offer shall be open for minimum 15 days and maximum 30 days. (Not applicable for private companies in which 90% have given their consent in writing for a lesser number of days).
3. Renunciation of Offer: The offer is deemed to include right of renunciation unless otherwise is mentioned in the Articles of Association.
4. Time limit for allotment of securities: Allotment should be made within 60 days.

Can a company allot additional shares to existing shareholders more than his right in case the right issue is not fully subscribed?

• The company may include such statement in the Offer letter which provide for specified column in the application form to apply for additional shares in case the right issue is not fully subscribed.

Procedure for Right Issue

1. Convene a board meeting and pass the following resolutions:

– Issue of securities by way of right issue.

– Quantum of shares and ratio of shares to be issued; and

– Draft offer letter and Application Form

2. File MGT-14 with 30 days of passing Board Resolution for issue of securities.
3. Send letter of offer to the existing shareholders by way of notice and informing about the time limit available to them for application.
4. The offer shall be deemed to include a right of renunciation and if a person decides to renounce the shares, the renunciation form shall be sent along with the application form.
5. Convene a board meeting to approve allot of shares and issue share certificates.
6. File the return in PAS-3
7. Issue share certificates inform SH-1.
8. Pay stamp duty within 30 days.
9. Update register of security holders.