Procedure for Right Issue of Equity Shares

Khushboo Sharma

Khushboo Sharma

Published on: Jun 11, 2020

Aakanksha Singhal

Updated on: Sep 30, 2023

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Introduction

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 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. [Section 62(1)(a)]

Mandatory Requirements for the Rights Issue of Equity Shares

1. To hold Board meeting for Right Issue of Equity Shares.
2. In the Rights Issue of Equity share the shares will be offered to the equity shareholders of the Company, as on the date of the offer, in proportion to the capital paid up on their shares. [Section 62(1)(a)]
3. 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. [Section 62(1)(a)(i)]
4. Unless the Articles of the Company otherwise provide, the offer of Right Issue of Shares shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favor of any other person and the notice shall contain a statement of this right. [Section 62(1)(a)(ii)]
5. 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. [Section 62(1)(a)(iii)]
6. Board Resolution for the Rights Issue of Equity Shares cannot be passed by circulation. [Section 179(3)(c)]

The Following procedure is to be followed for Rights Issue of Equity Shares

1. Check Authorized Share Capital and Increase, if required:
   Take necessary steps to increase the authorized share capital of the company if right issue will not be within the total authorized share capital of the Company. [Refer Procedure for Increasing Authorized Share Capital of Company]
2. Convene a Meeting of Board of Directors [As per Section 173 & Secretarial Standard-1 (SS-1)]:
   • Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
   • In case of a listed company, give intimation at least two working days in advance to the stock exchange about the meeting of the board of directors. [Regulation 29 of the SEBI(LODR) Regulation, 2015]
   • Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
   • Hold a meeting of Board of Directors of the Company to consider the proposal for Rights Issue of Equity Shares.
   • Pass the necessary Board Resolution for the Rights Issue of Equity Shares.
   • Authorize Company Secretary or any Director to sign and file the relevant form with Registrar of Companies and to do such acts, deeds, and things as may be necessary to give effect to the Board’s decision.
   • Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Refer the Procedure for Preparation and Signing of Minutes of Board Meeting]
3. Making the disclosure of the Board meeting [Regulation 30 and 46(3) of the SEBI (LODR) Regulations, 2015]
   In case of a listed company, shall first disclose to stock exchange(s) (where shares are listed) about the Board meeting as soon as reasonably possible and but not later than the following:
   • thirty minutes from the closure of the meeting of the board of directors in which the decision pertaining to the event or information has been taken
   • twelve hours from the occurrence of the event or information, in case the event or information is emanating from within the listed entity
   • twenty four hours from the occurrence of the event or information, in case the event or information is not emanating from within the listed entity, from the end of the Board Meeting and update the same on the website of the company within 2 working days.
4. Dispatch the Letter of Offer [Section 62(2)]:
   The letter of offer shall be dispatch to all the existing equity shareholders through registered post or speed post or through electronic mode or courier or any other mode having proof of delivery to all the existing shareholders at least three days before the opening of the issue.
   Note:
   The Ministry of Corporate Affairs had notified Companies (Prospectus and Allotment of Securities) Amendment Rules, 2023 (dated: 20th January, 2023) by which in Form PAS-3 Following particulars added:
   1. Details of valuation report & valuer in case of issuance of securities for noncash consideration & conversion
   2. Type of allotment (public, preferential/ESOP/Sweat equity, rights issue, etc) to be selected
   3. Details of conversion
   4. Confirmation that PAS-3 for previous allotment filed
5. Filing MGT-14 with ROC:
   In the case of public companies, file form MGT-14 with the Registrar of Companies within 30 days of passing the Board Resolution for Right Issue of Equity Share, along with the fee. However, in the case of private companies, filing of MGT-14 is not mandatory.
6. Receipt of Acceptance and Rejection from Shareholders [Section 62(1)(a)(iii)]:
   After the expiry of the time specified in the notice 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 as they deem fit but which is not dis-advantageous to the shareholders and the company.
7. Convene the second Meeting of Board of Director for Allotment of Right Issue of Equity Share [As per Section 173 & Secretarial Standard-1 (SS-1)]:
   • Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
   • In case of listed company, give intimation at least two working days in advance to the stock exchange about the meeting of the board of directors. [Regulation 29 of the SEBI(LODR) Regulation, 2015]
   • Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
   • Hold a meeting of Board of Directors of the Company to allot the Right Issue of Equity Share.
   • Pass the Board Resolution for the allotment of the Right Issue of the Equity Share.
   • To authorize the Director and Company secretary to sign and file the relevant forms and to do such act, deeds and things as may be necessary to give effect to the Board decisions.
   • Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Refer the Procedure for Preparation and Signing of Minutes of Board Meeting]
8. Filing of Form PAS-3 with ROC [Section 39(4) and Rule 12 of the Companies (Prospectus and Allotment of Securities) Rules]:
   File Form PAS-3 with the Registrar of Companies within 30 days from the allotment of Right Issue of Equity Share by the Company having share capital, along with the fee and following documents as an attachment:
   • A list of allottees stating their names, address, occupation, if any, and number of securities allotted to each of the allottees and the list shall be certified by the signatory of the Form PAS-3 as being complete and correct as per the records of the company.
   • A report of a registered valuer in respect of valuation of the consideration shall also be attached
   • In the case of securities allotted as fully or partly paid up for consideration other than cash, there shall be attached to the Form PAS-3 a copy of the contract, duly stamped, pursuant to which the securities have been allotted together with any contract of sale if relating to a property or an asset, or a contract for services or other consideration
   • Resolution of the authorized and allotment of the Right Issue of Equity share.
   • Any Other documents as required.
9. Intimating to the Depositary [Proviso of the section 56(4)]:
   In case allotted Right Issue of Equity share are dealt with in a depository, the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities.
10. If Certificate of share in Physical Form [Section 56(4)(b), Rule 5(2) of the Companies (Share Capital and Debentures) Rules]
    Every certificate of share or shares shall be in Form No. SH.1 or as near thereto as possible within a period of two months from the date of allotment, in the case of any allotment of any of its shares and shall specify the name(s) of the person(s) in whose favor the certificate is issued, the shares to which it relates and the amount paid-up thereon.
11. Attachment of the Stamp Duty
    Every share certificate of the Right Issue shall be attract stamp duty as per the provisions of the Indian Stamp Duty Act.
12. Maintenance of register of the shares [Rule 5(4) of the Companies (Share Capital and Debentures) Rules]
    The particulars of every share certificate issued shall be entered in the Register of Members maintained along with the name(s) of person(s) to whom it has been issued, indicating the date of issue.