Affluence Advisory
Quick Summary
1. Introduction One of the most debated issues under the Companies Act, 2013 is whether the conversion of a loan or debenture into equity shares should be undertaken under Section 62(3) of the Companies Act, 2013 (Act) or whether it constitutes a preferential allotment requiring compliance with Sec
Daily Limit Reached
You have reached your daily limit of 2 Free Articles
Subscribe to CCI PRO for unlimited access
Why Upgrade to CCI PRO?
- No Ads
- WhatsApp Broadcasts
- Daily E-Newsletter
- Unlimited Articles Access
BEST VALUE
2 YEAR PLAN
3,499
(Inclusive of GST)
1 YEAR PLAN
1,999
(Inclusive of GST)
View all CCI PRO benfits
Already a PRO member? Login here for an ad-free experience.
FAQ :
Section 62(3) exempts the conversion of loans or debentures into shares if a conversion option was approved by shareholders before the loan was raised. Section 62(1)(c) governs preferential allotments, which require shareholder approval and specific procedures when shares are issued to specific persons, often when a pre-existing conversion right isn't present.
Section 62(3) applies if the loan or debenture contains a conversion option, and the terms of this option were approved by shareholders via a special resolution before the loan was raised or debentures were issued.
If a loan is converted into shares without a pre-existing, shareholder-approved conversion option, it's considered a fresh issue of shares and must comply with the preferential allotment provisions under Section 62(1)(c) of the Companies Act, 2013.
Yes, shareholder approval by way of a special resolution is mandatory under the proviso to Section 62(3). This approval must be obtained before the loan is raised or the debentures are issued.
Minor modifications that facilitate the original conversion may be permissible. However, creating a new conversion right or fundamentally altering the parties' rights after the loan is raised generally means Section 62(3) will not apply, and preferential allotment rules may be triggered.
No, Section 62(3) is an exception to the general rules for issuing further shares. It's not an independent method for raising fresh capital; rather, it facilitates the fulfilment of pre-existing contractual conversion rights approved by shareholders at the financing stage.
CAclubindia
