ISSUE OF EQUITY SHARES ALLOTMENT

This query is : Resolved

HARISH BHATIA (Querist)
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29 September 2021 Dear Sir / Madam,

in one of the company, the director has Mortgage his personal property valued at Rs 70,00,000 for companies loan purpose on that property basis, company has received loan for rs 1 cr now the company wants to allot Equity shares for Rs 1 cr as the person has mortgaged his property on the condition that company will allot shares, kindly guide us.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)
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09 July 2024 When a director mortgages their personal property valued at Rs 70,00,000 for the company's loan purpose, and the company subsequently receives a loan of Rs 1 crore based on that property, there are specific regulatory considerations and steps that need to be followed, especially if the director is to receive equity shares in return for mortgaging the property. Here’s a guide on how to approach this situation:

### Steps and Considerations:

1. **Legal Compliance and Approval**:
- Ensure that the mortgage of the director’s personal property and the subsequent loan transaction comply with all legal requirements, including those of the Companies Act, 2013 and other applicable laws.

2. **Board Resolution**:
- The board of directors should pass a resolution approving the issuance of equity shares worth Rs 1 crore to the director as per the agreement where the director has mortgaged their property for the company’s benefit.

3. **Valuation of Property**:
- The property mortgaged by the director is valued at Rs 70,00,000. Ensure that the valuation is conducted by a registered valuer if required by law or if the valuation affects the issuance of shares.

4. **Allotment of Equity Shares**:
- Issue equity shares to the director for Rs 1 crore based on the agreement. The number of shares allotted should be determined based on the face value and premium, if any, determined by the board.

**Shareholder Approval**:
- If necessary under the company’s articles of association or the Companies Act, 2013 (particularly if the allotment affects the existing shareholders' rights), obtain approval from the shareholders in a general meeting.

**Disclosure in Financial Statements**:
- Disclose the issuance of shares to the director in the company's financial statements, specifying the rationale and any related-party transaction disclosures required.

**Compliance with Section 192 of the Companies Act, 2013**:
- Ensure compliance with Section 192 which regulates loans and investments by companies. Even though the transaction involves the director's property, it's crucial to ensure the company's actions align with the provisions of this section.

**Additional Compliance Checks**:
- Check if there are any additional regulatory filings or disclosures required with regulatory authorities such as the Registrar of Companies (ROC) or the Securities and Exchange Board of India (SEBI).

### Documentation:

- Prepare necessary documentation including board resolutions, agreements with the director regarding the mortgage and share allotment, valuation reports, and any other supporting documents.

### Professional Advice:

- It’s advisable to seek professional advice from a company secretary or legal advisor who can ensure that all steps comply with applicable laws and regulations.

### Conclusion:

Issuing equity shares to a director in exchange for mortgaging personal property involves legal and regulatory complexities. By following the above steps and ensuring compliance with relevant laws, the company can proceed with the allotment of shares while safeguarding the interests of all stakeholders involved.

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