Rights issue by pvt. company

Co Act 2013 2718 views 2 replies

Gargi Ranade

415 Points Posted on 05 May 2014

Dear all,

We are Pvt. Ltd. Company and 100% subsidiary of Japanese Listed Company. We wish to infuse fresh equity capital in the Company which shall be subscribed by our holding company . (I understand that it shall be treated as rights issue as reffered in section subsection 1 (a ) of section 62 )

I understand that act specifically mention in it's section 23 (2) that private Company can issue shares through Rights , bonus issue OR through Private Placement . ) and Section 42 says where Company issue shares under Private Placement ,applicaton money has to be kept in seprate Bank Account and said Application money can be either allocated against allotment and if shares are not alloted within 60 days application money needs to be refunded.

Now , my query is, this specific utilisation of application money is restricted only for the issue which is made under private placement only?

If company makes rights issue, can Co. use the money received as application money , before allotment of shares?

Thanks & Regards,

Gargi

Replies (2)

P C Agrawal

Registered independent director Past Ch

8229 Points Posted on 05 May 2014

Yes, you are right. There is no such restriction in case of rights issue u/s 62(1)(a).

Gargi Ranade

415 Points Posted on 05 May 2014

Dear Sir,

Thanks a lot for your prompt reply .

So we can directly issue offer letter as stated in 62(1) (a) which as already decided between the companies, will be accepted by the Holding company and renounce by the second shareholder who holds only two shares in the company with nomination of Holding Company.

Further once offer is accepted we can bring in the money by way of share application money , same money can be either utilised for the purpose for which it is bring in , immidiately after receipt and shares can be issued as per FEMA Rules.

In this case we need not require to keep the fund in the sperate bank account until the allotment of issue.

Do we need to comply with any additional formality .

whether plain interpretation of the Section 23 (2) is sufficient to assume that Private Placement and Rights issue are separate from each other and rules of Private Placement are not applicable to Rights issue.

Thanks in advance for your kind reply.