Section 53 of CA 2013 : Section 53: Prohibition On Issue Of Shares At Discount

Explanation using Example

Imagine XYZ Tech Pvt. Ltd. is looking to raise capital to fund its expansion plans. The company decides to issue new shares to investors. According to Section 53(1) of The Companies Act, 2013, XYZ Tech Pvt. Ltd. cannot issue these shares at a price lower than their nominal value, i.e., at a discount.

However, if the company is undergoing financial restructuring and has debts that need to be converted into equity as part of a resolution plan approved by the RBI, then as per Section 53(2A), XYZ Tech Pvt. Ltd. can issue shares at a discount to its creditors as part of the debt restructuring process.

If XYZ Tech Pvt. Ltd. ignores these regulations and issues discounted shares without falling under the exception of a statutory resolution plan, the issuance would be considered void as per Section 53(2), and the company along with responsible officers could face penalties as mentioned in Section 53(3), which could be up to the amount raised from the discounted shares or five lakh rupees, whichever is less. Additionally, the company would need to refund the money to investors with 12% interest per annum.