Companies Act Section 53 — Prohibition on issue of shares at discount
CHAPTER IV SHARE CAPITAL AND DEBENTURES
Commercial / Corporate
Summary
Sub-section (1) states that, except as provided in section 54, a company is not allowed to issue its shares at a discount. This means a company cannot sell its shares for less than their face value.
Sub-section (2) states that any share issued by a company at a discount shall be void. In other words, such an issue is treated as legally invalid.
Sub-section (2A) creates an exception to sub-sections (1) and (2). It says that a company may issue shares at a discount to its creditors when its debt is converted into shares under a statutory resolution plan or debt restructuring scheme, provided this is done in accordance with guidelines, directions, or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act, 1934 or the Banking (Regulation) Act, 1949.
Sub-section (3) deals with the consequences of failing to comply with this section. If a company fails to comply, the company and every officer who is in default shall be liable to a penalty that may extend to an amount equal to the amount raised through the issue of shares at a discount or five lakh rupees, whichever is less. Additionally, the company must refund all monies received, with interest at the rate of twelve per cent per annum from the date of issue of such shares, to the persons to whom those shares were issued.
Official Text
(1) Except as provided in section 54, a company shall not issue shares at a discount.
(2) Any share issued by a company at a 1[discount] shall be void. 2[
(2A) Notwithstanding anything contained in sub-sections
(1) and (2), a company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act, 1934 (2 of 1934) or the Banking (Regulation) Act, 1949 (10 of 1949).] 3[
(3) Where any company fails to comply with the provisions of this section, such company and every officer who is in default shall be liable to a penalty which may extend to an amount equal to the amount raised through the issue of shares at a discount of five lakh rupees, whichever is less, and the company shall also be liable to refund all monies received with interest at the rate of twelve per cent. per annum from the date of issue of such shares to the persons to whom such shares have been issued.]