Conversion of loan into equity is treated as consideration for cash or other than cash

[Shweta Daga]

Dear Members,

Please throw some light on the captioned subject.

Thanxs & Regards

Shweta Daga

Mob 7838657554

[Gautami D]

Pls refer to sec 62 (1)(c) of comp act 2013. shares can be issued to any persons either for cash or for consideration other than cash if the price of such shares is determined by the valuation report of a regd valuer subject to such conditions as may be prescribed.

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[Shweta Daga]

Dear Gautami,

That means conversion of loan into equity shall be guided by the provision of Sec. 62(1)(c) and not by Section 42.

Thanxs & Regards

Shweta Daga

Mob 7838657554

[Gautami D]

Provisions of sec 62 (1)(c) read with rule 13 (1) of the companies (share cap and deb) rules 2014. Kindly go through 9th annual report of fresh & healthy enterprises limited.
In my opinion it would be issue of shares on pref basis.
Other professionals views solicited.

[Gautami D]

Hi - had a spl resolution been passed at the time of accepting of loan? With the condition to convert such loan and debentures into shares in future?

[Shweta Daga]

No resolution has been passed. However the loan so obtaind is within the limit of 60% of paid up cap and free reserve.

Thanxs & Regards

Shweta Daga

Mob 7838657554

[CS Manish Kushwaha]

Hi,

section 62(3) says about conversion of loan into equity and according to section conversion of loan shall be under private placement process.

and conversion of loan into equity shall also be treated as shares allotted for consideration for cash. 

Regards

Manish

[CS Manish Kushwaha]

if the loan taken under new act than acc. to section 62(3) special resolution should have been passed prior to loan taken, S/R is required for containing the option to convert such loan into equity shares 

[Shweta Daga]

Dear Manishji,

Can you please elaborate why consideration is treated as condsideration for cash?? Because the unsecured loan is neither treated as cash or cash balances, therfore in the process of conversion we nor receive anything in cash. Then why should not be the same treated as consideration other than cash.

Thanxs & Regards

Shweta Daga

Mob 7838657554

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[Jayashree Chandrasekaran]

earlier cash has been received in the form of loan....isnt it?

actually the correct accounting entry will be to show the return of loan and then again to show as receipt of application money

then there will be no confusion

Jayashree

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C.JAYASHREE
PROPRIETOR
S.GANESH&ASSOCIATES
CHENNAI
98840 17120

[Shweta Daga]

Dear Jayashree Ma'am, 

But the cash has been received earlier, but what we are converting is the unsecured loan as on current date.  in case of consideration other than cash, if we donot repay, our assets is being taken away. in the same way, if we do not repay the loan, the goodwill is taken away. So why not we treat the same as consideration other than cash. And in both the cases we have to repay the sum n cash only.

Thanxs & Regards

Shweta Daga

Mob 7838657554

[Jayashree Chandrasekaran]

i am just talking of accounting entries...no need to repay....

Jayashree

[Shweta Daga]

But Ma'am can you please tell,can we treat the same as consideration other than cash??

Thanxs & Regards

Shweta Daga

Mob 7838657554

[Jayashree Chandrasekaran]

no

[ranjith shetty]

Hi,

In old British Spargo's case (1873) LR 8 Ch 407, it was held that allotment of shares by adjusting debt due is "allotment for cash".

This view has been accepted by ICAI (See "Compendium of statements and standards of auditing" by ICAI)

Regards,

Ranjith

Mob: 9666584604

[CS Manish Kushwaha]

Hi,

when u received/taken the loan whether secured or unsecured most probably cash is received, and at the time of repayment loan is repaid in cash with interest.

so in whole process there is moment of cash only which don't need to be valued by any professional for any repayment of loan. hence in result of that only accounting entry have to be passed as share application money received against repayment of loan with interest and make the adjustment accordingly which shall be share allotted for consideration for cash . here you are not  allotting the shares against any property, goodwill, unit of flats or any other assets which shall be required the valuation to know the current market value of the same.

Regards

Manish

[Shweta Daga]

Thank You everyone for your replies and patience.

Thanxs & Regards

Shweta Daga

Mob 7838657554

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