Procedure for Rights Issue under CA 2013

[sid]

Dear All,

Kindly apprise on procedure for rights issue under CA 2013, whether the section 42 and private placement rules to be  for the same.

Thanks

[CS Prabhat Joshi]

Dear Siddharth,

Following is the procedure:

1.Get the valuation report (required for allotment to non resident investor)

2. Hold a Board Meeting and take note of Valuation report

3. In the same meeting offer the shares to existing holders in the present holding ratio

4. Issue the offer letter to shareholders (3 days before receipt of application money)

5. Get acceptance / renouncement letter from shareholders

6. Receive the application money

7. Hold one more Board Meeting

8. Allot Shares to holders.

9. Issue share certificate and update the members register

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Thanks & Regards

 

 Prabhat Joshi

[Gaurav Gupta]

Dear Mr. Prabhat,

Is there any requirement to keep the share application money in separate bank account.

Regards

Gaurav

[CS Chandru]

Hi,

 

In Rights issue as per Sec 62(1)a, pvt placement procedure u/s 42 need not be followed. If rights issue is to existing non resident shareholders, as per RBI guidelines, DCF Valuation report must be obtained, otherwise, valuation report is not required for rights issues to current resident shareholders.

 

A separate bank account required to be maintained for receipt of share appln money.

CS Chandrashekhar

+91 9743148312

 

Go GREEN...please consider environmental responsibility before printing this e-mail

[Vivek Hegde]

Dear Chandru,

As per my understanding, separate bank account is not required for rights issue. Can you please explain your take on this?

Also under the rights issue, the existing shareholders renounce their rights, it will still be a rights issue and provisions relating to Private Placement or Preferential allotment are not applicable. Correct me if I am wrong.

Warm Regards

CS Vivek Hegde,B.com, ACS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710677

[Gaurav Gupta]

Dear all,

I understand one more thing that in case of right issue, 'provision of allotment of shares within 60 days of receipt of share app. money' are also not applicable. Correct me if I am wrong.

Regards

Gaurav

[Vivek Hegde]

Dear Gaurav,

Yes. That was my understanding also. 

But indirectly, acceptance of deposit rules puts such a restriction. If you can not allot within 60 days and refund after 15 days it will be treated as deposit. 

Warm Regards

CS Vivek Hegde,B.com, ACS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710677

[CS Chandru]

Hi Vivek,

 

As you rightly pointed out, separate acc need not be maintained as per Act provisions and Rules for rights issue. This is required in case of Pvt Placement, preferential allotment and in public issues. To sum up, this is required when shares are proposed to be isued to persons other than existing members. I think for ESOP also, there is no requirement to have separate acc to accept application money.

 

Nevertheless, i would say it is advisable to do so to avoid misapplication or diversion of funds to other purposes though not required by law.

 

Secondly , i agree with you that it continue to remain as Rights issue though issues have been made to third party on renouncement of pre emtive rights. Reason is that Third party to whom rights to subscribe have been transfered, will not qualify as 'specific grp of persons as identified by the Company' as per 'Pvt Placement' definition. Corrent me if my reasoning is wrong

 

 

 Thu, Apr 24, 2014 at 11:47 AM, Vivek Hegde <vivekhe...@gmail.com> wrote:

[Vivek Hegde]

Thank you Chandru. I agree with you.

One more thing is if you read the wordings of Section 62 the "renunciation" can be made even to outsiders who are not the existing members. Even in that case it will still be a rights issue...!!!.

Most of the closed held companies may follow this route to avoid cumbersome procedures prescribed for private placement and preferential allotment.

Warm Regards

CS Vivek Hegde,B.com, ACS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710677

[CS Chandru]

Yes I agree Vivek. This is a way out to avoid following pvt placement procedure and invite third parties for equity participation. This neither require special resolution approval nor valuation report unless such allotment attacts provisions of special Acts

[anjna makhija]

    Thanks a lot to above valuable discussion. please clarify

 format of letter of offer in case of right issue is not prescribed in CA 2013 anywhere.

anjna
9868556652

[Vivek Hegde]

Dear Anjana,

No format has been prescribed. Attaching a simple format which can be improvised.

Warm Regards

CS Vivek Hegde,B.com, ACS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710677

[anjna makhija]

  Thanks a lot for responding back.

[Gaurav Gupta]

Dear Vivek Ji,

With reference to your mail addressing me regarding the acceptance of deposit rules, I would like to know that how to treat the share application money received from a foreign investor, for which RBI allows us to allot the share within a period of 6 months. You mean we will have to allot the shares to the foreign investor within 60 days of receiving the share app. money !!

Thanks Regards

Gaurav

[Vivek Hegde]

Dear Guarav,

General Rule is any special acts (FEMA being a special act) prevail over the Companies Act. In that sense 180 days should be allowed for FDI cases.

There is also another argument that stricter provision need to be followed accordingly Companies Act need to be followed.

 

Others views pl. 

Warm Regards

CS Vivek Hegde,B.com, ACS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710677

[CS Chandru]

I agree. Always the law which is more stringent should be complied with which indirectly serve the purpose of other liberal laws as well.

 

In fact RBI is expected to bring FDI Reporting policies in line with New Co Act provisions which would take certain time.

[Mahesh Shinde]

Dear Mr. Chandru,

As per my understanding rights issue to existing non-resident shareholders is exempt from DCF Valuation. Please correct if wrong.

Thanks & Regards,

Mahesh Shinde

[CS Chandru]

Hi Mahesh,

 

The provisions under Co Act doesnt require valuation for Rights issues but as per provisions of RBI Pricing Guidelines, any allotment /transfer of shares to non residents are subject to DCF Valuation method. Other member's views are requested on this..

[Mahesh Shinde]

Dear Mr. Chandru,

I am reproducing para 3.5.1 (b) of Chapter 3 to the Latest DIPP Guidlines made applicable from 17.04.2014: 

"The offer on right basis to the persons resident outside India shall be:

(a) in the case of shares of a company listed on a recognized stock exchange in India, at a price as determined by the company;

(b) in the case of shares of a company not listed on a recognized stock exchange in India, at a price which is not less than the price at which the offer on right basis is made to resident shareholders."

I understand that valuation is not mandatory in case of Rights Issue. Other view solicited.

Thanks & Regards,

Mahesh Shinde

[Sathyan Avinash]

I totally agree with the views of the members.

1. Separate Bank account need not be opened for rights issue.

2. An issue will be treated as a Private Placement only if the Company (acting through the Board and after obtaining consent from Shareholders) decides upon a group of persons to whom shares will be allotted. In case of exercising the renunciation option in a rights issue, the shareholder himself decides the person to whom he should renunciate. So, it is clear that there can be a rights issue by renunciation (This is one major beneficial section for private companies for simplified procedure).

3. Also, it is better to allot shares within 60 days as prescribed in Companies Act, 2013 to avoid unnecessary complications under Deposit rules. 

To conclude, I thank the members for the useful updates, particularly for showing their love for the profession by sharing a sample format for a letter of offer.

Thank you,

With regards,

CS Sathyan G.

[Vivek Hegde]

Dear Sathyan,

Thank you. However, there is one catch, where we can not back date any of the documents (this is not applicable for private placement and preferential allotment). Because, as per Section 62(2)

"The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be

despatched through registered post or speed post or through electronic mode to all the existing shareholders at least three days before the opening of the issue."

That mean to say, hand delivery is not allowed. In a strict sense we should send the offer letter to shareholders only through any of the above modes and keep the proof of dispatch of offer letter. 

Warm Regards

CS Vivek Hegde,B.com, ACS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710677

--

[Sathyan Avinash]

Dear Vivek,

Thank you for letting us know the "catch".

That is more important.

[Pankaj]

Dear Friends,

I would like to draw your attention on the provision of Section 62(1)(c) which is neither right issue nor ESOP, I am reproducing the wording here: 

(c) to any persons, if it is authorised by a special resolution, whether or not

those persons include the persons referred to in clause (a) or clause (b), either for cash

or for a consideration other than cash, if the price of such shares is determined by the

valuation report of a registered valuer subject to such conditions as may be prescribed.

As per my interpretation, the persons to whom a company wish to allot shares fall in this category also as whom have been mentioned under Section 42(private placement). And moreover, the issue can be complied by simply passing Special Resolution and adopting a Valuation Report(only Form MGT-14  and Form PAS-3 involved), but in private placement under section 42 there is series of compliance starting with Identification-recording-filing with ROC-reciving application money-allotting shares-return of allotment.

Friends, I want your understanding on this interpretation please.

Others views are highly appreciated.

Regards,

Pankaj Khandelwal

in.linkedin.com/in/cspankaj/

[CS Chandru]

Dear All,

 

This is going to be very useful discussion on this. Pls continue to share your intrepretations and views to reach to a better clarity. Thanks to all.

 

 

Hi Mr. Mahesh,

 

As you rightly pointed out, rights issue u/s 62(1)a is not subject to DCF valuation method. Thanks for an update

 

Hi Mr Pankaj,

 

I would lik to draw your attention to Rule 13 under Chapter 4 which reads as below-

 

13. Issue of shares on preferential basis.-
(1) For the purposes of clause (c) of sub-section (1) of section 62, If authorized by a special resolution passed in a general meeting, shares may be issued by any company in any manner whatsoever including by way of a preferential offer, to any persons whether or not those persons include the persons referred to in clause (a) or clause (b) of sub-section (1) of section 62 and such issue on preferential basis should also comply with conditions laid down in section 42 of the Act:

Issue of shares u/s 62(1)c has been termed as Preferential Alotment and conditions u/s 42 should also be adhared to in additon to the disclosures requirements under Rule 13 for Preferential Alotment. So i feel it is clear that series of compliances under u/s 42 mutatis mutandis applicable for Sec 62(1)c route as well.

 

Others views are welcomed...

 

 

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[Pankaj]

Many thanks to you Mr. Chandru, this was something I want to know about this mystery of Section 42 and Section 62(1)(c).

Regards,

Pankaj Khandelwal

in.linkedin.com/in/cspankaj/

On Wednesday, 23 April 2014 15:06:32 UTC+5:30, sid wrote:

[Manju Mundra]

Can preference shares be issued on rights basis?

[vasuki hegde]

Dear Members,

To conclude finally,

For rights issue of shares We,

1. Need not get the valuation report under DCF method

2. Need not conduct EGM for approval

3. No prior permission of Members is required

and 

1. Only a simple letter of offer is sufficient.

2. A board meeting to approve letter of offer and after 7 days allotment of securities.

Please update me if I am wrong

Regards,

Vasuki Hegde

[Mahesh Shinde]

Small correction: I think minimum period of offer letter is 15 days and maximum is 30 days.

Thanks & Regards,

Mahesh Shinde

--

[vasuki hegde]

 Dear Mahesh,

Can you please tell me where the Period of 15 days option is given.

Regards

Vasuki Hegde

[Nandish Dave]

Dear Ms. Vasuki,

Please find text highlighted below for Minimum & Maximum Offer period for 

62. (1) Where at any time, a company having a share capital proposes to increase its

subscribed capital by the issue of further shares, such shares shall be offered—

(a) to persons who, at the date of the offer, are holders of equity shares of the

company in proportion, as nearly as circumstances admit, to the paid-up share capital

on those shares by sending a letter of offer subject to the following conditions,

namely:—

(i) the offer shall be made by notice specifying the number of shares

offered and limiting a time not being less than fifteen days and not exceeding

thirty days from the date of the offer within which the offer, if not accepted, shall

be deemed to have been declined;

Thanks & Regards,

-Nandish Dave

Company Secretary

Contact:

Cell No.: +91-98253 03126

E-Mail  : nandis...@gmail.com

[Sonam Malkan]

[csyogan .]

(a) even pas3 filing is not required in case of rights issues
contradictory views welcome !!

(b) can some one kindly share the board resolution format for rights issue in an unlisted public company

egm resolution is not required in this case. isnt it ?

regards,
yogan.

[Rajesh]

Dear Mr. Yogan,

A drat resolution is enclosed for approval of rights shares. Go through the same and make changes as required.

My query:

Whether MCA will raise query if we issue rights shares on face value without valuation of shares for an unlisted public company?

Paid-up capital of the company is less than 1 crore.

E-Form PAS-3 is required to be filed / not?

Thanks and Regards,
Rajesh R
Contact : 9886678285

[Bidu Bhusan Dash]

Dear Rajesh Sir,

Please go through the format of BR you have attached.................and in the 1st para "in the proportion of one new share for every __-------------- equity share held by them"

how to calculate the no. of shares..........as for example: X shareholder already held 3860000 shares in the company, now company is issuing 2090000 shares,so how to complete the above line

please share

Regards

Bidu

Regards,

CS Bidu Bhusan Dash

M-9971324050

[Rajesh]

Dear Mr. Bidu,

As per my understanding the new shares to be issued as per their current holding ratio. 

In the given example if the company is having 6 shareholders you have to give rights to all the shareholders equal right to purchase the rights shares.

If The Board decides to issue 1  new equity share for every 5 shares (1:5 ratio) held then this shareholder is eligible to take 772000 shares out of 2090000.

The ratio needs to be decided depending on the number of shareholders, their holding and the total number of shares proposed to be issued.

 

[Bidu Bhusan Dash]

Rajesh Sir,

Thank you very much.

but........There is only one shareholder holding 100% shares and issue may be to that shareholder only..............then what is the ratio to be mentioned in that line.

Regards

Bidu

Regards,

CS Bidu Bhusan Dash

M-9971324050

[Rajesh]

Dear Mr. Bidu.

Minimum 2 shareholders required for pvt. co. What about the other shareholder. Whether the 2nd shareholder holds shares as beneficial holder to the 1st shareholder?

[Bidu Bhusan Dash]

yes,sir

Regards,

CS Bidu Bhusan Dash

M-9971324050

[Rajesh]

If you take the ratio as 1 equity share for every 2 shares held. Then the 1st holder will have an option to exercise majority of the shares. The 2nd holder can renounce his right in the name of the 1st holder. 

So the 1st holder can avail all the shares in the rights issue. 

Request other members to share their views. 

[csyogan .]

(1) i dont find any provision which requires filing of form.pas3 in case of rights issue

(2) paid up capital is not given as any criteria for rights issues of unlisted public companies

regards,
yogan.

On Tue, Jul 8, 2014 at 10:05 AM, Rajesh <rajes...@gmail.com> wrote:

[Rajesh]

Dear Mr.Yogan,

After the allotment of shares on Rights basis to existing shareholders don't we need to file return of allotment with ROC?

If so how can we show the change in the paid-up capital on the MCA portal.

[csyogan .]

rajesh sir,

no provision is found either in the Act or in the Rules for filing pas3 in case of rights issues.

figures on mca portal is a practical issue
i am only talking academically / theoretically pls

regards,
yogan.

[Rajesh]

Dear Mr.Yogan,

Please dont take it otherwise. My argument is once we issue shares the paid-up capital in the Balance sheet will be updated. 

The same should be updated in the ROC as well. 

Otherwise there will be mis-match. 

[Bidu Bhusan Dash]

Dear Sir,

Please follow Rule 12 for Return of Allotment 

Regards

Bidu

Regards,

CS Bidu Bhusan Dash

M-9971324050

[csyogan .]

dear mr. bidu,

i am reproducing the preamble to the rules :
G.S.R. 251(E).—In exercise of the powers conferred under section 26,
sub-section (1) of section 27, section 28, section 29, sub-section (2)
of section 31, sub-sections (3) and (4) of section 39, sub-section (6)
of section 40 and section 42 read with section 469 of the Companies
Act, 2013 and in supersession of the Companies (Central Government’s)
General Rules and Forms, 1956 or any other rules prescribed under the
Companies Act, 1956 (1 of 1956) on matters covered under these rules
except as respects things done or omitted to be done before such
supersession, the Central Government hereby makes the following rules,
namely:—

the rules are not given for section 62(1)(a) which only talks about
rights issues.

contradictory views are welcome pls.

regards,
yogan.

On 7/9/14, Bidu Bhusan Dash <bidub...@gmail.com> wrote:
> Dear Sir,
>
> Please follow Rule 12 for Return of Allotment
>
>
>
> Regards
> Bidu
>

> *Regards,*
> *CS Bidu Bhusan Dash*

>>>>>> *My query:*

[Gaurav Purohit]

Hello All,

Please find the Attachment,

description related to Sec 42 & 62 of Companies Act 2013

Thanks 

Dr. Gaurav 

Whatsapp Cntact- 7877777582

[Vijaykumar Cn]

As regards to the rights issue:

 

No valuation report required unlike in private placment...

 

Offer letters and Share Application are to be sent as per applicable provisions...

 

Existing shareholders will either subscirbe or renounce the shares in favor of anyone else...

 

PAS 3 for allotment and MGT 14 for Board resolution of issue of shares to be filed...

 

Filing of PAS 3 is mandatory and will enable the updation of data of the master data page...

 

 

--

[Miss Shanu Bhandari]

So that means I can bring a right issue without General meeting. Just conducting BM is sufficient?

Please correct me if I aam wrong.

Warm Regards

Shanu

On Thu, Apr 24, 2014 at 12:57 PM, Vivek Hegde <vivekhe...@gmail.com> wrote:

Thank you Chandru. I agree with you.

One more thing is if you read the wordings of Section 62 the "renunciation" can be made even to outsiders who are not the existing members. Even in that case it will still be a rights issue...!!!.

Most of the closed held companies may follow this route to avoid cumbersome procedures prescribed for private placement and preferential allotment.

Warm Regards

CS Vivek Hegde,B.com, ACS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710677

On Thu, Apr 24, 2014 at 12:33 PM, CS Chandru <cvkor...@gmail.com> wrote:

Hi Vivek,

 

As you rightly pointed out, separate acc need not be maintained as per Act provisions and Rules for rights issue. This is required in case of Pvt Placement, preferential allotment and in public issues. To sum up, this is required when shares are proposed to be isued to persons other than existing members. I think for ESOP also, there is no requirement to have separate acc to accept application money.

 

Nevertheless, i would say it is advisable to do so to avoid misapplication or diversion of funds to other purposes though not required by law.

 

Secondly , i agree with you that it continue to remain as Rights issue though issues have been made to third party on renouncement of pre emtive rights. Reason is that Third party to whom rights to subscribe have been transfered, will not qualify as 'specific grp of persons as identified by the Company' as per 'Pvt Placement' definition. Corrent me if my reasoning is wrong

 

 

 Thu, Apr 24, 2014 at 11:47 AM, Vivek Hegde <vivekhe...@gmail.com> wrote:

Dear Chandru,

As per my understanding, separate bank account is not required for rights issue. Can you please explain your take on this?

Also under the rights issue, the existing shareholders renounce their rights, it will still be a rights issue and provisions relating to Private Placement or Preferential allotment are not applicable. Correct me if I am wrong.

Warm Regards

CS Vivek Hegde,B.com, ACS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710677

On Thu, Apr 24, 2014 at 11:44 AM, CS Chandru <cvkor...@gmail.com> wrote:

Hi,

 

In Rights issue as per Sec 62(1)a, pvt placement procedure u/s 42 need not be followed. If rights issue is to existing non resident shareholders, as per RBI guidelines, DCF Valuation report must be obtained, otherwise, valuation report is not required for rights issues to current resident shareholders.

 

A separate bank account required to be maintained for receipt of share appln money.

 

On Thu, Apr 24, 2014 at 10:53 AM, Gaurav Gupta <csggu...@gmail.com> wrote:

Dear Mr. Prabhat,

Is there any requirement to keep the share application money in separate bank account.

Regards

Gaurav

On Wed, Apr 23, 2014 at 3:39 PM, CS Prabhat Joshi <prabh...@gmail.com> wrote:

Dear Siddharth,

Following is the procedure:

1.Get the valuation report (required for allotment to non resident investor)

2. Hold a Board Meeting and take note of Valuation report

3. In the same meeting offer the shares to existing holders in the present holding ratio

4. Issue the offer letter to shareholders (3 days before receipt of application money)

5. Get acceptance / renouncement letter from shareholders

6. Receive the application money

7. Hold one more Board Meeting

8. Allot Shares to holders.

9. Issue share certificate and update the members register

On 23 April 2014 15:06, sid <cssiddha...@gmail.com> wrote:

Dear All,

Kindly apprise on procedure for rights issue under CA 2013, whether the section 42 and private placement rules to be  for the same.

Thanks

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Thanks & Regards

 

 Prabhat Joshi

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Thanks & Regards

CS Chandrashekhar

+91 9743148312

 

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[Pankaj CS]

Dear Yoganand,

As you rightly pointed, this is the power exercised under section 469 of the Act.

My query-

Is there any concept of Minimum Subscription for the Right issue? Suppose, all the existing shareholders, except very few, decline the right offer, will the shares be allotted to such shareholders(who accepted the offer)?
 

or

Letter of renounce is necessary?

[csyogan .]

renouncement is not mandatory

board can take final call if existing shareholders reject / do not accept the offer

regards,

yogan.