How does Section 62 of the Companies Act, 2013 define the process for issuing shares on a preferential basis?

Detailed Legal Analysis

Section 62 of the Companies Act, 2013 outlines the process and requirements for issuing shares on a preferential basis in Indian companies.

Under this section, a company may issue shares to specific individuals or entities based on certain conditions and procedures, which are as follows:

• Eligibility: This section applies to public and private companies that wish to issue shares on a preferential basis.
• Board Approval: The company must obtain approval from its Board of Directors for the proposed issue of shares. This approval must detail the number of shares, the price per share, and the identity of the proposed allottees.
• Special Resolution: In addition to board approval, a special resolution must be passed by the shareholders in a general meeting. The resolution should specify:
  • The objects of the issue.
  • The price at which the shares are to be issued.
  • Details of the persons to whom the shares are proposed to be issued.
• Rights of Existing Shareholders: The company must offer the shares to existing shareholders in proportion to their existing shareholding unless the shareholders waive their right to subscribe to the shares.
• Pricing of Shares: Shares must be priced in accordance with the provisions of the Companies (Share Capital and Debentures) Rules, 2014. The price must be determined based on the valuation by a registered valuer for shares issued at a premium.
• Filing Requirements: After the allotment of shares, the company must file the return of allotment with the Registrar of Companies (ROC) within 30 days as per Section 39 of the Companies Act, 2013.
• Compliance with Securities Regulations: If the shares are being issued to the public or to more than 200 persons, compliance with the Securities and Exchange Board of India (SEBI) regulations is necessary.

It is important for companies to adhere to these guidelines to ensure that the issuance of shares on a preferential basis is compliant with the Companies Act, 2013 and other relevant regulations. Non-compliance can lead to penalties and legal complications.