Under the Companies Act, 2013, what are the prerequisites listed in Section 62 for offering shares to existing shareholders, and how is the time frame for issuing such shares determined?

Detailed Legal Analysis

Under the Companies Act, 2013, Section 62 outlines the prerequisites for a company to offer shares to existing shareholders, primarily focusing on the rights of existing shareholders to subscribe to additional shares before the company can issue them to others.

The key prerequisites for issuing shares under Section 62 are as follows:

• Rights Issue: Existing shareholders must be offered the right to subscribe to shares in proportion to their existing shareholding. This is known as a rights issue.
• Board Resolution: The proposal for the rights issue must be approved by a board resolution, which should specify the terms of the offer.
• Offer Letter: A letter of offer must be sent to the existing shareholders, detailing the number of shares offered, the price, and the time frame within which they can accept the offer.
• Minimum Subscription: The company must ensure that the minimum subscription requirement, as per Section 39, is met. This means that the company must receive applications for at least 90% of the issue within the stipulated time.
• Time Limit for Acceptance: Shareholders must be given a minimum of 15 days to accept the offer, as stated in Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014.

Additionally, the company must adhere to the following provisions regarding the timeframe for issuing shares:

• Issue of Shares: After the offer period ends, the company should allot the shares within a reasonable time frame, typically not exceeding 60 days from the date of receipt of applications.
• Return of Allotment: Following the allotment of shares, the company is required to file a return of allotment with the Registrar of Companies (RoC) in Form PAS-3 within 30 days of the allotment.
• Share Certificates: The company must issue share certificates to the shareholders within two months of allotment, as per Section 56 of the Companies Act, 2013.

In summary, Section 62 of the Companies Act, 2013 mandates that existing shareholders have the right of first refusal on new shares issued by the company, with specific timelines and procedures that must be adhered to for a compliant rights issue.