Compliance Checklist


Section 62 of the Companies Act, 2013 (“the Act”) relates to ‘further issue of share capital’. According to the said provisions the shares can be offered to: (i) existing shareholders on proportionate basis of their shareholding, (ii) employees under ESOP scheme, (iii) any other person, (iv) conversion of debentures or loan into shares. This article is a checklist for issue of shares on rights basis by a private company or unlisted public company under Section 62 of the Act. A listed company shall also comply with the provisions of the Act and the SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2018.

  1. Applicability of provisions: The provisions of Section 62 of the Act are applicable to all companies except Nidhi Companies [1].
  2. Recipients of rights offer: According to the provisions, where at any time, a company proposes to increase its subscribed capital by the issue of further shares (i.e. equity shares, preference shares), such shares shall be offered to the existing shareholders of the company, who at the date of the offer, are equity shareholders and such offer is in proportion (i.e. pro rata basis), as nearly as the circumstances admit, to the paid-up share capital of the company.
  3. Determination of cut-off: The board of directors shall determine the cut-off date for determining the list of shareholders and their shareholding for making an offer of shares under Section 62 of the Act.
  4. Approval process: In case of rights issue, the approval of board of directors is required. With respect to the approval process, the board of directors shall discuss the following points in its meeting: (i) Need for requirement of funds, (ii) Need for offering shares to existing shareholders of the company, (iii) Cut-off date, (iv) Offer Price, (v) Approving and signing offer letter, (vi) Appointing intermediaries, if required, (vii) Authorising an officer or director for signing agreements with intermediaries, (viii) Authorising officer or director for issuing offer letter to existing shareholders of the company, (ix) Authorising officers or directors to take necessary action in relation to rights issue. As offer is made to all shareholders, approval of shareholders is not required.
  5. Offer letter: Under the Act or the Rules, there is no specific provision prescribing the detailed contents of the offer letter for rights issue. However, the board shall make necessary disclosures to the shareholders. The contents of the offer letter under rights issue may be similar to an offer letter under private placement of securities, with a specific reference to offer on proportionate basis, right of renunciation and offer period.
  6. Offer price: Under the Act or the Rules, there is no specific provision for determining price of shares to be offered under the rights issue. The board may decide the price of shares or obtain the valuation certificate under the Income Tax Act, 1961 or the Foreign Exchange Management Act, 1999 as applicable. If the valuation certificate is obtained, then it shall be noted by the board of directors in its meeting and necessary reference is made in the offer letter.
  7. Offer period [2] : The offer shall be made by notice specifying the number of shares offered and limiting a time not being less than 15 days and not exceeding 30 days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined. Further in case of specified IFSC public company or private companies, the periods lesser than those specified (i.e. 15 days/30 days) shall apply if 90% of the members have given their consent in writing or in electronic mode. The notice to the shareholder shall be dispatched through registered post or speed post or through electronic mode or courier or any other mode having proof of delivery to all the existing shareholders at least 3 days before the opening of the issue.
  8. Right of renunciation: Unless the articles of association of the company otherwise provide, the rights offer shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person. The notice/offer letter shall contain a statement of this right of renunciation.
  9. Completion of offer period: After the expiry of the time specified in the notice, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the board of directors may dispose of them in such manner which is not dis-advantageous to the shareholders and the company. Such shares are issued but unsubscribed and the board of directors may allot to few promoters or directors or any other person. The objective is to ensure that the funding requirement of the company is achieved.
  10. Allotment of equity shares: After receipt of share application money, the board of directors shall pass a resolution for allotment of shares and refund of share application money, if any. The board shall also authorise directors for completing post-allotment compliances. In case of unlisted public companies, the demat account of the shareholders shall be credited with requisite number of allotted shares.
  11. Post-allotment compliances: After the allotment of shares, the company shall, within 30 days thereafter, file with the Registrar a return of allotment in e-Form PAS-3, along with the fee as specified in the Companies (Registration of Offices and Fees) Rules, 2014. The company shall issue share certificates within 2 months from the date of allotment. After allotment of shares, the company secretary of the company or any other authorised person by the board of directors shall make necessary entries in the register of members within 7 days from the date of allotment.

*Gaurav N Pingle, Practising Company Secretary, Pune. He can be reached at

[1] MCA Notification No. GSR 465(E) [F.NO.2/11/2014-CL.V], dated 5-6-2015.

[2] The Companies Amendment Bill, 2020 (as introduced in Lok Sabha) proposes to change the offer period for all companies i.e. the offer period may be open for less than 15 days.

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