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CA Intermediate · Corporate and Other Laws · Share Capital and Debentures

Kaveri Industries Ltd has an authorised capital of Rs 10 crore and wishes to issue shares at a discount to the public. Its shares of Rs 10 each are quoted at Rs 8 in the market. The directors propose to issue fresh equity shares of Rs 10 each at Rs 9 to the general public by a board resolution. What is the legal position under the Companies Act, 2013?

The proposed issue is not permitted. Under the Companies Act, 2013, a company cannot issue shares at a discount except sweat equity shares, and any other issue at a discount is void. Neither a special resolution nor Registrar approval nor a low market price can validate it.

  1. AThe issue is valid since the market price is below face value
  2. BThe issue is valid if the company has obtained a special resolution
  3. CThe issue is valid if the Registrar approves the discount
  4. DThe issue is prohibited because a company cannot issue shares at a discount, except sweat equity sharesCorrect

Explanation

The Act prohibits a company from issuing shares at a discount, other than sweat equity shares. Any such issue is void. A special resolution or Registrar approval cannot cure this, and market price below face value is irrelevant. Hence option D is correct and the others wrongly assume discount can be authorised.

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