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CS Professional · Strategic Management and Corporate Finance · Raising of Funds from Equity and Procedural Aspects - Public Funding

Kaveri Power Ltd issued debentures with a term allowing conversion into equity shares. Which condition exempts such conversion from the rights-offer requirement of Section 62?

Conversion of debentures or loans into shares under an attached option falls outside the rights-offer rule only if the terms containing the option were approved, before the debentures were issued or the loan raised, by a special resolution passed by the company in general meeting.

  1. AThe terms of issue containing the conversion option were approved by a special resolution in general meeting before the debentures were issued or loan raisedCorrect
  2. BThe Board approved the conversion option by a simple resolution after issue
  3. CThe debenture holders approved the conversion by ordinary resolution at the time of conversion
  4. DThe Registrar of Companies approved the conversion option

Explanation

Section 62(3) excludes increases in subscribed capital caused by exercise of a conversion option attached to debentures or loans, provided the terms containing that option were approved before the issue or raising by a special resolution passed in general meeting. Later or lesser approvals do not qualify.

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