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CS Professional · Strategic Management and Corporate Finance · Raising of Funds from Debt and Procedural Aspects

Kaveri Steels Ltd owes Rs 50 crore to its lenders under a restructuring scheme framed in line with RBI directions. Lenders convert Rs 20 crore of the debt into equity shares of face value Rs 10 at an issue price of Rs 4 per share. How many shares are issued, and is the issue below face value permitted?

5 crore shares are issued, since Rs 20 crore divided by Rs 4 equals 5 crore. The issue at Rs 4 against face value Rs 10 is a discount issue, but it is permitted because section 53(2A) allows discounted shares to creditors on conversion under an RBI-guided restructuring scheme.

  1. A5 crore shares; permitted because section 53(2A) allows discount issue to creditors on such conversionCorrect
  2. B2 crore shares; permitted because the issue price is below face value
  3. C5 crore shares; not permitted because all discount issues are void
  4. D2 crore shares; not permitted unless the shareholders approve it in a general meeting

Explanation

Number of shares = Rs 20 crore / Rs 4 = 5 crore shares. Face value Rs 10 is above the issue price, so this is a discount issue. Section 53(2A) permits it for creditors on conversion under a restructuring scheme following RBI guidelines. Check: 5 crore x Rs 4 = Rs 20 crore.

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