Prohibition on Issue of Shares at Discount

Notified Date of Section: 01/04/2014

53. (1) Except as provided in section 54, a company shall not issue shares at a discount.

(2) Any share issued by a company at a 1[discount] shall be void.

2[(2A) Notwithstanding anything contained in sub-sections (1) and (2), a company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act, 1934 or the Banking (Regulation) Act, 1949]

5[4[3[(3) Where any company fails to comply with the provisions of this section, such company and every officer who is in default shall be liable to a penalty which may extend to an amount equal to the amount raised through the issue of shares at a discount or five lakh rupees, whichever is less, and the company shall also be liable to refund all monies received with interest at the rate of twelve per cent. per annum from the date of issue of such shares to the persons to whom such shares have been issued.]]]

 

 

Amendments:

1. Substituted by  the Companies Amendment Act 2017 :- Amendment effective from 9th february 2018

 In section 53, sub-section (2), 

for the words "discounted price", the word "discount" shall be substituted;

 

2. Inserted by The Companies (Amendment)Act,2017 :- Amendment effective from 9th february 2018

3. Substituted by the Companies (Amendment) Ordinance,2018 dated 02.11.2018

In section 53,for sub-section (3),

(3) Where a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.

the following sub-section shall be substituted, namely:—

“(3) Where any company fails to comply with the provisions of this section, such company and every officer who is in default shall be liable to a penalty which may extend to an amount equal to the amount raised through the issue of shares at a discount or five lakh rupees, whichever is less, and the company shall also be liable to refund all monies received with interest at the rate of twelve per cent. per annum from the date of issue of such shares to the persons to whom such shares have been issued.”

 

4.Substituted by the Companies (Amendment) Ordinance,2019 dated 14.01.2019    [Companies (Amendment) Ordinance 2018 is repealed on 12th January 2019] 

In section 53,for sub-section (3),

(3) Where a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.

the following sub-section shall be substituted, namely:—

“(3) Where any company fails to comply with the provisions of this section, such company and every officer who is in default shall be liable to a penalty which may extend to an amount equal to the amount raised through the issue of shares at a discount or five lakh rupees, whichever is less, and the company shall also be liable to refund all monies received with interest at the rate of twelve per cent. per annum from the date of issue of such shares to the persons to whom such shares have been issued.”

 

5. Substituted by the Companies (Amendment) Act,2019 -:Effective From 02nd November 2018   [Companies (Amendment) Second Ordinance 2019 is repealed on 31st July 2019]