Section 53 of Companies Act, 2013 – Prohibition on Issue of Shares at Discount

SECTION 53. PROHIBITION ON ISSUE OF SHARES AT DISCOUNT

[Effective from 1st April, 2014]

(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 [discount] [1] shall be void.

[(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.] [2]

[(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.][3]

[1] Substituted for the words “discounted price” by the Companies (Amendment) Act 2017 vide Notification No. File No. 1/1/2018-CL.I dated 9^th February, 2018.

[2] Inserted by the Companies (Amendment) Act 2017 vide Notification No. File No. 1/1/2018-CL.I dated 9th February, 2018.

[3] Substituted by The Companies (Amendment) Ordinance , 2019 dated 12th January, 2019 effective from 2nd November, 2018. Prior to substitution it read as under:-

“(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.”