Process of Conversion of Loan into Equity
Conversion of Loan into Equity Share
Capital–
“NCLT ORDER”
Short Summary:
In this flash editorial author shall through some
light on the provisions of Conversion of Loan into Equity Share Capital of the
Company as per provisiosn of Companies Act, 2013 and recent NCLT Judgement on
the same.
The provisions for conversion of loan into equity
have been significantly amended under Companies Act, 2013 in comparison to
Companies Act, 1956. The provision under this Act is stricter then earlier Act.
The author shall try to clear the provision of conversion of loan into equity
on the basis of Judgement of Hon’ble NCLT.
This is article no. 321 of the series of editorials
written by the author on corporate laws {Including Companies Act, 2013, SEBI,
RBI Regulations, IBC, LLP
Act, 2008 etc.}.
Legal Provision:
Companies Act, 2013- Section 62(3): Nothing in this section
shall apply to the increase of the subscribed capital of a company caused by the exercise of an option as a term
attached to the debentures issued or loan
raised by the company to convert
such debentures or loans into shares in the company:
Provided that the terms of issue of
such debentures or loan containing such an option have been approved before the
issue of such debentures or the raising
of loan by a special resolution passed by the company in general meeting.
Companies Act, 1956- Section
81(3) Nothing in this section shall apply-
(a) to a Private Company; or
(b) to the
increase of the subscribed capital of a Public
Company caused by the exercise of an option attached to debentures issued
or loans raised by the company-
(i) to convert
such debentures or loans into shares in the company, or
Comparison of provisions of Companies Act, 2013 Vs.
Companies Act, 1956
As
per above mentioned provisiosn of Section 81 of Companies Act, 1956 ‘Section 81
·
not applicable on private limited
Company at all and
·
shall not applicable on public Limited
Company in respect of Conversion of Debenture or loan into Share of
the Company’.
Note: However, there was no need to obtain
approval of Shareholders in General Meeting by passing of Special Resolution
for conversion of loan or debentures into equity.
As
per above mentioned provisiosn of Section 62 of Companies Act, 2013: Condition for conversion of Loan into Equity:-
i.
Term of conversion to be attached to issue
letter of Debenture or Loan
ii.
Approval of shareholders by passing of
special resolution in general meeting obtained at the time of issue of debenture
or loan (i.e. prior approval in GM by SR)
iii.
Filing of MGT-14 within 30 days of passing
of Special Resolution (Section 117)
PROCESS OF CONVERSION
OF LOAN INTO EQUITY
W.e.f. 1st April, 2014 if a Company wants to
convert its Loan or Debentures into equity share capital then it’s have to
follow the below mentioned process:
STAGE – I: Steps Before Issue
of Debenture or Acceptance of Loan
STEP- I- Holding of [1]Board
Meeting
I.
To pass an resolution for Acceptance of
Loan or issue of [2]debenture
II.
To pass board Resolution for conversion of
such Loan / Debenture into Equity share Capital of the Company
III.
To issue Notice for holding of [3]Extra
Ordinary General Meeting of Shareholders.
STEP- II- Holding of Extra Ordinary General
Meeting:
IV.
Company shall pass Special resolution for
conversion of such loan/ Debenture into Equity share capital of Company in
Future.
V.
File e-form MGT-14 within 30 days of
passing of Special Resolution with ROC.
STEP- III- Enter into Agreement:
VI. Company shall enter into an agreement of
Terms of Loan or Debenture.
VII. Such Agreement should contain the term of
conversion of such Loan or Debenture into Equity share capital of Company in
Future.
STAGE – II: Steps at the time
of conversion of Debenture / Loan into share capital:
STEP- IV- Holding of Board Meeting
VIII. Pass Board Resolution for Allotment of
Equity Shares
IX. Preparation of List of Allottees
X. Filing of e-form PAS-3 for allotment of
Shares within 30 days of passing of Board Resolution.
QUICK QUERY
There
are many queries arise on the above mentioned issue. Here we will discuss the
most common query for conversion of loan into equity.
I. If a Company has accepted loan before 1st April,
2014 (i. e under Companies Act, 1956) and wants to convert such loan into
equity shares at present. Whether it is allowed?
a. As
per the provision under Companies Act, 1956 there was no requirement to pass
prior Special resolution for conversion.
b. As
per provision of Companies Act, 2013 it is mandatory that company had passed
special resolution at the time of acceptance of loan / debenture.
Therefore, if a Company wants to convert the loan
accepted in Companies Act, 1956 and no Special resolution passed at that time
for conversion of such loan in future then Company can’t
convert such loan due to Section 62(3).
NCLT Judgement:
‘Recently
on 4th September, 2017 one judgement has been passed by the Hon’ble
NCLT Kolkata bench, in
Company Petition No. 208/KB/17.
In
the above mentioned case
The Company has allotted shares by conversion of
loan into equity (i.e. loan accepted under Companies Act, 1956)
Ø
The arguments of the learned counsel for the
Appellants is that this Section could not have been applied and if at all
Section 81 of the Old Act would be relevant, as according to him, when the
loans were raised, at that time the New Act was not in force.
Ø
NCLT
finds that:
Ø When
the New Act is in force and conversion of loan has to be done, the conversion
would be permissible only as per the new provisions [i.e. section 62(3)].
Ø In view
of sub-Section (3) of Section 62 when the question of issue of further share
capital is taken up, conversion of loan into share capital would be permissible
provided there was special resolution passed by the company in General Meeting
which granted option as a term attached to the loan raised by the Company
permitting conversion of such loan into shares of the company
Note:
Therefore one can opine that Loan taken under
Companies Act, 1956 without passing of Special Resolution can’t convert into
equity share capital u/s 62(3) of Companies Act, 2013.
However, it is mandatory to pass the special
resolution at the time of acceptance of Loan or issue of debenture with the
term of conversion into equity share capital in future.
Disclaimer:
The
entire contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not a professional advice and is subject to change without
notice. I assume no responsibility for the consequences of use of such
information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION
WITH THE USE OF THE INFORMATION.
[1]
Follow the process of Section 173 and Secretarial Standard – 1 for holding of
Board Meeting.
[2]
Company shall also follow the provision of Section 71 for Issue of Debenture
[3]
Follow the process of Section 100,101 and Secretarial Standard II for holding
of Extra Ordinary General Meeting
In first line, word "throw" to be used instead of "through".
ReplyDeletepl provide citation of the order for reference.
ReplyDeleteTHERE IS NO SUCH ORDER NUMBER PASSED ON SUCH DATE
DeleteI have seen a few listed Company who has converted unsecured loans from promoters into equity U/s 61(1)(c).
ReplyDeletesorry 62(1)(c)
ReplyDeleteI absolutely agree with the beauty and the info you shared with us!visit this link
ReplyDeleteGood post but I was wondering if you could write a litte more on this subject? I’d be very thankful if you could elaborate a little bit further. Appreciate it..! no employment verification payday loan
ReplyDeleteYou fully match our expectation and the selection of our data.Wix web site
ReplyDeleteIt is then up to you to decide whether you will be able to repay both the cash advance you receive initially and the interest amount on the repayment date.
ReplyDeleteequipment loan
http://www.nclat.nic.in/final_orders/Court_II/2018/company/23012018AT3602017.pdf There is an order by the Appelant Tribunal with regard to the same. Please find the link - - Extract of the judgement -
ReplyDelete15. The arguments of the learned counsel for the Appellants is that this Section could not have been applied and if at all Section 81 of the Old Act would be relevant, as according to him, when the loans were raised, at that time the New Act was not in force. We find that there is no substance in this argument. When the New Act is in force and conversion of loan has to be done, the conversion would be permissible only as per the new provisions. In view of sub-Section (3) of Section 62 when the question of issue of further
share capital is taken up, conversion of loan into share capital would be permissible provided there was special resolution passed by the company in General Meeting which granted option as a term attached to the loan raised by the Company permitting conversion of such loan into shares of the company.
Everybody it is possible that he is a sovereign or an average person need to claim his very own home,https://imsgcanada.com/ in days of yore individuals use to work entire their lives to purchase their own particular house.
ReplyDeleteIn the event that you don't complete appropriate financing, it can cost you thousands or even many thousands in premium payment alone to the Bank.theloanrepublic.com
ReplyDeletethe reimbursement date and the measure of intrigue you will pay on the reimbursement date.personal loan in atlanta ga
ReplyDeleteWhile the admin of the web site is working, no question soon it will likely be famous, due to its feature blogs.Progressive Payday Loan
ReplyDeleteThank you for taking the time to discuss this, I experience strongly that love and study more in this subject matter. Investing In Consumer Loans
ReplyDeleteYou have chosen a very interesting topic for discussion. Your article is very useful for those who are looking to convert their loans into equity share capital. If anyone looking for the best Short Term Property Loans at the lowest interest rates, Visit basicfinance.com.au
ReplyDeleteplease tell me what is the remedy to convert loan into equity????????? when there is no SR passed regarding the same at that time
ReplyDeleteBut for everything you have to pay a price, there is nothing free and of course you are getting money without giving any of your owned possession's guarantees, which is a very big thing detroit cash advance
ReplyDeleteAnother similarity between lines of credit and credit cards is the loan is often an unsecured loan meaning no assets are used to guarantee the loan such as homes, cars, the business itself. see here now
ReplyDeleteA Manufacturers' plan is a sort of loan that is assembled and promoted by the auto maker and can be orchestrated straightforwardly with them or through a nearby auto dealership. short term loans
ReplyDeleteThis is surely a very good blog, thanks a lot for sharing such nice information here.get a business loan for your business
ReplyDeleteContinuously know yet the majority of the business loan financing dependably search for your FICO assessment or records and you have to clear that first before applying for a business loan financing.
ReplyDeletebitcoin games jetwin
A boost in your monthly savings is always good and refinancing your existing car title loan at a lower interest rate is one of the easiest ways to do so. Not all car title loans are alike. Fees and interest rates can vary widely from one car title loan lender to the next.
ReplyDeleteFinancing an independent venture can be most tedious action for a business proprietor.live trading signals
ReplyDeleteWonderful! your article is very helpful for the loan seekers. We compare the best offer from banks and offer the Personal loan
ReplyDelete
ReplyDeleteNext, comes applying for the loan. Aside from data on the vehicle, most loan specialists will ask about salary and costs. https://bestloansproviders.com
I'm certainly very happy to read this blog site posts which carries plenty of helpful data, thanks for providing such information. Silk Bank Credit Card - HBL Credit Card
ReplyDeleteI am certain this article has touched all the web visitors; it’s very extremely lovely script. Net Present Value Calculator Excel Template | Work Estimate Template Excel Format
ReplyDeleteThis comment has been removed by the author.
ReplyDeletesuch a situation, we either need to hold or concede our arrangement of obtaining something or go for a substantial intrigue Mastercard loan to meet the commitment. Same day loan on benefits
ReplyDeleteThis procedure might be somewhat No Teletrack Loans difficult yet it will enable you to fly and be what you were made to be.
ReplyDelete. That implies raising your business profile to your objective market, your industry,enquiry your locale and, indeed, your representatives.
ReplyDeleteA range of heads including parking, electric charges, security deposit, maintenance outlay, service tax, stamp duty, registration fee etc. that come under the total eligible cost of the flat may not be covered by the bank.Claim back doorstep loans
ReplyDeleteGuarantee protects people from second-hand vehicles with inconspicuous issues at the expense of an utilized auto dealer.used car dealerships near me
ReplyDeleteVery good article and thanks for sharing such information. Already Read your Recent Post, its Great Thanks stock certificate | deposit slip | disciplinary action form | vacation request | voicemail greetings
ReplyDeleteIn case of pre-closing, the mortgage expert will take recourse to the best of skills and make sure that all your real estate documents are secured from the other parties who might claim the possession of the property at any point of time.Provident claim
ReplyDeleteYes, I am entirely agreed with this article, and I just want say that this article is very helpful and enlightening. I also have some precious piece of concerned info !!!!!!Thanks. recover money lost to binary options
ReplyDeleteThe reimbursement structure might be as regularly scheduled payments. Incomplete installments made yearly are additionally acknowledged. pittsburgh car accident lawyer
ReplyDeleteI think this is one of the most significant information for me. And i’m glad reading your article. But should remark on some general things, MONEY LENDER SINGAPORE
ReplyDeleteA lot of valuable information can be derived from the post. If you are looking for the online personal loans for bad credit then, paylollyborrowinghut.com is here for you.
ReplyDeleteIn addition to office relocations services, you will need to contract an IT consultant service to facilitate migration of server data and workstation data, and set up a new network in the new location, using either your own or new computer hardware or combinations.Office Furniture Removal Company
ReplyDeleteA formal endorsement of the loan is likewise required and so as to do as such, the credit division of the bank checks your qualification just as your record which is your past obligation to any current loan. Provident claim
ReplyDeleteMortgage holders who have attempted to get their own loans adjusted have met with dissatisfaction, misleading, ineptitude, organization, and disappointment because of a framework which is fixed to support the banks, not the property holders.
ReplyDeleteProvident claim
Finance choices are promptly made accessible for you in the advance market to break up the issue of your waning finances. Michael | Your Money Geek
ReplyDeleteA connecting loan is like a home loan where the sum acquired is verified on your home however the benefit of a home loan is that it pulls in a much lower financing cost.Provident claim
ReplyDeleteSpanning loans are momentary loans organized when you have to buy a house yet can't orchestrate the home loan for reasons unknown, for example, there is a postponement in selling your current property. Door step loan claims
ReplyDeleteThis is such a great resource that you are providing and you give it away for free. https://gogopaydayloans.com
ReplyDeleteYour article contains very much information about the loans. Your article is very informative and useful for those who are interested to know more about the process of conversion of loan into equity. Thank you for sharing this article here. Secured loans no commission
ReplyDeletedropping the loan and the utilization the individual data you supply while applying for the payday loan. Provident claim
ReplyDeleteYou have done a great job on this article. It’s very readable and highly intelligent. You have even managed to make it understandable and easy to read. You have some real writing talent. Thank you. Online Payday loan Florida
ReplyDeleteExcellent article. Very interesting to read. I really love to read such a nice article. Thanks! keep rocking. slick cash loan
ReplyDeleteGreat job for publishing such a nice article. Your article isn’t only useful but it is additionally really informative. Thank you because you have been willing to share information with us. Unsecured Small Business Loans for legalized hemp market
ReplyDeleteMost of payday loans are accessible on the web, so there is no postponement with faxing or posting of archives. webpage
ReplyDeleteI would like to thank you for the efforts you have made in writing this article. I am hoping the same best work from you in the future as well. Thanks.. Opt for the Commercial Loan Consultants Online.
ReplyDeleteA payday loan indeed has many names. Some call it a cash advance loan. A few think of it as a check advance loan. One another name is often a post-dated check loan. A few others call it a deferred-deposit check loan. nationalpaydayloanrelief.com
ReplyDeleteJust read your blog.Good one. I liked it. as we provide Peer to Peer Lending in Singapore at affordable prices. for more info visit our website.
ReplyDeletePersonal debt relief companies will often be costly to the consumer. Regardless of whether they succeed in lowering the personal debt owed to collectors, there will certainly at that point be another financial debt that must be spent. This is certainly not the suit when applying for personal bankruptcy.
ReplyDeleteWhen you have the approved auto financing option on hand, Buy Auto Leads you can then proceed with the deal as a "cash buyer" so to speak as you already have the cash in hand from the loan and you are just buying the car from the dealer with that money.
ReplyDeleteYes i am totally agreed with this article and i just want say that this article is very nice and very informative article.I will make sure to be reading your blog more. You made a good point but I can't help but wonder, what about the other side? !!!!!!Thanks hex to decimal converter
ReplyDeleteShopping on the web is useful for window shopping just and requests free statements money lender in Bugis since you can't see by and by the individual online dissimilar to when you go to their office.
ReplyDeleteThis is a great experience bitcoin scams of why the financial market monetarists have it right. Inflation is not a useful measure to guide financial policy. Thanks for sharing,
ReplyDeletewonderful Post!! Thanks To Shared With us. we provide Peer to Peer Lending in Singapore at affordable prices. for more info visit our website.
ReplyDeleteA Cash Loan can help you in this circumstance with momentary loans of somewhere in the range of £80 and £400. VillaSarna payday loans
ReplyDeleteThis blog provides a thorough information & also about provides the process of loan conversion in USA. You can opt for premium financial solutions, which provides funding solutions online
ReplyDeleteThanks for sharing such an informative.
ReplyDeleteif you required any TAX and GST Consultants, plse visit
synmac consultants in BANGALORE | CHENNAI | DELHI
SYNMAC.IN | GST CONSULTANTS IN BANGALORE | GST RETURN FILING IN BANGALORE | TAX CONSULTANTS IN BANGALORE | COMPANY REGISTRATION IN BANGALORE | GST REGISTRATION CONSULTANTS IN BANGALORE
Very useful post. This is my first time i visit here. I found so many interesting stuff in your blog especially its discussion. Really its great article. Keep it up. premium financial services
ReplyDeleteMany people with mobile phones choose prepaid because of the savings and the control it affords them. You can use All Recharge Software for a range of services.
ReplyDeletecan u share draft resolution for this process
ReplyDeleteNice post, impressive. It’s quite different from other posts. we provide bankruptcy attorney near Tampa Bay at affordable prices. for more info visit our website.
ReplyDeletethe information you have updated is very good and useful,plse update further. if you required any info regarding TAX & GSTR please visit
ReplyDeleteAccounting Services in bangalore|Auditing Services in bangalore
|Trademark Registration|Payroll Processing
|GSTR for finance|
Great article, very useful and explanation. Your post is extremely incredible. we provide Singapore loan company at cheap interest rate. to know more visit our website.
ReplyDeleteWe would be happy to fund and invest with you in any profitable project if you have any viable project we can finance by making mutual investment with you. If you are interested, kindly contact us on:contact@doverstockloans.com for more details.
ReplyDeleteFinancial Services Company Singapore
Stock Loan Services Australia
if a company accept unsecured loan under companies act 1956 and passed the special resolution, so can we covert a such loan into equity under companies act 2013?
ReplyDeleteasdads
ReplyDeletethe information you have updated is very good and useful,plse update further.
ReplyDeleteif you required any info regarding TAX & GSTR please visit
Tax consultants in Bangalore
GST consultants in Bangalore
the information you have updated is very good and useful,plse update further.
ReplyDeleteif you required any info regarding TAX & GSTR please visit
Tax consultants in Delhi
Income Tax Consultants in Delhi
the information you have updated is very good and useful, please update further.
ReplyDeleteif you require any info regarding TAX & GSTR please visit
Tax consultants in Bangalore|
GST consultants in Bangalore|
Company registration in Bangalore|
Company name registration in Bangalore|
how to register a startup company in Bangalore
company registration cost Bangalore|
company registration online Bangalore|
pvt ltd company registration fees Bangalore|
pvt ltd registration Bangalore|
new company registration Bangalore