Page 155 - CA Inter Audit PARAM

CA Ravi Taori

QNO B/S (Shares at Discount)- Old Course – (M19M/N19E/M22R/M22M/N23E)
AIFS.11 Bhaskar CNO - AIFS-P1.040 New Course – (M24E)
While conducting audit of Air Space Ltd, the auditor observes that it has issued shares at discount to its
creditors when its debt is converted into shares in pursuance of debt restructuring scheme in accordance
with any guidelines specified by the Reserve Bank of India. Discuss explaining clearly the provisions relating
to discount on issue of shares and its verification by the auditor.
OR
Any share issued by a company at a discounted price shall be void. Explain also stating the audit procedure
in this regard.
OR
Validity and consequence of issue of shares at discount, check with respect to the provisions of the
Companies Act, 2013.
OR
PQ & Co. want to diversify its business and for that purpose they want to raise money by issuing shares to
the general public. The face value of the shares is ₹ 100 but the directors of the company propose to issue
the shares at a discounted rate of ₹ 95/- so as to receive more response. The statutory auditor, however,
objects to the same as it is not allowed as per the Companies Act, 2013. State the provisions of Section 53
of the Companies Act, 2013 with reference to shares issued at a discount and the consequences where the
company fails to comply with the provisions of this section.
Answer ➢ According to Section 53 of the Companies Act, 2013,
(1) a company shall not issue shares at a discount, except in the case of an issue of sweat equity shares
given under Section 54 of the Companies Act, 2013.
(2) any share issued by a company at a discounted price 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.
(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.

➢ The auditor needs to check
(i) the movement in share capital during the year and wherever there is any issue,
(ii) he should verify that the Company has not issued any of its shares at a discount by reading the minutes
of meeting of its directors and shareholders authorizing issue of share capital and the issue price.
(iii) Further, auditor should also verify that in case a company has issued 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.

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