How does a company issue a rights issue of shares to existing shareholders?

Question

My company wants to raise further capital by offering new shares to existing shareholders first. What does the law require? I have been reading conflicting things online and I would like to understand what Indian law actually says about this, which Act and Section applies, what the realistic timelines and costs are, and what I should be doing right now to protect my position. If the matter can be resolved without litigation I would prefer that route, but I want to know what my rights are before I agree to anything or sign any document.

MyVakeel Legal Desk · Accepted Answer

How does a company issue a rights issue of shares to existing shareholders? is governed in India primarily by Companies Act 2013, Section 62, Companies Act 2013, Section 42 and Companies (Share Capital and Debentures) Rules 2014, Rule 12. The short answer is set out below, followed by the practical steps most people in this situation need to take. Read it alongside the specific provisions named, because the exact relief available to you turns on the facts you can prove on paper.

Section 62(1)(a) requires a company proposing to issue further shares to first offer them to existing equity shareholders in proportion to their existing shareholding, known as a rights issue.

The offer letter must specify the number of shares offered and remain open for acceptance for not less than 15 days and not more than 30 days from the date of offer.

Shareholders can renounce their rights entitlement in favour of another person unless the articles restrict such renunciation, and unaccepted shares can be disposed of by the board in a manner not disadvantageous to shareholders.

A company can issue shares other than on a rights basis, such as through preferential allotment or private placement, only after passing a special resolution as required under Section 62(1)(c) read with Section 42.

Failure to follow the rights issue procedure or pricing rules can be challenged by minority shareholders as oppressive conduct under Sections 241 and 242.

What to do next: 1) Determine the entitlement ratio and issue price for the rights offer; 2) Send the letter of offer to all eligible shareholders with the statutory acceptance window; 3) Allot shares to shareholders who accept and handle renunciations as permitted; 4) File Form PAS-3 with the Registrar after allotment is completed.

If the other side has already issued a notice, filed a case or set a deadline, treat the matter as time-sensitive — most remedies under Companies Act 2013, Section 62 carry limitation periods, and a delay you cannot explain weakens an otherwise strong case. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in this practice area.