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Procedure for converting loan amount into equity shares Section 81(3) of the Companies Act, 1956 states

the following: Nothing in this section shall apply(a) to a private company; or (b) to the increase of the subscribed capital of a public company cause by an 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 (ii) to subscribe for shares in the Company: Provided that the terms of issue of such debentures or the terms of such loans include a term providing for such option and such term(a) either has been approved by the Central Government before the issue of debentures or the rising of the loans, or is in conformity with the rules, if any, made by that Government in this behalf; and (b) in the case of debentures or loans other than debentures issued to, or loans obtained from, the Government or any institution specified by the Central Government in this behalf, has also been approved by a special resolution passed by the Company in general meeting before the issue of the debentures or the raising of the loans. Steps 1. Convene a Board Meeting after issuing notices to the directors of the Company as per Section 286 to decide about increase in paid-up share capital and to fix up the date, time, place and agenda for convening a General Meeting and to pass a Special Resolution for the same. Every officer of the Company whose duty is to give notice of the Board Meeting as aforesaid and who fails to do so will be punishable with fine upto Rs. 1,000 (Section 286(2)). Issue notices in writing at least 21 days before the date of the General Meeting (Section 171(1)) with suitable Explanatory Statement (Section 173(2)). Hold the General Meeting and pass the Special Resolution by three fourths majority (Section 189) as the case may be as required under step 1.





File the Special Resolution with the relevant Explanatory Statement with the RoC in e-Form No.23 within 30 days (Section 192(4)(a)), after paying requisite fee prescribed under Schedule X of the Companies Act, 1956. Ensure the e-Form is digitally signed by the Managing Director or directors or manager or secretary of the Company duly authorised by the Board of Directors. If default is made in complying with the aforesaid requirement of filing, the company and every officer of the Company who is in default will be punishable with fine upto Rs.200 for everyday during the default continues (Section 192(5)). Make necessary changes in every copy of the Memorandum and Articles of Association and in all other papers and documents after the paid-up share capital is increased. In case of default, the Company and every officer of the Company who is in default will be punishable with fine upto Rs. 1,000 for each copy so issued (Section 40(2)).