Chapter IV - Share Capital and Debentures
Section 53
Section 53: ban on issuing shares at a discount
A company cannot issue shares at a discount except sweat equity under section 54 and debt conversions for creditors under sub-section (2A). Any share issued at a discount is void, and default attracts a penalty and refund with interest.
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This article is for general information. Refer to the Companies Act, 2013 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(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 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 (2 of 1934) or the Banking (Regulation) Act, 1949 (10 of 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.
Introduction
Section 53 protects share capital. The 2017 Amendment Act changed "discounted price" to "discount" in sub-section (2). It also inserted sub-section (2A), allowing shares at a discount to creditors where debt is converted under a statutory resolution plan or debt restructuring scheme following RBI guidelines, directions or regulations. Both changes took effect from 9 February 2018.
The 2019 Amendment Act replaced the earlier fine and imprisonment provision with a civil penalty and a refund obligation, effective from 2 November 2018.
Key takeaways
General ban
No issue of shares at a discount, except as provided in section 54; such shares are void.
Creditor exception
Shares may be issued at a discount to creditors when debt is converted under a statutory resolution plan or debt restructuring scheme following RBI guidelines, directions or regulations.
Penalty and refund
The company and every officer in default are liable to a penalty of up to the amount raised at a discount or five lakh rupees, whichever is less. The company also refunds the money with 12% annual interest.
Check the price against nominal value
A share is issued at a discount when it is issued for less than its nominal value. Sub-section (1) prohibits this except as provided in section 54 (sweat equity). Sub-section (2) makes any share issued at a discount void.
- India Code — consolidated Companies Act, 2013, section 53
- Gazette — S.O. 902(E), 26 March 2014 (commencement from 1 April 2014)
- Gazette — Companies (Amendment) Act, 2017 (1 of 2018)
- Gazette — S.O. 630(E), 9 February 2018 (2017 Amendment Act commencement)
- Gazette — Companies (Amendment) Act, 2019 (22 of 2019)
Apply the creditor debt-conversion exception
Sub-section (2A) applies notwithstanding sub-sections (1) and (2). It allows shares at a discount to creditors when their debt is converted into shares under a statutory resolution plan or debt restructuring scheme. The plan or scheme must follow guidelines, directions or regulations specified by the RBI under the Reserve Bank of India Act, 1934 or the Banking (Regulation) Act, 1949. Section 12 of the 2017 Amendment Act inserted it, in force from 9 February 2018 under S.O. 630(E).
Penalty and refund
Under sub-section (3), substituted by section 9 of the 2019 Amendment Act, the company and every officer in default are liable to a penalty. The penalty may extend to the amount raised through the discounted issue or five lakh rupees, whichever is less. The company must also refund all money received, with interest at twelve per cent. per annum from the date of issue, to the persons to whom the shares were issued. Section 1(2) of that Act deems the change in force from 2 November 2018.
Commencement
Section 53 came into force on 1 April 2014 under S.O. 902(E). Note that the India Code consolidated PDF prints "at a discount of five lakh rupees" in sub-section (3). The Gazette text of the 2019 Amendment Act reads "or five lakh rupees". The bare law here follows the Gazette.
Practical preparation
Compare the issue price with nominal value. If it is lower, confirm whether section 54 or sub-section (2A) applies. For (2A), document the statutory resolution plan or debt restructuring scheme and the RBI framework relied on. Otherwise restructure the issue.
Practical checklist
Do
- Keep valuation and pricing papers showing the issue is at or above nominal value.
- Record the RBI framework relied on for any (2A) conversion.
Avoid
- Do not issue below nominal value outside section 54 or sub-section (2A).
- Do not treat a premium-pricing error as harmless; discounted shares are void.
Illustrative example
Hypothetical: issue below face value
A company plans to issue ₹10 shares to an investor at ₹8 for cash.
Classify
This is an issue at a discount.
Exceptions
It is not sweat equity and not a creditor debt conversion.
Consequence
The shares would be void and attract the sub-section (3) penalty and refund.
Outcome
- The company restructures the issue at or above nominal value.
Glossary
- Discount
- Issue of a share for less than its nominal (face) value.
- Statutory resolution plan
- A plan referred to in sub-section (2A) under which creditor debt may be converted into shares at a discount, subject to the RBI framework.
Frequently asked questions
Are shares issued at a discount valid?
No. Section 53(2) makes them void, except where section 54 or sub-section (2A) applies.
Is imprisonment possible under section 53 now?
Not under section 53(3) as substituted with effect from 2 November 2018. It provides a civil penalty and a refund with interest.
Can a company convert lender debt into shares below face value?
Only within sub-section (2A): conversion for creditors under a statutory resolution plan or debt restructuring scheme following RBI guidelines, directions or regulations.
Need help applying this provision to your situation?
Contact BizeneedLast updated 11 October 2026