There is one more situation where the existing equity
shareholders may lose the right to be offered the shares, discussed above.
Sub-sections (4) to (7) of s.81 provide for such a contingency.
A company may issue shares to its lenders or
debentures-holders who have been given the option to convert their loan or
debentures into shares. However, the company can do so only if such conversion
has been approved before the issue of debentures or raising of the loan by a
special resolution and also by the Central Government. But no such special
resolution is necessary where the lender or the debenture-holder is either the
Government or any institution specified by the Central Government in this
behalf. Moreover, the Central Government may allow a Government holder of
debentures or a Government lender of money to the company to ask for shares of
the company in lieu of the loan or debenture amount, even though the instrument
of loan or debenture does not contain any option for conversion. A copy of
every such order issued by the Central Government must be laid in draft before
each House of Parliament while it is in session for a total period of thirty
days.
Section 94A empowers the Central Government to
administratively increase the authorised capital when conversion is ordered by
it and the company does not have shares to issue and has not increased its
share capital by ordinary resolution.
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