Disposing of: what is the meaning of disposing of Under right issues

Section 62(1)(a)(iii) of the Companies Act, 2013 provides that company which has given an offer to all the existing equity shareholders to subscribe in the right issue of the company under the prescribed offer period within which all shareholders must subscribe the shares and and there remains some unsubscribe portion after the lapse of the offer period or they may be the case that some or all of the shareholders have declined to participate in the right issue then in this case the board have the power to dispose of the unsubscribed portion of shares in such manner which is not disadvantageous to the shareholders and Company.



So this article is based on this topic only that what is the meaning of disposing of shares by the board of company

The word dispose of literally means to get rid of, to deal, to transfer, to use efficiently.

Since we have been not provided any meaning of dispose of in the Act so we have to take the general dictionary meaning.


As per general dictionary meaning reading with the provisions of Companies Act 2013 it may be interpreted that the board has given a power to sell off or transfer the shares to anyone who give funds to the company and which is also not dis-advantageous to the company.


Now, What would be the case if the shares are allotted to a person other than an existing shareholder

If the boards decide that it will issue these unsubscribed portion of right issue to unknown existing share holder then in this case it will introduce 1 new investor into the company so that case is very similar to private placement so can we here say that a company is issuing shares under private placement mode,

The answer is no because look at the very basic provision of 62(1)(a)(iii) with provides that the board may dispose of share which is not dis-advantageous to the company and members here it does not provides that we have to follow the provisions of section 42 in case the board decide to issue shares to a non existing investor and and one more thing that board is free to decide the manner of disposing of of shares. 

However for the sake of good corporate governance, the board may comply with the provisions of section 42 and issue pas-4 voluntarily.

This blog is authored by Company Secretary Ronak Gupta. He is author of many blogs and runs many websites and youtube channels. His work is dedicated to corporate laws, legal, secretarial, professional services and also in strategy formulations for corporates. Mail him at: csronakgupta23@gmail.com or call at :9910226715

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