Issue of Shares at Par, at Premium, and the Prohibition on Discount

Every share carries a nominal (or face) value, fixed by the company's Memorandum of Association and stated on the share itself. The price at which a company actually issues that share to an applicant, however, need not always equal the nominal value, and the Companies Act, 2013 recognises three possible relationships between issue price and nominal value, treating each quite differently in law.

Issue at par. A share is said to be issued at par when the issue price charged to the applicant is exactly equal to its nominal value — an applicant subscribing for a share of face value ₹10 pays exactly ₹10 for it. Issue at par raises no special statutory restriction; it is simply the plain, unadjusted case.

Issue at premium. A share is issued at a premium when the issue price exceeds its nominal value — the excess amount charged over the face value is the premium. Section 52 of the Companies Act, 2013 permits a company to issue shares at a premium, but it directs that the amount of the premium received must be transferred to a separate account called the securities premium account, and it then restricts, quite narrowly, the purposes for which that account may be applied. Under Section 52(2), the securities premium account may be used only for purposes such as: issuing fully paid bonus shares to members; writing off the preliminary expenses of the company; writing off the expenses of, or the commission paid, or discount allowed, on any issue of shares or debentures of the company; providing for the premium payable on redemption of redeemable preference shares or debentures; and, for certain classes of companies satisfying prescribed conditions, buying back its own shares under Section 68. A company cannot treat the securities premium account as ordinary distributable profit or use it for a purpose outside this closed list — a restriction that exists precisely because the premium, though received in cash like any other application money, is treated in substance as capital rather than revenue.

Prohibition on issue at discount. A share is issued at a discount when the issue price charged is less than its nominal value. Section 53 of the Companies Act, 2013 lays down a firm general prohibition: except as provided in Section 54 (sweat equity shares, discussed earlier in this chapter, issued to directors or employees for non-cash consideration or at a discount, subject to conditions and a special resolution), a company shall not issue shares at a discount. Any share issued by a company in contravention of this prohibition is void, and the company itself, along with every officer in default, is liable to a penalty prescribed under the Act. A narrow, more recent exception permits a company to issue shares to its creditors at a discount where debt owed by the company is converted into equity shares in pursuance of a statutory resolution plan or a debt restructuring scheme, in accordance with applicable guidelines or directions issued by the Reserve Bank of India — recognising that in a genuine, regulator-supervised debt-restructuring situation, a discounted equity conversion may be the only realistic way to keep an otherwise distressed company viable, rather than allowing discount issues generally as a routine fundraising device. …