Can a Company Cancel a Rights Issue? An Analysis under the Companies Act and SEBI Regulations
Neha Sharma Team - Research and Advisory, Taxmann
Can a Company Cancel a Rights Issue? An Analysis under the Companies Act and SEBI Regulations
Neha Sharma Team - Research and Advisory, Taxmann
Contents 1.
Introduction
5
2.
Section 62 of the Companies Act, 2013
5
3.
Regulation 29 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
7
4.
Regulation 68 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
7
5.
Practical Examples
8
6.
Conclusion
8
1. Introduction A rights issue is one of the principal methods through which a company can raise additional capital from its existing shareholders. Under a rights issue, existing equity shareholders are offered an opportunity to subscribe for further shares, generally in proportion to their existing shareholding. However, a practical question may arise after the Board has approved a rights issue: Can the company subsequently cancel or withdraw the proposed rights issue? The position can therefore be understood by examining three key provisions: (a) Section 62 of the Companies Act, 2013: Governing further issue of share capital and rights issues; (b) Regulation 29 of the SEBI LODR Regulations, 2015: Dealing with prior intimation of Board meetings considering fund-raising proposals; and (c) Regulation 52 of the SEBI ICDR Regulations, 2018: Specifically restricting withdrawal of a rights issue after announcement of the record date.
2. Section 62 of the Companies Act, 2013 Section 62 of the Companies Act, 2013, deals with the rights issue of shares. As per Section 62(1), a company with share capital can increase its subscribed capital by issuing further shares. Such shares must be offered first to its existing shareholders who hold equity shares of the company on the date of offer. Shares under a Right Issue must be offered to the existing equity holders in proportion to their shareholding. The company must send an offer letter to its existing equity shareholders. The offer letter must specify the following conditions: (a) The offer letter must specify the number of shares offered, and the time limit for accepting the offer must not be less than 15 days and must not exceed 30 days from the date of the offer. If the offer is not accepted within the duration of the offer, it shall be deemed to have been declined; (b) The shareholders shall have the right to renounce all or part of the shares offered to them in favour of another person, unless the company’s Articles provide otherwise. The rights issue notice must clearly inform the shareholder about this right. (c) If a shareholder does not accept the shares within the given time, or tells the company earlier that they do not want the shares, the Board of Directors can dispose of them in such a manner which is not disadvantageous to the shareholders and the company. The company can issue new shares to any person, including existing shareholders or employees, if the shareholders approve it through a special resolution. The shares can be issued either for cash or in exchange for something other than cash. The share price must
Can a Company Cancel a Rights Issue? An Analysis under the Companies Act and SEBI Regulations
5
be based on a valuation by a registered valuer, and the company must comply with all other applicable legal requirements. Section 62(2) requires the company to send the rights issue notice to all existing shareholders at least 3 days before the rights issue opens. The notice can be sent through registered post, speed post, email/electronic mode, courier, or any other method that provides proof that the notice was delivered. As per Section 62(3), nothing contained in this section shall apply when a company issues shares because an existing loan or debenture is being converted into shares if the loan/ debenture terms already provided for such conversion and such debentures or the raising of loan is approved by a special resolution passed by the company in general meeting. Section 62(4) provides that if a company has taken a loan from the Government or issued debentures to the Government, the Government can order that the loan/debentures be converted into shares if it considers the conversion necessary in the public interest on such terms and conditions as appear to the Government to be reasonable in the circumstances of the case even if terms of the issue of such debentures or the raising of such loans do not include a term for providing for an option for such conversion. If the terms and conditions of such conversion are not acceptable to the company, it may, within 60 days from the date of communication of such order, appeal to the Tribunal, which shall, after hearing the company and the Government, pass such order as it deems fit. As per Section 62(5), when the Government decides the terms for converting a Government loan or debentures into shares, it must consider the company’s financial condition and the terms of the loan/debentures, including the interest rate. Under Section 62(6) of the Companies Act, 2013, if the Government orders a loan or debenture to be converted into shares, and the company does not successfully challenge that order, the company’s authorised share capital will automatically increase if necessary. The company’s Memorandum is automatically treated as amended, and its authorised share capital automatically increases by the value of the shares created through the conversion. Therefore, based on the analysis of the provisions of Section 62 of the Companies Act, 2013, it can be stated that Section 62 does not expressly provide a general provision permitting or prohibiting the cancellation/withdrawal of a rights issue. Section 62 primarily governs how further shares are offered to existing shareholders and the subsequent treatment of shares that are not accepted. Importantly, Section 62 does not expressly contain a provision either permitting or prohibiting the cancellation or withdrawal of a rights issue as such. The principal purpose of the provision is to regulate the manner in which further shares are offered to existing shareholders and the manner in which unaccepted shares may subsequently be dealt with. Accordingly, Section 62, by itself, does not create an absolute statutory prohibition against cancellation of a proposed rights issue. The legality of cancellation would therefore have to be considered with reference to the stage reached by the issue, the approvals obtained,
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Can a Company Cancel a Rights Issue? An Analysis under the Companies Act and SEBI Regulations
the Articles of Association of the company and, in the case of a listed company, the applicable SEBI regulations.
3. Regulation 29 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 As per Regulation 29 (1) of the SEBI LODR Regulations, 2015, the listed entity shall give prior intimation of at least 2 working days in advance, excluding the date of the intimation and date of the meeting, to the stock exchange about the meeting of the board of directors in which the proposal for fund raising whether by way of further public offer, rights issue, American Depository Receipts/Global Depository Receipts/Foreign Currency Convertible Bonds, qualified institutions placement, debt issue, preferential issue or any other method and for determination of issue price is to be considered. Thus, Regulation 29 operates primarily as a disclosure and prior-intimation requirement at the stage when the Board is considering a fund-raising proposal. It does not, by itself, prohibit the Board from subsequently deciding not to proceed with the proposed rights issue.
4. Regulation 68 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 The issuer must announce a record date to determine the shareholders eligible to apply for specified securities in the proposed rights issue, as specified in the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. The issuer must not withdraw its rights issue after announcing the record date. However, if the issuer withdraws the rights issue after announcing the record date, it shall not be eligible to make an application for listing of any of its specified securities on any stock exchange for a period of twelve months from the record date announcement. The issuer may seek listing of its equity shares allotted pursuant to conversion or exchange of convertible securities, ESOPs, or exercise of warrants issued prior to the announcement of the record date, on the stock exchange where its securities are listed. The significance of Regulation 68 is therefore that the ability of a listed company to withdraw a rights issue is stage-dependent. The regulation does not impose an unconditional prohibition on cancelling a rights issue from the time the Board first considers or approves the proposal. Rather, a specific restriction is triggered once the record date has been announced.
Can a Company Cancel a Rights Issue? An Analysis under the Companies Act and SEBI Regulations
7
Accordingly, where a proposed rights issue has not reached the record-date stage, the company may, subject to applicable legal and corporate requirements, withdraw or cancel the proposal. However, once the record date has been announced, Regulation 68 materially restricts the issuer’s ability to withdraw the issue.
5. Practical Examples The above legal position is also supported by practical instances involving listed companies. One such example is Indian Oil Corporation Limited (IOC). IOC’s Board had approved a proposed rights issue of up to Rs. 22,000 crore in July 2023, subject to the requisite statutory approvals. Subsequently, in September 2024, the Board decided to withdraw the proposed rights issue after the Government of India indicated that no funds had been allocated for capital support of the companies, resulting in the Government’s non-participation in the proposed issue. The IOC example demonstrates that a company may, in practice, withdraw a proposed rights issue. Therefore, the mere approval of a rights issue proposal by the Board does not, by itself, mean that the company is permanently bound to proceed with the issue. A further relevant example is 7NR Retail Limited. The company had earlier approved a rights issue on 29 March 2025 for raising approximately Rs. 2,800.68 lakhs through the issue of equity shares to existing shareholders on a rights basis. Subsequently, at its Board Meeting held on 22 July 2025, the company approved cancellation of the proposed rights issue because it had not received the minimum subscription required under Regulation 86(2) of the SEBI ICDR Regulations, 2018. The 7NR Retail Limited example is particularly relevant to the present analysis because it demonstrates a situation where the Board had already approved a rights issue, but it was subsequently cancelled when the requisite minimum subscription was not received. Another relevant practical example is ONGC Petro Additions Limited (OPaL), a subsidiary/ joint venture of Oil and Natural Gas Corporation Limited (ONGC). ONGC had made advances to OPaL against equity during the period from April 2007 to May 2013. According to the CAG, OPaL delayed converting these advances into equity shares. Subsequently, in March 2015, OPaL offered a rights issue to ONGC. However, OPaL ultimately did not issue the proposed shares, as It sought to maintain its status as a non-PSU entity and refunded the entire funds to ONGC against the non-issue of the rights shares.
6. Conclusion Based on the provisions of Section 62 of the Companies Act, 2013, Regulation 29 of the SEBI LODR Regulations, 2015, and Regulation 68 of the SEBI ICDR Regulations, 2018, the legal position regarding cancellation or withdrawal of a rights issue is stage-specific rather than absolute.
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Can a Company Cancel a Rights Issue? An Analysis under the Companies Act and SEBI Regulations
Section 62 of the Companies Act, 2013, primarily regulates how further shares are offered to existing equity shareholders and their rights in relation to such an offer. It does not expressly prohibit the cancellation or withdrawal of a proposed rights issue, nor does it prescribe a standalone procedure for cancelling a rights issue. Accordingly, where an unlisted company has approved a proposed rights issue but the issue has not been completed, the company may, in principle, withdraw or cancel the proposal by taking an appropriate decision of the Board of Directors, subject to the Articles of Association of the company, the terms of the relevant Board or shareholder approvals, the stage reached by the issue, and any rights or obligations that may already have accrued in favour of the shareholders or other persons. Regulation 29 of the SEBI LODR Regulations primarily imposes a prior-intimation requirement on listed entities when their Board is considering proposals relating to fundraising, including rights issues. It does not, by itself, prevent the Board from subsequently deciding not to proceed with a proposed issue. For listed companies, the position is more restrictive, as the applicable SEBI ICDR provisions prohibit withdrawal after the record date is announced. Withdrawal after such an announcement attracts the consequence of ineligibility to make an application for listing of specified securities for 12 months from the announced record date.
Can a Company Cancel a Rights Issue? An Analysis under the Companies Act and SEBI Regulations
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