Conversion of ECB into Equity Shares

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Conversion of ECB into Equity Shares
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• CONVERSION OF ECB INTO EQUITY
• Company Law applicability Section 62(3) of the
  Companies Act,2013
• Nothing in this section shall apply to the
  increase of the subscribed capital of a company
  caused by the exercise of an option as a term
  attached to the debentures issued or loan raised
  by the company to convert such debentures or
  loans into shares in the company Provided that
  the terms of issue of such debentures or loan
  containing such an option have been approved
  before the issue of such debentures or the
  raising of loan by a special resolution passed by
  the company in general meeting.
• Mandatory provisions to be follow1. For
  Conversion of ECB into Equity it is mandatory
  that company had entered into agreement at time
  of raising loan and it is mentioned in any clause
  that company can convert loan into
  Equity/Preference shares in future.
• 2. Before entering into agreement company had to
  pass SR for entering into agreement.

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• Steps by steps for before raising of loan
• Hold BM for acceptance of ECB and issuance of
  notice of EGM for in principal approval for
  conversion of loan.
• 2. In EGM pass SR for approval of conversion of
  loan into Equity.
• 3. File MGT-14 within 30 days of passing the SR.
• 4. Execution of loan agreement with party.
• Steps to be followed at time of conversion
• Issue of notice for convening a BM, send agenda
  along with notice for allotment of shares by
  conversion of ECB.
• Authorise any director to file PAS-3 and for
  making entry in the register of members.
• 3. Prepare list of allottees
• 4. Valuation Report is mandatory for filing PAS-3
  
• 5. File form PAS-3 in 30days after allotment of
  shares and pay stamp duty for the same.
• 6. Issuance of share certificates
• 7. File MGT-14 within 30 days 8. Make necessary
  entry in register of members.

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• Guidelines to be followed while filing ECB-2
  Return
• While filing ECB-2 return it must mention that
  there is conversion of loan into equity (Whether
  partial or full).
• RBI Compliances
• File FCGPR with 30 days if case falls under this
  category and get it approved within 30 days also
  otherwise it leads to penalty.
• Query regarding the matter
• If any company entered into the agreement and did
  not mention clause for conversion then what
  happened?
• Ans In this scenario company can not entered
  into further agreement for conversion as it
  should be done before entering into agreement. If
  company pass SR in EGM afterwards for conversion
  and then follow the rules then it will be
  considered as non-compliance.
• 2. Is Valuation Report Required? Ans
• Yes Note Checklist is for only Conversion of ECB
  into Equity
• Tags Companies Act, Companies Act 2013Read
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