Special Resolution for Conversion of Loan into Equity Shares

Section 62(3) of the Companies Act, 2013 prescribes that—

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.

Template of such a special resolution is as follows—

SAMPLE
(In case of Listed Company)
 (modify it suitably)

#. To Approve the Conversion of Loan into Equity Shares

To consider and if thought fit, to pass with or without modification(s), the following resolution as a SPECIAL RESOLUTION:

“RESOLVED THAT pursuant to section 62(3) of the Companies Act, 2013 ("the Act"), and any other applicable provisions the Act and rules framed thereunder and in accordance with the Memorandum of Association and Articles of Association of the company, and subject to all such consent(s), permission(s), sanction(s) of the concerned authorities, as may be required, including any such condition(s) and modification(s) as may be prescribed or imposed, while granting such consent(s), permission(s) or sanction(s), the consent of the members be and is hereby accorded to the Board of Directors of the company for the allotment of such number of equity shares of the face value of INR ...../- each (Rupees .................... only) to (Name of the Party) upon the exercise of the right of (Name of the Party) to convert certain outstanding credit facilities granted by (Name of the Party) (hereinafter referred to as the "Lender"), which shall not exceed the amount of principal of INR ................ (Rupees ..................... only) and interest outstanding as on that date of conversion in accordance with the terms of the sanction letter at a price as per the rules and regulations prescribed by Security Exchange Board of India ("SEBI") and the applicable provisions of the Companies Act, 2013 as amended from time to time and in accordance with the following conditions:

(i) the conversion right reserved as aforesaid shall be exercised by the Lender on one or more occasions only in case of default of principal and interest amount;

(ii) on receipt of the Notice of Conversion, the Company shall, subject to the provisions of the financing documents, issue and allot the requisite number of fully paid-up equity shares to the Lender or any other person identified by the Lender as from the date of conversion and the Lender may accept the same in satisfaction of the part of the loans so converted;

(iii) the part of the loan so converted shall cease to carry interest as from the date of conversion and the loan shall stand correspondingly reduced. Upon such conversion, the repayment installments of the loan payable after the date of conversion as per the financing documents shall stand reduced proportionately by the amount of the loan so converted. The equity shares so allotted and issued to the Lender or such other person identified by the Lender shall carry, from the date of conversion, the right to receive proportionately the dividends and other distributions declared or to be declared in respect of the equity capital of the Company. Save as aforesaid, the said shares shall rank pari passu with the existing equity shares of the Company in all respects.

(iv) in the event, (Name of the Party) exercise its right to sell such shares issued in terms of the conversion their loan into equity share of the company, (Name of the Party) shall offer the right of first refusal (ROFR), to buy such shares, to the Promoters.

FURTHER RESOLVED THAT the Board be and is hereby authorized to finalise the terms and conditions to convert the Loan into equity shares of the Company on the terms specified in the financing documents, including upon happening of an event of default by the Company in terms of the loan arrangements.

FURTHER RESOLVED THAT on receipt of the Notice of Conversion, the Board be and is hereby authorized to do all such acts, deeds and things as may be necessary and shall issue and allot requisite number of fully paid-up equity shares in the Company to (Name of the Party).

FURTHER RESOLVED THAT the Board be and is hereby authorized to offer, issue and allot from time to time to the Lender such number of equity shares for conversion of the outstanding portion of the loans as may be desired by the Lender.

FURTHER RESOLVED THAT the Board be and is hereby authorized to accept such modifications and to accept such terms and conditions as may be imposed or required by the Lender arising from or incidental to the aforesaid terms providing for such option and to do all such acts and things as may be necessary to give effect to this resolution.

FURTHER RESOLVED THAT for the purpose of giving effect to the above resolution, the Board / Committee be and is hereby authorized to agree, make, accept and finalize all such terms, condition(s), modification(s) and alteration(s) as it may deem fit within the aforesaid limits and the Board/ Committee is also hereby authorized to resolve and settle all questions, difficulties or doubts that may arise with regard to such payment and to finalize and execute all agreements, documents and writings and to do all acts, deeds and things in this connection and incidental as the Board / Committee in its absolute discretion may deem fit without being required to seek any further consent or approval of the members or otherwise to the end and intent that they shall be deemed to have been given approval thereto expressly by the authority of this resolution.

FURTHER RESOLVED THAT the Board be and is hereby also authorized to delegate all or any of the powers herein conferred by this resolution on it, to any committee of Directors or any person or persons, as it may in its absolute discretion deem fit in order to give effect to this resolution.”

Explanatory Statement under Section 102 of the Companies Act, 2013

The Company is required to pass a Special Resolution under Section 62(3) and any other applicable provisions of the Companies Act, 2013 and Rules framed thereunder to enable the Banks and Financial Institutions (hereinafter referred to as the "Lenders") to convert the outstanding loans or any other financial assistance categorized as loans (hereinafter referred to as the "Financial Assistance"), in foreign currency or Indian Rupee, already availed from the Lenders or as may be availed from the Lenders, from time to time, in case of default at their option, into equity shares of the Company upon such terms and conditions as may be deemed appropriate by the Board and at a price to be determined in accordance with the applicable Securities and Exchange Board of India Regulations (SEBI Regulations) at the time of such conversion.

The Board recommends the foregoing resolution to enable the Lenders, in terms of the lending arrangements, entered/to be entered, and as may be specified by the Financial Institutions/Banks under the financing documents already executed or to be executed in respect of the Financial Assistance availed/to be availed, at their option, to convert the whole or part of their respective outstanding Financial Assistance into equity shares of the Company, upon such terms and conditions as may be deemed appropriate by the Board and at a price to be determined in accordance with the applicable SEBI Regulations at the time of such conversion.

None of the Directors and Key Managerial Personnel of the Company and their relatives may be deemed to be interested/concerned in this resolution, except to their respective shareholdings in the Company, if any.



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NOTE: The resolution sample(s) here is only for reference, to help you with drafting. Do refer the exact provisions of the Act, relevant rules framed thereunder and any other applicable laws to be able to not to miss out anything important while drafting.