Under Section 79, a company may issue at a discount shares in the company of a class already issued in accordance with the conditions as given below:
(i) Such an issue must be authorized by a resolution passed by the company in General Meeting and sanctioned by the Company Law Board.
ADVERTISEMENTS:
(ii) The resolution must specify the maximum rate of discount at which the shares are to be issued.
(iii) Not less than one year must have passed at the date of issue since the date on which the company was entitled to commence business.
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(iv) The shares must be issued within two months after the date on which the issue was sanctioned by the Company Law Board or within such extended time as the Company Law Board may allow.
Provided that no such resolution shall be sanctioned by the Company Law Board if the maximum rate of discount specified in the resolution exceeds ten percent, unless that Board is of the opinion that a higher percentage of discount may be allowed in the special circumstances of the case.
ADVERTISEMENTS:
Where a company has passed a resolution authorising the issue of shares at a discount, it may apply to the Company Law Board for an order sanctioning the issue, and on any such application, the Company Law Board if, having regard to all the circumstances of the case, it thinks proper so to do, may make an order sanctioning the issue on such terms and conditions as it thinks fit.
Every Prospectus relating to the issue of shares must contain particulars of the discount allowed on the issue of the shares or so much as has not been written off at the date of the Prospectus.
If default is made in complying with the above provisions, the company and every officer of the company who is in default will be punishable with fine which may extend to fifty rupees.
Auditor’s Duty:
ADVERTISEMENTS:
(i) The auditor should see that the provisions of section 79 given above have been complied with.
(ii) The amount of discount, not written off or adjusted to date, should be shown in the Balance Sheet under the head ‘Miscellaneous Expenditure’.
As a matter of principle, the amount of discount should be written off over a short period of years, though, of course, there is no statutory binding to write it off.