Companies Act 2013 Section 62: Further Issue of Share Capital (2026)

Explainer · Company Law · Companies Act 2013

Updated for 2026 · Claw Editorial

Section 62 of the Companies Act, 2013 is the law for when a company that already has shareholders wants to issue more shares. Its basic rule protects the people who are already in: new shares must first be offered to the existing equity shareholders, in proportion to what they hold, so their stake is not watered down behind their backs. From that rule the section builds three routes to raise fresh equity: a rights issue, an employee stock option scheme, and a preferential allotment. This explainer sets out each route and when it is used. Last verified October 2026.

01The short answer

Section 62 of the Companies Act, 2013 is titled "Further issue of share capital". When a company wants to issue more shares after it is up and running, Section 62 says those shares must, as a rule, be offered first to the existing equity shareholders in proportion to their holding. This is called the pre-emptive right.

Section 62 then lays out the ways a company can issue further shares: a rights issue to existing shareholders under Section 62(1)(a), an employee stock option scheme under Section 62(1)(b), and a preferential allotment to others under Section 62(1)(c). There is also a route for converting loans or debentures into shares under Section 62(3).

02The pre-emptive right

The core idea of Section 62 is fairness to existing owners. If a company issues new shares only to outsiders, the existing shareholders are diluted: their percentage of the company shrinks. To stop that happening without their say, Section 62 requires new shares to be offered first to current equity holders in the same proportion as their existing holding.

03Route 1: rights issue

A rights issue under Section 62(1)(a) is the default route. The company offers the new shares to existing equity shareholders in proportion to their holding, by a letter of offer. The key features are:

• the offer must stay open for a set period, generally not less than 15 days and not more than 30 days;
• the shareholder can accept, decline, or renounce the offer to another person unless the offer says otherwise;
• if a shareholder does not take up the offer within the time, the Board can dispose of those shares in a way that is not disadvantageous to the shareholders and the company.

A rights issue generally needs a Board resolution, and it keeps control broadly with the existing shareholders.

04Route 2: employee stock options

Section 62(1)(b) lets a company issue further shares to its employees under an employee stock option scheme, commonly called an ESOP. This is how companies reward and retain staff by giving them a stake in the company.

An ESOP issue needs the approval of the shareholders by a special resolution, and must follow the conditions in the rules, including the vesting and exercise terms. For a private company, an exemption notification allows an ordinary resolution in place of a special resolution in some cases. The ESOP route is an exception to the pre-emptive right, because the shares go to employees rather than to existing shareholders in proportion.

05Route 3: preferential allotment

Section 62(1)(c) lets a company issue further shares to any persons, whether or not they are existing shareholders, if the company passes a special resolution and meets the conditions in the rules. This is a preferential allotment, often used to bring in a new investor or strategic partner.

Because a preferential allotment can change who controls the company, the price must be supported by a valuation report from a registered valuer, and the issue must follow Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014. Section 62(3) separately allows conversion of a loan or debentures into shares where the terms were approved by a special resolution before the loan was raised.

06Why it matters

Section 62 sits at the heart of fund raising and control disputes. A preferential allotment made to dilute a rival group, a rights issue structured to squeeze out a minority, or an ESOP that was not properly approved, are classic grounds in oppression and mismanagement petitions under Sections 241 and 242. Courts look closely at whether the pre-emptive right was respected and whether the purpose was genuine.

It is read with Section 42 on private placement, which governs how an offer to a select group is actually made. For an investor or acquirer, the share issue history is a core part of company due diligence.

07Where Claw fits

Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.

Section 62 fights, over a dilutive allotment, a defective rights issue, or an unapproved ESOP, run through NCLT petitions, appeals before the NCLAT and High Court matters. Claw lets you search more than 30 crore judgments, with Supreme Court decisions from 1950 and High Court decisions from 1990, to see how courts have read the pre-emptive right and when a further issue is set aside, with results in under 5 seconds. You can also track a live matter, with its orders and hearings, by company or party name across 9,102 courts, benches and forums. Claw does not use the documents you upload to train its AI models.

Create a FREE Claw account to track any Section 62 matter by party name and follow every hearing, and use case search across Indian courts to find how courts have applied the further issue rules.

08Sources and further reading

• India Code (Companies Act, 2013, bare text): indiacode.nic.in
• Ministry of Corporate Affairs (Share Capital and Debentures Rules): mca.gov.in
• PRS Legislative Research: prsindia.org
• Claw: clawlaw.in

This explainer is general information, not legal advice. The routes, periods and conditions under Section 62 and the rules can change, so check the current text and take advice from a company secretary or counsel before you act.

09Frequently asked questions