Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014: issuing shares on a preferential basis, the special resolution, the explanatory statement, valuation and the time limit for allotment

Rule 13 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Rule 13 is the rule behind every preferential allotment by an unlisted company, and it sits at the heart of any allotment of shares that follows. It says what a special resolution must be backed by, which disclosures go into the explanatory statement, how the price is fixed and how long the company has to allot. This article takes the rule as amended up to G.S.R. 43(E) dated 21 January 2023 per the MCA e-book; later amendments should be checked before you act.

Rule 13 applies when a company issues shares or convertible securities to select persons under clause (c) of section 62(1). The issue needs a special resolution and must also comply with section 42. For an unlisted company the explanatory statement must carry the listed disclosures, the price must rest on a registered valuer's report, and the allotment must be completed within twelve months of the resolution, failing which a fresh special resolution is needed. A listed company follows the Act and SEBI regulations instead.

What counts as a preferential offer

Sub-rule (1) says that, for clause (c) of section 62(1), shares may be issued in any manner, including a preferential offer, to any persons, whether or not they include those referred to in clauses (a) and (b) of section 62(1). A special resolution passed in a general meeting must authorise it, and it must also comply with section 42. See our posts on section 42 and section 62.

The Explanation gives two definitions for the rule:

• Preferential offer means an issue of shares or other securities by a company to any select person or group of persons on a preferential basis. It does not include a public issue, rights issue, employee stock option scheme, employee stock purchase scheme, sweat equity shares, bonus shares, depository receipts issued in a country outside India or foreign securities.
• Shares or other securities means equity shares, fully convertible debentures, partly convertible debentures or any other securities that would be convertible into, or exchanged with, equity shares at a later date.

Two provisos sit under sub-rule (1). The first, inserted in 2015, says that where a company makes a preferential offer to one or more existing members only, sub-rule (1) and the proviso to sub-rule (3) of rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 do not apply. The second says that the price of shares issued on a preferential basis by a listed company need not be determined by a registered valuer's report. If you are planning the offer itself, the private placement rule is the companion read.

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Listed and unlisted companies

Sub-rule (2) splits the field. A listed company makes the offer under the Act and the regulations of the Securities and Exchange Board, which are outside this article. An unlisted company makes it under the Act and these rules, subject to clauses (a) to (j).

The conditions for an unlisted company

The explanatory statement: items (i) to (xiii)

Clause (d) lists what the explanatory statement annexed to the notice must say:

1. the objects of the issue;
2. the total number of shares or other securities to be issued;
3. the price or price band at or within which allotment is proposed;
4. the basis on which the price was arrived at, along with the registered valuer's report;
5. the relevant date with reference to which the price was arrived at;
6. the class or classes of persons to whom allotment is proposed;
7. the intention of promoters, directors or key managerial personnel to subscribe to the offer;
8. the proposed time within which the allotment will be completed;
9. the names of the proposed allottees and the percentage of post-preferential-offer capital they may hold;
10. any change in control that would result from the offer;
11. the number of persons to whom allotment on a preferential basis has already been made during the year, in terms of number of securities as well as price;
12. the justification for allotment for consideration other than cash, with the registered valuer's report;
13. the pre-issue and post-issue shareholding pattern in the printed format: promoters' holding (Indian individuals and bodies corporate, foreign promoters) and non-promoters' holding (institutional investors; non-institutions such as private corporate bodies, directors and relatives, the Indian public and others including NRIs), each with number of shares and percentage, before and after, with sub-totals and a grand total.

Time limit, valuation and the price floor

Clause (e) gives twelve months from the special resolution to complete the allotment. Under clause (f), if it is not completed in that time, another special resolution must be passed before the company allots thereafter.

Clause (g) requires the price, whether the issue is for cash or for a non-cash consideration, to be determined on the basis of a registered valuer's report. Sub-rule (3), inserted in 2014, goes further: the price of shares or other securities issued on a preferential basis shall not be less than the price determined on the basis of the registered valuer's report. An Explanation adds that, until a registered valuer is appointed under the Act, the report is made by an independent merchant banker registered with SEBI or an independent Chartered Accountant in practice with at least ten years' experience; see section 247.

Convertible securities: clause (h)

Where convertible securities are offered with an option to apply for and get equity shares allotted, the price of the resulting shares is determined in one of two ways:

• upfront, when the offer of convertible securities is made, on the basis of the registered valuer's report given at that stage; or
• later, at a time not earlier than thirty days before the date on which the holder becomes entitled to apply for shares, on the basis of a valuation report given not earlier than sixty days before that date.

The company decides between the two at the time of the offer and discloses the choice under item (v) of clause (d). The present clause (h) was substituted on 19 July 2016.

Non-cash consideration: clauses (i) and (j)

For shares allotted for non-cash consideration, a registered valuer values it and gives the company a report with the justification. In the books, a depreciable or amortizable asset is carried to the balance sheet under the accounting standards; otherwise it is expensed as those standards provide. See shares issued for consideration other than cash.

Example

Kalpataru Foods Private Limited, an unlisted company, wants to allot equity shares to one investor. Its articles allow the issue. The notice carries an explanatory statement with items (i) to (xiii), the valuation report and the shareholding table, and the members pass a special resolution. Allotment must be completed within twelve months; if it slips, a second special resolution is needed. The price cannot be below the registered valuer's figure.

Need help with a preferential allotment?

A preferential issue touches the articles, the notice, the valuation and the return of allotment together. If you want the resolution, explanatory statement and allotment documents prepared and checked, see our allotment of shares and PAS-3 support.

Key takeaways

• Rule 13 applies to preferential offers under section 62(1)(c) and requires a special resolution and compliance with section 42.
• A listed company follows the Act and SEBI regulations; an unlisted company meets clauses (a) to (j).
• The explanatory statement carries thirteen items, ending with the pre-issue and post-issue shareholding table.
• Allotment must be completed within twelve months of the special resolution; otherwise another special resolution is required.
• The price rests on a registered valuer's report and cannot be lower than that report's price.

Read next

• Rule 14 of the Prospectus and Allotment Rules: private placement, PAS-4 and PAS-5
• Rule 4 of the Share Capital Rules: equity shares with differential voting rights
• Converting a loan into equity shares under section 62(3)
• Private placement of shares step by step

Disclaimer: Based on the Companies Act, 2013 rules named above as consolidated in the MCA e-book (consulted on 3 October 2026), with the later notifications the article names. Later amendments, fees, forms and the Companies Act, 2013 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.