Understanding Call Money in a Rights Issue
When companies issue shares through a rights issue, they sometimes offer shareholders the option to pay the full share price in parts. Initially, investors pay a portion of the total price at allotment. The remainder, referred to as call money, is collected later.
Call money is essentially the outstanding balance that needs to be paid by shareholders who hold these partly paid rights shares. According to SEBI rules, companies must ensure that the collection of call money is completed within a year from the date of the initial allotment.
Call Money vs Rights Issue
| Aspect | Rights Issue | Call Money |
|---|---|---|
| What it is | Opportunity to purchase additional shares | Amount due on shares bought in installments |
| When it applies | During the fundraising period | Post allotment, if shares are partly paid |
| Mandatory | Optional for investors | Mandatory for holders of partly paid shares |
| Consequence of ignoring | Rights Entitlements (REs) may expire | Risk of shares being forfeited |
Approval and Announcement of Call Money
Before a company can collect call money, it needs to go through a formal approval process:
- The Board of Directors or an authorized committee must pass a resolution to approve the call.
- Once approval is granted, the company notifies stock exchanges.
- Public announcements are made through major newspapers like Financial Express and Business Standard and are also communicated in exchange bulletins.
Intimation to Shareholders
Once the call money is announced:
- Shareholders receive a detailed call notice.
- A minimum notice of 15 days is given.
- Companies might send reminders before the payment deadline.
- The Board can adjust the timelines if necessary.
The notice includes:
- The amount due per share
- The payment due date
- Accepted modes of payment
Payment of Call Money
To ensure fairness and security, call money payments in rights issues follow a structured process:
- Payments can be made via the ASBA facility through Self-Certified Syndicate Banks, whether online or in-branch.
- Investors can also use 3-in-1 accounts (combining bank, demat, and trading services), depending on their broker's support.
Typically, UPI is not accepted for call money payments in rights issues.
Record Date and Trading Suspension
To determine which shareholders need to pay call money:
- A Call Record Date is set by the company.
- Only those holding partly paid shares on this date are required to pay.
- Trading in these shares may be temporarily halted before this date to ensure accurate shareholder data.
Trading of Partly Paid Rights Shares
Partly paid rights shares have distinct trading characteristics compared to fully paid shares:
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They are assigned a separate ISIN and trade independently on stock exchanges.
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Shareholders can trade these shares during specified trading periods.
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Once the final call money is paid:
- The shares are considered fully paid.
- They merge with the existing equity shares.
- Trading continues under the original ISIN as the fully paid shares.
Consequences of Non-Payment of Call Money
Not paying call money can lead to serious consequences:
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Interest may be charged on late payments, often up to 10% per annum.
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Outstanding amounts, including interest, might be deducted from any future dividends.
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Continuous failure to pay can result in the forfeiture of the shares.
- If forfeited, both the shares and any amount already paid are lost.
- Forfeited shares lose their value and cannot be traded.
Key Takeaways
- Call money is relevant only for partly paid shares from a rights issue.
- Companies must collect call money within 12 months of the allotment date.
- Payments are commonly made via ASBA or other approved banking methods.
- Partly paid shares have a distinct ISIN until fully paid.
- Failure to pay can lead to interest charges, deductions, or share forfeiture.
