Sections 63 and 64 of the Companies Act, 2013: Bonus Shares and Notice of Alteration of Share Capital
Section 63 governs the issue of fully paid-up bonus shares by a company. Section 64 requires specified changes in share capital to be reported to the Registrar of Companies. The related procedural provisions are contained in Rules 14 and 15 of the Companies (Share Capital and Debentures) Rules, 2014.
Updated: 17 September 2026
Section 63: Issue of bonus shares
A bonus share is an additional fully paid-up share issued to an existing member without requiring fresh consideration from that member. Under Section 63(1), a company may capitalise eligible amounts for issuing fully paid-up bonus shares.
Permitted sources for a bonus issue
Bonus shares may be issued out of free reserves, the securities premium account, or the capital redemption reserve account. Reserves created merely by revaluation of assets cannot be capitalised for this purpose.
The expression free reserves is defined in Section 2(43) of the Companies Act, 2013 and broadly refers to reserves which, according to the latest audited balance sheet, are available for distribution as dividend, subject to the exclusions stated in that definition.
Conditions for issuing bonus shares under Section 63(2)
A company cannot capitalise its profits or reserves for a bonus issue unless the statutory conditions are satisfied. In practical terms, the company should verify the following before proceeding:
- The Articles of Association authorise the bonus issue.
- The Board recommends the issue and the members authorise it in general meeting as required by Section 63.
- There is no default in payment of principal or interest on fixed deposits or debt securities issued by the company.
- There is no default in statutory employee dues such as provident fund contribution, gratuity and bonus.
- Any partly paid-up shares outstanding on the date of allotment are made fully paid-up.
- The company complies with the conditions prescribed under the applicable rules.
Rule 14: Once announced, the Board recommendation cannot be withdrawn
Rule 14 of the Companies (Share Capital and Debentures) Rules, 2014 provides an additional safeguard: once the company has announced the Board's decision recommending a bonus issue, that decision cannot subsequently be withdrawn.
Section 64: Notice to Registrar for alteration of share capital
Section 64 creates a reporting obligation when specified changes affect a company's share capital. The notice is required where the company alters its share capital in a manner covered by Section 61(1), where an order under Section 62 has the effect of increasing authorised capital, or where redeemable preference shares are redeemed.
| Event | Compliance under Section 64 |
|---|---|
| Alteration of share capital under Section 61(1) | File the prescribed notice with the Registrar. |
| Increase in authorised capital resulting from the relevant Government order under Section 62 | File the prescribed notice reflecting the increase. |
| Redemption of redeemable preference shares | File the prescribed notice after redemption. |
Form SH-7 and the 30-day filing requirement
Section 64(1), read with Rule 15 of the Companies (Share Capital and Debentures) Rules, 2014, uses Form SH-7 for notice of alteration of share capital. The statutory period under Section 64 is 30 days from the alteration, increase or redemption, as applicable. Section 64 also requires the altered memorandum to accompany the notice where applicable.
The MCA's current SH-7 instruction kit describes the webform as the notice to the Registrar for alteration of share capital and sets out filing checks, attachments and authentication requirements. Companies should use the current MCA portal and instruction kit at the time of filing because portal requirements may be updated.
Penalty for failure to comply with Section 64
Under the presently applicable Section 64(2), failure to comply with Section 64(1) attracts a penalty of Rs. 500 for each day during which the default continues. The maximum is Rs. 5 lakh for the company and Rs. 1 lakh for each officer in default.
The current penalty structure reflects amendments made to Section 64. The page should therefore not use the older wording that referred to a different daily penalty or cap.
Practical compliance summary
For a bonus issue, first check the Articles, eligible reserves, absence of the statutory defaults and the status of partly paid shares. Obtain the required Board and member approvals and remember that an announced Board recommendation for a bonus issue cannot later be withdrawn under Rule 14. Separately, whenever an event covered by Section 64 occurs, identify the filing date promptly and complete the current SH-7 process within the statutory period.