A company has taken a term loan from a financial institution and is regularly paying the loan installments and interest. The financial institution proposes to convert 20% of the loan into equity shares of the company as

Section 62(3) states the provisions of Section 62 shall not apply to the increase of the subscribed capital of the company caused by the exercise of an option as a term attached to the debentures issued or loan raised by the companies to convert such debentures/loan into the shares in the company. Further, the terms of issue of such debentures or loan containing such an option should have been approved before the issue of such debentures or raising of loan by a special resolution passed by the company in General Meeting. Thus, in the given case, if raising of loan is already approved by the shareholders by special resolution, then the financial institution can enforce the convertibility.