ALLOTMENT OF SECURITIES BY COMPANY

ALLOTMENT OF SECURITIES BY COMPANY

Allotment will only be made when minimum amount as mentioned in Prospectus has been subscribed and the sums payable on application for the amount so stated have been paid to and received by the company by cheque or other instrument.

The amount payable on application on every security shall not be less than five per cent of the nominal amount of the security or such other percentage or amount, as may be specified by the Securities and Exchange Board by making regulations in this behalf.

If the stated minimum amount has not been subscribed and the sum payable on application is not received within a period of thirty days from the date of issue of the prospectus, or such other period as may be specified by the Securities and Exchange Board, the amount received under sub-section (1) shall be returned within such time and manner as may be prescribed.

COMMENT: REFUND OF APPLICATION MONEY.

 If the stated minimum amount and the sum payable on application is not received within the period specified therein, then the application money shall be repaid within a period of 15 days from the closure of the issue and in case of default, the directors of the company who are officers in default shall jointly and severally be liable to repay that money with interest at the rate of 15 percent per annum.

The application money to be refunded shall be credited only to the bank account from which the subscription was remitted.

Whenever a company having a share capital makes any allotment of securities, it shall file with the Registrar a return of allotment in such manner as may be prescribed.

COMMENT: RETURN OF ALLOTMENT.

(1)    Whenever a company having a share capital makes any allotment of its securities, the company shall, within thirty days thereafter, file with the Registrar a return of allotment in Form PAS-3, along with the fee as specified in the Companies (Registration Offices and Fees) Rules, 2014.

There shall be attached to the Form PAS-3 a list of allottees stating their names, address, occupation, if any, and number of securities allotted to each of the allottees and the list shall be certified by the signatory of the Form PAS-3 as being complete and correct as per the records of the company.

Company(having a share capital)       Allotment of Securities                                   ROC

                                                                        30 Days (PAS-3)+Fees

(2) In the case of securities (not being bonus shares) allotted as fully or partly paid up for consideration other than cash, there shall be attached to the Form PAS-3 a copy of the contract, duly stamped, pursuant to which the securities have been allotted together with any contract of sale if relating to a property or an asset, or a contract for services or other consideration.

Company(having a share capital)       Allotment of Securities                                   ROC

(not being bonus shares) allotted as fully or partly paid up

for consideration other than cash                                              

30 Days (PAS-3)+Fees

                 +

Contract of Sale(Property)/ Contract for Services/Other Consideration

(3) Where a contract referred to in sub-rule (3) is not reduced to writing, the company shall furnish along with the Form PAS-3 complete particulars of the contract stamped with the same stamp duty as would have been payable if the contract had been reduced to writing and those particulars shall be deemed to be an instrument within the meaning of the Indian Stamp Act, 1899 (2 of 1899), and the Registrar may, as a condition of filing the particulars, require that the stamp duty payable thereon be adjudicated under section 31 of the Indian Stamp Act, 1899.

Company(having a share capital)       Allotment of Securities                                   Not in writing

(not being bonus shares) allotted as fully or partly paid up

for consideration other than cash                              

                                   30 Days (PAS-3)+Fees+contract stamped with the same stamp duty

(4) A report of a registered valuer in respect of valuation of the consideration shall also be attached along with the contract as mentioned in sub-rule (3) and sub-rule (4).

Registered Valuer     Valuation of Consideration                                           Contract

(5) In the case of issue of bonus shares, a copy of the resolution passed in the general meeting authorizing the issue of such shares shall be attached to the Form PAS-3.

Company                                    PAS-3     + Resolution                                       Bonus Issue of Shares

(6) In case the shares have been issued in pursuance of clause (c) of sub-section (1) of section 62 by a company other than a listed company whose equity shares or convertible preference shares are listed on any recognised stock exchange, there shall be attached to Form PAS-3, the valuation report of the registered valuer.

Listed Company                                       PAS-3                                                     ROC

    +

Valuation Report of registered Valuer

Explanation.- Pending notification of sub-section (1) of section 247 of the Act and finalisation of qualifications and experience of valuers, valuation of stocks, shares, debentures, securities etc. shall be conducted by an independent merchant banker who is registered with the Securities and Exchange Board of India or an independent chartered accountant in practice having a minimum experience of ten years.

(5) In case of any default under sub-section (3) or sub-section (4), the company and its officer who is in default shall be liable to a penalty, for each default, of one thousand rupees for each day during which such default continues or one lakh rupees, whichever is less.

Procedure for the Allotment of Shares after Company Incorporation

The issue of shares in a company is the process by which companies allot new shares to the shareholders. In accordance with the Companies Act, 2013, Companies issue shares to the shareholders.

Procedure for the Privately Placed Shares

·         A notice is sent to all the shareholders for convening the Extra Ordinary General Meeting for the approval of the private placement offer letter.

·         A private placement offer letter is being drafted.

·         Resolution is passed in the Extra Ordinary General Meeting (EGM)

·         Form MGT-14 is filed with ROC (Registrar of Companies) within 30 days of passing a special resolution in the meeting of shareholders.

·         An offer letter is issued in Prospectus and Allotment of Securities (PAS-4) within 30 days of passing Special resolution.

·         After this, a complete record of Private placement is prepared in Prospectus and Allotment of Securities( PAS-5).

·         Form PAS-4 and Form PAS-5 are filed with the ROC within 30 days of the issue of the offer letter in Form GNL-2.

·         Allotment of shares is made within 60 days of receipt of Money from the persons to whom the right was given.

·         A Board meeting for Allotment of shares is called.

·         PAS 3 is filed with ROC within 30 days of Allotment.

What are the Restrictions on the Allotment of Securities by the Public Listed Company?

There are certain restrictions on Allotment of shares as per the Companies Act[1] –

·         Minimum Subscription

According to Section 69(1) of the Companies Act, no allotment can be made by the company until the minimum Subscription has been received.

·         Application money

In accordance with Section 69(3), the amount payable on each share should not be less than 5 per cent of the Nominal Value of the shares.

·         Money to be deposited in a Scheduled Bank

According to Section 69(4), the Money received from the applicants must be deposited in Schedule Banks until the certificate of commencement of Business has been obtained.

·         Returns of Money

According to section 69(5), if the minimum Subscription has not been raised or the Allotment cannot be made within 120 days from the date of publication of the prospectus, the Director has to return the money received from the applicant.

·         Opening of the Subscription List

According to Section 72, no allotment can be made until the beginning of the 5th day after the publication of the prospectus or any time later as mentioned in the prospectus.

·         Rejection of Application

If any person gives public notice of withdrawal of the consent to the issue of the prospectus, any applicant can revoke this application.

DISCLAIMER: THE ARTICLE IS BASED ON THE RELEVANT PROVISIONS AND AS PER THE INFORMATION EXISTING AT THE TIME OF THE PREPARATION. IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT AND INDIRECT RESULT FROM THIS ARTICLE. THIS IS ONLY A KNOWLEDGE SHARING INITIATIVE.

THE AUTHOR – CS DEEPAK SETH (ASSOCIATE PARTNER HELPINGHANDS PROFESSIONALS LLP) AND CAN BE REACHED AT CONTACTHHPRO@GMAIL.COM OR 9910248911.