If Private Company has pending share application money from year 2013-14 till date, which is not alloted or refunded till 31/03/2015. Is there is any default? also then what action needs to be taken, and under which section?
04 July 2016
As per Companies (Acceptance of Deposits) Rules, 2014 Deposit includes "any amount received and held pursuant to an offer made in accordance with the provisions of the Act towards subscription to any securities, including share application money or advance towards allotment of securities pending allotment, so long as such amount is appropriated only against the amount due on allotment of the securities applied for;" Explanation.- For the purposes of this sub-clause, it is hereby clarified that - (a) Without prejudice to any other liability or action, if the securities for which application money or advance for such securities was received cannot be allotted within sixty days from the date of receipt of the application money or advance for such securities and such application money or advance is not refunded to the subscribers within fifteen days from the date of completion of sixty days, such amount shall be treated as a deposit under these rules.
10 August 2024
In the context of pending share application money for a private company, it is crucial to understand the regulatory requirements and the implications of not addressing these pending amounts. Here's a comprehensive overview of the situation and the actions required:
### **Implications of Pending Share Application Money**
1. **Regulatory Framework:** - **Companies Act, 2013:** The Companies Act, 2013 governs the management of share capital and share application money. Provisions relating to the handling of share application money are detailed in sections 39 and 42, and other relevant sections.
2. **Handling Share Application Money:** - **Allotment and Refund:** According to Section 39 of the Companies Act, 2013, a company must allot shares within a specified period after receiving share application money or refund it if the shares are not allotted.
### **Key Provisions and Requirements:**
1. **Section 39 - Allotment of Securities:** - **Timely Allotment:** The company must allot shares within 30 days of receiving share application money. If shares are not allotted, the company should refund the amount to the applicants within 15 days of the expiry of the 30-day period for allotment.
2. **Section 42 - Private Placement:** - **Private Placement Rules:** For private placement, the company must comply with the rules for issuing shares and the receipt of application money as prescribed under this section.
3. **Deposit Rules:** - **Deposit Rules:** If the share application money is not allotted or refunded within the specified time, it must be treated as a deposit under the Companies (Acceptance of Deposits) Rules, 2014. In this case, the company needs to comply with the regulations applicable to deposits.
### **Default and Actions Required:**
1. **Default Situation:** - **Unallotted and Unrefunded Money:** If share application money has been pending from 2013-14 and not alloted or refunded till 31/03/2015, it is considered a default. The money should have been either allotted or refunded within the statutory time limits.
2. **Action to be Taken:** - **Refund the Money:** Refund the pending share application money to the applicants immediately. Ensure that the refund is documented with proper records.
- **Compliance with Deposit Rules:** Since the money is pending for a prolonged period, treat it as a deposit and comply with the deposit regulations under the Companies (Acceptance of Deposits) Rules, 2014. This includes: - **Repayment of Deposits:** Ensure repayment of the money as per the rules for handling deposits. - **Filing with Registrar:** File the necessary forms and disclosures with the Registrar of Companies (ROC) as required.
- **Regularization:** Ensure that all allotments and refunds are properly documented, and any compliance deficiencies are rectified.
3. **Section References:** - **Section 39(4):** Provides the requirement for allotment and refund. - **Section 42:** Pertains to private placement and handling of share application money. - **Deposit Rules (2014):** Governs the handling of unallotted or pending share application money treated as deposits.
### **Additional Recommendations:**
- **Legal and Professional Advice:** Consult with a legal advisor or company secretary to ensure compliance with the regulatory requirements and to address any potential legal issues related to the pending share application money.
- **Audit and Review:** Conduct a thorough review of the company’s compliance with the Companies Act and ensure all procedural requirements are met to avoid penalties or regulatory issues.
In summary, pending share application money should be either allotted or refunded within the specified time. If there is a default, treat the pending amount as a deposit, ensure proper refunds, and comply with the relevant deposit rules.
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