Transfer from unsecured loan to share application money

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

06 September 2012 First of all I am thankful to all expers for their timely and kind professional support from time to time. Now I have one query as per details as under:

A private limited company had received a sum of Rs.40 lakh during the last 3 years which is appearing under the head "Unsecured Loans from directors & their relatives" as on 31.03.2011. The authorised and issued equity share capital of the company as on 31.03.2011 is Rs.10 lakh.
Now during the F.Y. 2011-12, the company wants to transfer Rs.30 lakh from Unsecured Loans to " Share Application Money" and thus wants to show " Rs.10 lakh under Unsecured Loans" and " Rs.30 lakh under Share Application Money".
I want to know whether the company can do this treatment?
If yes,then the authorised capital of the company is less (Rs.10 Lakh) than the amount of proposed Share Application Money (Rs.30 Lakh). Can the company receive share application money inspite of the fact that it has not sufficient Authorised Capital before receipt of such share Application money?
If, hoever, the above treatment is follwed, what will be the conequences under the Companies Act i.e. any fine or penlaty or any other adverse action can be taken by ROC because as pe new format of Schedule-VI, "Share Application Money pending alotment" will appear on the face of Balance Sheet.
Please reply ASAP.

Thanks and regards

CA AYUSH AGRAWAL

CA AYUSH AGRAWAL (Expert)
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06 September 2012 As Per My Understanding, You Can Transfer This Amount.

But If You Transfer This Amount to Share application money, Need to Pay Immidiatelly Cant Hold For More Than 6 Months.

But Suggestion is Pay It Without Transferring, Or Keep in as Unsecured Loan.

Lets Wait For Other replies.

Other Views are Solicited.

Regards,

ARUN KUMAR MAITRA

ARUN KUMAR MAITRA (Expert)
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21 September 2012 My observations relating to treatment of excess share application money are given below:

There are lot of controversies among the legal experts about the treatment of excess application money.

Some experts are of the view that the Share Application Money and the Authorised Capital of the Company are no where inter-related .However, at the time of allotment, the Company needs to enhance its Authorised Capital before allotting the shares corresponding to such Subscription Application Money.

However, others are of the view that when the Authorised Capital is equal to its Paid-up Capital, the Company has no authority to retain the excess money. Applicants of the shares will get no return for the money invested by him. He will neither get interest nor dividend. His ITO can take object for blockage of funds and can make addition for notional interest.

Application money kept pending for a long time has been treated as deposit by RoC in some cases and booked cases against the company for violating provisions of the Companies (Acceptance of Deposit) Rules.

The latest revised Schedule of the Companies Act stipulates that in case of receipt of excess application money beyond its Paid-up Capital, the Company has to disclose in its Balance Sheet, whether the Company has sufficient Authorised Capital to cover the Share Capital resulting from allotment of shares against Share Application Money.

In the instant case , the present Authorised Capital of the Company is Rs.10,00,000/- and in case the entire amount has already been issued and paid-up and a further amount of Rs.30,00,000.00 has been received by way of conversion of un-secured -loan to be retained as “Share Application Money received pending Allotment”

To retain such a substantial money as “Share Application Money received pending Allotment”which is again far beyond the Authorised Capital of the Company may create legal complications in future.

Therfore, most apprpriate action would be to first of all raise the Authorised Capital and then make the conversion.

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