Chapter III of Companies Act – Prospectus & Allotment of Securities

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 Section 39 --> Allotment of Securities by Company

The minimum subscription has been

made
If the company has made a public offer of securities,
it shall not make allotment of securities unless
 What are the two preconditions?
Application money has been received by
the company by cheque or other
instrument

What is the minimum amount of The amount payable on

application money?
application on every
security shall not be less
than five per cent of the
nominal amount of the
security.
 What is the minimum subscription?

Note :- The minimum subscription in case of equity share capital (as per SEBI) shall be not
less than 90% of the issue size.
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 Section 39 --> Allotment of Securities by Company

Minimum shares not subscribed Refund all application money shall

AND application money not received received

Date of issue 30 days from date of Closure of issue 15 days from

of prospectus issue of prospectus closure of issue

 What will happen if above two conditions are not fulfilled within 30 days
Re from the date of issue of prospectus?
• 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,, the amount received on application shall be returned
within 15 days from closure of issue.
 What will happen if money is not repaid within 15 days from closure of issue?

• If money not repaid within above period, directors in default shall jointly and severally be liable to repay money with
interest @15% per annum.
 Where will the refund go?

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

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 Section 39 --> Allotment of Securities by Company

 Within how many days and in which form return of allotment will be filed to Registrar?

Whenever a company makes any allotment of securities, it shall file with the Registrar a return of allotment within
thirty days in Form PAS-3,

 What is the penalty of default under this section?

Penalty on the company and its officer in default

In case of any default
For each default,
under this section
One thousand rupees for each day during which
such default continues or one lakh rupees,
whichever is less.

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 Section 40 --> Securities to be dealt with in Stock Exchanges

 What is the process for a company making public offer ?

• Every company making public offer shall, before making such offer, make an application to one or more
recognised stock exchange or exchanges and
• Obtain permission for the securities to be dealt with in such stock exchange or exchanges.

• The prospectus shall state the name of the all stock exchange in which the securities shall be dealt with.

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 Section 40 --> Securities to be dealt with in Stock Exchanges

 Where will the money recieved on application be kept?

• The money received on application shall be kept in a separate bank account in a scheduled bank.
 What will happen in case of rejection of application by even a single stock exchange?

If even one stock exchange

If stock exchange/s allow
(out of all applied) does not
listing of securities
allow listing of securities

Shall be adjusted against

Refund the money
share allotment

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 Section 40 --> Securities to be dealt with in Stock Exchanges

Penalty on the company

• Minimum – 5 lakh Rupees
In case of any default • Maximum – 50 Lakh rupees
under this section
what will happen? Officer in Default

 Imprisonment – Maximum 1 year

 Fine
• Minimum – 50 Thousand Rupees
• Maximum – 3 Lakh Rupees
OR
Both

 What is so unique about this section?

The compliance of provisions of this section cannot be waived.

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 Section 40 --> Securities to be dealt with in Stock Exchanges

A company may pay commission to any person in connection with the subscription to its securities.

What is the maximum amount of commission ?

In case of shares, In case of debentures

the commission may be paid out of proceeds of the issue or the profit of the company or both
• Five percent of the Issue price or • Two and a half per cent of the Issue price or
• A rate authorised by the articles • A rate authorised by the company’s articles

whichever is less whichever is less

The commission may be paid out of proceeds of the issue or the profit of the company or both.

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 Concept Questions

If the company has applied in 4 stock exchanges for listing its securities & out of the 4, 1 stock exchange rejected the
application and 3 accepted the application. What shall the company do now?

The company cannot go on with allotment of securities and has to refund the money to the applicants.

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 Concept Questions

Maximum underwriting commission that can be paid by the company for issue of debentures is _______________ of the issue
price of debentures.

2.5%

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Happy Learning!