In this blog post, Shubham Aparijita, a student at Symbiosis Law School, Pune and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, analyzes return of allotment of securities.
Before explaining what return of allotment is it is necessary for us to understand what allotment of securities is.
This means allotting a certain number of shares to an applicant in response to his application for shares. Allotment means distributing of shares among people who have submitted written application for issue of shares.
Allotment Of Securities
Section 39 prohibited allotment of securities when the minimum amount stated for subscription is not achieved. It further talks about refund within a given period. It provides that the minimum amount should be received within 30 days from the date of issue of the prospectus, or such other period as may be specified by the Securities and Exchange Board. If the required number of subscription that is the minimum subscription is not achieved it shall be returned within such time and manner as may be prescribed.
According to the rules if the given minimum amount has not been subscribed and the payable amount on application is not achieved within the period given or specified then the application money shall be paid back within fifteen days from the closure of the issue and if the money is not so repaid within the specified time then the directors of the company (officers in default) shall be liable jointly and severally to repay that money along with interest at the rate of 15% per annum. The money shall be credited to the bank account from which they received the subscription amount.
Section 39 states: that the minimum amount of every security shall not be less than 5% of the nominal amount or any other percentage or amount as may be prescribed by the SEBI (Securities and Exchange Board).
If companies who have share capital make any allotment of securities, then they shall file the return of allotment with the Registrar in the manner as it is prescribed. If a company makes any allotment of its securities, they shall file within 30 days a return of allotment with the Registrar in Form PAS-3, along with the fee as specified in the Companies (Registration Offices and Fees) Rules, 2014.
PAS-3 is required to be filed pursuant to Section 39(4) and 42(9) of the Companies Act 2013 and Rule 12 and Rule 14 of Companies (Prospectus and Allotment of Securities) rule, 2014.
The rules further provide for the attachments to Form PAS-3, i.e., return of allotment as under:
- Whenever a company makes any allotment of shares or securities, it is required to file a return of allotment along with complete list of allottees to whom securities have been issued. The complete list includes: Name, address, occupation (if any), and a number of securities allotted to each of the allottees. The list shall be signed and certified with the Form PAS-3 being complete and correct as per the records of the company.
- In case the allotment of securities consideration other than cash (fully or partly paid up), Along with the form there shall be a copy of the contract duly stamped, for which the securities have been allotted with any other contract of sale ( relating to a property or an asset, or a contract for services or other consideration) should be attached.
- Where a contract is not in writing the company shall attach complete particulars of the contract stamped And the Registrar may require that the stamp duty payable thereon be adjudicated under section 31 of the Indian Stamp Act, 1899.A report with respect to the valuation of the consideration other than cash shall also be attached to the copy of contract
- In the case of issue of bonus shares, a copy shall be attached to the Form along with resolution authorizing the issue of such shares.
Penalty For Default Of Payment
On the off chance that there is default by the companies for the refund and return of allotment the company and its officer who is in default might be at risk to a punishment, for every default, of one thousand rupees for every day amid which such default proceeds or one lakh rupees (whichever is less).
The Act under Section 40 each company making open to allocating securities without acquiring consent for the securities to be managed in such stock trade or trades.
Any sum got on the application for subscription from the public for securities might be kept in the bank seperately. The organization can use this sum just in two conditions or reason:
- Adjustment against allotment of securities
- Repayment of sum inside the time determined by the SEBI (Securities and Exchange Board), received from the applicant incompatibility of the prospectus, where the company for whatever other reason not able to allot securities. The company can pay commission to any individual regarding the subscription to its securities subject to such conditions as might be recommended. The rule provides: A company may pay commission to any individual regarding the subscription or acquirement of subscription to its securities, whether total or contingent, subject to the accompanying conditions, specifically: –
- The payment shall be authorized in the company’s articles of association;
- The commission should be paid out of proceeds of the issue or the profit of the company or both;
- The prospectus of the company shall disclose –
- The name of the underwriters;
- The rate and amount of the commission payable to the underwriter; and
- The number of securities which is to be underwritten or subscribed by the underwriter absolutely or conditionally
- There might not be paid commissions to any underwriter on securities which are not offered to the public for subscription;
- A copy of the contract for the payment of commission is conveyed to the Registrar at the time of conveyance of the prospectus for registration.
So after detail explanation about the return of allotment of securities it is concluded in simple words that a company making any allotment of securities shall file a return of allotment in the manner prescribed.
 Shall be deemed to be an instrument within the meaning of the Indian Stamp Act, 1899 (2 of 1899)
 Section 40. (1) Every company making public offer shall, before making such offer, make an application to one or more recognized stock exchange or exchanges and obtain permission for the securities to be dealt with in such stock exchange or exchanges. (2) Where a prospectus states that an application under sub-section (1) has been made, such prospectus shall also state the name or names of the stock exchange in which the securities shall be dealt with. (3) All monies received on application from the public for subscription to the securities shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than— (a) for adjustment against allotment of securities where the securities have been permitted to be dealt with in the stock exchange or stock exchanges specified in the prospectus; or (b) for the repayment of monies within the time specified by the Securities and Exchange Board, received from applicants in pursuance of the prospectus, where the company is for any other reason unable to allot securities. (4) Any condition purporting to require or bind any applicant for securities to waive compliance with any of the requirements of this section shall be void. (5) If a default is made in complying with the provisions of this section, the company shall be punishable with a fine which shall not be less than five lakh rupees but which may extend to fifty lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees, or with both. (6) A company may pay commission to any person in connection with the subscription to its securities subject to such conditions as may be prescribed