Section 81 of companies act, 1956

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CS Monika Sankhla (Querist)
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10 September 2013 The Company have received capital contribution from one of its share holders on 30 april,2013 now the Company wants to issue shares as per Section 81 of Companies Act, 1956. The Company is an unlisted Company, the Unlisted Public Company (preferential) allotment (amendment) Rules 2011 is applicable. but any allotment of securities shall be completed within the period of 60 (sixty) days from the date of receipt of application money and in case the Company is not able to allot the securities within the said period of sixty days, it shall repay the application money within the period of fifteen days thereafter, failing which it will be required t be repaid with interest at the rate of 12% per annum. Considering the said provision, the Company does not want to repay the amount and want to issue shares on the said contribution.Please give your advice whether it is possible to issue share for the contribution received in April 2013 under the provision of the Companies Act, 1956? If yes then please elaborate the procedure for allotment of shares.

Ajay Mishra

Ajay Mishra (Expert)
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10 September 2013 Hi

I will suggest you to call and Board Meeting for EGM to issue shares of the proposed Investors.

The ROC will not demand you about bank statement or any prof about it.

So issue shares in June to the proposed Investor and there after allot the same.

CS Monika Sankhla

CS Monika Sankhla (Querist)
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10 September 2013 But the Company is a Government Company(Limited) and can issue share only as per the provision of the Act.

Ajay Mishra

Ajay Mishra (Expert)
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10 September 2013 Then you can not do allotment. In that case you will return the money.

CS Monika Sankhla

CS Monika Sankhla (Querist)
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10 September 2013 But the Company does not have money (including interest) to pay to the shareholder.

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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23 July 2025 You're inquiring about the **allotment of shares** under **Section 81 of the Companies Act, 1956**, in a **Government Company (unlisted public company)** that received **share application money in April 2013**, but **did not allot shares within 60 days** as required under the **Unlisted Public Companies (Preferential Allotment) Rules, 2003 (amended in 2011)**. The company **now wants to issue shares but cannot repay the money** (or interest).

Here is a structured response:

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### 🔹 Key Legal Provisions

1. **Section 81(1A)** (Companies Act, 1956):

* Deals with **issue of shares to persons other than existing shareholders**, i.e., **preferential allotment**.
* Requires **special resolution** in general meeting authorizing the issue.

2. **Unlisted Public Companies (Preferential Allotment) Rules, 2003 (as amended)**:

* **Rule 5**: Allotment must be completed **within 60 days** of receipt of application money.
* **If not allotted within 60 days**, refund the application money **within 15 days**.
* **If not refunded**, company is **liable to pay 12% p.a. interest** from the 76th day onwards.

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### 🔴 Your Situation

* **Share application money received**: 30 April 2013.
* **Shares not allotted within 60 days** (i.e., by 29 June 2013).
* **No refund within 15 days** (i.e., by 14 July 2013).
* As of now, you’re **non-compliant**, and **liable to pay interest at 12% p.a.** on that amount from **15 July 2013** onward.
* Company is a **Government Company**, so **must strictly comply with the law**.

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### ⚠️ Legal Implications of Delay

* **Failure to refund** and **failure to allot** within prescribed timeline **violates the Rules**.
* Non-compliance could lead to:

* **Penal consequences** under the Companies Act.
* **Scrutiny from CAG or statutory auditors**.
* **Directors’ liability** for misfeasance or negligence.

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### 🔄 Is Allotment Now Legally Valid?

✅ **NO**, you **cannot allot shares now** against application money received **in April 2013** under the provisions **then in force**, **without violating the law**.

Why?

* The **window for valid allotment** has expired.
* Any subsequent allotment based on that old application money **would be illegal**, unless regularized by **refunding and re-inviting application**.

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### ✅ Legal Options Available

#### **Option 1: Refund & Fresh Application**

1. **Refund the old share application money** (even if delayed).
2. Record interest liability at 12% p.a. (even if not paid immediately).
3. Invite **fresh application money** for proposed allotment.
4. Call **Board meeting** → fix terms → Call **EGM** → pass **Special Resolution** under **Section 81(1A)**.
5. File **Form PAS-3** (under Companies Act, 2013) or Form 2 (under 1956) for allotment.

🔹 *This is the **cleanest** legal route.*

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#### **Option 2: Compounding of Offence**

If the company **cannot repay the money**, it can:

* File a **compounding application** with **Company Law Board (CLB)** or **NCLT** (as applicable now).
* Explain circumstances, **accept violation**, and **seek regularization**.
* Allot shares **after compounding approval**.

🔹 *This is possible but subject to discretion of authorities. Will take time and involve penalties.*

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### 📝 Practical Advice

* Since you are a **Government Company**, it is **strongly advised to avoid non-compliance**.
* Prepare documentation:

* Proof of receipt of application money.
* Board resolutions.
* Shareholder intent.
* Interest calculation sheet (even if unpaid).
* Consult your **company secretary and legal counsel** before proceeding with allotment or compounding.

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### 🚫 Avoid This Mistake

> Do **not** proceed with backdated allotment without legal remedy. ROC or CAG audit will detect this and may treat the action as **void or fraudulent**.

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Would you like help drafting the:

* **Board Resolution**?
* **EGM Notice**?
* **Compounding application** (if you pursue Option 2)?

Let me know.

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