Share application money
This query is : Resolved
30 May 2014
Dear Sir, Query : what is impact of Share Application Money accepted after Oct 2013 which is not allotted ? e.g : A Pvt.Co and C Pvt Co. company have introduced Share application Money in (B) Pvt . co., SPV of A and C. in Oct 2013, Dec 2013, and Jan 2014. if, now A will not allot share till this day e.g may 2014 or , than it would consider as Loan ? Section relating to Share Application are : 42, Rule 11 of Prospectus & Allotment. Regards.
30 May 2014
yes, it shall be regarded as loan.
30 May 2014
after which period . till 31.03.2014 there ws no law for refund of share application money in pvt. company. and after 1.4.2014 new company act is applicable.
and what if we not return that money under companies act, 2013.
and what if we not return that money under companies act, 2013.
30 May 2014
What is definition of Loan, If we assume section 42 is applicable than after 60 + 15 days we retain that money and refund with interest after some time. is that transaction attract section 185 ?
25 July 2025
Great question about **Share Application Money (SAM) accepted but not allotted** after October 2013 under the Companies Act, 2013. Let me clarify the legal and practical position:
---
### 1. **Relevant provisions:**
* **Section 42 and Rule 11 of Companies Act, 2013** relate to **Private Placement** of securities.
* Under these provisions, money received as share application money **must be either allotted within 60 days** from receipt or **refunded within 15 days** thereafter.
* If shares are **not allotted within 60 days**, the amount shall be treated as **money received on account of a loan** and **Section 73 or 74** (for deposits) or **Section 185** (loans to directors) may apply.
---
### 2. **Is Share Application Money treated as Loan?**
* If shares are **not allotted within 60 days**, the SAM is **deemed to be a loan** or deposit to the company.
* The company **cannot retain the money beyond 60 days without allotment**, unless refund is made.
* If retained beyond this period, the amount may be considered as **unsecured loan or deposit**, attracting provisions for **interest and penalties**.
---
### 3. **Impact after 1st April 2014 (Companies Act, 2013 effective date):**
* The **Companies Act, 2013** introduced stricter compliance for private companies on share application money.
* Earlier, private companies had more leniency.
* Now, **delays in allotment require refund with interest (at 12% p.a.)** as per **Section 73(2)** read with **Rule 7 of Companies (Acceptance of Deposits) Rules, 2014**.
* If money is not refunded or shares not allotted, it becomes a **deposit** and compliance under the Act for deposits will apply.
---
### 4. **What if money is not returned or shares not allotted?**
* The company is **liable to pay interest on the amount** from expiry of 60 days till refund.
* Non-compliance may result in **penalties on company and officers** (Section 73 & 74).
* Also, if funds are used in ways restricted under law (e.g., lending to directors), **Section 185 (loan to directors)** may come into play if applicable.
---
### 5. **Definition of Loan in this context:**
* Loan = Money received by company that is not equity or share capital.
* If SAM is pending beyond 60 days without allotment, it is treated as a **loan or deposit** till either shares allotted or refund made.
---
### 6. **Summary Table:**
| Situation | Implication | Relevant Law |
| --------------------------------- | ------------------------------------------- | ------------------------------------- |
| SAM allotted within 60 days | Treated as share capital | Section 42, Companies Act 2013 |
| SAM not allotted within 60 days | Deemed as loan or deposit; interest payable | Section 73, Companies Act 2013 |
| Refund not made within 75 days | Penalty and prosecution risks | Section 73, Section 74, Companies Act |
| Loan to directors from SAM amount | Section 185 violation (if applicable) | Section 185, Companies Act 2013 |
---
### 7. **Practical Recommendations:**
* Allot shares within 60 days or refund money with interest within 15 days after 60 days.
* Maintain proper documentation.
* Consult company secretary or legal advisor for compliance.
* Avoid holding SAM as loan to prevent legal complications.
---
If you want, I can help draft a **timeline checklist** for SAM allotment/refund or a **template refund letter with interest calculation**. Would you like that?
---
### 1. **Relevant provisions:**
* **Section 42 and Rule 11 of Companies Act, 2013** relate to **Private Placement** of securities.
* Under these provisions, money received as share application money **must be either allotted within 60 days** from receipt or **refunded within 15 days** thereafter.
* If shares are **not allotted within 60 days**, the amount shall be treated as **money received on account of a loan** and **Section 73 or 74** (for deposits) or **Section 185** (loans to directors) may apply.
---
### 2. **Is Share Application Money treated as Loan?**
* If shares are **not allotted within 60 days**, the SAM is **deemed to be a loan** or deposit to the company.
* The company **cannot retain the money beyond 60 days without allotment**, unless refund is made.
* If retained beyond this period, the amount may be considered as **unsecured loan or deposit**, attracting provisions for **interest and penalties**.
---
### 3. **Impact after 1st April 2014 (Companies Act, 2013 effective date):**
* The **Companies Act, 2013** introduced stricter compliance for private companies on share application money.
* Earlier, private companies had more leniency.
* Now, **delays in allotment require refund with interest (at 12% p.a.)** as per **Section 73(2)** read with **Rule 7 of Companies (Acceptance of Deposits) Rules, 2014**.
* If money is not refunded or shares not allotted, it becomes a **deposit** and compliance under the Act for deposits will apply.
---
### 4. **What if money is not returned or shares not allotted?**
* The company is **liable to pay interest on the amount** from expiry of 60 days till refund.
* Non-compliance may result in **penalties on company and officers** (Section 73 & 74).
* Also, if funds are used in ways restricted under law (e.g., lending to directors), **Section 185 (loan to directors)** may come into play if applicable.
---
### 5. **Definition of Loan in this context:**
* Loan = Money received by company that is not equity or share capital.
* If SAM is pending beyond 60 days without allotment, it is treated as a **loan or deposit** till either shares allotted or refund made.
---
### 6. **Summary Table:**
| Situation | Implication | Relevant Law |
| --------------------------------- | ------------------------------------------- | ------------------------------------- |
| SAM allotted within 60 days | Treated as share capital | Section 42, Companies Act 2013 |
| SAM not allotted within 60 days | Deemed as loan or deposit; interest payable | Section 73, Companies Act 2013 |
| Refund not made within 75 days | Penalty and prosecution risks | Section 73, Section 74, Companies Act |
| Loan to directors from SAM amount | Section 185 violation (if applicable) | Section 185, Companies Act 2013 |
---
### 7. **Practical Recommendations:**
* Allot shares within 60 days or refund money with interest within 15 days after 60 days.
* Maintain proper documentation.
* Consult company secretary or legal advisor for compliance.
* Avoid holding SAM as loan to prevent legal complications.
---
If you want, I can help draft a **timeline checklist** for SAM allotment/refund or a **template refund letter with interest calculation**. Would you like that?
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