Share application money prior 2013
This query is : Resolved
09 August 2017
Suppose in Limited closely held company share application money is more than paid up share capital since from last so many years due to the reason that the company stopped its business since from last so many years and making statutory compliance like audit and submitting ROC and IT Returns regularly. The holders of Share Application Money are share holders of the company and company is not in a position to return share application money and on the other hand holders of share application money are demanding shares of the company and not their money.
The Directors wanted to write off share application money by issuing shares as per demand of holders of share application money.
Please explain the procedures as per law and suggest your expert opinion.
The Directors wanted to write off share application money by issuing shares as per demand of holders of share application money.
Please explain the procedures as per law and suggest your expert opinion.
10 August 2017
section 62 of companies act, 2013 and go with right issue
10 August 2017
Sir The Share Application Money stands prior 2013 and as such how to cover up period of 60 days from receipt of share application money and company has not sufficient funds to return money to share applicants and on the other hand share applicants wanted shares instead of share application money
25 July 2025
This is a classic situation where a closely held private limited company has a large amount of **share application money pending allotment from before the Companies Act, 2013 came into force**. The company’s business is dormant or stopped, statutory compliances are maintained, the company is not in a position to refund the application money, and the applicants want shares instead of a refund.
---
### Key Issues:
* Share application money received **long ago (prior to 2013)** and pending allotment for many years.
* Shareholders want **shares to be allotted** now.
* Company cannot refund money due to insufficient funds.
* Need to regularize the situation **under Companies Act, 2013** and comply with prescribed timelines.
---
### Applicable Law & Provisions:
1. **Section 62 of Companies Act, 2013**
Deals with **further issue of shares** including rights issue, private placement, etc.
2. **Section 42 and Rule 13 of Companies (Prospectus and Allotment of Securities) Rules, 2014**
Specify that **shares must be allotted within 60 days** from receipt of application money; otherwise, the money must be refunded within 15 days, failing which interest is payable.
3. **No retrospective provision** exists for share application money received prior to the 2013 Act, but **to comply with current law, allotment or refund should be done now.**
---
### Options & Procedure:
**Option 1: Allot Shares Now**
* Even though the money was received long ago, the company **can allot shares now to clear the pending application money**.
* **Procedure:**
* Board meeting to approve allotment of shares against pending application money.
* Issue share certificates to the applicants.
* File necessary returns with ROC:
* PAS-3 (Return of allotment) within 30 days of allotment.
* Update register of members.
* Adjust share capital and share application money accounts accordingly.
* **Note:** Since the company is not issuing *new money* but allotting shares against existing money, it’s not a fresh share issue or rights issue in the conventional sense. Hence, **Section 62(1)(a) (Rights Issue) or Section 42 (Private Placement) may not be strictly applicable**, but disclosure and filing compliance is required.
---
**Option 2: Refund Application Money**
* If company had sufficient funds, refund with interest would be mandatory. Since funds are insufficient, this option is practically not viable now.
---
### Addressing the 60-day Timeline:
* **Strictly speaking, the law requires allotment within 60 days of receiving application money**.
* Since this is prior money, the company is in breach of this timeline.
* However, **there is no express penal provision for delayed allotment** in the Act.
* Directors should **pass a board resolution to regularize the allotment now**, with proper disclosure in financial statements about the delay and reasons.
---
### Accounting and Disclosure:
* Adjust share application money against share capital on allotment.
* Disclose in notes to accounts about the pending allotment, reasons for delay, and steps taken to regularize.
* Auditor should be informed to qualify the financial statements if required.
---
### Expert Opinion Summary:
* **Allot shares now against pending share application money.**
* Ensure proper board approval and compliance with filings.
* No need to follow fresh issue process (like rights issue) unless new shares are being issued.
* No refund is possible if company is not able to pay.
* Maintain transparency with shareholders and disclose in accounts.
* Consider legal advice if shareholders dissent or disputes arise.
---
If you want, I can help draft a **board resolution template** and **PAS-3 return checklist** for allotment in this case. Would that be helpful?
---
### Key Issues:
* Share application money received **long ago (prior to 2013)** and pending allotment for many years.
* Shareholders want **shares to be allotted** now.
* Company cannot refund money due to insufficient funds.
* Need to regularize the situation **under Companies Act, 2013** and comply with prescribed timelines.
---
### Applicable Law & Provisions:
1. **Section 62 of Companies Act, 2013**
Deals with **further issue of shares** including rights issue, private placement, etc.
2. **Section 42 and Rule 13 of Companies (Prospectus and Allotment of Securities) Rules, 2014**
Specify that **shares must be allotted within 60 days** from receipt of application money; otherwise, the money must be refunded within 15 days, failing which interest is payable.
3. **No retrospective provision** exists for share application money received prior to the 2013 Act, but **to comply with current law, allotment or refund should be done now.**
---
### Options & Procedure:
**Option 1: Allot Shares Now**
* Even though the money was received long ago, the company **can allot shares now to clear the pending application money**.
* **Procedure:**
* Board meeting to approve allotment of shares against pending application money.
* Issue share certificates to the applicants.
* File necessary returns with ROC:
* PAS-3 (Return of allotment) within 30 days of allotment.
* Update register of members.
* Adjust share capital and share application money accounts accordingly.
* **Note:** Since the company is not issuing *new money* but allotting shares against existing money, it’s not a fresh share issue or rights issue in the conventional sense. Hence, **Section 62(1)(a) (Rights Issue) or Section 42 (Private Placement) may not be strictly applicable**, but disclosure and filing compliance is required.
---
**Option 2: Refund Application Money**
* If company had sufficient funds, refund with interest would be mandatory. Since funds are insufficient, this option is practically not viable now.
---
### Addressing the 60-day Timeline:
* **Strictly speaking, the law requires allotment within 60 days of receiving application money**.
* Since this is prior money, the company is in breach of this timeline.
* However, **there is no express penal provision for delayed allotment** in the Act.
* Directors should **pass a board resolution to regularize the allotment now**, with proper disclosure in financial statements about the delay and reasons.
---
### Accounting and Disclosure:
* Adjust share application money against share capital on allotment.
* Disclose in notes to accounts about the pending allotment, reasons for delay, and steps taken to regularize.
* Auditor should be informed to qualify the financial statements if required.
---
### Expert Opinion Summary:
* **Allot shares now against pending share application money.**
* Ensure proper board approval and compliance with filings.
* No need to follow fresh issue process (like rights issue) unless new shares are being issued.
* No refund is possible if company is not able to pay.
* Maintain transparency with shareholders and disclose in accounts.
* Consider legal advice if shareholders dissent or disputes arise.
---
If you want, I can help draft a **board resolution template** and **PAS-3 return checklist** for allotment in this case. Would that be helpful?
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