Shares allotted in the name of directors
This query is : Resolved
05 September 2014
Dear All,
Greetings.
One of a public limited company (say A Ltd.) has received share application money from a private limited company (say B Pvt. Ltd.). Now, A Ltd.alloted its shares not in the name of B Pvt. Ltd. but in the name of 2 directors of B Pvt. Ltd. As we know, a public limited company must have minimum 7 shareholders, A Ltd. has also only 7 shareholders including the 2 shareholders i.e. the 2 directors of B Pvt. Ltd. Further, A Ltd. has taken huge amount of Interest free unsecured loan from B Pvt. Ltd.
My Query is:
1. Is this legally correct to allot shares in the name of the directors of the company. If not, what is the remedy available for this act?
2. How the unsecured loan be dealt with as per the provisions of New Companies Act, 2013?
Regards,
CA Milan Agrawal
Greetings.
One of a public limited company (say A Ltd.) has received share application money from a private limited company (say B Pvt. Ltd.). Now, A Ltd.alloted its shares not in the name of B Pvt. Ltd. but in the name of 2 directors of B Pvt. Ltd. As we know, a public limited company must have minimum 7 shareholders, A Ltd. has also only 7 shareholders including the 2 shareholders i.e. the 2 directors of B Pvt. Ltd. Further, A Ltd. has taken huge amount of Interest free unsecured loan from B Pvt. Ltd.
My Query is:
1. Is this legally correct to allot shares in the name of the directors of the company. If not, what is the remedy available for this act?
2. How the unsecured loan be dealt with as per the provisions of New Companies Act, 2013?
Regards,
CA Milan Agrawal
06 September 2014
If you are.receicing money from b ltd.then share will be issue un.the name.of.b ltd.
a ltd.taking loan from b no problem for.a ltd.just a ltd if.taking loan after 1st april 2014 pass resolution u/s 179(3) and.check limit u/s 180(1)(c)
a ltd.taking loan from b no problem for.a ltd.just a ltd if.taking loan after 1st april 2014 pass resolution u/s 179(3) and.check limit u/s 180(1)(c)
06 September 2014
Thanks Divesh for your kind concern over my query. However, I want to know what is the remedy now available against the shares allotted in the name of the directors?
Further, regarding loan, A Ltd. has taken loan from B Pvt. Ltd. at 12 times of its paid up share capital, e.g. if paid up share capital of A Ltd. is Rs. 1 Lakh, it has taken loan of Rs. 12 Lakhs from B Pvt. Ltd. So, what should be done now?
Further, regarding loan, A Ltd. has taken loan from B Pvt. Ltd. at 12 times of its paid up share capital, e.g. if paid up share capital of A Ltd. is Rs. 1 Lakh, it has taken loan of Rs. 12 Lakhs from B Pvt. Ltd. So, what should be done now?
25 July 2025
This is a complex situation involving compliance with both company law and corporate governance principles. Let me address your queries carefully one by one.
1️⃣ Shares allotted in the name of directors of B Pvt. Ltd. instead of B Pvt. Ltd.
Is this legally correct?
No, it is not correct if A Ltd. received share application money from B Pvt. Ltd., then shares must be allotted in the name of B Pvt. Ltd. (the actual applicant and shareholder).
Allotting shares to directors personally instead of the company (B Pvt. Ltd.) is improper and may violate:
Section 39 of Companies Act, 2013 (Allotment of shares)
The principle of “ownership follows payment” — the person who pays is the person who holds shares.
What is the remedy?
The allotment can be challenged as invalid or voidable.
The company can:
Pass a board/shareholder resolution cancelling the allotment and re-allotting shares to B Pvt. Ltd.
Get a legal opinion on rectification of share register by passing a special resolution.
Initiate civil proceedings against directors for breach of fiduciary duty if shares were allotted wrongly.
Registrar of Companies (ROC) can be informed if there is fraud or non-compliance.
2️⃣ Interest-Free Loan from B Pvt. Ltd. to A Ltd.
Concern: Loan is 12 times paid-up share capital — Is this allowed under Companies Act, 2013?
Yes, a company can take loans from other companies, but Section 180(1)(c) of the Companies Act, 2013 requires shareholder approval by special resolution if the loan amount, along with other borrowings, exceeds paid-up share capital + free reserves.
Section 179(3): Board can only borrow money within the limits approved by shareholders.
What should be done now?
Check whether A Ltd. has passed the special resolution under Section 180(1)(c) for borrowings exceeding paid-up capital and free reserves.
If no resolution passed, the loan transaction is ultra vires (beyond power) and can be challenged.
A Ltd. should:
Convene an extraordinary general meeting (EGM) and pass the required special resolution retrospectively, if possible.
Maintain proper documentation and compliance with Section 186 (loans and investments by company).
Disclose the loan in financial statements and notes.
Summary Table:
Issue Legal Position Remedy
Shares allotted to directors instead of company Not legally valid; shares must be allotted to company who paid Cancel and re-allot shares to B Pvt. Ltd.; legal action if needed
Loan of 12x paid-up capital Requires shareholder approval (Sec 180(1)(c)) Pass special resolution retrospectively; comply with Sec 186
Additional Points:
Such transactions may also attract scrutiny under Related Party Transactions (Section 188).
Proper disclosure and audit certification are necessary.
The company should take professional legal advice on rectification of shareholding.
1️⃣ Shares allotted in the name of directors of B Pvt. Ltd. instead of B Pvt. Ltd.
Is this legally correct?
No, it is not correct if A Ltd. received share application money from B Pvt. Ltd., then shares must be allotted in the name of B Pvt. Ltd. (the actual applicant and shareholder).
Allotting shares to directors personally instead of the company (B Pvt. Ltd.) is improper and may violate:
Section 39 of Companies Act, 2013 (Allotment of shares)
The principle of “ownership follows payment” — the person who pays is the person who holds shares.
What is the remedy?
The allotment can be challenged as invalid or voidable.
The company can:
Pass a board/shareholder resolution cancelling the allotment and re-allotting shares to B Pvt. Ltd.
Get a legal opinion on rectification of share register by passing a special resolution.
Initiate civil proceedings against directors for breach of fiduciary duty if shares were allotted wrongly.
Registrar of Companies (ROC) can be informed if there is fraud or non-compliance.
2️⃣ Interest-Free Loan from B Pvt. Ltd. to A Ltd.
Concern: Loan is 12 times paid-up share capital — Is this allowed under Companies Act, 2013?
Yes, a company can take loans from other companies, but Section 180(1)(c) of the Companies Act, 2013 requires shareholder approval by special resolution if the loan amount, along with other borrowings, exceeds paid-up share capital + free reserves.
Section 179(3): Board can only borrow money within the limits approved by shareholders.
What should be done now?
Check whether A Ltd. has passed the special resolution under Section 180(1)(c) for borrowings exceeding paid-up capital and free reserves.
If no resolution passed, the loan transaction is ultra vires (beyond power) and can be challenged.
A Ltd. should:
Convene an extraordinary general meeting (EGM) and pass the required special resolution retrospectively, if possible.
Maintain proper documentation and compliance with Section 186 (loans and investments by company).
Disclose the loan in financial statements and notes.
Summary Table:
Issue Legal Position Remedy
Shares allotted to directors instead of company Not legally valid; shares must be allotted to company who paid Cancel and re-allot shares to B Pvt. Ltd.; legal action if needed
Loan of 12x paid-up capital Requires shareholder approval (Sec 180(1)(c)) Pass special resolution retrospectively; comply with Sec 186
Additional Points:
Such transactions may also attract scrutiny under Related Party Transactions (Section 188).
Proper disclosure and audit certification are necessary.
The company should take professional legal advice on rectification of shareholding.
25 July 2025
This is a very interesting and important query involving share allotment and loans under the Companies Act, 2013. Let me clarify both parts in detail.
---
### 1️⃣ Shares allotted in the name of directors of B Pvt. Ltd. instead of B Pvt. Ltd.
**Is this legally correct?**
* No, **if A Ltd. received share application money from B Pvt. Ltd., the shares must be allotted to B Pvt. Ltd. itself**, not to the directors personally.
* Allotting shares in the name of individuals who did not pay the money (the directors of B Pvt. Ltd.) is **not in accordance with Section 39** of the Companies Act, 2013, which mandates that shares be allotted only to the persons who have applied and paid for them.
* Also, for a **public limited company**, there must be a minimum of 7 shareholders at all times. If the shares are allotted to only 2 directors of B Pvt. Ltd., it might create issues in maintaining the minimum shareholder requirement unless there are other shareholders.
**What is the remedy?**
* The allotment to directors can be challenged as **invalid or irregular**.
* **Rectification of the register of members** should be sought by:
* Calling a **board meeting** and passing a resolution to **cancel the incorrect allotment**.
* Issuing shares correctly in the name of B Pvt. Ltd. by fresh allotment.
* The company may have to inform the Registrar of Companies (ROC) about the correction.
* If the directors have wrongly been allotted shares, civil or legal action can be initiated for recovery of shares or damages.
---
### 2️⃣ Interest-free unsecured loan from B Pvt. Ltd. to A Ltd. amounting to 12 times paid-up capital
**How should this loan be dealt with under the Companies Act, 2013?**
* Under **Section 179(3)**, the board’s power to borrow money is subject to the limits set by the shareholders.
* Under **Section 180(1)(c)**, if the borrowing limits exceed the **aggregate of paid-up share capital and free reserves**, the company must obtain **prior approval from shareholders by passing a special resolution**.
* Taking a loan 12 times the paid-up capital definitely exceeds the limits and requires this approval.
**What should be done now?**
* Check whether A Ltd. has passed the special resolution approving borrowings beyond the threshold.
* If not passed, the company must:
* Convene an **Extraordinary General Meeting (EGM)** and pass a **retrospective special resolution** approving the loan.
* Ensure the loan is properly recorded in the books and disclosed in financial statements.
* Maintain compliance with **Section 186** regarding loans and investments.
---
### Summary Table
| Issue | Legal Position | Remedy / Action |
| --------------------------------------------------- | ------------------------------------------------- | ----------------------------------------------------------------------------------- |
| Shares allotted to directors instead of B Pvt. Ltd. | Not legally valid allotment | Cancel allotment; re-issue shares to B Pvt. Ltd.; inform ROC; possible legal action |
| Interest-free loan > 12x paid-up capital | Requires shareholder approval under Sec 180(1)(c) | Pass retrospective special resolution at EGM; comply with disclosures and approvals |
---
### Additional Points
* The shares allotted to directors instead of the company might also affect compliance with **minimum shareholder requirements** for public companies.
* The **loan transaction should be properly documented**, and if it is interest-free, be aware of potential **tax implications** under Section 2(22)(e) (deemed dividend) if shareholders/directors are concerned.
* Related party transaction rules under **Section 188** may also apply.
---
If you want, I can help draft:
* A **board resolution** for cancelling and re-issuing shares
* A **notice and resolution for EGM** to approve borrowings retrospectively
* Guidance on ROC filing to correct shareholding details
Would you like assistance with any of these?
---
### 1️⃣ Shares allotted in the name of directors of B Pvt. Ltd. instead of B Pvt. Ltd.
**Is this legally correct?**
* No, **if A Ltd. received share application money from B Pvt. Ltd., the shares must be allotted to B Pvt. Ltd. itself**, not to the directors personally.
* Allotting shares in the name of individuals who did not pay the money (the directors of B Pvt. Ltd.) is **not in accordance with Section 39** of the Companies Act, 2013, which mandates that shares be allotted only to the persons who have applied and paid for them.
* Also, for a **public limited company**, there must be a minimum of 7 shareholders at all times. If the shares are allotted to only 2 directors of B Pvt. Ltd., it might create issues in maintaining the minimum shareholder requirement unless there are other shareholders.
**What is the remedy?**
* The allotment to directors can be challenged as **invalid or irregular**.
* **Rectification of the register of members** should be sought by:
* Calling a **board meeting** and passing a resolution to **cancel the incorrect allotment**.
* Issuing shares correctly in the name of B Pvt. Ltd. by fresh allotment.
* The company may have to inform the Registrar of Companies (ROC) about the correction.
* If the directors have wrongly been allotted shares, civil or legal action can be initiated for recovery of shares or damages.
---
### 2️⃣ Interest-free unsecured loan from B Pvt. Ltd. to A Ltd. amounting to 12 times paid-up capital
**How should this loan be dealt with under the Companies Act, 2013?**
* Under **Section 179(3)**, the board’s power to borrow money is subject to the limits set by the shareholders.
* Under **Section 180(1)(c)**, if the borrowing limits exceed the **aggregate of paid-up share capital and free reserves**, the company must obtain **prior approval from shareholders by passing a special resolution**.
* Taking a loan 12 times the paid-up capital definitely exceeds the limits and requires this approval.
**What should be done now?**
* Check whether A Ltd. has passed the special resolution approving borrowings beyond the threshold.
* If not passed, the company must:
* Convene an **Extraordinary General Meeting (EGM)** and pass a **retrospective special resolution** approving the loan.
* Ensure the loan is properly recorded in the books and disclosed in financial statements.
* Maintain compliance with **Section 186** regarding loans and investments.
---
### Summary Table
| Issue | Legal Position | Remedy / Action |
| --------------------------------------------------- | ------------------------------------------------- | ----------------------------------------------------------------------------------- |
| Shares allotted to directors instead of B Pvt. Ltd. | Not legally valid allotment | Cancel allotment; re-issue shares to B Pvt. Ltd.; inform ROC; possible legal action |
| Interest-free loan > 12x paid-up capital | Requires shareholder approval under Sec 180(1)(c) | Pass retrospective special resolution at EGM; comply with disclosures and approvals |
---
### Additional Points
* The shares allotted to directors instead of the company might also affect compliance with **minimum shareholder requirements** for public companies.
* The **loan transaction should be properly documented**, and if it is interest-free, be aware of potential **tax implications** under Section 2(22)(e) (deemed dividend) if shareholders/directors are concerned.
* Related party transaction rules under **Section 188** may also apply.
---
If you want, I can help draft:
* A **board resolution** for cancelling and re-issuing shares
* A **notice and resolution for EGM** to approve borrowings retrospectively
* Guidance on ROC filing to correct shareholding details
Would you like assistance with any of these?
25 July 2025
This is a very interesting and important query involving share allotment and loans under the Companies Act, 2013. Let me clarify both parts in detail.
---
### 1️⃣ Shares allotted in the name of directors of B Pvt. Ltd. instead of B Pvt. Ltd.
**Is this legally correct?**
* No, **if A Ltd. received share application money from B Pvt. Ltd., the shares must be allotted to B Pvt. Ltd. itself**, not to the directors personally.
* Allotting shares in the name of individuals who did not pay the money (the directors of B Pvt. Ltd.) is **not in accordance with Section 39** of the Companies Act, 2013, which mandates that shares be allotted only to the persons who have applied and paid for them.
* Also, for a **public limited company**, there must be a minimum of 7 shareholders at all times. If the shares are allotted to only 2 directors of B Pvt. Ltd., it might create issues in maintaining the minimum shareholder requirement unless there are other shareholders.
**What is the remedy?**
* The allotment to directors can be challenged as **invalid or irregular**.
* **Rectification of the register of members** should be sought by:
* Calling a **board meeting** and passing a resolution to **cancel the incorrect allotment**.
* Issuing shares correctly in the name of B Pvt. Ltd. by fresh allotment.
* The company may have to inform the Registrar of Companies (ROC) about the correction.
* If the directors have wrongly been allotted shares, civil or legal action can be initiated for recovery of shares or damages.
---
### 2️⃣ Interest-free unsecured loan from B Pvt. Ltd. to A Ltd. amounting to 12 times paid-up capital
**How should this loan be dealt with under the Companies Act, 2013?**
* Under **Section 179(3)**, the board’s power to borrow money is subject to the limits set by the shareholders.
* Under **Section 180(1)(c)**, if the borrowing limits exceed the **aggregate of paid-up share capital and free reserves**, the company must obtain **prior approval from shareholders by passing a special resolution**.
* Taking a loan 12 times the paid-up capital definitely exceeds the limits and requires this approval.
**What should be done now?**
* Check whether A Ltd. has passed the special resolution approving borrowings beyond the threshold.
* If not passed, the company must:
* Convene an **Extraordinary General Meeting (EGM)** and pass a **retrospective special resolution** approving the loan.
* Ensure the loan is properly recorded in the books and disclosed in financial statements.
* Maintain compliance with **Section 186** regarding loans and investments.
---
### Summary Table
| Issue | Legal Position | Remedy / Action |
| --------------------------------------------------- | ------------------------------------------------- | ----------------------------------------------------------------------------------- |
| Shares allotted to directors instead of B Pvt. Ltd. | Not legally valid allotment | Cancel allotment; re-issue shares to B Pvt. Ltd.; inform ROC; possible legal action |
| Interest-free loan > 12x paid-up capital | Requires shareholder approval under Sec 180(1)(c) | Pass retrospective special resolution at EGM; comply with disclosures and approvals |
---
### Additional Points
* The shares allotted to directors instead of the company might also affect compliance with **minimum shareholder requirements** for public companies.
* The **loan transaction should be properly documented**, and if it is interest-free, be aware of potential **tax implications** under Section 2(22)(e) (deemed dividend) if shareholders/directors are concerned.
* Related party transaction rules under **Section 188** may also apply.
---
If you want, I can help draft:
* A **board resolution** for cancelling and re-issuing shares
* A **notice and resolution for EGM** to approve borrowings retrospectively
* Guidance on ROC filing to correct shareholding details
Would you like assistance with any of these?
---
### 1️⃣ Shares allotted in the name of directors of B Pvt. Ltd. instead of B Pvt. Ltd.
**Is this legally correct?**
* No, **if A Ltd. received share application money from B Pvt. Ltd., the shares must be allotted to B Pvt. Ltd. itself**, not to the directors personally.
* Allotting shares in the name of individuals who did not pay the money (the directors of B Pvt. Ltd.) is **not in accordance with Section 39** of the Companies Act, 2013, which mandates that shares be allotted only to the persons who have applied and paid for them.
* Also, for a **public limited company**, there must be a minimum of 7 shareholders at all times. If the shares are allotted to only 2 directors of B Pvt. Ltd., it might create issues in maintaining the minimum shareholder requirement unless there are other shareholders.
**What is the remedy?**
* The allotment to directors can be challenged as **invalid or irregular**.
* **Rectification of the register of members** should be sought by:
* Calling a **board meeting** and passing a resolution to **cancel the incorrect allotment**.
* Issuing shares correctly in the name of B Pvt. Ltd. by fresh allotment.
* The company may have to inform the Registrar of Companies (ROC) about the correction.
* If the directors have wrongly been allotted shares, civil or legal action can be initiated for recovery of shares or damages.
---
### 2️⃣ Interest-free unsecured loan from B Pvt. Ltd. to A Ltd. amounting to 12 times paid-up capital
**How should this loan be dealt with under the Companies Act, 2013?**
* Under **Section 179(3)**, the board’s power to borrow money is subject to the limits set by the shareholders.
* Under **Section 180(1)(c)**, if the borrowing limits exceed the **aggregate of paid-up share capital and free reserves**, the company must obtain **prior approval from shareholders by passing a special resolution**.
* Taking a loan 12 times the paid-up capital definitely exceeds the limits and requires this approval.
**What should be done now?**
* Check whether A Ltd. has passed the special resolution approving borrowings beyond the threshold.
* If not passed, the company must:
* Convene an **Extraordinary General Meeting (EGM)** and pass a **retrospective special resolution** approving the loan.
* Ensure the loan is properly recorded in the books and disclosed in financial statements.
* Maintain compliance with **Section 186** regarding loans and investments.
---
### Summary Table
| Issue | Legal Position | Remedy / Action |
| --------------------------------------------------- | ------------------------------------------------- | ----------------------------------------------------------------------------------- |
| Shares allotted to directors instead of B Pvt. Ltd. | Not legally valid allotment | Cancel allotment; re-issue shares to B Pvt. Ltd.; inform ROC; possible legal action |
| Interest-free loan > 12x paid-up capital | Requires shareholder approval under Sec 180(1)(c) | Pass retrospective special resolution at EGM; comply with disclosures and approvals |
---
### Additional Points
* The shares allotted to directors instead of the company might also affect compliance with **minimum shareholder requirements** for public companies.
* The **loan transaction should be properly documented**, and if it is interest-free, be aware of potential **tax implications** under Section 2(22)(e) (deemed dividend) if shareholders/directors are concerned.
* Related party transaction rules under **Section 188** may also apply.
---
If you want, I can help draft:
* A **board resolution** for cancelling and re-issuing shares
* A **notice and resolution for EGM** to approve borrowings retrospectively
* Guidance on ROC filing to correct shareholding details
Would you like assistance with any of these?
25 July 2025
This is a very interesting and important query involving share allotment and loans under the Companies Act, 2013. Let me clarify both parts in detail.
---
### 1️⃣ Shares allotted in the name of directors of B Pvt. Ltd. instead of B Pvt. Ltd.
**Is this legally correct?**
* No, **if A Ltd. received share application money from B Pvt. Ltd., the shares must be allotted to B Pvt. Ltd. itself**, not to the directors personally.
* Allotting shares in the name of individuals who did not pay the money (the directors of B Pvt. Ltd.) is **not in accordance with Section 39** of the Companies Act, 2013, which mandates that shares be allotted only to the persons who have applied and paid for them.
* Also, for a **public limited company**, there must be a minimum of 7 shareholders at all times. If the shares are allotted to only 2 directors of B Pvt. Ltd., it might create issues in maintaining the minimum shareholder requirement unless there are other shareholders.
**What is the remedy?**
* The allotment to directors can be challenged as **invalid or irregular**.
* **Rectification of the register of members** should be sought by:
* Calling a **board meeting** and passing a resolution to **cancel the incorrect allotment**.
* Issuing shares correctly in the name of B Pvt. Ltd. by fresh allotment.
* The company may have to inform the Registrar of Companies (ROC) about the correction.
* If the directors have wrongly been allotted shares, civil or legal action can be initiated for recovery of shares or damages.
---
### 2️⃣ Interest-free unsecured loan from B Pvt. Ltd. to A Ltd. amounting to 12 times paid-up capital
**How should this loan be dealt with under the Companies Act, 2013?**
* Under **Section 179(3)**, the board’s power to borrow money is subject to the limits set by the shareholders.
* Under **Section 180(1)(c)**, if the borrowing limits exceed the **aggregate of paid-up share capital and free reserves**, the company must obtain **prior approval from shareholders by passing a special resolution**.
* Taking a loan 12 times the paid-up capital definitely exceeds the limits and requires this approval.
**What should be done now?**
* Check whether A Ltd. has passed the special resolution approving borrowings beyond the threshold.
* If not passed, the company must:
* Convene an **Extraordinary General Meeting (EGM)** and pass a **retrospective special resolution** approving the loan.
* Ensure the loan is properly recorded in the books and disclosed in financial statements.
* Maintain compliance with **Section 186** regarding loans and investments.
---
### Summary Table
| Issue | Legal Position | Remedy / Action |
| --------------------------------------------------- | ------------------------------------------------- | ----------------------------------------------------------------------------------- |
| Shares allotted to directors instead of B Pvt. Ltd. | Not legally valid allotment | Cancel allotment; re-issue shares to B Pvt. Ltd.; inform ROC; possible legal action |
| Interest-free loan > 12x paid-up capital | Requires shareholder approval under Sec 180(1)(c) | Pass retrospective special resolution at EGM; comply with disclosures and approvals |
---
### Additional Points
* The shares allotted to directors instead of the company might also affect compliance with **minimum shareholder requirements** for public companies.
* The **loan transaction should be properly documented**, and if it is interest-free, be aware of potential **tax implications** under Section 2(22)(e) (deemed dividend) if shareholders/directors are concerned.
* Related party transaction rules under **Section 188** may also apply.
---
If you want, I can help draft:
* A **board resolution** for cancelling and re-issuing shares
* A **notice and resolution for EGM** to approve borrowings retrospectively
* Guidance on ROC filing to correct shareholding details
Would you like assistance with any of these?
---
### 1️⃣ Shares allotted in the name of directors of B Pvt. Ltd. instead of B Pvt. Ltd.
**Is this legally correct?**
* No, **if A Ltd. received share application money from B Pvt. Ltd., the shares must be allotted to B Pvt. Ltd. itself**, not to the directors personally.
* Allotting shares in the name of individuals who did not pay the money (the directors of B Pvt. Ltd.) is **not in accordance with Section 39** of the Companies Act, 2013, which mandates that shares be allotted only to the persons who have applied and paid for them.
* Also, for a **public limited company**, there must be a minimum of 7 shareholders at all times. If the shares are allotted to only 2 directors of B Pvt. Ltd., it might create issues in maintaining the minimum shareholder requirement unless there are other shareholders.
**What is the remedy?**
* The allotment to directors can be challenged as **invalid or irregular**.
* **Rectification of the register of members** should be sought by:
* Calling a **board meeting** and passing a resolution to **cancel the incorrect allotment**.
* Issuing shares correctly in the name of B Pvt. Ltd. by fresh allotment.
* The company may have to inform the Registrar of Companies (ROC) about the correction.
* If the directors have wrongly been allotted shares, civil or legal action can be initiated for recovery of shares or damages.
---
### 2️⃣ Interest-free unsecured loan from B Pvt. Ltd. to A Ltd. amounting to 12 times paid-up capital
**How should this loan be dealt with under the Companies Act, 2013?**
* Under **Section 179(3)**, the board’s power to borrow money is subject to the limits set by the shareholders.
* Under **Section 180(1)(c)**, if the borrowing limits exceed the **aggregate of paid-up share capital and free reserves**, the company must obtain **prior approval from shareholders by passing a special resolution**.
* Taking a loan 12 times the paid-up capital definitely exceeds the limits and requires this approval.
**What should be done now?**
* Check whether A Ltd. has passed the special resolution approving borrowings beyond the threshold.
* If not passed, the company must:
* Convene an **Extraordinary General Meeting (EGM)** and pass a **retrospective special resolution** approving the loan.
* Ensure the loan is properly recorded in the books and disclosed in financial statements.
* Maintain compliance with **Section 186** regarding loans and investments.
---
### Summary Table
| Issue | Legal Position | Remedy / Action |
| --------------------------------------------------- | ------------------------------------------------- | ----------------------------------------------------------------------------------- |
| Shares allotted to directors instead of B Pvt. Ltd. | Not legally valid allotment | Cancel allotment; re-issue shares to B Pvt. Ltd.; inform ROC; possible legal action |
| Interest-free loan > 12x paid-up capital | Requires shareholder approval under Sec 180(1)(c) | Pass retrospective special resolution at EGM; comply with disclosures and approvals |
---
### Additional Points
* The shares allotted to directors instead of the company might also affect compliance with **minimum shareholder requirements** for public companies.
* The **loan transaction should be properly documented**, and if it is interest-free, be aware of potential **tax implications** under Section 2(22)(e) (deemed dividend) if shareholders/directors are concerned.
* Related party transaction rules under **Section 188** may also apply.
---
If you want, I can help draft:
* A **board resolution** for cancelling and re-issuing shares
* A **notice and resolution for EGM** to approve borrowings retrospectively
* Guidance on ROC filing to correct shareholding details
Would you like assistance with any of these?
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