02 August 2025
Under **Companies Act, 2013**, the treatment of **Share Application Money (SAM)** received by a Private Limited Company before allotment of shares is governed by certain provisions:
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### Key Points on Use of Share Application Money:
1. **Time frame for allotment** As per **Section 39(4)** of Companies Act, 2013, the company **must allot shares within 60 days** from the date of receipt of the application money.
2. **If shares are not allotted within 60 days**
* The company is **required to refund the application money within 15 days** from the expiry of 60 days. * Failure to refund in time attracts **interest @ 12% p.a.** to be paid by the company for the delay in refund.
3. **Use of Share Application Money before allotment**
* Since allotment has not been made, the SAM is **liability** of the company to refund if allotment does not happen within prescribed time. * Therefore, **the company should not use the SAM for any other purpose**, as it is technically not a part of the company’s paid-up capital yet. * Using SAM without allotment within the time limit can lead to legal consequences including liability for refund with interest.
4. **After allotment** Once shares are allotted, the application money becomes part of the company’s share capital and can be used for company purposes.
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### Summary Table
| Situation | Permissible use of SAM | Remarks | | --------------------------------- | ----------------------------------------------------- | ---------------------------------------------------------------------- | | Before allotment & within 60 days | Not specifically restricted, but safest to keep aside | Await allotment, avoid using for other purposes to avoid complications | | Not allotted after 60 days | Must refund application money + interest | Using SAM is not allowed; refund liability arises | | After allotment | Becomes part of share capital, can be used | No restriction post allotment |
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### Relevant Sections:
* **Section 39(4), Companies Act 2013**: Time frame for allotment & refund of application money. * **Section 2(68)**: Definition of share capital.
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### Practical Advice:
* Do **not use** share application money before allotment. * If allotment is delayed, refund money promptly with interest. * Ensure timely allotment within 60 days to avoid penalties.
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If you want, I can provide sample letters for refund or procedural guidance on allotment compliance. Would you like that?
CAclubindia
