Dca/mca circular

Allotment - Return of ‑ Shares allotted by a company to a person in lieu of a genuine debt due to him ‑ Whether in compliance with provisions of the section

The views conveyed in Department’s Circular Letter No. 8/4(75)/69‑CL-V, dated 18‑11‑1969 have since been re‑examined. The Department is now of the view that the allotment of shares by a company to a person in lieu of a genuine debt due towards him is in perfect compliance with the provisions of section 75(1). In this connection it is clarified that the act of handing over cash to the allottee of shares by a company in payment of the debt and the allottee in turn returning the same cash as payment of shares allotted to him, is not necessary for treating the shares as having been allotted for cash under the above section of the Act. What is required is to ensure that the genuine debt payable by a company is liquidated to the extent of the value of shares.

Letter : No. 8/32(75)/77‑CL‑V, dated 13‑3‑1978.

Copy of letter dated 18-11-1969 referred to in Clarification

The department is advised that if consideration for allotment of shares is actual cash, then only the allotment would be for cash. “Cash” is actual money or instrument, e.g., cheques which are generally used and accepted as money. If consideration for allotment is not flow of cash but some other mode of payment, e.g., cancellation of a genuine debt or outstanding bills, for goods sold and delivered, marketable securities, time deposits in  banks, then allotment cannot be treated as for cash.