Major amendment regarding share application money

MCA 18942 views 45 replies

RG - A Helping Hand

Company Secretary

13867 Points Joined May 2011

Dear Professionals,

Through MCA Notification dated December 14, 2011 Ministry of Corporate Affairs has amended the Unlisted Public Companies (Preferential Allotment) Rules, 2003. There are quite a few changes in the above rules through the above said notification.

During my study of the same the most relevant change is regulation of acceptance of Share Application Money in an unlisted Public company. As per my understanding this change is a very big change to be taken note off.

Please find below the relevant and highlighted clause regarding Share Application Money:

8. Invitation and allotment of securities.-

(1) No fresh offer or invitation shall be made unless the allotment with respect to any offer or invitation made earlier have been completed in terms of sub-section (9) of section 60B of the Companies Act, 1956.

(2) Any offer or invitation not in compliance with sub-section (1A) of Section 81 read with sub-section (3) of section 67 of the said Act, shall be treated as a public offer and the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall be complied with.

(3) All monies payable on subscripttion of securities shall be paid through cheque or demand draft or other banking channels but not by cash.

(4) Any allotment of securities shall be completed within sixty days from the receipt of application money and in case the company is not able to allot the securities within the said period of sixty days, it shall repay the application money within fifteen days thereafter, failing which it will be required to be re-paid with interest at the rate of twelve percent per annum:

Provided that t he monies received on such application shall be kept in a separate bank account and shall not be utilised for any purpose other than—

(i) for adjustment against allotment of securities; or

(ii) for the repayment of monies where the company is unable to allot securities.

(5) No company offering securities shall release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an offer.

You all are requested to please take note of the same.

Regards

Replies (45)

RG - A Helping Hand

Company Secretary

13867 Points Joined May 2011

Please find enclosed herewith MCA notification regarding amendment in Unlisted Public Companies (Preferential Allotment) Rules, 2003.

Please consider this change very important.

RG - A Helping Hand

Company Secretary

13867 Points Joined May 2011

POSITION BEFORE THE ABOVE AMENDMENT

Before the amendment mentioned above there was no provision regarding the receipt and time period for utilization of Share Application Money. In other words regarding time limit to convert such share application money into capital the law is silent. However as per practice and keeping in view the Reporting of FDI provisions in FEMA, professionals used to allot share with 6 months [180 days] of the receipt of application money.

POSITION AFTER THE ABOVE AMENDMENT

But after the above said amendment allotment of securities shall be completed within sixty days [60 days] from the receipt of share application money.

In case company fails to allot securities against the share application money within the period of 60 days, it shall repay the application money within 15 days thereafter without interest.

Further in case of failure of the time lines of 15 days fixed for repayment of Application money, it will be required to be re-paid with interest at the rate of 12% per annum:

GOOD SECRETARIAL PRACTICE

As per my understanding of good secretarial practice, receipt of Share Application Money should be acknowledged in the board meeting through a board resolution.

It is very much advisable to collect the share application form from the proposed allottee for your record. You may download the sample share application from the below mentioned link from where I had downloaded the form long way back:

SHARE APPLICATION FORM

Hope you find the above information useful.

Thanks

CA Ayush Agarwal

Kolkata-Pune-Mumbai

27344 Points Joined October 2007

Very Important Sharing.

Thanks For Highlighting Major Amendments.

It Will Restrict All Companies Which Were Adjusting Through Share Application Money Cash.

Parashar

Company Secretary 2004

1013 Points Joined April 2009

Yes Richank your interpretation is correct, thanks for important shareing.

Parashar

Company Secretary 2004

1013 Points Joined April 2009

RG, are these rules will be applicable from 14/12/2011

Guest

Dear Richankji, Many thanks to you for explaining amendment in very simple and easy language. You are always adding value with each and every post. I fees whatever you remark is remarkable indeed. Keep up the good work in future as well. Thanksss so much!