Penalty for non compliance

Hi

As such section 81 does not defined any penality and procecution on contravention of section 81(1A) of the Companies Act, 1956. But  in Unlisted Public Companies (Prefeential Allotment) Rules 2011,  it only says refund of money within 15 days or pay 12% p.a. in case of not paid intime.

In Rule it is not specificaaly mention the name and style of Bank Account so you can kept such application money in Bank A/c as u decide but restricted to use them before allotment.

It is my  personal views, other views will also consider.

Regards

Agree with Ajay…

Penal provisions i.e. charging of interest on application money @ 12% p.a., in case fail to repay the same within prescribed time limit.

Regards

Sir/s,

Rule 8 (4) says :

Provided that the 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.

It means seperate bank account should be there which is not having the characterstics of normal running business account.

Yes.

To be fully compliant it is very much advisable to open another bank account for share application money.

Regards

Originally posted by : Ajay Mishra
	But  in Unlisted Public Companies (Prefeential Allotment) Rules 2011,  it only says refund of money within 15 days or pay 12% p.a. in case of not paid intime.

Sir/s,

Thanks for your replies gentlemen.

Actually my query is if we fail to comply with the new provision of share application money regarding

- allotment within 60 days and / or

- keeping in seperate bank account.

In that case ON THE HIGHER / MAXIMUM SIDE what are the penalties which can be imposed on the company and directors ??

Are the directors held liable for contravention of rules u/s 629 A which is applicable when no specific penalty is provided in the act. OR we are just liable to pay 12% interest on that amount and make good our default / non compliance / violation.

We are happy with paying 12%, there are no issues with us about interest front. We just wish to ensure can we be made liable under any other section for prosecution.

Thanking both of you in anticipation.

As per my understanding in case of violation regarding preferential Allotment provisions of section 81(1A), the penalty u/s 629A is not applicable. Reason being the same is governed by Unlisted Public Companies (Preferential Allotment) Rules, 2003, in the form of Interest and we cannot say that no penalty provided in law for violation regarding preferential Allotment.

However for other provisions of section 81, the penalty u/s 629A should become applicable as section 81 is silent regarding the same.

Further to my opinion it is a matter of discussion and views above are based on my personal understanding.

Thanks

Ankur Jee,

Unlisted Public Companies (Preferential Allotment) Rules, 2003 are applicable for right issue u/s 81 or 81 (1A) or both ?

Thanks so much for your detailed and informative replies, as always.

BW,

Neha

Rule 2 (1) says :

‘(1) “preferential allotment” means allotment of shares or any other instrument convertible into shares including hybrid instruments convertible into shares on preferential basis made pursuant to the provisions of subsection (1A) of section 81 of the Companies Act, 1956;

In my view it is appliable for section 81 (1A) only and not for 81.

Pls correct me if I am wrong!

Also, u/s 629A max penalty is 5000/- and 500/- for every day when contravention continues. So, this is the max. penalty i guess, which can be imposed?

Originally posted by : Neha Jain
	Ankur Jee, Unlisted Public Companies (Preferential Allotment) Rules, 2003 are applicable for right issue u/s 81 or 81 (1A) or both ? Thanks so much for your detailed and informative replies, as always.

Come on Neha Ji…please do not get confuse regarding this…these rules are for preferential allotment and connected with section 81(1A) and has nothing to do with section 81. This is to remind you that section 81 is for “Right Issue”.

That is why my interpretation says… in case of violation regarding preferential Allotment provisions of section 81(1A), the penalty u/s 629A is not applicable. Reason being the same is governed by Unlisted Public Companies (Preferential Allotment) Rules, 2003, in the form of Interest and we cannot say that no penalty provided in law for violation regarding preferential Allotment.

However for other provisions of section 81, the penalty u/s 629A should become applicable as section 81 is silent regarding the same and has nothing to do with preferential allotment.

Thank you Thank you!

Lastly, if contravention is ony regarding not keeping funds separately and using them for business purpose before allotment then whats the penalty?

Thanks

Originally posted by : Neha Jain
	Thank you Thank you! Lastly, if contravention is ony regarding not keeping funds separately and using them for business purpose before allotment then whats the penalty? Thanks

Rules are silent regarding penalty for this default.

Personally I feel it would not be a big issue as long as a company receives Share application money and allot shares within time limit.

As said earlier it is very much a loophole waiting for right clarification.

Regards

Hi

As per our views, question of Ms. Neha is totaly govern by the new Unlisted Public Companies (Preferential Allotment) Rules, 2011, which gives a time frame which was not given in earlier Rule 2003.

The Rules simply says that if you have received share application money then allot within 60 days or return the same to invester. If the company contraven to return the same, the rules says pay interest @ 12% p.a., i think it will be sufficient to understand, because for Rule 2011 there is no other penal provision s.

Now, in  case of keeping of share application money in separate bank acount, the rules is silent about contravention if the company hase same application money in other bank acount. But the language of rule 2011 says that it is mandatory to have share application money in separate bank account.

An example is giving here of a listed company, i know the rule will not apply but read this......

Section 81(1A) aply for both listed and unlisted, in case of listed company the company received 25% upfront money against issue of  convertible warrants and balance 75% is given at the time of allotment. After allotment, when these convertible warrants are listed on stock exchange, the exchange only demand statement of acount that the company have recieved money from investor against allotment, but they dont ask whether it is kept in separate aount or normal account.

So, as per my personal view, if  Rule 2011 is silent about keeping of share application money in separate acount, then you open a separate account and transfer the same application money to them.

Regards