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Section 372A(5)

udit sharma (Company Secretary) (2303 Points)

11 January 2011

Hi...

Company A has given a Share Application money of Rs.2 Crores to Company B. Till date, the Company has not allotted any shares to Company A.

Can this be shown as an investment in Company B and an entry to this effect has to be made in the Register of Inter-Corporate Investments maintained under section 372A(5) of the Companies Act, 1956?

In my opinion, this will be treated as investment only when Company B makes an allotment to Company A.

Please help....

Regards

CS Udit Sharma

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8 Replies

nidhigoel89 (Company Secretary ) (594 Points)
Replied 12 January 2011

Hello!

You are correct that for co B it cant be considered as investment. That would be seperately shown as share application money on liablities side in the B/S of Co. B. And For co. A i guess it would fall under 372A 1(c)......by way of subscripttion u have given money to co. B. Once these share would be alloted then it can be considered as Investment....

Any other views are solicited....

Regards

Nidhi

Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 12 January 2011

Till then under what head of assets it would be shown in Company A?

Not a loan... may be advance?

nidhigoel89 (Company Secretary ) (594 Points)
Replied 12 January 2011

Hello!

Yes, as per my views that would come under advances..............

Regards

Nidhi

Sudhir Garg (Service) (236 Points)
Replied 13 January 2011

Hi..

I am, of the different view. It looks odd to have A showing it as advance and B is showing it as Share application money.

I understand If company B is not making the allotment of shares for long time, it can't show it lying under the head of "Share application money" rather it should technically come under "Current Labilities" If company B is not making any allotment for long period of time, then share application money becomes refundable to the applicant and thus should come under current liability.

Oher member viewsare solicited.

Regards - Sudhir

Sudhir Garg (Service) (236 Points)
Replied 13 January 2011

Hi..

I am, of the different view. It looks odd to have A showing it as advance and B is showing it as Share application money.

Oher member views are solicited.

Regards - Sudhir

nidhigoel89 (Company Secretary ) (594 Points)
Replied 13 January 2011

Hello!

Thanks for your contribution.

Bt there is no specific provision in which it is written that there is some time limit upto which u can show as share application money....Except under FEMA (6 months limit)................ And i dnt think so that u can automatically change share application money into current liablities..........

Further clarification is solicited.............

regards

Nidhi

Sudhir Garg (Service) (236 Points)
Replied 13 January 2011

Dear Nidhi

Yes, there is no time limit for allotment of shares. But the Balance Sheet should present True and Fair View of financials. If you are showing the same under Share application head, then support note should be there in NOTES to the Account clarifying the situation.

Please clarify if share application is kept under Share Application head, then how a genuine share application can get its money back??

Regards - Sudhir