CHAPTER III PROSPECTUS AND

ALLOTMENT OF SECURITIES

PART 3

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39. Allotment of securities by company.

1. No allotment of any securities of a company offered to the public for subscription shall be made
unless the amount stated in the prospectus as the minimum amount has been subscribed and the
sums payable on application for the amount so stated have been paid to and received by the
company by cheque or other instrument.

2. The amount payable on application on every security shall not be less than five per cent. of the
nominal amount of the security.

3. If the stated minimum amount has not been subscribed(90%) and the sum payable on application is
not received within a period of thirty days from the date of issue of the prospectus, the amount
received under sub-section (1) shall be returned within such time and manner as may be prescribed.

4. Whenever a company having a share capital makes any allotment of securities, it shall file with the
Registrar a return of allotment in such manner as may be prescribed.

5. In case of any default under sub-section (3) or sub-section (4), the company and its officer who is in
default shall be liable to a penalty, for each default, of one thousand rupees for each day during
which such default continues or one lakh rupees, whichever is less.

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40. Securities to be dealt with in stock exchanges
Every company making public offer shall, before making such offer, make an application to one or more recognised
stock exchange or exchanges and obtain permission for the securities to be dealt with in such stock exchange or
exchanges.

Prospectus shall also state the name or names of the stock exchange in which the securities shall be dealt with.

All monies received on application from the public for subscription to the securities shall be kept in a separate bank
account in a scheduled bank and shall be utilised only for— (a) for adjustment against allotment of securities where
the securities have been permitted to be dealt with in the stock exchange or (b) for the repayment of monies
received from applicants where the company is unable to allot securities.

Any condition purporting to require or bind any applicant for securities to waive compliance with any of the
requirements of this section shall be void.

If a default is made in complying with the provisions of this section, the company shall be punishable with a fine
which shall not be less than five lakh rupees but which may extend to fifty lakh rupees and every officer of the
company who is in default shall be punishable with imprisonment for a term which may extend to one year or with
fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees, or with both.

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❑ Concept check :-

1. A Public Limited company which went in for Public issue of shares had applied for
listing of shares in three recognised Stock Exchanges and out of it only two had given
permission for listing. Can the company proceed for allotment of shares?

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ANSWER

The company shall get permission from all the stock exchanges in which it has applied for
listing.

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Maximum commission that can be paid to underwriters

❑ Payment should be authorized in company’s AOA

❑ It shall be paid out of proceeds of the issue or the profit of the company or both.
❑ No commission shall be paid on securities which are not offered to the public for
subscription.

Shares Debentures

5% of issue 2.5% of issue

price price

Rate Rate
authorized by authorized by
AOA AOA

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Global depository Receipt
❑ A company may, after passing a special resolution in its general meeting, issue depository receipts in any
foreign country in such manner, and subject to such conditions, as may be prescribed.

❑ It is a type of bank certificate that represents shares in a foreign company, such that a foreign branch of
an international bank then holds the shares.

❑ A global depository receipt ( GDR ) is an investing instrument that is designed to make it easy for foreign
interests to buy into publicly-traded companies outside of their native nation.

❑ A holder of depository receipts may become a member of the company and shall be entitled to vote as
such only on conversion of the depository receipts into underlying shares.

❑ Until the conversion of depository receipts, the overseas depository shall be entitled to vote on behalf of
the holders of depository receipts in accordance with the provisions of the agreement entered into
between the depository, holders of depository receipts and the company in this regard.

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 Overseas
depository will Company shall
issue GDRs. appoint
Special merchant banker
Board Resolution
Resolution Shares shall be or CA or CS or
kept with CMA to oversee
domestic the compliances.
custodian bank.

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 Section 42- Private placement
❑ A private placement is a way of raising capital that involves the sale of securities to a
relatively small number of selected investors.

❑ Maximum investors- 200 aggregate in a financial year.

❑ Exclusions to the limit of 200

➢Qualified Institutional buyers
➢ESOP given to employees

❑ Private placement offers does not carry any right renunciation.

❑ Any payment made would be in any mode except cash

❑ The company can utilise the money raised only after allotment and filing of return to
ROC.

❑ Fresh offer can be made only when earlier allotment is made or that offer has been
withdrawn or abandoned.

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 Not returned
Return in 15 days,
Receipt of Application give interest
60 Days Allotment of
application
securities No money
money within next @ 12% p.a.
15 days from 60th day
expiry

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❑ The company will not release any public advertisements or do any marketing,
distribution etc.

❑ Return to be filed with Registrar with 15 days of allotment. Contents of return

✓ List of all allottees
✓ Full names
✓ Their addresses
✓ Number of securities allotted

❑ Default- Every director, company promoters liable for penalty

Penalty will be 1000 Rs. For each day of default subject to maximum Rs.25 Lakh
rupees.

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Default in the provisions of private placements

❑ Person responsible
✓ Company
✓ Directors
✓ Promoters

❑ Penalty- Lower of
Amount raised through private placement
OR
2 crores Rupees

(Penalty should be paid within 30 days of the order imposing the penalty)

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• Some Important Form No.
❑PAS 2 – Information Memorandum
❑PAS 4 – Private Placement Offer
❑PAS 3 – Return of Share Allotment
❑PAS 5 – Record of a Private Placement offer to be kept by the
Company
THANK YOU

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