ALLOTMENT OF SECURITIES (Companies Act 2013)

In recent posts, we have discussed matters related to prospectus. In this post we will discuss, matters related to issue and allotment of securities following public offer.

SECURITIES IN DEMATERIALISED FORM (SECTION 29):

Under this section;

1. Every company making public offer; and
2. Such other class or classes of companies as may be prescribed

shall issue the securities only in the dematerialised form.

When any company issue its securities in dematerialised form, provisions of the Depositories Act, 1996 and regulations made under that Act shall be applicable.

There is no bar for any other company to issue its securities in any form. Any other company may convert its securities into dematerialised form.

ALLOTMENT OF SECURITIES BY COMPANY (SECTION 39):

After public offer, any allotment shall be made only if the amount stated in the prospectus as minimum amount. The sum payable on application for the amount so stated as minimum amount has been paid to and received by the company by cheque or other instrument.

There is no clarity yet, what will be these instrument and why the term other banking channel has not been included.

The amount payable on application on every security shall not be less than five percent of he nominal amount of security or such other percentage or amount as may be specified.

If the stated minimum amount has not been subscribed and the sum payable on application is not received within a period of thirty days from the date of issue of the prospectus, all amount received shall be returned within prescribed time and in prescribed manner.

The company shall file with the Registrar of Companies a “Return of Allotment” in prescribed manner.

In case of any default, 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.

I do not understand why there is an upper limit on this penalty.

LISTING OF SHARES (SECTION 40):

Every company making public offer shall make an application to at least one stock exchange before making the public offer. This is duty of company to obtain permission of stock exchange or stock exchanges for the dealing of securities there.

Prospectus for the public offer shall also state the name or names of the stock exchange in which application for dealing of the securities has been made.

All money received on application from the public for subscription of the securities shall be kept in a separate bank account in a schedule bank. This money shall not be utilised for any purpose other than –

1. For adjustment against allotment of securities where the permission from the stock exchanges named in prospectus has been received; or
2. For repayment of money within the time specified by the Securities and Exchange Board, where the company is for any other reason unable to allot securities.

A company may pay commission to any person in connection with the subscription to its securities subject to such conditions as may be prescribed.

Any condition which require or bind any applicant for securities to waive compliance with any of the requirement 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.

GLOBAL DEPOSITORY RECEIPT (SECTION 41):

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.

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