# Minimum Subscription and Allotment of Securities [Section 39]

## 1. What is 'Allotment'?

Allotment = appropriation out of previously un-appropriated capital of the company.

Shares come into existence ONLY upon allotment.
Before allotment, an application is just an offer to subscribe.

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## 2. Minimum Subscription Rule

### The Rule

A company cannot allot any securities unless it receives applications at least equal to the minimum subscription.

### Two Tests of Minimum Subscription

1. Amount specified in the prospectus as minimum subscription, AND

2. Cannot be less than 90% of the issue size (SEBI Rules).

### Mode of Payment

The application amounts must be paid to and received by the company via cheque or other instruments at the time of application.

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## 3. What Happens if Minimum Subscription is NOT Received?

Event	Time Limit
Window to receive min. subscription	30 days from issue of prospectus
Refund time limit	Within 15 days of closure of issue
Mode of refund	Credit to the bank account from which subscription was made

### Default in Refund

If company fails to refund within 15 days:

Directors and officers in default are jointly and severally liable to repay
Along with interest at 15% p.a.

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## 4. Minimum Application Money

Application money for each security must be at least:

5% of the Face Value, OR
As specified by SEBI (currently 25% of the issue price)

Whichever is higher in practice (SEBI norm is followed for public issues).

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## 5. Filing Return of Allotment with ROC

On allotment, file Form PAS-3 with the ROC
Within 30 days of allotment
Along with prescribed fee

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## 6. Penalty for Default

If the company defaults under Section 39:

Company AND officer in default liable
₹1,000 per day of continuing default
Maximum ₹1,00,000 (whichever is lower)

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## Timeline at a Glance

```

Day 0: Prospectus Issued

Day 30: Last day to receive minimum subscription

Day 45: Refund must be completed (15 days from issue closure)

Day 30 (post-allotment): PAS-3 to be filed with ROC

```

Worked example

### Example 1

Example 1: ABC Ltd issued a prospectus for ₹100 Cr issue. Minimum subscription was set at ₹90 Cr. By Day 30, only ₹80 Cr was received.

Answer: Minimum subscription not received → No allotment can happen. The company must refund all application money within 15 days of issue closure. If not refunded, directors are jointly and severally liable to refund with 15% p.a. interest.

### Example 2

Example 2: XYZ Ltd allotted shares on 1 April 2026. It filed PAS-3 with ROC on 15 May 2026 (44 days later).

Answer: Default of 14 days beyond 30-day limit. Penalty: ₹1,000 per day × 14 = ₹14,000 (well below ₹1,00,000 cap). Both company and officer in default are liable.

### Example 3

Example 3: A public issue at issue price ₹100. Application money collected was ₹10 per share.

Answer: SEBI requires at least 25% of issue price = ₹25 per share. Collecting only ₹10 violates the rule — this is an irregular allotment. The company must comply with the higher SEBI threshold.

⚠️ Common exam mistakes

Confusing minimum subscription (90% of issue size) with minimum application money (25% of issue price / 5% of face value).
Thinking the 30-day refund period starts from issue closure — it's 15 days from closure (after the 30-day window to receive subscription).
Forgetting that interest on delayed refund is 15% p.a. (a frequently tested number).
Treating ₹1,000/day penalty as unlimited — it caps at ₹1 lakh.
Missing that directors are JOINTLY AND SEVERALLY liable — any one of them can be made to pay the entire refund.

Bare-Act text Section 39 · Companies Act, 2013 · click to expand

Section 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 or such other percentage or amount, as may be specified by SEBI by making regulations in this behalf. (3) 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, or such other period as may be specified by SEBI, 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.

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Minimum Subscription and Allotment of Securities (Section 39)

Worked example

⚠️ Common exam mistakes