# Allotment of Securities — Refund, Restrictions & Return of Allotment

When a company invites the public to subscribe to its securities, the minimum subscription must be received before allotment can be made. Sections 39 and 40 of the Companies Act, 2013 read with the SEBI ICDR Regulations govern what happens after the offer closes.

## 1. Refund if minimum subscription not received

The stated minimum amount must be subscribed and the sum payable on application received within the period specified by SEBI.
If the minimum is not received within the stipulated period, the entire application money must be refunded to applicants.
Time limit for refund: within 15 days from the closure of the issue.
Default → interest @ 15% p.a. is payable on the refunded amount for the period of delay, and the company and every officer in default are liable to penalty.

## 2. Prohibition on fresh issue of shares

A company cannot make a further issue of shares unless the previous allotment has been completed and the return of allotment has been filed.
Purpose: to prevent companies from stacking up uncompleted issues and misleading the public.
This restriction does not apply to a further issue of securities already authorised in the same offer document.

## 3. No advertisement of the issue

A company making a public offer shall not release any public advertisement giving information about the issue that is inconsistent with the prospectus or otherwise misleading.
The intent is to ensure that the prospectus remains the single authoritative document on which the public relies.

## 4. Return of Allotment — Section 39(4) / Form PAS-3

Whenever a company having a share capital makes any allotment, it must file a Return of Allotment in Form PAS-3 with the Registrar.
Time limit: within 15 days from the date of allotment.
Contents: complete list of allottees with their names, addresses, occupation, number of shares allotted, and amount paid/payable.
Default penalty (Section 39(5)): ₹1,000 for each day of default, subject to a maximum of ₹1,00,000 on the company and on every officer in default.

## 5. Refund money with interest

Where allotment is to be undone (e.g., minimum subscription not received, or securities not listed within the prescribed time), money already received must be refunded with interest @ 15% p.a.
The amount stays in a separate bank account until refunded or appropriated against allotment.

## 6. Maintain records of Private Placement (Section 42)

A company making a private placement must maintain a complete record of the offer in Form PAS-5.
A Private Placement Offer-cum-Application Letter is issued in Form PAS-4, sent only to identified persons whose names are recorded by the company before the invitation.
The company can issue PAS-4 only after filing the special resolution authorising the private placement with the Registrar.

## Quick Recap Table

Event	Form / Section	Time Limit	Penalty / Interest
Return of allotment	PAS-3 / S.39(4)	15 days from allotment	₹1,000/day, max ₹1 lakh
Refund (min. subscription not received)	S.39(3)	15 days from issue closure	Interest @ 15% p.a. on delay
Private placement record	PAS-5 / S.42	Maintained continuously	—
Private placement offer letter	PAS-4 / S.42	After filing SR	—

Worked example

### Example 1

Example 1 — Refund of application money: ABC Ltd. closes its public issue on 1st April. The minimum subscription is not received. ABC Ltd. refunds the application money only on 10th May (i.e., 24 days after closure). Is interest payable, and from when?

Solution: The refund had to be made within 15 days (by 16th April). The delay is from 17th April to 10th May = 24 days. Interest @ 15% p.a. is payable on the application money for those 24 days, and the company and officers in default are also liable to penalty under Section 39(5).

### Example 2

Example 2 — Return of allotment: XYZ Ltd. allots 50,000 equity shares on 5th June but files Form PAS-3 only on 5th August. Calculate the penalty.

Solution: Return must be filed within 15 days, i.e., by 20th June. Delay = 21st June to 5th August = 46 days. Penalty = ₹1,000 × 46 = ₹46,000 each on the company and on every officer in default (subject to maximum of ₹1,00,000).

⚠️ Common exam mistakes

Confusing the 15-day return-of-allotment period (Section 39(4)) with the 15-day refund period (Section 39(3)) — both happen to be 15 days but trigger from different events (allotment date vs. issue closure date).
Quoting the maximum penalty under Section 39(5) as ₹25 lakh — the current statutory cap is ₹1,00,000 on the company and on every officer in default.
Forgetting that the bar on a fresh share issue lasts only until the previous allotment is completed AND the return of allotment is filed — both conditions must be satisfied.
Treating PAS-3 (return of allotment) and PAS-4 (private placement offer letter) as the same form — they serve different purposes.
Assuming interest on delayed refund is 12% p.a. — the prescribed rate under Section 39 is 15% p.a.

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. (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 the Securities and Exchange Board, 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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Allotment of Securities, Refund and Return of Allotment (Sections 39 & 40)

Worked example

⚠️ Common exam mistakes