# Allotment of Securities (Sections 39 & 40)
## Meaning
Allotment of securities means an act of appropriation by the Board of Directors of the company out of the previously un-appropriated capital of a company, of a certain number of securities to persons who have made applications.
> It is on allotment that securities come into existence.
## General Principles Regarding Allotment
In addition to statutory provisions, the following general principles must be observed:
| # | Principle | Explanation |
|---|---|---|
| 1 | Proper authority | Allotment by the Board of Directors or a committee authorized by it. Allotment without proper authority is invalid. |
| 2 | Reasonable time | Must be made within reasonable time. Otherwise applicant may refuse. |
| 3 | Absolute & unconditional | Allotment cannot be conditional. |
| 4 | Communication | Must be communicated. Posting of allotment letter is valid communication even if lost or delayed in transit. |
| 5 | Commission | Company may pay commission to persons for subscription, subject to prescribed conditions. |
## Statutory Provisions on Allotment (Sections 39 & 40)
### (1) Application Money
Company must have received in cash the amount payable on application, which must be at least 5% of the nominal value of securities or such other amount/percent as specified by SEBI.
### (2) Escrow Account
Application money received must be deposited in a separate Escrow Account in a Scheduled Bank before any allotment. Usage limited to:
- Adjustment against allotment of securities (where listing permitted), OR
- Repayment of money (where company is unable to allot for any reason)
### (3) Minimum Subscription
Minimum subscription stated in the prospectus must be received within 30 days from date of issue (or other period specified by SEBI).
Consequence of failure:
- Issue fails
- Entire amount must be refunded, without interest, within 15 days of issue closure
- Beyond 15 days: officers in default must repay with interest at 15% p.a.
### (4) Listing Permission
Every company making a public offer must apply to one or more recognized stock exchanges and obtain permission before making the offer.
- Prospectus must state which stock exchange has been applied to.
- Any allotment without stock exchange permission is void.
#### Penalty for Default in Listing Application/Allotment
| Defaulter | Minimum Fine | Maximum Fine |
|---|---|---|
| Company | Rs. 5,00,000 | Rs. 50,00,000 |
| Defaulting Officer | Rs. 50,000 | Rs. 3,00,000 |
### (5) No Waiver of Conditions
Any condition requiring an applicant to waive compliance with this section is void.
## Return of Allotment
Whenever a company having share capital makes any allotment of securities, it shall file with the Registrar a return of allotment as prescribed.
### Time Limit & Form
- Form: PAS-3
- Time: within 30 days of allotment
- Filed along with fee and:
- (a) List of allottees stating names, address, occupation (if any)
- (b) Number of securities allotted to each
### Additional Attachments to Form PAS-3
(i) Where shares issued for consideration other than cash [Rule 12(3)]:
- Copy of contract, duly stamped, pursuant to which securities allotted
- Any contract of sale relating to property/asset or contract for services or other consideration
(ii) Where contract is not in writing [Rule 12(4)]:
Company shall furnish complete particulars of contract stamped with same duty as if reduced to writing, deemed an instrument under the Indian Stamp Act, 1899.
(iii) Valuation report [Rule 12(5)]:
Registered valuer's report required in respect of valuation of consideration if Rule 12(3) or 12(4) applies.
(iv) Shares under Section 62(1)(c) [Rule 12(7)]:
For unlisted companies (other than those whose equity shares or convertible preference shares are listed on any recognised stock exchange), valuation report of registered valuer must be attached to Form PAS-3.
## Penalty for Default in Return of Allotment
For default under sub-section (3) or (4): company and officer in default liable to a penalty for each default of Rs. 1,000 per day during which the default continues, or Rs. 1,00,000, whichever is less.