We received share money but did not allot the shares in time. What now?

An investor wired money for shares. Your board meant to allot them, then the paperwork stalled. Weeks later, the money is still sitting in the bank and no share certificate has gone out.

This is a common slip in a private company. The Companies Act 2013 treats it as a clock problem, not a paperwork problem. This article is about money taken on a private placement, which is the usual way a private company issues shares to chosen investors. It explains what the clock says, what a late company must do, and what to avoid.

The short version

The company must allot within sixty days from the date it received the application money (s.42(6), Companies Act 2013).
If it cannot allot in that time, it must repay the money within fifteen days after those sixty days end (s.42(6), Companies Act 2013).
If it also misses the fifteen days, it owes interest at twelve per cent a year, counted from the sixtieth day (s.42(6), Companies Act 2013).
Until the allotment is made and the return of allotment is filed, the company may not use the money (s.42(4), proviso, Companies Act 2013).

Where you stand today

Count from the date the money reached the company's bank account. That is the date the Act uses: "the date of receipt of the application money" (s.42(6), Companies Act 2013).

Place yourself in one of three positions.

Day 1 to day 60. You are inside the window. You can still allot and file the return. This is the best place to be.
Day 61 to day 75. You missed the allotment window. The Act now expects you to repay within fifteen days after the sixty days end. You can still repay without interest if you move quickly.
After day 75. You have missed both. Interest runs at twelve per cent a year from the sixtieth day, not from the seventy-fifth (s.42(6), Companies Act 2013).

The "sixty days" and "fifteen days" are fixed in the section itself. Section 42 gives no power to the board or the investor to extend them. The Act does not say that a late allotment is void, and it does not say it is valid. That is a legal question on your facts. Ask a CA before you allot after day 60.

What the Act says, in plain words

Section 42(6) of the Companies Act 2013 says a company making an offer under that section "shall allot its securities within sixty days from the date of receipt of the application money". If it is "not able to allot the securities within that period, it shall repay the application money to the subscribers within fifteen days from the expiry of sixty days".

If the company then fails to repay in time, it "shall be liable to repay that money with interest at the rate of twelve per cent. per annum from the expiry of the sixtieth day".

Illustration only, not a figure to pay: if the company held ₹10 lakh and repaid it thirty days after day 60, twelve per cent a year for thirty days works out to about ₹9,863 on a 365-day year. The Act does not state a day-count basis, so your CA must confirm the number.

Check the money's home first

Section 42(6) has a proviso. Money received on application "shall be kept in a separate bank account in a scheduled bank". It may be used only for two things: adjusting against the allotment, or repaying the subscriber if the company cannot allot (s.42(6), proviso, Companies Act 2013).

Section 42(4) goes further. The company "shall not utilise monies raised through private placement unless allotment is made and the return of allotment is filed with the Registrar" (s.42(4), proviso, Companies Act 2013).

So the first practical check is whether the money is still there. If the company has spent it on salaries, rent or a loan repayment, you have a second problem on top of the delay. Tell your CA at once.

Two ways out

Route A: allot now (only if your CA agrees it is open to you). The Act sets the sixty-day limit for allotment. Section 42 does not say what happens to a late allotment. If your CA is comfortable on the facts, the steps are the usual ones: board resolution to allot, issue the shares, update the register of members and file the return of allotment.

Route B: repay. This is the route the Act itself spells out. The company repays the application money to the subscriber. Do it by bank transfer to the account the money came from. Rule 14(5), Companies (Prospectus and Allotment of Securities) Rules 2014, requires subscription money to come from the subscriber's own bank account, and the company must keep a record of that account. Matching the repayment to that account keeps the audit trail clean. Rule 14(5) says nothing about how a refund is to be paid; the refund-to-same-account rule in rule 11(2) of those rules is written for public offers. Using the same account is simply the sensible practice here.

Then record the refund in the books and note the matter for the next board meeting.

The return of allotment, if you do allot

If you allot, the company must file Form PAS-3 with the Registrar "within fifteen days of allotment" with the fee and "a complete list of all the allottees" (rule 14(6), Companies (Prospectus and Allotment of Securities) Rules 2014, as substituted in 2018). Section 42(8), Companies Act 2013 sets the same fifteen days.

The list must give each allottee's full name, address, Permanent Account Number and email ID, the class of security, the date of allotment, the number of securities, nominal value and amount paid (rule 14(6)(i) to (iv)).

Do not confuse this with the thirty days in rule 12(1) of the same rules, which is the general return-of-allotment rule. Rule 14(6) is the specific rule for private placement under section 42, and it says fifteen days.

If PAS-3 is late, section 42(9), Companies Act 2013 applies: "a penalty for each default of one thousand rupees for each day during which such default continues but not exceeding twenty-five lakh rupees". The company, its promoters and its directors are all liable.

What the penalty section says

Section 42(10), Companies Act 2013 (subject to section 42(11)) applies where a company "makes an offer or accepts monies in contravention of this section". The company, its promoters and directors are liable to a penalty "which may extend to the amount raised through the private placement or two crore rupees, whichever is lower". The company must also refund all monies, with interest as in section 42(6), "within a period of thirty days of the order imposing the penalty".

Does a missed sixty-day window count as accepting monies in contravention of the section? The text does not say so in terms. It is a fair reading that a company holding application money beyond the Act's limits is in contravention. We flag this as a reading, not a settled point. A CA should assess your facts before you decide how to describe the delay to anyone.

The practical lesson from section 42(10) is the same as from section 42(6): a prompt refund is the cheaper position. The penalty provision follows an order. The refund route is in your hands today.

Is this a public offer instead?

This article assumes your company did a private placement. If the offer went to more people than the limit in rule 14(2), Companies (Prospectus and Allotment of Securities) Rules 2014 (not more than two hundred persons in a financial year, with exclusions for qualified institutional buyers and employees under an option scheme), section 42(11) has a hard consequence. A private placement not made in compliance with section 42(2) "shall be deemed to be a public offer", and all the provisions of the Companies Act, the Securities Contracts (Regulation) Act, 1956 and the SEBI Act, 1992 apply.

For a public offer where the stated minimum amount is not subscribed, section 39(3), Companies Act 2013 leaves the refund time and manner to the rules, and rule 11(1) of the 2014 Prospectus and Allotment Rules sets fifteen days from the close of the issue, with directors who are officers in default liable jointly and severally to repay with interest at fifteen per cent a year (rule 11(1)). If your facts look like that, call your CA now.

What not to do

Do not spend the money. The Act bars use of the money until the allotment is made and the return is filed (s.42(4), proviso, Companies Act 2013).
Do not backdate the allotment resolution. The date of allotment is a fact that appears in PAS-3 and in the register. A false date is a worse problem than a late one.
Do not make a fresh offer to anyone else. Section 42(5) says no fresh offer or invitation shall be made unless allotments on any earlier offer "have been completed or that offer or invitation has been withdrawn or abandoned by the company". Sort the first offer out first.
Do not accept cash. Subscription money must come by cheque, demand draft or banking channel, "and not by cash" (s.42(4), Companies Act 2013).
Do not ignore the investor. Write to them, tell them the position and agree the route in writing.

Step by step

Find the date of receipt. Take it from the bank statement.
Count the days. Count sixty days from that date. Count fifteen more.
Check the money. Confirm it is in the separate account and unspent (s.42(6) proviso, Companies Act 2013).
Decide the route with your CA. Allot now, or repay.
Hold a board meeting. Record the decision.
If you allot, file PAS-3 within fifteen days of the allotment (rule 14(6), Companies (Prospectus and Allotment of Securities) Rules 2014).
If you repay, transfer back to the subscriber's account and keep the proof. If you are past day 75, work out the interest from day 60 with your CA (s.42(6), Companies Act 2013).
File the board minutes and close the matter in the books.

What to do now

Next step: Find the date the money arrived, and count sixty days from it (s.42(6), Companies Act 2013).
Deadline: Allot by day 60. Failing that, repay by day 75 (s.42(6), Companies Act 2013). PAS-3 is due within fifteen days of any allotment (rule 14(6), Companies (Prospectus and Allotment of Securities) Rules 2014).
Consequence: After day 75, interest at twelve per cent a year from day 60 (s.42(6)). A delayed PAS-3 attracts ₹1,000 a day up to ₹25 lakh (s.42(9)). Accepting monies in contravention can attract a penalty up to the lower of the amount raised and ₹2 crore (s.42(10)), all in the Companies Act 2013.

Have a CA review your facts before you act or file.

Questions people ask

Does the sixty days start from the board meeting or from the money?
It starts from the date the company received the application money (s.42(6), Companies Act 2013). The date of the offer letter or the date of the board meeting does not start it.

Can the investor agree in writing to wait longer?
Section 42 has no clause that lets the parties extend the sixty days. We cannot say an investor's written consent cures the delay. Ask your CA before relying on one.

Who pays the interest, the company or the directors?
Section 42(6) says "it shall be liable", meaning the company. For the penalty in section 42(10), the company, its promoters and its directors are named. For public offers, rule 11(1) names the directors who are officers in default.

We already filed PAS-3 but the allotment was late. Is that fixed?
Filing PAS-3 answers section 42(8). It does not by itself answer the sixty-day rule in section 42(6). Speak to your CA about both.

What if the money was a loan, not share money?
Then section 42 may not apply at all. The question is what the papers and the intention were on the day it was received. We do not cover loans or deposits here. Get the papers to your CA.

Is the fifteen-day PAS-3 period the same as for other allotments?
No. Rule 14(6) of the 2014 Prospectus and Allotment Rules sets fifteen days for private placement. Rule 12(1) of the same rules uses thirty days for an allotment return by a company having a share capital. Use the rule that fits how you issued the shares, and confirm with your CA.

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