Chapter III - Prospectus and Allotment of Securities
Section 39
Section 39: minimum subscription, refund and return of allotment
Section 39 stops a company from allotting securities offered to the public until the minimum amount in the prospectus is subscribed and paid. It requires refunds when that fails and a return of allotment after every allotment by a company with share capital.
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This article is for general information. Refer to the Companies Act, 2013 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(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 the Securities and Exchange Board 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 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.
Introduction
Sub-sections (1) to (3) apply to securities offered to the public for subscription: minimum subscription, minimum application money and refund. Sub-section (4) is wider. It requires every company having a share capital to file a return of allotment whenever it allots securities.
Sub-section (5) imposes a civil penalty for default under sub-section (3) or (4) on the company and its officer in default. It is one thousand rupees for each day the default continues, or one lakh rupees, whichever is less.
Key takeaways
Minimum subscription first
No allotment in a public offer until the prospectus minimum amount is subscribed and the application sums are received by cheque or other instrument.
Application money floor
At least five per cent. of the nominal amount of each security, or another percentage or amount specified by SEBI regulations.
Return of allotment
Every company having a share capital files a return of allotment with the Registrar in the prescribed manner.
Check minimum subscription before allotting
For securities offered to the public, confirm that the minimum amount stated in the prospectus has been subscribed. Confirm also that the application sums for that amount have been paid to and received by the company by cheque or other instrument. The application amount per security cannot be less than five per cent. of its nominal amount, unless SEBI regulations specify another percentage or amount.
Refund if minimum subscription fails
If the minimum amount is not subscribed and the application money is not received within thirty days from the date of issue of the prospectus, or another period specified by SEBI, the amount received must be returned within the prescribed time and manner. The Companies (Prospectus and Allotment of Securities) Rules, 2014 (G.S.R. 251(E)) contain the prescribed manner. Check the current amended rule before acting.
File the return of allotment
Sub-section (4) applies to every allotment of securities by a company having a share capital, not only to public offers. As notified on 31 March 2014, rule 12 of those Rules required the return within thirty days in Form PAS-3. Confirm the current rule, form and fee on the MCA portal before filing.
Penalty and commencement
A default under sub-section (3) or (4) makes the company and its officer in default liable to a penalty for each default. The penalty is one thousand rupees for each day the default continues, or one lakh rupees, whichever is less. Section 39 came into force on 12 September 2013 under S.O. 2754(E), except sub-section (4), which came into force on 1 April 2014 under S.O. 902(E).
Practical preparation
Reconcile subscriptions against the prospectus minimum. Confirm the application money meets the five per cent. floor or the SEBI-specified amount. Refund within the prescribed time if the issue fails. After any allotment, file the return of allotment in the current prescribed form. Keep evidence of the dates.
Practical checklist
Do
- Diarise the return-of-allotment filing date from each allotment.
- Keep bank evidence showing receipt of application money by cheque or other instrument.
Avoid
- Do not allot in a public offer before the minimum subscription is received.
- Do not assume private allotments are exempt from the return of allotment.
Illustrative example
Hypothetical: rights allotment by an unlisted company
An unlisted company with share capital allots shares on a rights basis.
Scope
Sub-sections (1) to (3) do not apply because the shares were not offered to the public.
File
Sub-section (4) still applies, so the company files a return of allotment in the prescribed manner.
Track
Missing the filing exposes the company and officer in default to the sub-section (5) penalty.
Outcome
- The company files the return of allotment on time and records the filing evidence.
Glossary
- Minimum subscription
- The minimum amount stated in the prospectus that must be subscribed and received before allotment.
- Return of allotment
- The filing with the Registrar required by section 39(4) after an allotment of securities.
Frequently asked questions
Does section 39(4) apply to a private company allotment?
Yes. It applies whenever a company having a share capital makes any allotment of securities.
What is the penalty for late filing of the return of allotment?
One thousand rupees for each day the default continues, or one lakh rupees, whichever is less. It applies to the company and to its officer in default, for each default.
Can SEBI change the five per cent. application money?
Yes. Section 39(2) allows SEBI regulations to specify another percentage or amount.
Need help applying this provision to your situation?
Contact BizeneedLast updated 11 October 2026