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The Companies Act, 1956

Title : The Companies Act, 1956

Year : 1956



(1) An allotment made by a company to an applicant in contravention of the provisions of section 69 or 70 shall be voidable at the instance of the applicant-

(a) Within two months after the holding of the statutory meeting of the company, and not later, or

(b) In any case where the company is not required to hold a statutory meeting or where the allotment is made after the holding of the statutory meeting, within two months after the date of the allotment, and not later.

(2) The allotment shall be voidable as aforesaid, notwithstanding that the company is in course of being wound up.

(3) If any director of a company knowingly contravenes, or willfully authorises or permits the contravention of, any of the provisions of section 69 or 70 with respect to allotment, he shall be liable to compensate the company and the allottee respectively for any loss, damages or costs which the company or the allottee may have sustained or incurred thereby:-

Provided that proceedings to recover any such loss, damages or costs shall not be commenced after the expiration of two years from the date of the allotment.



(1) (a) No allotment shall be made of any shares in or debentures of a company in pursuance of a prospectus issued generally, and no proceedings shall be taken on applications made in pursuance of a prospectus so issued, until the beginning of the fifth day after that on which the prospectus is first so issued or such later time, if any, as may be specified in the prospectus:-

Provided that where, after a prospectus is first issued generally, a public notice is given by some person responsible under section 62 for the prospectus which has the effect of excluding, limiting or diminishing his responsibility, no allotment shall be made until the beginning of the firth day after that on which such public notice is first given.

(b) Nothing in the foregoing proviso shall be deemed to exclude, limit or diminish any liability that might be incurred in the case referred to therein under the general law or this Act.

(c) The beginning of the fifth day or such later time as is mentioned in the first paragraph of clause (a), or the beginning of the fifth day mentioned in the second paragraph of that clause, as the case may be, is hereinafter in this Act referred to as "the time of the opening of the subscription lists".

(2) In sub-section (1), the reference to the day on which the prospectus is first issued generally shall be construed as referring to the day on which it is first so issued as a newspaper advertisement:-

Provided that, if it is not so issued as a newspaper advertisement before the fifth day after that on which it is first so issued in any other manner, the said reference shall be construed as referring to the day on which it is first so issued in any manner.

(3) The validity of an allotment shall not be affected by any contravention of the foregoing provisions of this section; but, in the event of any such contravention, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to1*[fifty thousand rupees].

(4) In the application of this section to a prospectus offering shares or debentures for sale sub-sections (1) to (3) shall have effect with the substitution of references to sale for references to allotment, and with the substitution for the reference to the company and every officer of the company who is in default of a reference to any person by or through whom the offer is made and who is knowingly guilty of, or willfully authorises or permits, the contravention.

(5) An application for shares in, or debentures of, a company, which is made in pursuance of a prospectus issued generally shall not be revocable until after the expiration of the fifth day after the time of the opening of the subscription lists, or the giving, before the expiry of the said fifth day by some person responsible under section 62 for the prospectus, of a public notice having the effect under that section of excluding, limiting or diminishing the responsibility of the person giving it.

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1. Substituted by Act 53 of 2000, Section 29, for "five thousand rupees" (w.e.f. 13-12-2000).

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1*[(1) Every company intending to offer shares or debentures to the public for subscription by the issue of a prospectus shall, before such issue, make an application to one or more recognised stock exchange for permission for the shares or debentures intending to be so offered to be dealt with in the stock exchange or each such stock exchange.]

2 *[3*[(1A)] Where a prospectus, whether issued generally or not, states that an 4*[application under sub-section (1) has been made] for permission for the shares or debentures offered thereby to be dealt in one or more recognized stock exchanges, such prospectus shall state the names of the stock exchange or, as the case may be, each such stock exchange, and any allotment made on an application in pursuance of such prospectus shall, whenever made, be void 5[***] if the permission has not been granted by the stock exchange or each such stock exchange as the case may be, before the expiry of ten weeks from the date of the closing of the subscription lists:-

Provided
that where an appeal against the decision of any recognized stock exchange refusing permission for the shares or debentures to be dealt in on that stock exchange has been preferred under section 22 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), such allotment shall not be void until the dismissal of the appeal.]

(2) Where the permission has not been 6*[applied under sub-section (1)] 7*[or such permission having been applied for, has not been granted as aforesaid,] the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, 8 [the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than four per cent and not more than fifteen per cent, as may be prescribed, having regard to the length of the period of delay in making the repayment of such money].]

9 [***]

10*[(2A) Where permission has been granted by the recognized stock exchange or stock exchanges for dealing in any shares or debentures in such stock exchange or each such stock exchange and the moneys received from applicants for shares or debentures are, in excess of the aggregate of the application moneys relating to the shares or debentures in respect of which allotments have been made, the company shall repay the moneys to the extent of such excess forthwith without interest, and if such money is not repaid within eight days, from the day the company becomes liable to pay it, 11 [the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than four per cent and not more than fifteen per cent as may be prescribed, having regard to the length of the period of delay in making the repayment of such money].
9 [***]

10*[(2B) If default is made in complying with the provisions of sub-section (2A), the company and every officer of the company who is in default shall be punishable with fine which may extend to 12*[fifty thousand rupees], and where repayment is not made within six months from the expiry of the eighth day, also with imprisonment for a term which may extend to one year.]

(3) All moneys received as aforesaid shall be kept in a separate bank account maintained with a Scheduled Bank 13 [until the permission has seen granted, or where an appeal has been preferred against the refusal to grant such permission, until the disposal of the appeal, and the money standing in such separate account shall where the permission has not been applied for as aforesaid or has not been granted, be repaid within the lime and in the manner specified in sub-section (2)]; and if default is made in complying with this sub-section, the company and every officer of the company who is in default, shall be punishable with fine which may extend to 12 [fifty thousand rupees].

10*[(3A) Moneys standing to the credit of the separate bank account referred to in sub-section (3) shall not be utilised for any purpose other than the following purposes namely: -

(a) Adjustment against allotment of shares, where the shares have been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus; or

(b) Repayment of moneys received from applicants in pursuance of the prospectus, where shares have not been permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus, as the case may be, or, where the company is for any other reason unable to make the allotment of share.]

(4) Any condition purporting to require or bind any applicant for shares or debentures to waive compliance with any of the requirements of this section shall be void.

14*[(5) For the purposes of this section, it shall be deemed that permission has not been granted if the application for permission, where made, has not been disposed of within the time specified in sub-section (1).]

(6) This section shall have effect -

(a) In relation to any shares or debentures agreed to be taken by a person underwriting an offer thereof by a prospectus, as if he had applied therefore in pursuance of the prospectus; and

(b) In relation to a prospectus offering shares for sale, with the following modifications, namely:-

(i) References to sale shall be substituted for references to allotment;

(ii) The persons by whom the offer is made, and not the company, shall be liable under sub-section (2) to repay money received from applicants, and references to the company's liability under that sub-section shall be construed accordingly; and

(iii) For the reference in sub-section (3) to the company and every officer of the company who is in default, there shall be substituted a reference to any person by or through whom the offer is made and who is knowingly guilty of, or willfully authorises or permits, the default.

(7) No prospectus shall start that application has been made for permission for the shares or debentures offered thereby to be dealt in on any stock exchange, unless it is a recognised stock exchange.

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1. Inserted by Act 31 of 1988, Section 10 (w.e.f. 15-6-1968).

2. Substituted by Act 41 of 1974, Section 8, for original sub-section (1) (w.e.f. 1-2-1975).

3. Sub-section (1) re-numbered as sub-section (1A) thereof by Act 31 of 1988, Section 10 (w.e.f. 15-6-1988).

4. Substituted by Act 31 of 1988, Section 10, for "application has been, or will be" (w.e.f. 15-6-1988).

5. Certain words omitted by Act 31 of 1988, Section 10 (w.e.f. 15-6-1988).

6. Substituted by Act 31 of 1988, Section 10, for "applied for as aforesaid" (w.e.f. 15-6-1988).

7. Substituted by Act 41 of 1974, Section 8, for "or has not been granted as aforesaid" (w.e.f. 1-2-1975).

8. Substituted by Act 31 of 1988, Section 10, for certain words (w.e.f. 15-6-1988).

9. Proviso omitted by Act 31 of 1988, Section 10 (w.e.f. 15-6-1988).

10. Inserted by Act 41 of 1974, Section 8 (w.e.f. 1-2-1975).

11. Substituted by Act 31 of 1988, Section 10, for certain words (w.e.f. 15-6-1988).

12. Substituted by Act 53 of 2000, Section 30, for "five thousand rupees" (w.e.f. 13-12-2000).

13. Substituted By Act 41 of 1974, Section 8, for certain words (w.e.f. 1-2-1975).

14. Substituted by Act 41 of 1974, Section 8, for sub-section (5) (w.e.f. 1-2-1975).

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In reckoning for the purposes of sections 72 and 73 the fifth day,1*[or the eighth day] after another day, any intervening day which is a public holiday under the Negotiable Instruments Act, 1881 (56 of 1981), shall be disregarded, and if the fifth1[or eighth day] (as so reckoned) is itself such a public holiday there shall for the said purposes be substituted the first day thereafter which is not such other day.

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1. Substituted by Act 31 of 1988, Section 11, for "the eighth day, or the tenth day" (w.e.f. 15-6-1988).

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(1) Whenever a company having a share capital makes any allotment of its shares, the company shall, within1[thirty days] thereafter, -

(a) File with the Registrar a return of the allotments, stating the number and nominal amount of the shares comprised in the allotment, the names, addresses and occupations of the allotees, and the amount, if any, paid or due and payable on each share:-

2*[Provided that the company shall not show in such return any shares as having been allotted for cash if cash has not actually been received in respect of such allotment;]

(b) In the case of shares (not being bonus shares) allotted as fully or partly paid up otherwise than in cash, produce for the inspection and examination of the Registrar a contract in writing constituting the title of the allottee to the allotment together with any contract of sale, or a contract for services or other consideration in respect of which that allotment was made, such contracts being duly stamped, and file with the Registrar copies verified in the prescribed manner of all such contracts and a return stating the number and nominal amount of shares so allotted the extent to which they are to be treated as paid up, and the consideration for which they have been allotted; and

3*[(c) File with the Registrar -

(i) In the case of bonus shares, a return stating the number and nominal amount of such shares comprised in the allotment and the names, addresses and occupations of the allottees and a copy of the resolution authorising the issue of such shares;

(ii) In the case of issue of shares at a discount a copy of the resolution passed by the company authorising such issue together with a copy of the order of the4*[Tribunal] sanctioning the issue and where the maximum rate of discount exceeds ten per cent, a copy of the orders of the Central Government permitting the issue at the higher percentage.]

(2) Where a contract such as is mentioned in clause (b) of sub-section (1) is not reduced to writing, the company shall, within1[thirty days] after the allotment, file with the Registrar the prescribed particulars of the contract stamped with the same stamp duty as would have been payable if the contract had been reduced to writing; and those particulars shall be deemed to be an instrument within the meaning of the Indian Stamp Act, 1899 (2 of 1899), and the Registrar may, as a condition of filing the particulars, require that the duty payable thereon be adjudicated under section 31 of that Act.

(3) If the Registrar is satisfied that in the circumstances of any particular case the period of1*[thirty days] specified in sub-sections (1) and (2) for compliance with the requirements of this5*[is or was inadequate, he may on application made in that behalf by the company, whether before or after the expiry of the said period, extend that period as he thinks fit]; and if he does so, the provisions of sub-sections (1) and (2) shall have effect in that particular case as if for the said period of1[thirty days] the extended period allowed by the Registrar were substituted.

(4) If default is made in complying with this section, every officer of the company who is in default shall be punishable with fine which may extend to6*[five thousand rupees] for every day during which the default continues:

7*[Provided that in case of contravention of the proviso to clause (a) of sub-section (1), every such officer, and every promoter of the company who is guilty of the contravention shall be punishable with fine which may extend to8[fifty thousand rupees].]

(5) Nothing in this section shall apply to the issue and allotment by a company of shares which under the provisions of its articles were forfeited for non-payment of calls.

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1. Substituted by Act 31 of 1965, Section 62 and Schedule, for "one month" (w.e.f. 15-10-1965.

2. Added by Act 31 of 1965, Section 11 (w.e.f. 15-10-1965).

3. Substituted by Act 65 of 1960, Section 21, for clause (c) (w.e.f. 28-12-1960).

4. Substituted by Act 11 of 2003, Section 11 for "Court".

5 . Substituted by Act 31 of 1965, Section 11, for certain words (w.e.f. 15-10-1965).

6. Substituted by Act 53 of 2000, Section 31, for "five hundred rupees" (w.e.f. 13-12-2000).

7. Substituted by Act 31 of 1965, Section 11, for the proviso (w.e.f. 15-10-1965).

8. Substituted by Act 53 of 2000, Section 31, for "five thousand rupees" (w.e.f. 13-12-2000).

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(1) A company may pay a commission to any person in consideration of -

(a) His subscribing or agreeing to subscribe, whether absolutely or conditionally for any shares in, or debentures of the company, or

(b) His procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in, or debentures of, the company,if the following conditions are fulfilled, namely:-

(i) The payment of the commission is authorised by the articles;

(ii) The commission paid or agreed to be paid does not exceed in the case of shares, five per cent of the price at which the shares are issued or the amount or rate authorised by the articles, whichever is less, and in the case of debentures, two and a half per cent of the price at which the debentures are issued or the amount or rate authorised by the articles, whichever is less;

(iii) The amount or rate per cent of the commission paid or agreed to be paid is in the case of shares or debentures offered to the public for subscription, disclosed in the prospectus; and
in the case of shares or debentures not offered to the public for subscription, disclosed in the statement in lieu of prospectus, or in a statement in the prescribed form signed in like manner as a statement in lieu of prospectus and filed before the payment of the commission with the Registrar and, where a circular or notice, not being a prospectus inviting subscription for the shares or debentures, is issued, also disclosed in that circular or notice;1[***]

(iv) The number of shares or debentures which persons have agreed for a commission to subscribe absolutely or conditionally is disclosed in the manner aforesaid;2*[and]

2*[(v) A copy of the contract for the payment of, the commission is delivered to the Registrar at the time of delivery of the prospectus or the statement in lieu of prospectus for registration.]

(2) Save as aforesaid and save as provided in section 79, no company shall allot any of its shares or debentures or apply3[any of its moneys], either directly or indirectly, in payment of any commission, discount or allowance, to any person in consideration of -

(a) His subscribing on agreeing to subscribe, whether absolutely or conditionally, for any shares in, or debentures of, the company, or

(b) His procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in, or debentures of, the company,whether the shares, debentures or money be so allotted or applied by being added to the purchase money of any property acquired by the company or to the contract price of any work to be executed for the company, or the money be paid out of the nominal purchase money or contract price, or otherwise.

(3) Nothing in this section shall affect the power of any company to pay such brokerage as it has heretofore been lawful for a company to pay.

(4) A vendor to, promoter of, or other person who receives payment in shares, debentures or money from, a company shall have and shall be deemed always to have had power to apply any part of the shares, debentures or money so received in payment of any commission the payment of which if made directly by the company, would have been legal under this section.

2*[(4A) For the removal of doubts it is hereby declared that no commission shall be paid under clause (a) of sub-section (1) to any person on shares or debentures which are not offered to the public for subscription:-

Provided that where a person has subscribed or agreed to subscribe under clause (a) of sub-section (1) for any shares in, or debentures of, the company and before the issue of the prospectus or statement in lieu thereof any other person or persons has or have subscribed for any or all of those shares or debentures and that fact together with the aggregate amount of commission payable under this section in respect of such subscription is disclosed in such prospectus or statement, then, the company may pay commission to the first-mentioned person in respect of such subscription.]

(5) If default is made in complying with the provisions of this section, the company, and every officer of the company who is in default shall be punishable with fine which may extend to4*[five thousand rupees].

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1. The word "and" omitted by Act 31 of 1965, Section 12 (w.e.f. 15-10-1965).

2. Inserted by Act 31 of 1965, Section 12 (w.e.f. 15-10-1965).

3. Substituted by Act 65 of 1960, Section 22, for "any of its capital moneys" (w.e.f. 28-12-1960).

4. Substituted by Act 53 of 2000, Section 32, for "five hundred rupees" (w.e.f. 13-12-2000).

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Last updated on August, 2016

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