A minimum subscription is a minimum amount a company must raise when issuing capital. The minimum subscription requirement applies to all companies that raise public funds. We have succeeded in raising the minimum subscription amount. In such cases, we may reserve capital raised from investors. Alternatively, we may not be able to successfully obtain a minimum subscription. Therefore, the minimum subscription amount is unreasonable under the Companies Act. In such cases, the company will need to refund the application deposit. Minimum subscription requirements are set out in Section 39 of the Companies Act.
The GoI has pointed out that if a listed company decides to issue capital, the public reaction may be inadequate. The low public response can reduce investor confidence in regulatory mechanisms. Therefore, the capital issue should be stopped in line with investor expectations. If the average person does not get a minimum subscription, you need to cancel the issue. The purpose of Section 39 is to introduce a ban on securities allocation. According to the section, allocations should be banned if the minimum subscription requirements are not met.
The minimum subscription requirement must be applied regardless of whether the company issues debt or equity securities. The requirement for a minimum subscription is determined through a ceiling limit. At present, the Government of India (GoI) has fixed the ceiling limit as ninety percent. The limit will be applied to the total issued capital of the company. The company should collect at least ninety percent of the capital offered to the public. In case the value accumulated amounts to less than ninety percent of the capital issued, the entire amount should be refunded. Cumulative value refers to the amount of capital raised by issuance.
Acceptance of Application Deposit
The application deposit paid as a deposit must be at least 5% of face value. In addition, the company must not collect the deposit application in cash. The company may accept cheques or demand drafts of the application deposit. In such cases, the company must ensure that the cheques or demand drafts received are not overdue items. Funds raised by the company through application deposits must be stored in a separate bank account. Funds may only be used for the purposes stated in the prospectus.
Companies must not use funds to service short-term borrowing obligations or revenue expenditures. The company may have a working capital need that requires immediate payment of funds. In such cases, the company should ensure that no capital is used for payments.
Therefore, funds deposited by investors should only be used to purchase individually distinguishable assets. The application deposit may be less than the par value of the issued capital. In such cases, you need to apply a 90% limit on the number of applications sold. Cheques presented to the company to pay the application deposit may not be successfully cleared. In such cases, the limit should be calculated after deducting the value of the non-cleared Cheques.
The limit should be applied after the default subscribers have been excluded. The default subscriber is someone who has paid the application deposit but has not made any subsequent payments to the principal. The company may provide minimal subscription information in the prospectus.
The statement may indicate a lower ceiling limit than ninety percent. In such cases, the declaration is invalid. Hence, the ceiling limit of ninety percent will continue to apply to the company. Alternatively, the company can specify an upper limit of more than 90%. In such cases, the company is bound by the upper limit
Refund of Application Deposit
- The company will not be able to initiate the allocation of securities until the minimum target subscription has been met. Your company may not have reached your minimum subscription goal. In such situations, the company will be obliged to refund. By law, 100% of the application deposit must be refunded if the minimum subscription amount is not reached. If the company does not refund the deposit, the parties may file a proceeding against the company. The maximum legal period is 3 years.
- The minimum subscription collection deadline is 120 days. The deadline must be calculated from the date of the exhibition. In addition, the minimum subscription amount must be collected within 30 days of the prospectus issuance date. The above deadlines apply only to the receipt of a minimum subscription. Therefore, securities can also be allocated after the deadline.
- If your minimum subscription is not met, you will need to refund your registration deposit. Refunds must be made within 15 days of the completion of issuance. In the event of a delay of more than 15 days, the applicant will be required to repay at an annual interest rate of 15%. The directors of the company must also be responsible for fulfilling their interest obligations. Refunds must be made directly to the applicant’s bank account.
- In the event of default in accordance with the above provisions, the company and default officers will be required to pay a fine of Rs 1,000 per day. Penalties are calculated for the number of days the company is defaulting. However, the maximum fine cannot exceed 1 lakh.