Issue of “ISSUE” of Share Certificate

Every company limited by shares issues shares and share certificates to its shareholders. A share certificate is prima facie evidence of the title of shares in the company. The share certificate issued under the common seal is evidence to the world that the title of shares belongs to the member named on it, but it is not a warranty of title by the company issuing it.

This article focuses on three key points:

• The issue of Share Certificates to subscribers pursuant to Section 56 of the Companies Act, 2013 (corresponding to Section 84 of the Companies Act, 1956).
• The consequences of not issuing a Share Certificate within two months from the date of incorporation.
• How a company should deal with non-receipt of subscription money from subscribers?

Regulatory Framework for Issuance of Share Certificates

As per the Companies Act, 2013, the following provisions govern the issuance of share certificates:

• Section 2(55) – Member: A subscriber to the memorandum is deemed to have agreed to become a member and is entered as such in the register of members upon registration.
• Section 2(84) – Share: A share refers to a unit of share capital in a company and includes stock.
• Section 46(1) – Certificate of Shares: A share certificate issued under the common seal (if any) of the company or signed by two directors or by a director and the Company Secretary (where applicable) serves as prima facie evidence of the title of the person to such shares.
• Section 56(4)(a) – Transfer and Transmission of Securities: Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred or transmitted—

(a) within a period of two months from the date of incorporation, in the case of subscribers to the memorandum;

Timelines for Issuance of Share Certificates

As per section 56 of companies act 2013, share certificate shall be issued in following manner: –

Important Note: If the securities are dealt with in a depository, the company must intimate the depository immediately upon allotment.

Issue of Share Certificate Without Receipt of Subscription Money

Section 10A of the Companies Act, 2013, which pertains to the commencement of business, requires every subscriber to bring in the subscription money within 180 days of incorporation. However, irrespective of whether the subscriber has deposited the subscription money, the company must issue a share certificate within a period of two months from the date of incorporation. This means that while a shareholder has up to 180 days to deposit the subscription money, the company is statutorily bound to issue the share certificate within a period of two months from the date of incorporation. The requirement ensures that share certificates are issued promptly, preventing any ambiguity regarding share certificate issuance.

Analysis of recent ROC Adjudication Order

After plain reading of above law, we can understand that Share Certificate shall be issued within two months of incorporation of company to the subscriber to MOA. Now the question remains that whether company is mandatorily required to issue share certificate even the subscription money has not been received by the company.

In the recent case of T. Forrest & Sons India Private Limited[1], the company filed a suo-moto adjudication application under Section 56(6) for violating Section 56(4)(a) by delaying the issuance of share certificates by 17 days beyond the prescribed period of two months from incorporation. The company had initially applied for compounding under Section 441, but the Regional Director rejected it, citing that the matter required adjudication under Section 56. Consequently, the ROC imposed a penalty of ₹25,000 on the company and its officers under Section 56(6), considering the company qualified as a Small Company under Section 2(85) of the Act, thereby benefiting from a reduced penalty under Section 446B.

Similarly, in the case of Tejas Cargo India Limited[2], the company failed to issue share certificates to its subscribers within the stipulated two months due to a delay of 74 days in receiving share application money. The company requested leniency, but since the law prescribes a fixed penalty, the ROC Delhi imposed a penalty of ₹50,000 each on the company and its officers under Section 56(6). Unlike T. Forrest & Sons, Tejas Cargo India Limited did not qualify as a Small Company, making it ineligible for penalty reduction under Section 446B.

In both these cases, the companies argued that the delay in issuing share certificates was due to non-receipt of subscription money from subscribers. However, the law is clear that a company cannot withhold issuing share certificates on this basis. As per the Companies Act, 2013, if the subscriber fails to remit the subscription amount, the company has the right to take action under its Articles of Association, including making calls for the unpaid amount and, if necessary, forfeiting the shares. Nonetheless, the company must issue share certificates within two months from the date of incorporation, irrespective of whether the subscriber has paid the subscription money. The adjudicating authorities emphasized that procedural lapses or financial constraints do not exempt companies from complying with the statutory timeline.

Penalty Provision

As per Section 56(6) of the Companies Act, 2013, if a company fails to issue share certificates within the prescribed time, the company and every officer in default shall be liable to a fixed penalty of Rs. 50,000 each. Unlike the earlier provisions, there is no maximum cap beyond this penalty under the updated law.

However, under Section 446B, small companies and start-ups are eligible for a reduced penalty. In such cases, the penalty shall be reduced to Rs. 25,000 for the company and Rs. 25,000 for each officer in default.

How Should a Company Deal with Non-Receipt of Subscription Money from Subscribers?

In cases where a subscriber does not pay the subscription money, the company must send call notices requesting payment. The Articles of Association typically empower the Board to make calls upon members for unpaid money on their shares. If a member fails to pay a call, the Board can issue a notice requiring payment within 14 days. If the shareholder still does not comply, the company may proceed with the forfeiture of shares. This mechanism ensures that companies can recover unpaid capital and maintain financial integrity.

Table F of Schedule I of Companies Act, 2013

• Article 13 – Calls on share: The Board may, from time to time, make calls upon the members in respect of any monies unpaid on their shares (whether on account of the nominal value of the shares or by way of premium) and not by the conditions of allotment thereof made payable at fixed times.
• Article 28 – Forfeiture of shares: If a member fails to pay any call, or instalment of a call, on the day appointed for payment thereof, the Board may, at any time thereafter during such time as any part of the call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued.
• Article 29: The notice aforesaid shall—
  (a) name a further day (not being earlier than the expiry of fourteen days from the date of service of the notice) on or before which the payment required by the notice is to be made; and
  (b) state that, in the event of non-payment on or before the day so named, the shares in respect of which the call was made shall be liable to be forfeited.
• Article 30: If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may, at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect.

Case Law: C.J. Mathew vs. Greendot Hotels & Resorts (India) (P.) Ltd. [2018] 97 taxmann.com 416 (NCLT – Chennai) [02-08-2018]

In this case, the petitioner, C.J. Mathew, was a subscriber to the memorandum of association and claimed to have paid for 25,000 equity shares in cash. However, the company did not have any formal bank account at that time, and the petitioner failed to provide documentary proof of the payment. Later, the company forfeited his shares due to non-payment of subscription money and removed his name from the register of members.

The petitioner challenged the forfeiture, arguing that he had fully paid for the shares and that his removal was illegal. However, the tribunal observed that:

• There was no proof that he had actually paid the subscription money.
• He failed to maintain financial records or show receipts for the cash payment.
• The company had properly followed the process outlined in its Articles of Association by issuing call notices and, upon non-payment, legally forfeiting the shares.

The NCLT upheld the company’s right to forfeit the shares and ruled that since the petitioner had not established his payment, he was no longer a shareholder and could not invoke oppression and mismanagement claims under Sections 241 and 242 of the Companies Act, 2013. This case reinforces the principle that while companies must issue share certificates within two months, they also have the right to take action against shareholders who fail to pay for their shares.

CONCLUSION

Share certificates are critical documents that serve as legal proof of share ownership. Companies must adhere to the statutory timeline for issuance to avoid penalties and legal repercussions. Even if the subscription money is not received within the prescribed period, share certificates must still be issued within two months of incorporation. If the subscriber defaults on payment, the company can take necessary action under its Articles of Association, such as calling for payment or forfeiting shares. However, delaying share certificate issuance is not an option under the law.

Notes:-

[1] ROC Uttar Pradesh, Order ID: 07/01/ADJUDICATION-56(6)/T. FORREST/2024, under Section 454 of the Companies Act, 2013, dated 2024, in the matter of T. FORREST & SONS INDIA PRIVATE LIMITED.

[2] ROC Delhi, Order ID: PO/ADJ/01-2025/DL/00052, dated 15/01/2025, under Section 454 of the Companies Act, 2013.

Authors:

Dr. (Adv.) Nipun P. Singhvi

CS Kumar Pal Mehta