Non-Receipt of Subscription Money Under Companies Act, 2013

Article contains brief discussion about Non-receipt of subscription money by the subscribers at inception stage of the company, time limit for issuing share certificate and bringing subscription money within time frame as per Companies Act 2013 and consequences for non-compliance.

INTRODUCTION:–

The Company is considered as a separate legal entity, which requires Capital to carry out the business and at the time of formation minimum number of members who can act and do contracts on the behalf of the company. These members are termed as “Subscribers”. Subscribers are also considered as first shareholders of the company.

Whereas Companies Act 2013 gives minimum number of required members on formation of the company:-

A. In case of Private Company, minimum numbers are required as members are two.

B. In case of Public Company, minimum numbers are required as members are Seven.

C. In case of One Person Company, minimum numbers are required as members are one.

MEANING OF SUBSCRIBERS & MEMBERS:-

The definition of “Member” is given under Section 2(55) of companies Act 2013 in relation to a company, means-

(I)  The subscriber to the memorandum of the company who shall be deemed to have agreed to become a member of the company, and on its registration, shall be entered as a member in its register of members.

(ii) Every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company;

(iii) Every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository.

Subscribers are those persons whose name is entered in Memorandum of Association and by signing the MOA they are giving consent to take some amount of shares of the company by contributing capital to the entity.

The term “Subscription Money” refers to that amount where subscriber is willing to subscribe shares of the company at a face value and need to deposits the amount in bank of the company.

Earlier there was no time limit prescribed in the Companies Act for depositing the subscription money by the subscribers to the Company, but in the Companies Act 2013 in Section 56 it is mentioned that the Company need to issue the Share certificate within a period of 2 months from the date of incorporation of the Company in case of subscribers to Memorandum of Association, whether the amount has been deposited or not, a share certificate is required to be given.

TIME LIMIT FOR BRINGING IN THE SUBSCRIPTION MONEY AS PER COMPANIES ACT 2013 :-

TIME LIMIT FOR BRINGING IN THE SUBSCRIPTION MONEY AS PER FEMA :-

Some Relevant case laws:-

In Sant Chemicals Pvt. Ltd. Vs. Sant Chemicals Pvt. Ltd. with Aviat Chemicals Pvt. Ltd. and Jagmohansingh Arora and others it has been held that “Section 30 of the 1913 Act, is para materia to section 41 of the 1956 Act”.The subscribers to the memorandum of association become members of the Company on registration/ incorporation of the Company. Entry in the register of members is a matter of procedure and that is to beperformed by the authorised director/secretary post incorporation of the company. The entry in the register of members is for maintenance of records of the Company and mere omission of entry shall not revoke his membership once the Company is incorporated.

In Official Liquidator of the U.P. Oil Mills Company Ltd. Vs Jamna Prasad and Others it has been held that “the words shall be deemed to have agreed to become members of the company” mean that the subscribers of the memorandum of a company are to be treated as having become members of the company by the fact of the subscription.

Consequences of non-payment of subscription money:-

• When the shares are issued by the Company it has right to call the amount from shareholders asper need i.e. either to pay in full or in installments.The board resolution is required to be passed at board meetings for making calls on shares. Thus Company gives 14 days notice to all the shareholders to pay call money and if said amount is not paid within the prescribed time or shareholders are not willing to pay Company has the power to forfeit the shares and reissue them.
• As per section 10A (3) and 248(1)(d) of the Companies Act, 2013, if the Company fails to file Form INC 20A within 180 days from the date of Incorporation, the Registrar may initiate action for removal of the name of the Company from the ROC.
• If company fails to comply section 56 of companies act 2013 than it shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.
• If the subscriber did not make any payment of the shares subscribed to the Company, then debts due from the subscriber should be shown in the balance sheet but there will be no effect on the reduction of the Paid-up capital.

CONCLUSION:-

Thus,every subscriber should fulfill obligation to deposit the number of shares in the bank at the time of incorporation and thereafter so that such person continues to act as a member of the Company until there is an instance of transfer, transmission, surrender of shares of the Company and the same is reflected in the registers of the Company.

Authors-

Jaya Sharma-Singhania, Founder- Jaya Sharma & Associates, Email: jaya@jsa-cs.com

Ayush Maheshwari – Jaya Sharma & Associates, Email : bodha@jsa-cs.com