Adjustment of Share Application Money


Well as per New Companies Act, 2013 new provision has been implemented regarding the Share Application Money, pending for allotment.  As per Section 42(6) of the Companies Act, 2013, “any allotment of securities shall be made within 60 days from the receipt of application money and in case the company is not able to allot the securities within the said period of 60 days, it shall repay the application money within 15 days thereafter, failing which it will be required to be repaid with interest at the rate of twelve percent per annum from the expiry of 60th day. Non- repayment within prescribed duration would be considered as default & from the 76th day, the whole application money held by company will be treated as deposit. Non Compliance of the provision results in penalty of Rs. 2 crores.”

  An Expert Opinion on “Share Application Money” can be owned, by clicking on the image.


  • Allot shares or refund the money at the earliest
  • Any money received as advance in the course of ordinary business shall be treated as deposit if goods or services are not provided within 365 days of receipt.
  • If Company is private limited, penalty will attract since it can’t accept deposit other than from Directors w.e.f. 1-4-2014.
  • Private Companies and an un-eligible public company will have to file a return of deposits on 30th June if they have any deposit received from person other than director.
  • If the Share application amount is pending for more than 7 years, then the money has to be transferred to ‘Investor Education Protection Fund’ and once remitted money is not recoverable.
  • A private Company and an un-eligible public company cannot accept loans or deposits from any person other than its Directors.  For accepting any loan from person other than Directors the company will have to comply with all the conditions mentioned including creation of reserve account, deposit insurance, credit rating, etc.
  • As of now if the private companies have any loan received from any person other than director then they have to file a statement with the Registrar within 3 months of the commencement of the Act i.e. 30th June 2014 in Form DPT-4. The Companies Acceptance of Deposit rules are not applicable to:
  1. A Banking Company,
  2. A Non Banking Finance Company registered with RBI,
  3. A Housing Finance Company registered with National Housing Bank,
  4. Any other Company which the Central Government may specify.

So, this has really affected the Indian Companies (specially the private limited companies). So now the only way to get rid of this situation is to allot the shares to the shareholders or refund back the money. But it is really a great threat to the directors and the company to manage such a huge fund within the  time prescribed by the Companies Act, 2013.

Situations & Remedies:

Well, its a great matter of fact but what I want to share some of the modes to get rid of this situation/obstacles. I am going to advice some of the situations where my ideas can be implemented:

  1. Where a company has its SAM pending for allotment to its Subsidiary companies
No need to refund the money or allot, the company can transfer that amount to LOAN account and shall have to pay interest as prescribed by RBI.
  1. Where a company has its SAM pending for allotment from its own Group Companies
In that case just change the Shareholding of those different companies and make one company as ultimate holding company and then can follow option 1.
  1. SAM Pending from the Group Subsidiary Companies

Different options can be availed:

  • Refund the money,
  • Allot the shares,
  • Merge the company,
  • Takeover the company, by any other Subsidiary company,
  • Convert into LLP.
  • Follow the Option mentioned in Situation 2.
  1. Where specially the Company Poses the “Leasehold Land”

All the above options can be availed along with

  • Execution of Joint Venture Aggrement
  • Repay the amount of Creditors and bring from debtors to payback the SAM amount.
  1. For Outsider Companies
There’s only solution to this situation,  Refund the money


  • CS Appointment shall be mandatory if “Paid up Capital > 5,00,00,000” ;
  • Conversion from Share Application to Loan Account , section 269SS may be applied being book entry through there are court cases in favour of Assessee;
  • As per New Rules of Deposit Rule, if no transaction is made for 365 days, that will be treat as deposit & deposit provision will be applicable ;
  • Section 2(22)(e) may attract being loan to a concern in which shareholder is having substantial interest;
  • Interest provision for Outside companies ;
  • Debenture taken from Subsidiary company to group company is prohibited U/S 185.

Similarly, there are various other cases of “Share Application Money”. Solution for each of them will be based on the financial structure of the company.

It will be pleasure giving you remedies for each of those cases.

   For More, you can refer the Complete Guide on Companies Act,2013 with Rules.


Happy Reading!!

Shushant mallik

Published by

Shushant mallik ( Chartered Accountant & Cost Accountant )

Shushant is a Chartered Accountant and a Cost Accountant. He has secured All India Rank-34 in CMA Final Exams. He is a Financial Controller at Mount Meru Soyco Limited, Rwanda. He is a administrator of this site . In his spare time he hang out with his friends and discuss about the current issues in market. You can find his latest blog posts at and at his facebook profile.

3 thoughts on “Adjustment of Share Application Money”

  1. I have ready you article on share application money. you have given very good option for companies under different situation. But I have a question.

    Can a company convert share application money into loan.

    Share application money was taken by the company before March 14. Now it wants to convert it into unsecured loan from Directors in the FY 15-16. Can company do it? Is there any restriction on it as per Companies Act, 2013.


    1. Greeting !! Nitin,

      Well, the answer to your question, is similar to the case no.1, i.e. if the company (subsidiary) received from holding then, only the company can retain the amount as “Loan” and has to pay interest as per RBI norms. But if it has not received from its holding company then it have to either repay the money with interest @12%.

  2. Just want to know if the holding company is foreign company and Share application amount received in foreign currency. In this situation can we convert the SMA to LOAn

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