Meaning of Share application money pending allotment:
In order to understand the meaning of share application money pending allotment, first you need to understand the process of share issue. When any company makes a share issue to general public, investors subscribe to company for share and pay the initial application depending on the issue terms of the company. After the issue is closed and allotment is carried out, investors are allotted shares in following manner:
- If Issue is fully subscribed, then investors are allotted the shares for which they have subscribed.
- If issue is not fully subscribed but subscribed more than 50%, then investors are allotted with shares for which they have subscribed.
- If Issue of shares is over subscribed then, investors are allotted with shares either on pro rata basis or certain class or certain investors are not allotted, and others are allotted with full quantity of there respective subscription.
Hence, share application money means Company receives certain amount from shareholders for allotment of shares.
Now, companies are expected to allot shares or refund the amount of excess share application money received from investors. If companies do not either allot shares or refund the amount to investors, it give rise to share application money pending allotment.
The Companies Act of 1956 did not specifically provided for treatment of share application pending allotment. But companies Act of 2013 does provide for the same.
Now, Companies Act 2013 is applicable from 01/04/2014. So treatment of share application pending allotment on 31/03/2014 is discussed below:
The amount also cannot be converted to loan as the CA 2013 does not permit the conversion or adjustment of such money and Company has to mandatorily refund that application money within 15 days of the date of completion of sixty days.
The provision discussed herein assumes significance as under the CA 2013, there is a separate chapter i.e Chapter 29 which covers punishment where no specific penalty or punishment is provided and also punishment in repeated defaults wherein penalty will extend from Rs.10000/- per offence to a continual penalty of Rs.1000 per day and imprisonment.
The outstanding amount of Share application money pending allotment is to be disclosed on face of Balance Sheet as per Schedule-lll to the Companies Act 2013.