Section 39 of the Companies Act, 2013: Allotment of Securities by a Company

Section 39 of the Companies Act, 2013 regulates important conditions for allotment of securities offered to the public, refund where the required minimum subscription is not received, filing of the return of allotment, and the penalty for specified defaults. For listed and proposed-to-be-listed issues, the Companies Act requirements operate together with the applicable SEBI regulations.

Meaning and scope of Section 39

Allotment of securities is the act by which a company appropriates or assigns securities to applicants in accordance with the applicable issue and corporate law requirements. Section 39 appears in Chapter III of the Companies Act, 2013, dealing with prospectus and allotment of securities.

The expression securities is used in the Companies Act with reference to the meaning assigned under the Securities Contracts (Regulation) Act, 1956. Depending on the nature of the issue, other provisions of the Companies Act, the Companies (Prospectus and Allotment of Securities) Rules, 2014, and SEBI regulations may also apply.

Section 39 explained

Section 39(1) - Minimum subscription before allotment

No allotment of securities offered to the public for subscription can be made unless the amount stated in the prospectus as the minimum amount has been subscribed and the application sums for that amount have been paid to and received by the company in the manner contemplated by the provision.

This requirement protects the integrity of a public issue by preventing allotment where the minimum funding condition stated for the offer has not been met.

Section 39(2) - Amount payable on application

The Companies Act states that the amount payable on application on every security shall not be less than five per cent of the nominal amount of the security, or such other percentage or amount as may be specified by SEBI by regulations. Accordingly, a public issue subject to SEBI regulation must also satisfy the applicable SEBI requirements in force for that issue.

Section 39(3) - Refund where minimum subscription is not received

If the stated minimum amount is not subscribed and the required application sum is not received within 30 days from the date of issue of the prospectus, or within another period specified by SEBI, the amount received under Section 39(1) must be returned within the prescribed time and manner.

For a SEBI-regulated public issue, the current SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 should be checked because they prescribe issue-specific minimum subscription, allotment and refund requirements.

Section 39(4) - Return of allotment

Whenever a company having share capital makes an allotment of securities, it must file a return of allotment with the Registrar of Companies in the prescribed manner. The prescribed return is Form PAS-3.

Section 39(5) - Penalty for specified default

Where there is a default under Section 39(3) or Section 39(4), the company and every officer in default are liable, for each default, to a penalty of Rs. 1,000 for each day during which the default continues or Rs. 1,00,000, whichever is less.

Return of allotment: Form PAS-3

Rule 12 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 prescribes the return of allotment contemplated by Section 39(4). For a company having share capital making an allotment of securities, the return is filed with the Registrar in Form PAS-3 with the prescribed fee.

Section 39 and SEBI-regulated public issues

Section 39 itself recognizes SEBI's regulatory role in relation to public issues. Listed issuers and issuers proposing to list specified securities should therefore read Section 39 together with the current SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and other applicable securities laws.

The SEBI ICDR Regulations include detailed rules concerning minimum subscription, application money, allotment, refund, issue procedure and related investor-protection requirements. Because these regulations are amended from time to time, the latest consolidated SEBI text should be checked for a live transaction.

Penalty for non-compliance under Section 39(5)

The penalty provision is linked specifically to default under sub-section (3), concerning return of application money where the statutory conditions are not met, and sub-section (4), concerning filing of the return of allotment.

Practical compliance checklist for allotment

• Identify whether the issue is a public offer, rights issue, private placement, preferential issue or another permitted mode.
• Confirm the board and shareholder approvals required for the particular issue.
• Check the prospectus or offer-document requirements and the stated minimum subscription, where applicable.
• For a public issue, verify the current SEBI ICDR requirements applicable to application money, minimum subscription, allotment and refund.
• Make the allotment through the competent corporate authority and maintain the supporting allotment records.
• File Form PAS-3 within the timeline applicable to the particular mode of allotment.
• Update the register of members or other relevant security-holder records and complete consequential corporate and depository compliances, as applicable.

Official legal resources

For the current statutory and regulatory text, refer to the official sources below:

• Ministry of Corporate Affairs - Companies Act, 2013
• Ministry of Corporate Affairs - Form PAS-3 Instruction Kit
• SEBI - ICDR Regulations, 2018, consolidated text

Updated: 16 September 2026. This page is a general legal information resource. For a specific securities issue, verify the latest Act, Rules, MCA filing requirements and applicable SEBI regulations before filing or allotment.