Question

If a company fails to receive minimum subscription within 120 days from the date of issue of the prospectus, in how many days should company refund the amount of application money from the date of issue of Prospectus?

• A. 150 days
• B. 230 days
• C. 130 days
• D. 120 days

Hint:

To remember the timeline:
• 120 days is the "waiting" period to see if the money comes in.
• 10 days more (Total 130) is the "grace" period to return the money to investors if the target wasn't met.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
Minimum subscription is the minimum amount of capital that a company must receive from public applications before it can proceed with the allotment of shares. This is a legal requirement to ensure the company has sufficient funds for its objectives.
Step 2: Detailed Explanation:
According to Section 39 of the Companies Act, 2013, and SEBI regulations:
1. A company must receive the minimum subscription within a specific timeframe (often 30 days for some issues, but the question specifies a 120-day window).
2. If the company fails to receive this amount within the 120-day window, it cannot allot any shares and must refund the entire application money received.
3. The statutory final deadline to return this money is 130 days from the date of issue of the prospectus.
4. This effectively gives the company a 10-day grace period after the subscription window closes to process all refunds.
5. Failure to refund within this 130-day period makes the directors personally liable to repay the money with interest.
Step 3: Final Answer:
The company must refund the application money within 130 days from the date of issue of the Prospectus.
Therefore, the correct option is (c).