NONPAYMENT OF SUBSCRIPTION MONEY BY SUBSCRIBERS


A company requires capital to do business. Such capital is infused by subscribers, who can be an individual or a body corporate, by subscribing the shares of the company. A subscriber is a first shareholder of the company and the member of the company as per section 2(55) of the Companies Act, 2013. Each share has a nominal value which is to be paid by such subscriber; the subscription money is to be deposited in the bank account of the company.

A subscriber enters his name, address, occupation and the number of shares to which he subscribed in the Memorandum of Association. By Signing, subscriber enters into a contract with the company and if the subscription money is not received from the subscriber then it will be considered as breach of contract by the subscriber and may attract civil action for this As per section 10(2) of the Companies Act, 2013, all monies payable by any member to the company under the memorandum and articles is a debt due from subscriber to the company, therefore the subscriber cannot refuse to pay the subscription money, once the Memorandum is registered [Metal Constituents Ltd., In re (1902) 1 Ch. 707].

In case of incorporation of a company, the shares are deemed to be allotted on the date of incorporation of Company however the subscription amount is received subsequently. A situation may arise when subscribers to the Memorandum of Association fails to pay subscription money as agreed by them. To tackle this, section 10A was inserted by Companies (Amendment) Act, 2019, which states that every company incorporated after 2nd November, 2018, needs to file a declaration in Form No INC-20A, stating each subscriber to the memorandum has paid the value of the shares agreed to be taken by them, within 180 days of the date of incorporation.

It is clear from the definition of the subscriber, that subscriber will become a member on registration of the company. The name of the subscriber as a member of the company will be entered in the register of Members. Further, pursuant to Section 56 of the Companies Act, 2013, every company shall deliver the certificates of all securities allotted within a period of 2 months from the date of incorporation, irrespective of the fact that subscription money is received or not.

 

Section 10A also prescribes heavy penalties if subscribers to the Memorandum don’t pay the subscription money within 180 days from the date of incorporation, or the officer in charge doesn’t file the return (of subsription money):

  1. A penalty of Rs 50,000 will be levied on the company if it fails to comply with the mentioned requirement, and
  2. Every officer in default shall be liable to a penalty of Rs 1,000 per day for each day during which the default continues subject to a maximum of Rs 1,00,000,
  3. The Registrar may if he has reasonable grounds to believe that the company is not carrying on any business or operations, he may remove the name of the company from the Register of companies by using powers as prescribed under Chapter XVIII.

To conclude, in our opinion, subscriber shall pay the subscription money within 60 days from the date of incorporation.

CS Vikash Kumar Jha

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