Allotment of share on the date of receipt of cheque_Rights Issue

[Vivek Hegde]

Dear Members,

I have a situation where allotment has to be made on the date of receipt of cheque (current dated). This is under rights issue.

The Company wants to realize the cheque/s based on their fund requirements. The accounting entry will be made on the date of receipt of cheque and not on the date of realization. The statutory auditor is fine with that so long as allotment is made on the date of receipt of cheque.

I know for private placement its mentioned in Section 42 that all monies payable towards subscription of securities under this section shall be paid through cheque or demand draft or other banking channels but not by cash. Does it mean cheque shall be realized.

Your views please.

Warm Regards

CS Vivek Hegde,B.com, FCS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710667

[Jayashree Chandrasekaran]

Dear Vivek,

I am not very comfortable with allotment on date of receipt of cheque....only after it is realised the money is received by the company.

Jayashree

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C.JAYASHREE
PROPRIETOR
S.GANESH&ASSOCIATES
CHENNAI
98840 17120

[Vivek Hegde]

Thank you Madam,

I am also not comfortable. But I am obliged to justify with legal provisions. People will also "where it is written"..:)

Warm Regards

CS Vivek Hegde,B.com, FCS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710667

[CS Simranjeet Singh]

but mam where it is written that money has to be received first for allotment of securities.. kindly update me with the section or rule if any

 

 

With Best Regards?

Simranjeet Singh

Associate Company Secretary

"To know, is to know that you know nothing. that is the meaning of true knowledge."

 

   

On Mon, Mar 9, 2015 at 3:43 PM, Jayashree Chandrasekaran <jayak...@gmail.com> wrote:

[Vivek Hegde]

Thank you Madam,

I am also not comfortable. But I am obliged to justify with legal provisions. People will ask "where it is written"..:)

Warm Regards

CS Vivek Hegde,B.com, FCS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710667

[CS Chandru]

I feel 60 days reckon from the date cheque is received. Bcoz from the investor's prospective, once he issues a cheqonce the share application money is received whether in form of cheque or vire wire transfer, 

Thanks & Regards

CS Chandrashekhar

+91 9743148312

 

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[Vivek Hegde]

Dear Simran,

There is no doubt that allotment can be made only after receipt of money. My query was on the realization of cheque before allotment of shares.

If you remember, institute has taken disciplinary action against our members for certifying the Form 2 without confirming the receipt of share application money. 

Warm Regards

CS Vivek Hegde,B.com, FCS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710667

[CS Chandru]

I feel 60 days reckon from the date cheque is received. Bcoz from the investor's prospective, once he issues a cheque, he is out of payment obligation and entitled to allotment of shares in next 60 days. The company at its option can realize that cheque at a later date but this does not mean, the money is not received by the company. 

Other views solicited. 

Pls ignore my previous incomplete reply. 

[CS Simranjeet Singh]

ok thanks Sir for the clarification.

 

 

With Best Regards?

Simranjeet Singh

Associate Company Secretary

"To know, is to know that you know nothing. that is the meaning of true knowledge."

 

   

[CS Ravi Popli]

As relization of date is a different concept as if cheque would bounce,then in that case company can file the case for cheque bouncing.

[santhosh kumar]

My question is once cheque given means it signifies the receipt of money. It should be encashed then shares to be allotted.

On Mar 9, 2015 9:41 PM, "CS Ravi Popli" <cs.rav...@gmail.com> wrote:

As relization of date is a different concept as if cheque would bounce,then in that case company can file the case for cheque bouncing.

[santhosh kumar]

Mr.chandhru

i did not get the clarity on this.

coz once the cheque is given it has to be en cashed by company at early.. how can a  company keep it for latter date.

this gives ambiguity. 

regards

santhosh

CS.M.Santhoshkumar
"From the man who always has a Good heart ! "

ॐ सर्वे भवन्तु सुखिनः

 

 

[Ravi Popli]

Yes, it will be signifies receipt of money.

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[BalaJi Srivastava]

In my opinion the concept of separate bank account has been launched in order to segregate the funds towards allotment of shares. The Amount lying in the said account will be construed as SAM. Further for being credit it must be realised as well.

I think the literal interpretation ask's for money to be into account and cheque, DD is a mere MODE of this.

Henceforth cheques must be realised. Otherwise the transaction would be sham.

HTS

Thanks and Regards,

Balaji Srivastava

B.Com ACS LLB
Mobile: +91 (0)987-316-9769
Email:bbala...@gmail.com

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On Mon, Mar 9, 2015 at 2:59 PM, Vivek Hegde <vivekhe...@gmail.com> wrote:

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[Dhanush yadav]

Yes
first money has to b credited to account and then it will b adjusted towards allotment.

[CS Chandru]

Dear All,

Please read Supreme Court observations as below. It is viewed that the payment of money is the day when cheque is issued and not the date when the same is encashed.  In case of cheque bounce, this view will not apply since there is no payment effected.

As a good practice, it is recommended to get the cheque encashed immediately on receipt of cheque or prior to allotment of shares i.e. 60 days of receipt of cheque to ensure actual payment of share application money.

Read this- 

When a cheque is issued, what should be considered the date of payment? Is it when the cheque is physically handed over or when it is debited from the drawer's account and credited to the payee's?

Under the Negotiable Instruments Act, 1881, a cheque is an instrument negotiated by delivery. The drawer is discharged when payment is made in due course. In simple terms, this means when the cheque is tendered, there is a presumption that payment would be realised in due course, and, hence, the date of payment is considered to be the date on which the cheque is delivered, regardless of when it is actually presented for payment. This principle would not apply in the event of the cheque getting dishonoured. Thus, the date of tendering is to be considered the date of payment, just like a cash payment. This is the legal interpretation enunciated by the Supreme Court.

In Commissioner of Income Tax, Bombay South, Bombay v/s Ogale Glass Works Ltd [1954 AIR 429], the Supreme Courthad to consider what should be the date of payment when a cheque was issued.

The court considered various English case laws. In Stedman v/s Gooch, it was observed that payment by negotiable instrument is conditional. It means if the negotiable instrument is dishonoured on presentation, the creditor may consider it waste paper and resort to his original demand. The same view was expressed in Felix Hadley & Co v/s Hadley. In Rhokana Corporation v/s Inland Revenue Commissioners, Lord Maugham held the common law rule is to the effect that sending of a cheque in payment of a debt is subject to the subsequent condition that it must be met on presentation. However, the date of payment, if the cheque is duly paid, is the date when it was posted.

Various legal commentaries were also considered. ‘Benjamin on Sale’, eighth edition, states the payment takes effect from the delivery of the bill, but might get defeated due to non-payment at maturity. ‘Byles on Bills’, 20th edition, summarises: "A cheque, unless dishonoured, is payment." This was also expressed in ‘Hart on Banking’, fourth edition, volume one.

The Supreme Court accordingly concluded that even if a cheque is accepted conditionally, i.e. subject to realisation, the legal position would be that the date of payment would relate back to the date when the cheque was issued and not when it was encashed or credited to account.

In the case of K Saraswathy, alias K Kalpana (deceased), by legal heirs versus PSS Somasundaram Chettiar, the Supreme Court observed that payment by cheque is an ordinary incident of present-day life, whether commercial or private, and unless it is specifically mentioned that payment must be in cash, there is no reason why a cheque should not be taken to be due payment if it is subsequently encashed. Relying on the judgement in the above case of Ogale Glass Works, the Supreme Court held that payment by cheque relates back to its date of receipt, and, in law, the date of payment is the date of delivery of the cheque.

[Vivek Hegde]

Thank you Chandru. This is really useful.

Warm Regards

CS Vivek Hegde,B.com, FCS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710667