Query on Allotment

[subrahmanya hegde]

Dear All,

 

Company A has acquired a business (Includes furnace, Building, land and other current assets & liabilities pertaining to the said business) from Company B on a going concern basis for a slump sale consideration during the year 2008-09. The payment is yet to be made and appearing in the books of Company A under “Current liabilities”

 

The Company now proposes to allot equity share to some extent and balance by paying cash.

 

Can the aforesaid allotment be considered as allotment for cash? Please specify any decided case, if any.

 

Thanks in advance

 

Regards

Subrahmanya Hegde

[Vivek Hegde]

Dear Subramanya

 

Here is an attahment which says if shares are alloted against a bonafide debt due...it is considered as allotment for cash..

 

rgds

 

Mob: 9019756940

[subrahmanya hegde]

Dear Vivek,

 

Thanks for the same.

 

It is bonafide debt. However, Companies can avoid the procedure to be followed in case of – “Allotment for other than cash” by purchasing the assets and show them as creditors in their books and finally allot equity share which is being treated as allotment for cash. ?? Is it allowed ?

 

Regards

Subrahmanya Hegde

[Vivek Hegde]

Dear Subramanya

 

Very good query...I may not be able to answer...

 

I think malafide intention to create bonafide debt is not permissible....we hav to ask the Dept only..

 

Learned members views solicited...:)

 

rgds

 

On 7/16/09, subrahmanya hegde <spheg...@gmail.com> wrote:

Dear Vivek,

 

Thanks for the same.

 

It is bonafide debt. However, Companies can avoid the procedure to be followed in case of – “Allotment for other than cash” by purchasing the assets and show them as creditors in their books and finally allot equity share which is being treated as allotment for cash. ?? Is it allowed ?

 

Regards

Subrahmanya Hegde

 

 

On Thu, Jul 16, 2009 at 6:28 PM, Vivek Hegde <vivekhe...@gmail.com> wrote:

Dear Subramanya

 

Here is an attahment which says if shares are alloted against a bonafide debt due...it is considered as allotment for cash..

 

rgds

 

On 7/16/09, subrahmanya hegde <spheg...@gmail.com> wrote:

Dear All,

 

Company A has acquired a business (Includes furnace, Building, land and other current assets & liabilities pertaining to the said business) from Company B on a going concern basis for a slump sale consideration during the year 2008-09. The payment is yet to be made and appearing in the books of Company A under “Current liabilities”

 

The Company now proposes to allot equity share to some extent and balance by paying cash.

 

Can the aforesaid allotment be considered as allotment for cash? Please specify any decided case, if any.

 

Thanks in advance

 

Regards

Subrahmanya Hegde

 

Mob: 9019756940

Mob: 9019756940

[csarengarajan]

Kindly go through Ramaiah one circular will be there for your  query. It will solve your problem. You can also go for allotment for cash route. I will send you tommorrow. There is a departmental clarification is already there

 

Regards

 

[Rajesh Warrier]

 

Dear Subramanya,

 

Extract of the letter from MCA.  No. 8/32(75)/77 - CL-V, dated 13.03.1978

 

The department is advised that if consideration for allotment of shares is actual cash, then the allotment would be for cash. "Cash" is actual money or instrument, e.g, cheques which are generally used and accepted as money. If consideration for allotment is not flow of cash but some other mode of payment, e.g, cancellation of a genuine debt or outstanding bills, for goods sold and delivered, marketable securities, time deposits in banks, then allotment cannot be treated as for cash.

 

Thus its clear that in terms of the above letter, allotment to a person in liue of a debt cannot be treated as allotment for cash as there is no cash flow in such allotment. Allotment for cash shoiuld result in inflow of cash or cash equivalent.

--
Thanks
Regards
Rajesh A
Company Secretary
Kochi
Mob: 09846874314

[Nithya Jayakumar]

Dear Rajesh,

 

The letter that you have reproduced is actually of 1969, that isLetter No.8/4(75)/69-CL-V dated 18 November 1969.  Subsequently the Department has come out with letter No.8/32(75)/77-CL-V, dated 13 March 1978, the text of which is as follows:

 

The views conveyed in Department's Circular letter No.8/4(75)/69-CL-V dated 18 November 1969 have since been re-examined.  The Department is now of the view taht the allotment of shares by a company to a person in lieu of a genuine debt due towards him is in perfect compliance with the provisions of Sec 75(1).  In this connection it is clarified that the act of handing over cash to the allottee of shares by a company in payment of the debt and the allottee in turn returning the same cash as payment of shares allotted to him, is not necessary for treating the shares as having been allotted for cash under the above section of the Act.  What is required is to ensure that the genuine debt payable by a company is liquidated to the extent of the value of shares.

 

Regards

J. Nithya 

[raja karthik]

Dear Rajesh,

 

The circular no. u have mentioned is right.. but the content is of old circular [ie. Circular letter No. 8/4/69, dated 18.11.1969]

 

The actual content is as below..

 

The department is now of the view that the allotment of shares by a co. to a person in lieu of a genuine debt due to him is in perfect compliance of the provisions of Section 75 (1). In this connection it claified that the act of handing over cash to the allottee of shares by a company in payment of the debt and the allottee in turn returning the same cash as payment for the shares allotted to him is not necessary for treating the shares as having been allotted for cash. What is required is to ensure that the genuine debt payable by a company is liquidated to the extent of the value of shares. 

 

 

Regards

Karthik

 

[Rajesh Warrier]

Sorry friends.......just misread it.............and thanks for the correction.........

[CS. Dattatri H M]

Dears,

 

Very interesting question. In my opinion, such allotment can be treated as allotment for cash.

 

1. The question of malafide comes up only when there is an ulterior benefit to the company in showing the transaction as on cash basis or other than cash basis. Here, the filing is only a procedural requirement and I can not see any major benefit to the company by showing allotment as for "other than cash". Difference in opinion on grey areas can not be labeled as 'malafide'

 

2. Company has purchased business. This creates a liability to pay. Assume, company makes this payment in cash. What next? Same cash has to flow back to the company for allotment of shares. How do you justify this double work? see below the extracts copied from Ms Nithya's mail:

 

"....it is clarified that the act of handing over cash to the allottee of shares by a company in payment of the debt and the allottee in turn returning the same cash as payment of shares allotted to him, is not necessary for treating the shares as having been allotted for cash under the above section of the Act.  What is required is to ensure that the genuine debt payable by a company is liquidated to the extent of the value of shares..."

 

Thanks & Regards, 

 

Dattatri

 

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From: csmy...@googlegroups.com [mailto:csmy...@googlegroups.com] On Behalf Of raja karthik
Sent: Friday, July 17, 2009 10:34 AM
To: csmy...@googlegroups.com
Subject: [CSMysore] Re: Query on Allotment