Subscription commitments and received application money are separate gates
Section 39(1) of the Companies Act, 2013 prohibits allotment of securities offered to the public unless the prospectus minimum has been subscribed and the application sums for that stated amount have been paid and received through the specified instrument route. A subscription spreadsheet does not by itself establish receipt, and a healthy bank balance does not prove the minimum subscription condition. Official section 39 text.
This guide, checked on 25 October 2026, addresses the Companies Act gate and a closing reconciliation. Actual public offers also require the applicable SEBI framework, issue documents and payment mechanism to be checked. It is not a private-placement checklist or an instruction to apply the statutory baseline unchanged to a live regulated offer.
Read the prospectus minimum and applicable regulatory requirements together
Record the minimum amount stated in the prospectus and the legally relevant subscription position. Separate accepted valid applications, duplicates, rejected applications, withdrawals and other adjustments under the governing issue process. Reconcile quantities and money to the issue’s actual terms; do not automatically declare that every public issue uses one universal subscription percentage merely because a percentage appears in another regulatory context.
Section 39(2) sets application money at not less than 5% of the security’s nominal amount, or the other percentage or amount specified by SEBI through regulations. Nominal amount and issue price are different where there is premium. The baseline calculations below isolate the Act’s arithmetic and expressly assume no different applicable SEBI requirement for that model. They are not a recommendation that a real public offer collect only 5% of face value.
Test the requirement on every security
The wording of subsection (2) refers to every security. Overpayment on one application does not automatically cure an underpayment on another by averaging both together. The applicable offer process determines acceptance, rejection, correction and receipt treatment. Document that treatment and do not use an internally convenient average to bypass the legal test.
For allotment readiness, reconcile the application schedule to the receiving mechanism and retain payment evidence, rejection or correction decisions and the closing control record. Where an actual regulated process uses blocked amounts or another prescribed mechanism, analyse compliance under that framework instead of treating this generic reconciliation as authority to change it.
Unmet conditions require refund review, not an informal extension
Under section 39(3), if the stated minimum and the required application sum are not achieved within thirty days from issue of the prospectus, or the other period specified by SEBI, amounts received must be returned within the prescribed time and manner. The thirty-day reference is not a universal refund-completion deadline. Check the operative SEBI period and governing refund rules for the actual issue; do not borrow a private-placement refund timetable without verifying its scope.
The allotment return is a separate statutory obligation
Subsection (4) requires a company having share capital to file the prescribed return of allotment whenever it makes an allotment of securities. Confirm the actual issue route, prescribed form, deadline and required attachments rather than assuming one filing clock applies to all offers. A timely return cannot retrospectively establish a missing subscription or payment condition.
Subsection (5) provides ₹1,000 for each continuing day of the specified subsection (3) or (4) default, capped at ₹1 lakh per default, for the company and officer in default. Determine the actual default, liable persons and any applicable reduced-penalty provisions before quantifying exposure. The penalty model below assumes no relief and an already established default duration; it does not select the legal due date for an unidentified offer.
Closing-file mistakes
Common errors are using premium-inclusive price as the nominal baseline, averaging deficient payments, counting duplicate applications as subscription, confusing the prospectus period with the refund deadline, and treating the return filing as a cure for substantive allotment defects. Preserve both the issue-level bridge and the security-level exceptions.
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Minimum not achieved
Assume the legally operative prospectus minimum is ₹80,00,000 and valid subscription is only ₹75,00,000. The shortfall is ₹5,00,000. Receipt of the application amounts does not cure that missing subscription gate.
Illustrative example 2: Subscription without required receipts
Assume valid subscription reaches the stated ₹80,00,000 minimum, while application sums required for that minimum total ₹12,00,000. Verified received sums are ₹8,00,000, leaving ₹4,00,000 unreceived. Meeting the subscription figure alone does not permit treating the receipt condition as met.
Illustrative example 3: Nominal amount versus premium
Assume only the Act’s 5% baseline is being illustrated and no different SEBI requirement applies to the model. A security has nominal amount ₹10 and issue price ₹100, including ₹90 premium. The baseline is ₹0.50 per security, not ₹5. For 20,000 securities the baseline calculation is ₹10,000. A real issue must use its actual applicable requirements.
Illustrative example 4: No averaging across securities
In the same isolated baseline model, two ₹10 nominal securities require at least ₹0.50 each. Receiving ₹1 on one and ₹0 on the other gives an aggregate ₹1, but the second security still has a deficient application amount. Aggregate sufficiency does not settle the every-security test.
Illustrative example 5: Application-to-allotment bridge
Assume the governing valid issue process results in 1,00,000 applications in quantity terms, 80,000 securities allotted and 20,000 not allotted. At a stipulated ₹20 received per applied security, application receipts are ₹20,00,000, with ₹16,00,000 attributable to allotted quantity and ₹4,00,000 to the unallotted quantity. Reconcile the latter through the applicable refund or release process; do not treat it as extra issued capital.
Illustrative example 6: Continuing-default ceiling
Assume one established section 39(3) or (4) default continues for 120 days, no reduced-penalty provision applies and a particular person is legally liable. The uncapped model is ₹1,20,000, reduced to ₹1,00,000 by subsection (5). The ₹20,000 difference is a cap effect, not an application-money adjustment.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the issue route | Public-offer facts and applicable SEBI framework. |
| 2 | Read the prospectus minimum | Operative document and specified minimum amount. |
| 3 | Validate subscriptions | Accepted quantities, duplicate checks and authorised adjustments. |
| 4 | Determine application requirements | Nominal amount and any SEBI-specified percentage or amount. |
| 5 | Test every security | Deficient applications and approved correction treatment. |
| 6 | Reconcile receipts | Payment-mechanism evidence and required sums for the stated minimum. |
| 7 | Check the operative period | Prospectus date and actual applicable statutory or SEBI period. |
| 8 | Review unmet conditions | Prescribed refund or release process and evidence. |
| 9 | Prepare the allotment return | Actual form, deadline and route-specific attachments. |
| 10 | Complete the closing file | Allotment, unallotted funds, capital reconciliation and any default analysis. |
Sixteen practitioner FAQs
1. Does section 39(1) concern public offers?
Yes. Its stated allotment prohibition addresses securities offered to the public for subscription.
2. Does subscription alone establish allotment readiness?
No. The required application sums must also meet the receipt condition.
3. Does a bank balance alone prove minimum subscription?
No. Identify the valid subscriptions and their issue linkage.
4. Is the minimum always one universal percentage?
Use the prospectus and applicable regulatory requirements; do not infer a universal figure from this article.
5. Is 5% always the live offer requirement?
No. Section 39(2) expressly recognises other SEBI-specified requirements.
6. Is the Act’s baseline based on issue price including premium?
Its stated 5% reference is to nominal amount, subject to the applicable regulatory override.
7. Can extra money on one security cure another automatically?
The every-security wording requires a proper application-level test, not simple averaging.
8. Do duplicate applications improve subscription coverage?
Validate them under the governing issue process; do not count unsupported duplicates as valid subscription.
9. Does this guide replace an ASBA or other regulated mechanism?
No. The actual payment mechanism and governing SEBI rules must be applied.
10. What does the thirty-day reference measure?
The subsection (3) prospectus-related period, unless another SEBI period applies; it is not automatically the refund deadline.
11. Can a private-placement refund rule be imported casually?
No. Verify the actual route and scope of the governing refund requirements.
12. Does section 39(4) create a filing obligation?
Yes. It requires the prescribed return of allotment for the company having share capital.
13. Can the filing cure a missing payment condition?
No. Substantive readiness and filing compliance are separate questions.
14. Is the penalty amount always ₹1 lakh immediately?
No. The stated daily model and cap apply to the specified defaults, subject to the actual facts and applicable relief.
15. Are unallotted application funds automatically share capital?
No. Reconcile them through the applicable refund or release process.
16. What is the practical sign-off evidence?
A linked subscription, receipt, allotment, unallotted-funds and statutory-filing reconciliation.
Conclusion
Section 39 bars public-offer allotment until the stated minimum is subscribed and the relevant application sums are received. Its five-percent nominal-value baseline is subject to SEBI’s specified requirements; reconcile subscriptions, receipts, allotments and statutory filings separately.