Minimum Subscription

Minimum subscription is the least amount of capital, stated in the prospectus by the Board, that the company considers necessary to meet the specific objects the issue was raised for — the cost of the project or asset to be acquired, preliminary expenses, working capital requirements, and repayment of any money borrowed for these purposes. The purpose behind fixing and disclosing this figure is investor protection: a company should not be permitted to commence an undertaking, or to keep public money locked into an under-funded venture, on the strength of an issue that eventually raises far less than the minimum needed to actually carry the project through.

Section 39(1) of the Companies Act, 2013 makes this a binding legal condition rather than a mere disclosure: no allotment of securities offered to the public for subscription may be made unless the amount stated in the prospectus as the minimum subscription has been subscribed, and the sums payable on application for the amount so stated have been received by the company (through a mode permitted under the Act, generally a banking channel). If minimum subscription is not received within the time period prescribed under the rules made under the Act, the company is barred from proceeding with allotment altogether — allotment made in breach of this condition is an irregular, void allotment.

Where minimum subscription is not received within the prescribed period, Section 39(3), read with the Companies (Prospectus and Allotment of Securities) Rules, 2014, requires the company to repay, without interest, all money received from applicants within the time specified by rule. If the amount is not repaid within that time, every officer of the company who is in default becomes liable to repay the money with interest at the rate prescribed by rule (a rate the rules currently fix at 15% per annum) for the period of delay — a deliberate deterrent designed to make sure a company that has failed to attract the capital it said it needed does not simply sit on investors' money while deciding what to do next. …