Over-Subscription and Under-Subscription

A public issue rarely attracts applications for exactly the number of shares offered. Two opposite outcomes are possible once the issue closes, and the Companies Act, 2013, together with SEBI's regulations, provides the framework within which the company must respond to each.

Over-subscription. Over-subscription occurs where the number of shares applied for exceeds the number of shares actually on offer. A company cannot simply allot every applicant the full number of shares applied for, since the total shares available are fixed; instead, the basis of allotment must be decided in a manner that is fair to all applicants and consistent with SEBI's regulations, which prescribe the method for the category of issue concerned — typically a proportionate (pro-rata) basis for a substantially over-subscribed issue, sometimes combined with a minimum-lot allotment and a lottery for the balance where full proportionate allotment is not practicable for very small applicants, with the basis of allotment finalised in consultation with, and approved by, the designated recognised stock exchange before it is implemented. Once the basis of allotment is finalised, shares are allotted accordingly, and the excess application money for shares not allotted, or the excess over the amount actually due on the shares allotted, must be refunded to the applicants concerned. Refunds of excess application money must be made within the time prescribed by SEBI's regulations; a delay beyond that period attracts interest payable to the applicant for the period of delay, in the same spirit as the interest liability Section 39 fixes for delayed repayment where minimum subscription itself is not received. …