Intention of the Legislature

Section 73 was amended in 1970 after the decision of the Supreme Court in Union of India v. Allied International Products Ltd. (1970) 3 SCC 594.

The notes on clauses of the Companies Amendment Act (1974) say:
“Sec. 73 prescribes a certain time limit for enlistment with the stock exchanges. It also contemplates that enlistment has to be done in all the stock exchanges mentioned in the prospectus and in case of failure to do so, the money received in respect of allotment of shares on the basis of the prospectus should be refunded within a specified time. In Union of India v. Allied International Products Ltd. (1970) 3 SCC 594, the Supreme Court held that if a stock exchange had intimated that it would give further consideration to an application the time-limit contemplated by the section will not operate. It has also held that if any of the stock exchanges mentioned in the prospectus approved the application for enlistment, it would mean sufficient compliance with the provisions of section 73 and the allotment made in pursuance of that prospectus would be valid.
It has been felt that the decision of the Supreme Court referred to above is likely to lead to complications inasmuch as the investing public as well as underwriting institutions are likely to lose the protection hitherto enjoyed by them. Hence s. 73 is being amended suitably.”
(A Ramaiya, Guide to the Companies Act, 16th Ed., 2004, page 890)

The view that s 73 needed to amended after the decision in Union of India v. Allied International Products Ltd. finds support in the Bombay High Court judgment of Deccan Farms & Distilleries Ltd. v. Velabai Laxmidas Bhanji [1979]49CompCas321(Bom) / Para 16 Manupatra which says:
“The language of s. 73 is simple and clear. This section had been amended by the Companies (Amendment) Act, 1974, whereby greater protection was sough to be given to the investing public, underwriting institutions and trade than higher to before. It also became necessary for the government to have a second look at some of the provisions of s. 73 in view of the judgment in Union of India v. Allied International Products Ltd. (1970) 3 SCC 594. Looking to the interest of the investing public, the rate of interest was enhanced from six per cent. to twelve per cent. by the 1974 Amendment, so that the investor received the repayment at a higher interest when the allotment became void under s. 73(1). The 1974 Amendment brought about the substitution of sub-ss. (1) and (5) and insertion of sub-ss. (2A), (2B), (3A), and amendment of some other provisions of s. 73 in order to provide several safeguards, but in real life these provisions can be set at naught as in the present case.”

Being a cardinal rule of interpretation that the intention of the legislature is to be given effect to, it is submitted that the period of ten weeks cannot be extended under any circumstances. Further, all of the stock exchanges must give permission within the period of ten weeks for the issue to be valid particularly since Sec. 73 clearly states in ss (1A) that permission must be given by each of the stock exchanges applied to and that the only way an issue can be ‘saved’ is if an appeal is filed against the refusal of a stock exchange.

This was also the opinion of the Supreme Court in the case of Rishyashringa Jewellery Ltd. v. Stock Exchange, (1995) 6 SCC 714, at page 719 where it was held:
“Thus, where the prospectus held out that enlistment of shares would be in more than one stock exchange the consequence envisaged in sub-section (1-A) of Section 73 ensues to render void the entire allotment of shares unless the permission is granted by each and everyone or all of the stock exchanges named in the prospectus for enlisting the shares. This is the plain meaning of sub-section (1-A) of Section 73. In short, unless permission is granted by each or every one of all the stock exchanges named in the prospectus for listing of shares to which application is made by the company, the consequence is to render the entire allotment void. In other words, if the permission has not been granted by any one of the several stock exchanges named in the prospectus for listing of shares the consequence by virtue of sub-section (1-A) of Section 73 is to render the entire allotment void and the grant of permission by one of them is inconsequential. This construction also promotes the object of insertion of sub-section (1-A) in Section 73 by amendment of the law made to overcome the effect of the decision of this Court in Allied International Products Ltd. (AIR 1951 Supreme Court 251)”

Further, in the case of Raymond Synthetics Ltd. v. Union of India, (1992) 2 SCC 255, in which it was held that the liability of company to repay money received from applicants for shares or debentures in excess of the aggregate of the application money related to the allotted shares and debentures arises only on the expiry of ten weeks from the date of closure of the subscription list, it was held at paras 11 and 28 respectively:
“This provision makes it necessary for the company to state in its prospectus the name of each of the recognised stock exchanges whose permission for listing has been sought by the company. Any allotment of shares will become void if permission is not granted by the stock exchange or each such stock exchange, as the case may be, before the expiry of 10 weeks from the date of the closing of the subscription lists. The validity of the allotment is thus made dependent on securing the requisite permission of each stock exchange whose permission has been sought. The liability to repay the application money arises only upon refusal of the stock exchange to grant the permission sought by the company before the expiry of 10 weeks from the date of closing of the subscription lists. This is clear from Sub-section (1A) read with Sub-section (5). There is a deemed refusal if permission is not granted by the stock exchange before the expiry of 10 weeks from the date of closing of the subscription lists, and upon the expiry of that date, any allotment of shares made by the company becomes void.” …
“Sub-section (1A) postulates that any allotment made becomes void at the end of 10 weeks from the date of the closing of the subscription lists if by that time the requisite permission of the stock exchange has not been obtained. But this consequence is postponed till the dismissal of any appeal preferred under Section 22 of the Securities Contracts (Regulation) Act, 1956 (see the proviso to Sub-section (1A) of Section 73 of the Act). Nevertheless, the permission, if not obtained within 10 weeks, is deemed not to have been granted.”

The Repayment of Money

Section 73 clearly provides for the repayment of money in ss (2), (2A) and (3).

In The Commissioner of Income-tax v. Henkel SPIC India Ltd. [2004]266ITR490(Mad), the Madras High Court held:

“In cases where the failure to allot shares is for reasons other than those already referred to, then also the company would become liable for repayment of money. The grace period of eight days given to the company under section 73(2) for effecting repayment without interest will not apply to cases where liability is incurred for a reason other than those specified in sub-section (2). Applicants in such cases would be entitled to claim interest for the entire period during which the application moneys were wrongfully held by the company. In cases covered by section 73(2), for any delay beyond the first eight days after liability for repayment has been incurred, the company is liable to pay interest at the prescribed rate which under the Rule 4D is 15 per cent.”

Further, Rule 4D of the Companies (Central Government’s) General Rules, 1956 clearly says:
The rates of interest for the purposes of subsections (2) and (2A) of section 73 shall be 15% per annum.