Share Application Money or Deposit? NCLT Examines the Consequences of Non-Allotment and Non-Refund

The NCLT Kolkata examines when money received towards proposed share allotment assumes the character of a deposit where shares are not allotted and the application money is not refunded within the prescribed timelines.

Case Reference

Case: Rahul Maroo v. Bruck Pharma Private Limited
Company Petition: C.P. No. 13/KB/2024
Forum: NCLT Kolkata Bench, Court-III, Single Bench
Provision invoked: Section 73(4) of the Companies Act, 2013
Order pronounced: 31 July 2026
Coram: Shri Cheekati Radha Krishna, Member (Judicial)

Background

The petitioner had advanced an aggregate amount of ₹2.60 crore to the respondent company in 2017 in connection with a proposed investment and allotment of shares.

The parties subsequently could not agree upon the valuation of the shares. According to the petitioner, it was thereafter mutually decided that the amount would be treated as financial assistance and repaid. The respondent's ledger reflected ₹2.60 crore as due to the petitioner as on 1 April 2018.

However, no shares were ultimately allotted against the amount and the money was not refunded to the petitioner. Following subsequent proceedings and correspondence between the parties, the petitioner approached the NCLT under Section 73(4) of the Companies Act, 2013, seeking repayment together with penal interest and consequential action.

Earlier Proceedings under the IBC

Before approaching the Tribunal under Section 73(4), the petitioner had initiated proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).

The petition was dismissed by the NCLT and the dismissal was subsequently upheld by the NCLAT. An appeal before the Supreme Court was later withdrawn, with the petitioner opting to pursue an appropriate remedy for recovery of the amount.

This procedural history gave rise to an important question in the subsequent Companies Act proceedings:

Does a finding concerning “financial debt” under the IBC determine whether the same amount can constitute a “deposit” under the Companies Act?

The Tribunal answered this in the negative.

Issues Before the Tribunal

The NCLT identified three principal issues:

1. Whether the petition was filed within the period of limitation;
2. Whether the Tribunal had territorial jurisdiction; and
3. Whether the amount of ₹2.60 crore advanced to the company constituted a deposit.

The third issue assumes particular significance from a corporate compliance perspective.

When Does Unallotted Share Application Money Become a Deposit?

The Tribunal examined Section 2(31) of the Companies Act, 2013 together with Explanation (a) to Rule 2(1)(c)(vii) of the Companies (Acceptance of Deposits) Rules, 2014.

The Rule, as reproduced in the order, provides that where securities for which application money or advance has been received cannot be allotted within 60 days from the date of receipt, and such amount is not refunded within 15 days from completion of the 60-day period, the amount is to be treated as a deposit.

In the present case, the Tribunal found that the ₹2.60 crore had been paid towards share allotment. However, no shares were allotted against the investment and the amount was also not refunded within the prescribed period.

Consequently, the Tribunal held that, by operation of law, the amount lost its original character and assumed the nature of a deposit.

Can Non-Compliance with Section 73 Prevent the Amount from Becoming a Deposit?

The respondent argued that the amount could not be regarded as a deposit because the requirements prescribed under Section 73(2) had not been complied with.

The Tribunal rejected this contention.

It observed that non-compliance with the statutory conditions may expose the company to consequences for such non-compliance, but does not determine whether the amount itself falls within the character of a deposit under the applicable statutory provisions.

The ruling therefore brings out an important distinction: non-compliance with the provisions governing deposits cannot, by itself, be relied upon to contend that an amount does not constitute a deposit.

“Financial Debt” under the IBC and “Deposit” under the Companies Act – Distinct Statutory Tests

The respondent relied upon the earlier NCLT and NCLAT proceedings under Section 7 of the IBC.

The Tribunal distinguished those proceedings.

It observed that the earlier proceedings concerned whether the ₹2.60 crore constituted a “financial debt” under Section 5(8) of the IBC. The question in the present proceedings was whether the amount constituted a “deposit” under Section 2(31) of the Companies Act read with the applicable Deposit Rules.

Accordingly, the earlier decisions did not determine the issue arising under Section 73(4).

The ruling highlights a broader principle:

The characterisation of a transaction under one statute does not necessarily determine its character under another.

A transaction therefore needs to be examined independently against the definitions and requirements of the legislation under which the particular issue arises.

The Limitation Question

The respondent contended that the petition was barred by limitation since the amount had originally been advanced in 2017.

The Tribunal did not accept this contention.

It observed that there was no material indicating an infringement, or even a threat of infringement, of the petitioner's rights at the time of the original disbursement. According to the Tribunal, the subsisting liability was first unequivocally denied by the respondent in its reply dated 11 August 2021 to the petitioner's legal notice.

Relying upon Article 137 of the Limitation Act, 1963 and the Supreme Court decision referred to in the order, the Tribunal held that the right to sue accrued upon such denial.

Since the application under Section 73(4) was filed on 14 January 2024, it was held to be within the period of limitation.

Territorial Jurisdiction

The respondent had shifted its registered office from West Bengal to Maharashtra and consequently questioned the jurisdiction of the Kolkata Bench.

The Tribunal referred to the constitution of a Special Single Bench at Kolkata to hear matters relating to Section 73(4) and to the earlier transfer of the present petition to that Bench.

It accordingly held that it possessed jurisdiction to adjudicate the petition.

Alleged Adjustment Against Transactions Involving Other Entities

The respondent also contended that the ₹2.60 crore had effectively been repaid or adjusted through transactions involving other entities.

The Tribunal did not accept this contention.

Among other factors, it noted the separate legal identity of the petitioner and the entity against whose transactions adjustment was claimed, and the fact that the petitioner was not a party to the relevant settlement arrangement.

The Tribunal also considered the respondent's subsequent conduct inconsistent with its contention that the amount had already been adjusted or repaid.

Consequences Ordered by the NCLT

Having held that the ₹2.60 crore constituted a deposit, the Tribunal directed the respondent company to refund ₹2,60,00,000 together with penal interest at 18% in accordance with Rule 17 of the Companies (Acceptance of Deposits) Rules, 2014 till the date of payment.

The amount was directed to be paid within 30 days from receipt of the order.

The Tribunal additionally imposed the following fines:

The fines were directed to be paid to the Ministry of Corporate Affairs.

SSB Perspective

The significance of the ruling extends beyond the recovery of ₹2.60 crore and the monetary consequences imposed by the Tribunal.

1. Share application money cannot remain indefinitely in that character

Money received towards a proposed allotment of securities is subject to statutory timelines.

Where securities are not allotted within the prescribed period and the amount is also not refunded within the stipulated refund window, the amount may acquire a different statutory character.

The nomenclature appearing in the company's books cannot, by itself, preserve its original character where the statutory framework provides otherwise.

2. Compliance needs to be monitored from the date of receipt

The relevant statutory timeline is linked to the date of receipt of the application money.

Companies should therefore monitor pending share application money transaction-wise and receipt-wise rather than merely examining the aggregate balance appearing in the financial statements at year-end.

3. Accounting nomenclature does not determine legal character

An amount may continue to appear in the books under a particular description, but its treatment under company law ultimately depends upon the applicable statutory provisions and underlying facts.

This distinction is relevant not only for companies and their directors but also for professionals reviewing corporate records and financial statements.

4. Non-compliance cannot necessarily become a defence

An interesting aspect of the ruling is the Tribunal's rejection of the argument that absence of compliance with Section 73(2) meant that the amount could not constitute a deposit.

The ruling indicates that a failure to comply with the statutory framework cannot necessarily be relied upon to avoid the consequences that may arise under that very framework.

5. Statutory characterisation is legislation-specific

The distinction drawn between “financial debt” under the IBC and “deposit” under the Companies Act is equally significant.

The same underlying transaction may require independent examination under different statutes. A conclusion reached under one statutory regime should therefore not automatically be transplanted into another.

Practical Takeaways

Track share application money by date of receipt. The statutory timeline should not disappear within a consolidated ledger balance.

Monitor allotment and refund timelines. Where securities are not allotted within the prescribed period, the consequential refund requirement should be addressed promptly.

Do not allow unresolved investment arrangements to remain indefinitely in the books. Continuing negotiations regarding valuation or investment terms do not, by themselves, suspend statutory consequences.

Review outstanding share application money during audit and financial closure. Its legal character may require examination independently of the accounting nomenclature used.

Examine each statutory framework independently. Companies Act, IBC and other regulatory consequences arising from the same transaction may involve different statutory definitions and tests.

Conclusion

The ruling demonstrates that money originally received towards a proposed share allotment may acquire a different statutory character where the conditions governing such receipt are not fulfilled.

For share application money, therefore, the statutory timelines governing allotment and consequential refund are not merely procedural milestones. Non-allotment coupled with non-refund within the prescribed framework may alter the legal character of the amount and expose the company and persons responsible to significant consequences.

The broader lesson from the ruling can perhaps be expressed simply:

The name given to an amount records its intended character. Compliance determines whether that character survives.

Publication Details

Publication: SSB Corporate Law Insights
Reference: SSB-CLI-2026-001
Published by: SSB & Associates, Chartered Accountants
Author: SSB Editorial Team
Reviewed by: CA K Balaji, Partner
Publication Date: 17^th  August 2026

Disclaimer

This publication is intended solely for general information and knowledge sharing and should not be construed as professional advice or opinion. The analysis is based on the facts and findings contained in the judicial decision referred to above. The applicability of any legal position depends upon the facts and circumstances of each case, applicable law and subsequent judicial, legislative or regulatory developments. Readers should seek appropriate professional advice before acting on the basis of this publication.

SSB & Associates
Chartered Accountants