No Objection Certificate (NOC) For Repatriation of Share Application Money beyond 180 Days

Share Application Money


Section 129 of Companies Act, 2013 read with corresponding rules states to submission of financial statement complied with accounting standard and shall be in form or forms as may be provided in Schedule III. Under Schedule III, the entity is required to present its financial statement as prescribed where it is very clearly stated to classify the “Share Application Money Pending Allotment” separately just below reporting of Shareholders’ Fund. This implies Share Money can be held for few days subject to the allotment on due time. Reviewing Companies Act provision read with its corresponding rules, it says Share Application Money Pending Allotment shall be repaid within a period of 15 days from the closure of the issue and if any such money is not so repaid within such period, directors of company who are officer in default shall jointly and severally be liable to repay that money with interest at the rate of 15% per annum. The application money to be refunded shall be credited only to the bank account from which the subscription was remitted. [Rule 11 of the Companies (Prospectus & Allotment of Securities) Rules, 2014.]


All the background set above is in case of a resident who has applied for Share of company & allotment is pending. Now, the scene will be changed if the application is from Non-resident. Once the application for share is from non-resident then it is obliged to comply the Foreign Direct Investment policy, Sectorial gap and other reporting compliance prescribed under various laws and act. The one is reporting to Reserve Bank of India as the Foreigner is having an investment in equity need to be reported within 30 days of receipt of application money and allotment to be done within 60 days period. Though it has further relaxed up to 180 days subject to compliance other applicable and governing laws on issue and allotment of equity to applicant Company. The reporting is done in FC-GPR, a form design to report such transaction to Reserve Bank of India.

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Now the question arises what if the share application money received from non-resident or person resident outside of India are not allotted within due date or non-allotment of securities and non-refund of share application money received beyond 180 days.

What Reserve Bank of India prescribes?

It is worthy to note down the various notification/circular in this regard along with Master Circular/Direction for this particular scenario under which investment received from non-resident on equity of the company is neither allotted nor return within 180 days.

Under Master Circular on Foreign Investment in India dated 2nd July 2012 updated as on 1st April, 2013, has given time frame within which shares have to be issued and it read as The equity instruments should be issued within 180 days from the date of receipt of the inward remittance or by debit to the NRE/FCNR (B) /Escrow account of the non-resident investor. In case, the equity instruments are not issued within 180 days from the date of receipt of the inward remittance or date of debit to the NRE/FCNR (B) account, the amount of consideration so received should be refunded immediately to the non-resident investor by outward remittance through normal banking channels or by credit to the NRE/FCNR (B)/Escrow account, as the case may be. Non-compliance with the above provision would be reckoned as a contravention under FEMA and could attract penal provisions. In exceptional cases, refund/allotment of shares for the amount of consideration outstanding beyond a period of 180 days from the date of receipt may be considered by the Reserve Bank, on the merits of the case.”

Now it is derivable that the RBI does not have any problem on returning the Foreign Investment within 180 days but if the equity investment done by foreigner/non-resident are returned beyond 180 days then entity required prior approval of RBI to return the fund to concern applicant.

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Hence non-refund/non-allotment of share on stipulated time (i.e. 180 days) is non-compliance with Paragraph 8 of Schedule I to FEMA 20/2000-RB dated May 3, 2000. Therefore No Objection Certificate is required to obtain from RBI to initiate the Refund process as well as it is required to compound the delay. The application in the prescribed format along with necessary documents and a demand draft for Rs. 5000/- drawn in favor of the “Reserve Bank of India” should be sent to the Reserve Bank of India while sending the request for compounding, if any.

Procedure to have no Objection Certificate:

The concerned entity is required to make application to RBI for No Objection Certificate to transfer the investment of Non-resident beyond 180 days on given format along with documentary evidence of such delay and based on scrutiny/verification by concerned officer on satisfaction of all facts and submission the NOC will be provided to transfer such investment of non-residents.

Documents to be annexed with application for NOC are:-

  1. Copies of FIRC with date stamp of receipt at RBI
  2. Copies of FC-GPR with date stamp of receipt at RBI
  3. Reason and documentary evidence to genuineness of delay of Share Application Money

Subject to the compounding of delay and it’s requisite the compounding authority may charge financial fine and penalty under the prescribed rules of FEMA, 1999. Under the compliance and documentary, evidence up to the mark as the Master Circular regarding it dated 2nd July 2012 may consider by Bank, on the merit of the case. And NOC is provided to the entity to refund the application money of non-resident form banking channel.

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On overall review of the case on repatriation of share application money beyond 180 days for non-resident investors is quite cumbersome to get in. As per Companies Act, 2013 issue, subscription, and allotment of securities read with corresponding rules, non-allotted securities fund to be refunded within 15 days from the closure of the issue. Beyond 15 days then the entity is required to pay 15% per annum interest on such fund. Whereas in case of Non-Residents having an investment in securities do have to report to Reserve Bank of India within 30 days of Foreign Inward Remittance in the Form FC-GPR, now once they are not allotted with securities concern is a refund of application money. On a plain reading of Master Circular of RBI, it is very clear that the refund of application money before the expiry of 180 days is a normal process and can be initiated with an intimation of RBI to refund the money. However when the matter is beyond 180 days then the concern is, itself a non- Compounding of FEMA, 1999 and compounding procedure is required to meet after application to RBI and on the satisfaction of reason of delay and submission of documentary evidence, concerned officer issue No Objection Certificate to repatriate the Share Application Money beyond 180 days.

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