Nemo dat Quod Non Habet

Exceptions to the Rule Nemo dat Quod Non Habet: The term means, “none can give ortransfer goods what he does not himself own”. Exceptions to the rule and the cases in whichthe Rule does not apply under the provisions of the Sale of Goods Act, 1930 are enumeratedbelow:

(1) Effect of Estoppel (Section 27): Where the owner is stopped by the conduct from denyingthe seller’s authority to sell, the transferee will get a good title as against the true owner.But before a good title by estoppel can be made, it must be shown that the true ownerhad actively suffered or held out the other person in question as the true owner or as aperson authorized to sell the goods.

(2) Sale by a Mercantile Agent: A sale made by a mercantile agent of the goods or documentof title to goods would pass a good title to the buyer in the following circumstances,namely;

(a) if he was in possession of the goods or documents with the consent of the owner;

(b) if the sale was made by him when acting in the ordinary course of business as amercantile agent; and

(c) if the buyer  had acted in good faith and has at the time of the contract of sale, nonotice of the fact that the seller had no authority to sell.(Proviso to Section 27).

(3) Sale by one of the joint owners: If one of the several joint owners of goods has the sole

possession of them with the permission of the others the property in the goods may betransferred to any person who buys them from such a joint owner in good faith and doesnot at the time of the contract of sale have notice that the seller has no authority to  sell.

4) Sale by a person in possession under voidable contract: A buyer would acquire agood title to the goods sold to him by seller who had obtained possession of the goods                             under a contract voidable on the ground of coercion, fraud, misrepresentation or undueinfluence provided that the contract had not been rescinded until the time of the sale(Section 29).

(5) Sale by one who has already sold the goods but continues in possession thereof:If a person has sold goods but continues to be in possession of them or of the documentsof title to them, he may sell them to a third person, and if such person obtains thedelivery thereof in good faith without notice of the previous sale, he would have good titleto them, although the property in th e goods had passed to the first buyer earlier.  Apledge or other deposition of the goods or documents of title by the seller in possessionare equally valid.  [Section 30(1)].

(6) Sale by buyer obtaining possession before the property in the goods has ve sted inhim: Where a buyer with the consent of seller obtains possession of the goods beforethe property in them has passed to him, he may sell, pledge or otherwise dispose of thegoods to a third person, and if such person obtains delivery of the goods in good faithand without notice of the lien or other right of the original seller in respect of the goods ingood faith and without notice of the lien or other right of the original seller in respect ofthe goods, he would get a good title to them. [Secti on 30(2)].

(7) Sale by an unpaid seller: Where on unpaid seller who had exercised his right of lien orstoppage in transit resells the goods, the buyer acquires a good title to the goods asagainst the original buyer [Section 54(3)].

(8) Sale under the provisions of other Acts:

(i) Sale by an official Receiver or liquidator of the company will give the purchaser avalid title.

(ii) Purchase of goods from a finder of goods will get a valid title under circumstances.

(iii) Sale by a pawnee under default of pawnor will give valid title to the purchaser.

Doctrine of indoor management  

Memorandum of Association and articles of association are two most important documents needed for the incorporation of a company. The memorandum of a company is the constitution of that company. It sets out the (a) object clause, (b) name clause, (c) registered office clause, (d) liability clause and (e) capital clause; whereas the articles of association enumerate the internal rules of the company under which it will be governed. 

Undoubtedly, both memorandum of association and the articles of association are public documents in the sense that any person under section 610 of Indian company act, 1956 may inspect any document which will include the memorandum and articles of the company kept by the registrar of companies in accordance with the rules made under the destruction of records act, 1917 being documents filed and registered in pursuance of the act. As a consequence, the knowledge about the contents of the memorandum and articles of a company is not necessarily restricted to the members of the company alone. Once these documents are registered with the registrar of companies, these become public documents and are accessible by any members of the public by paying the requisite fees. Therefore, notice about the contents of memorandum and articles is said to

be within the knowledge of both members and non-members of the company. Such notice is a deemed notice in case of a members and a constructive notice in case of non-members. Thus every person dealing with the company is deemed to have a constructive notice of the contents of the memorandum and articles of the company. An outsider dealing with the company is presumed to have read the contents of the registered documents of the company. The further presumption is that he has not only read and perused the documents but has also understood them fully in the proper sense. This is known as the rule of constructive notice. So, the doctrine or rule of constructive notice is a presumption operating in favour of the company against the outsider. It prevents the outsider from alleging that he did not know that the constitution of the company rendered a particular act or a particular delegation of authority ultra vires. 

The ‘doctrine of constructive notice' is more or less an unreal doctrine. It does not take notice of the realities of business life. People know a company through its officers and not through its documents. The courts in India do not seem to have taken it seriously though. For example, in Dehra Dun Mussorie Electric Tramway Co. v. Jagmandardas, the Allahabad high court allowed an overdraft incurred by the managing agent of a company when under the articles the directors had no power to delegate their borrowing power. 

The doctrine of indoor management is an exception to the rule of constructive notice. It imposes an important limitation on the doctrine of constructive notice. According to this doctrine "persons dealing with the company are entitled to presume that internal requirements prescribed in memorandum and articles have been properly observed". A transaction has two aspects, namely, substantive and procedural. An outsider dealing with the company can only find out the substantive aspect by reading the memorandum and articles. Even though he may find out the procedural aspect, he cannot find out whether the procedure has been followed or not. For example, a company may have borrowing powers by passing a resolution according to its memorandum and articles. An outsider can only found out the borrowing powers of the company. But he cannot find out whether the resolution has in fact been passed or not. The outsiders dealing with the company are presumed to have read and understood the memorandum and articles and to see that the proposed dealing is not inconsistent therewith, but they are not bound to do more; they need not inquire into the regularity of the internal proceedings as required by the memorandum and articles. They can presume that all is being done regularly.

The doctrine of indoor management is also known as the TURQUAND rule after Royal British Bank v. Turquand. In this case, the directors of a company had issued a bond to Turquand. They had the power under the articles to issue such bond provided they were authorized by a resolution passed by the

shareholders at a general meeting of the company. But no such resolution was passed by the company. It was held that Turquand could recover the amount of the bond from the company on the ground that he was entitled to assume that the resolution was passed.

In one of the case the rule was stated thus: "If the directors have the power and authority to bind the company but certain preliminaries are required to be gone through on the part of the company before that power can be duly exercised, and then the person contracting with the directors is not bound to see that all these preliminaries have been observed. He is entitled to presume that the directors are acting lawfully in what they do."

In another case where the plaintiff sued the defendant company on a loan of Rs.1,50,000, it was held that where the act done by a person, acting on behalf of the company, is within the scope of his apparent or ostensible authority, it binds the company no matter whether the plaintiff has read the document or not. In this case among other things the defendant company raised the plea that the transaction was not binding as no resolution sanctioning the loan was passed by the Board of directors. The court after referring to turquand's case and other Indian cases, held that the passing of such a resolution is a mere matter of indoor or internal management and its absence under such circumstances, cannot be used to defeat the just claim of a bona fide creditor.

Exceptions to the doctrine of indoor management:

The exceptions to the doctrine of indoor management are as under:

1.     Knowledge of irregularity: when a person dealing with a company has actual or constructive notice of the irregularity as regards internal management, he cannot claim benefit under the rule of indoor management. He may in some cases, be himself a part of the internal procedure. The rule is based on common sense and any other rule would encourage ignorance and condone dereliction of duty.

T.R Pratt (Bombay) Ltd. V. E.D. Sassoon & Co. Ltd., Company A lent money to Company B on a mortgage of its assets. The procedure laid down in the articles for such transactions was not complied with. The directors of the two companies were the same. Held, the lender had notice of the irregularity and hence the mortgage was not binding.

In Howard v. Patent Ivory Co, the directors had the authority under the articles to borrow only up to £1000 without the resolution of general meeting. For any amount beyond £1000, they needed the consent of general meeting. But the directors borrowed £3500 from themselves without the

consent of general meeting or shareholders and accepted debentures. It was held that they had knowledge of internal irregularity and debentures were good only up to £1000.

2.     Negligence: where a person dealing with a company could discover the irregularity if he had made proper inquiries, he cannot claim the benefit of the rule of indoor management. The protection of the rule is also not available where the circumstances surrounding the contract are so suspicious as to invite inquiry, and the outsider dealing with the company does not make proper inquiry. If, for example, an officer of a company purports to act outside the scope of his apparent authority, suspicion should arise and the outsider should make proper inquiry before entering into a contract with the company.

Anand Bihari Lal v. Dinshaw & Co, the plaintiff, in this case, accepted a transfer of a company's property from its accountant. Held, the transfer was void as such a transaction was apparently beyond the scope of the accountant's authority. The plaintiff should have seen the power of attorney executed in favour of the accountant by the company.

3.     Forgery: the rule in turquand's case does not apply where a person relies upon a document that turns out to be forged since nothing can validate forgery. A company can never be held bound for forgeries committed by its officers. The leading case on the point is :

Ruben v. Great Fingall Consolidated Co., the secretary of a company issued a share certificate under the company's seal with his own signature and the signature of a director forged by him. Held, the share certificate was not binding on the company. The person who advanced money on the strength of this certificate was not entitled to be registered as holder of the shares.

4.     Acts outside the scope of apparent authority: if an officer of a company enters into a contract   with a third party and if the act of the officer is beyond the scope of his authority, the company is not bound. In such a case, the plaintiff cannot claim the protection of the rule of indoor management simply because under the articles the power to do the act could have been delegated to him. The plaintiff can sue the company only if the power to act has in fact been delegated to the officer with whom he entered into the contract.

EXEMPTIONS AND PRIVILEGES ENJOYED BY PRIVATE COMPANY

1) The minimum number of members in a private company can be two only as against seven in a public company.2) Provisions regarding minimum subscription before allotment of shares do

not apply to a private company.3) A private company need not file a prospectus or a statement in lieu of prospectus with the Registrar4) Further shares can be issued without passing special resolution o obtaining Central Government's approval and need not be offered other existing members5) Private company may issue share capital of such kinds in such forms and with such voting rights as it may think fit. However, its paid up capital shall not be less than rupees one lakh.6) Private company can commence business immediately on incorporation.7) Private company need not keep an index of members.8) Private company need not hold statutory meeting or file statutory report.9) Provisions as to overall maximum managerial remuneration and remuneration to directors do not apply to a private company.10) Minimum number of directors is only tow in a private company.11) Provisions as to proportion of directors liable to retire by rotation do not apply to a private company.12) Director's consent to act as such is not required.13) Restrictions on appointment of directors as regards their consent and holding qualification shares do not apply to a private company.

14) Director's contract to take up 14) Government approval to appointment or amendment of provisions relating to managing or whole tem or non rotational directors qualification shares need not be filed with the registrar of companies,.15) Provisions regarding loans to directors do not apply.16) Provisions regarding interested directors not to participate or vote in Board's proceedings do not apply.17) Provisions requiring government approval fro increasing remuneration of a director or managing director do not apply.18) Prohibition regarding appointment of a managing director for more than five years at a time does not apply.19) Restrictions on advancing loans to other companies do not supply20) Provision relating to transfer of shares not to be registered except on production of instrument of transfer, transfer by legal representative application for transfer and power to refuse registration an appeal against refusal do not apply without prejudice to a power of a private company to enforce its restrictions against the right to transfer the shares f such company.

Private company may lose its privilege, When it fails to comply with the essential requirements of a private company (Sec 3(1) (iii)) Discussed default complying with the said provisions shall disentitle a private company from the privileges and exemptions it is entitled to. The Companies act shall apply to such a company as if it were not private company (Sec43).

DOCTRINE OF CONSTRUCTIVE NOTICEThe ‘doctrine of constructive notice’ is more or less an unreal doctrine. It does not take notice of the realities of business life. People know a company through its officers and not through its documents. The courts in India do not seem to have taken it seriously though. For example, in Dehra Dun Mussorie Electric Tramway Co. v. Jagmandardas, the Allahabad high court allowed an overdraft incurred by the managing agent of a company when under the articles the directors had no power to delegate their borrowing power.

High Court held that unless there is wilful or fraudulent turning away from enquiry, the doctrine of constructive notice would not apply. The case Re Bright's Trusts (1856) 21 Beav. 430 was also referred to. That relates to a charge without notice on a chose in action, and it appears that except so far as the actual notice was given, subsequent incumbrancers could have no knowledge whatever of the existence of any prior charge. In that case the charge was one on a fund in the hands of trustees, and notice was given only of one of two charges created in the same deed, that for the life policy being mentioned, and that the express notice given implied that no other charge was alleged. It is clear that the principles of that case apply only to the duty of enquiry arising in cases where, apart from constructive notice, there is nothing to put the purchaser on enquiry. The doctrine confined originally to cases of fraudulent turning away was subsequently extended to cases of gross negligence and in West v. Reid (1843) 2 Hare 249, the same learned Vice-Chancellor stated that there might be a degree of negligence so gross (crassa negligentia) that a Court of Justice might treat it as evidence of fraud though in fact as pointed out by Romilly M.R. in Jones v. Williams (1857) 24 Beav. 47, no fraudulent intent may be present. Lord Cranworth expressed the rule thus in Ware v. Lord Egmont (1854) 4 De G. M. & G. 460 at page 473:Where a person has actual notice of any matter of fact, there can be no danger of doing injustice if he is held to be bound by all the consequences of that which he knows to exist. But where he has not actual notice, he ought not to be treated as if he had notice, unless the circumstances are such as enable the Court to say, not only that he might have acquired, but also, that he ought to have acquired, the notice with which it is sought to affect him-that he would have acquired it but for his gross negligence in the conduct of the business in question. The question, when it is sought to affect a purchaser with constructive notice, is not whether he had the means of obtaining, and might by prudent caution have obtained, the knowledge in question, but whether the not obtaining it was an act of gross or culpable negligence. It is obvious that no definite rule as to what will amount to gross or culpable negligence, so as to meet every case, can possibly be laid down.Though no definite rule defining what would constitute gross negligence could by its very nature be laid down, the Courts of Equity held that if a

purchaser of property omits to make proper and usual inquiries into his vendor's title, such omission, in the absence of reasonable explanation, would amount to gross negligence and the purchaser must, therefore, be fixed with constructive notice of facts which he would have known if he had made such inquiries. This proposition was also in some cases rested on the original theory of fraudulent turning away by saying that such omission on the part of the purchaser, if not explained, may be evidence "of a design inconsistent with bona fide dealing to avoid knowledge of the true state of the title". But whatever be the legal theory on which the proposition may be supported, the principle underlying the proposition was that a purchaser of property, as an ordinary prudent man, is expected, for the protection of his own interest, to make proper and usual inquiries into his vendor's title before he purchases the property and if he omits to do so, without any reasonable explanation, an inference can legitimately be drawn that either he has wilfully abstained from making inquiries for the purpose of avoiding notice of facts which he would have known had he made the inquiries or he is guilty of gross negligence. This principle was explained by Lord Selborne, in Agra Bank v. Barry (1874) L.R. 7 H.L. 135, where with reference to the duty of a purchaser to investigate title the learned Law Lord said:It has been said in argument that investigation of title and inquiry after deeds is 'the duty' of a purchaser or a mortgagee; and, no doubt, there are authorities which do use that language. But this, if it can properly be called a duty, is not a duty owing to the possible holder of a latent title or security. It is merely the course which a man dealing bona fide in the proper and usual manner for his own interest, ought, by himself or his solicitor, to follow, with a view to his own title and his own security. If he does not follow that course, the omission of it may be a thing requiring to be accounted for or explained. It may be evidence if it is not explained, of a design inconsistent with bona fide dealing, to avoid knowledge of the true state of the title. What is a sufficient explanation, must always be a question to be decided with reference to the nature and circumstances of each particular caseLord Lindley also said much to the same effect when after referring to the passage from the judgment of Lord Cranworth in Ware v. Lord Egmont (supra), he observed in Bailey v. Barnes (1894) 1 Ch. 25 at page 35:Gross or culpable negligence" in this passage does not import any breach of a legal duty, for a purchaser of property is under no legal obligation to investigate his vendor's title. But in dealing with real property, as in other matters of business, regard is had to the usual course of business; and a purchaser who wilfully departs from it in order to avoid acquiring a knowledge of his vendor's title is not allowed to derive any advantage from his wilful ignorance of defects which would have come to his knowledge if he had transacted his business in the ordinary way Can we say that Mr. Lilley or his solicitors 'ought reasonably' to have made inquiries into the validity of the sale by Barnes? 'Ought' here does not import a duty or obligation; for a purchaser need make no inquiry. The expression 'ought reasonably' must

mean ought as a matter of prudence, having regard to what is usually done by men of business under similar circumstances.

REMUNERATION OF DIRECTORS

The remuneration payable to the directors of a company, including any managing or whole-time director, shall be determined, in accordance the provisions given below either by the articles of the company, or by a resolution ( special resolution if the articles so require ), passed by the company in general meeting and the remuneration payable to any such director determined as per the said provisions shall be inclusive of the remuneration payable to such director for services rendered by him in any other capacity. However, any remuneration for services will not be so included if the services are of a professional nature and in the opinion of the Central Government, the director possesses the requisite qualifications.

A director may receive remuneration by way of fees for attending each meeting of the Board or of any committee thereof ( Sitting Fees ).

A director who is in whole time employment of the company or a managing director may be paid remuneration either by way of a monthly payment or at a specified percentage of net profits of the company or partly by one and partly by the other. Such remuneration cannot exceed 5 % of the net profits of the company, except with the approval of the Central Government in case of one director and 10 % for all such directors.

The total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company to its directors and its manager in any financial year must not exceed 11 % of the net profits of the company calculated in accordance with the provisions of section 349, 350 and 351.

In the case of a director who is neither in the whole-time employment of the company nor a managing director may be paid remuneration either by way of a monthly, quarterly or annual payment with the approval of the Central Government or by way of commission if the company by special resolution authorises such payment. Such special resolution to in sub-section (4) shall not remain in force for a period of more than five years; but may be renewed, from time to time, by special resolution for further periods of not more than five years at a time. Remuneration payable to such directors cannot exceed :-

a. if the company has a managing or whole-time director or a manager, one per cent, of the net profits of the company;

b. in any other case, three percent of the net profits of the company.

If any director earns remuneration from a company in excess of the above limits without prior approval of the Central Government, he shall refund the excess to the company and until such repayment, hold the money in trust with him.

The Company cannot waive recovery of such sum due from the director unless approved by the Central Government.

No approval of the Central Government is required in case the remuneration is within the limits mentioned in Schedule XIII to the Companies Act, 1956.

No director of a company who is in receipt of any commission from the company and who is either in the whole-time employment of the company or a managing director shall be entitled to receive any commission or other remuneration from any subsidiary of such company.

The above provisions pertaining to remuneration do not apply to a private company unless it is a subsidiary of a public company.

Provision for increase in remuneration to require Government sanctionIn the case of a public company, or a private company which is a subsidiary of a public company, any provision relating to the remuneration of any director or any amendment thereof, which purports to increase or has the effect of increasing, whether directly or indirectly, the amount of remuneration shall not have any effect unless :-

i. is within the limits specified in Schedule XIII, where Schedule XIII is applicable ; or

ii. approved by the Central Government

and the amendment shall become void if, and in so far as, it is disapproved by the Government.

Increase in remuneration of managing director on reappointment or appointment after Act to require government sanctionIn the case of a public company, or a private company, which is a subsidiary of a public company, if the terms of any re-appointment or appointment of a managing or whole-time director, purport to increase or have the effect of increasing, whether directly or indirectly, the remuneration which the managing or whole-time director or the previous managing or whole-time director, as the case may be, was receiving immediately before such appointment, the or appointment shall not have any effect unless :-

i. is within the limits specified in Schedule XIII, where Schedule XIII is applicable ; or

ii. approved by the Central Government

and the amendment shall become void if, and in so far as, it is disapproved by the Government.

Director cannot to hold office or place of profitExcept with the previous consent of the company accorded by a special resolution :-

i. No director of a company can hold any office or place of profit in that company

ii. No partner or relative of such a director ( i.e. a director holding an office or place of profit in the company ), no firm in which such a director or relative is a partner, no private company of which such a director is a director or member, and no director, or manger of such a private company can hold any office or place of profit carrying monthly remuneration in excess of the prescribed amount ( Rs. 10000/-).

However, the above restrictions are not applicable to the office of managing director, manager, banker, or trustee for the holders of debentures of the company either :-

i. in the company ; or ii. in any subsidiary of the company, unless the remuneration received

from such subsidiary in respect of such office or place is paid over to the company or its holding company.

The special resolution required for the above purpose may be passed at the first general meeting after the appointment. Such special resolutions will required at subsequent re-appointments also on a higher remuneration not covered by the earlier special resolution.

However, if the monthly remuneration is not less than Rs. 20000/- per month, the special resolution mentioned above has to be obtained prior to the appointment and in addition to the special resolution, approval of the Central Government will also be required for the appointment.

If any office or place of profit under the company or a subsidiary thereof is held in contravention of the above provisions, the director, partner, relative, firm, private company or, manager shall be deemed to have vacated his office, with effect from the day following the date of general meeting mentioned above. Such person will also be liable to refund to the company any remuneration received, or the monetary equivalent of any perquisites or advantage enjoyed by him, in respect of such office or place of profit. The company will not be able to waive recovery of such amounts, except with the approval of the Central Government.

Any office or place in a company shall be deemed to be an office or place or profit under the company for these provisions :-

a. in case the office or place is held by a director, if the director holding it obtains from the company anything by way of remuneration over and above the remuneration to which he is entitled as such director, whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise;

b. in case the office or place is held by an individual other than a director or by any firm, private company or other body corporate, if the individual, firm private company or body corporate holding it obtains from the company anything by way of remuneration whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise.

DOCTRINE OF ULTRA VIRES-EFFECTS AND EXCEPTIONS     The object clause of the Memorandum of the company contains the object for which the company is formed. An act of the company must not be beyond the objects clause, otherwise it will be ultra vires and, therefore, void and cannot be ratified even if all the members wish to ratify it. This is called the doctrine of ultra vires, which has been firmly established in the case of Ashtray Railway Carriage and Iron Company Ltd v. Riche. Thus the expression ultra vires means an act beyond the powers. Here the expression ultra vires is used to indicate an act of the company which is beyond the powers conferred on the company by the objects clause of its memorandum. An ultra vires act is void and cannot be ratified even if all the directors wish to ratify it. Sometimes the expression ultra vires is used to describe the situation when the directors of a company have exceeded the powers delegated to them. Where a company exceeds its power as conferred on it by the objects clause of its memorandum, it is not bound by it because it lacks legal capacity to incur responsibility for the action, but when the directors of a company have exceeded the powers delegated to them. This use must be avoided for it is apt to cause confusion between two entirely distinct legal principles. Consequently, here we restrict the meaning of ultra vires objects clause of the company’s memorandum. Basic principles included the following: An ultra vires transaction cannot be ratified by all the shareholders, even if they wish it to be ratified.

EXCEPTIONS TO THE DOCTRINE OF ULTRA VIRES   There are, however, certain exceptions to this doctrine, which are as follows: 1. An act, which is intra vires the company but outside the authority of the directors may be ratified by the shareholders in proper form.20 2. An act which is intra vires the company but done in an irregular manner, may be validated by the consent of the shareholders. The law, however, does not require that the consent of all the

shareholders should be obtained at the same place and in the same meeting. 3. If the company has acquired any property through an investment, which is ultra vires, the company’s right over such a property shall still be secured. 4. While applying doctrine of ultra vires, the effects which are incidental or consequential to the act shall not be invalid unless they are expressly prohibited by the Company’s Act. 5. There are certain acts under the company law, which though not expressly stated in the memorandum, are deemed impliedly within the authority of the company and therefore they are not deemed ultra vires. For example, a business company can raise its capital by borrowing. 6. If an act of the company is ultra vires the articles of association, the company can alter its articles in order to validate the act.  

Minimum Subscription is a legal term of Companies Act,1956.

Minimum Subscription is a legal term of Companies Act,1956."No

allotment shall be made of any share capital of a company offered to

the public for subscription, unless the amount stated in the prospectus

as the minimum amount which, in the opinion of the Board of directors,

must be raised by the issue of share capital in order to provide for the

matters specified in clause 5 of Schedule II has been subscribed, and

the sum payable on application for the amount so stated has been paid

to and received by the company, whether in cash or by a cheque or

other instrument which has been paid."

(2)The amount so stated in the prospectus shall be reckoned exclusively of any amount payable otherwise than in money, and is in this Act referred to as" the minimum subscription".

(3) The amount payable on application on each share shall not be less than five per cent. of the nominal amount of the share.

(4) 1[ All moneys received from applicants for shares shall be deposited and kept deposited in a Scheduled Bank-

(a) until the certificate to commence business is obtained under section 149; or

(b) Where such certificate has already been obtained, until the entire amount payable on applications for shares in respect of the minimum subscription has been received by the company, and where such amount has not been received by the company within the time or the expiry of which the moneys received from the applicants for shares are required to be repaid without interest under sub- section

All moneys received from applicants for shares shall be returned in accordance with the provisions of that sub- section. In the event of any contravention of the provisions of this sub- section, every promoter, director or other person who is knowingly responsible for such contravention shall be punishable with fine which may extend to five thousand rupees.]

(5) If the conditions aforesaid have not been complied with on the expiry of one hundred and twenty days after the first issue of the prospectus, all moneys received from applicants for shares shall be forthwith repaid to them without interest; and if any such money is not so repaid within one hundred and thirty days after the issue of the prospectus, the directors of the company shall be jointly and severally liable to repay that money with interest at

In simple words, we can say that when a company offers shares to public, they offer many shares , however they set a specific amount to be subscribed by the public in order to issue the shares, otherwise they can not issue the shares (IPO, Initial Public Offer)