What happens if an IPO is not fully subscribed?

There are two situations, viz. the non-underwritten public issues, and the underwritten ones.

1)In the former case, if the company does not receive the minimum subscription of 90 per cent of the issued amount on the date of closure of the issue, or if the subscription level falls below 90 per cent after the closure of issue on account of cheques having being returned unpaid or withdrawal of applications, the company shall forthwith refund the entire subscription amount received. "If there is a delay beyond eight days after the company becomes liable to pay the amount, the company shall pay interest as per Section 73 of the Companies Act 1956," points out SEBI. Dr S. Kannan, a company law expert, draws attention to Section 69, which prohibits allotment unless minimum subscription is received.

What happens if the issue has been underwritten? "If the company does not receive the minimum subscription of 90 per cent of the net offer to public including devolvement of underwriters within 60 days from the date of closure of the issue, the company shall forthwith refund the entire subscription amount received." Here too, there is the stipulation about interest as per Section 73.

Section 73 of the Companies Act 1956

2)Where the permission has not been 6[applied under sub-section (1)] 7[or, such permission having been applied for, has not been granted as aforesaid], the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, 8[the company and every director of the company who is an officer-in-default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than four per cent and not more than fifteen per cent, as may be prescribed, having regard to the length of the period of delay in making the repayment of such money.

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