Allotment of Shares

Allotment of Shares:


Offer for shares are made on the application forms supplied by the company. When an application is accepted, it is an allotment.
An allotment is not defined in the act.

Spitzol
V
Chines Corporation

It is said that the allotment of the shares is done by a resolution of directors of a company.






Statutory Restrictions on Allotment (Sec-39):


1) Minimum Subscription


2) Application Money


3) Application money to be kept in the Bank


4) Repayment if the minimum subscription is not received


5) Shares to be dealt in the stock exchange


6) No Opening of subscription list before 5th day after the issue of prospectus.


Minimum Subscription:

When the shares are offered to the public, the amount of minimum subscription has to be stated in the prospectus, if not mentioned, then it is invalid.


Application Money:

The amount of the application form shall be less than 5% of the nominal amount of each share.


Application money to be kept in a Bank:
All the moneys received from the shares shall be deposited in a scheduled Bank until the entire amount has been received by the company 

Repayment if the minimum subscription is not received:

If the minimum subscription has not been received within 30 days from the issue of prospectus, the amount received is to be returned within 15 days from the expiry of the 30th day.

In case any such money is not repaid, the directors will be liable to pay the money along with an interest @6% from the expiry of 15th day.


Shares to be dealt in the stock exchange (Sec-40):

Any company, who offers shares or debentures to the public by the issue of a prospectus, has to make an application before the issue to any one or more recognized stock exchange for the permission for the shares to be dealt in the stock exchange. This is known as listing.

The name of the stock exchange should be mentioned in the prospectus.

Allied International Products Ltd
V
UOI
Supreme Court held that the object of Sec-40 was to enable the share holders to find a ready market for the shares so that the share holders can convert the

shares into cash.


No Opening of subscription list before 5th day after the issue of prospectus:

No allotment can be made until the beginning of 5th day after the issue of the prospectus.

General Principles of Allotment:


1) Allotment by proper authority


2) Within Reasonable time


3) Must be communicated


4) Absolute and unconditional



Allotment by proper authority:
In the first place, an allotment must be made by a resolution of BOD.

Allotment is the primary duty of directors; it cannot be delegated except in accordance with the provisions given in the articles.

Bank of Peshawar Ltd V
Madho Ram

Allotment was made by the General Manager, an improper delegation by the director was held to be invalid.

But in

Sanyasi
V
Guntur Cotton Mills Co

Allotment by the Secretary and the Treasurer was valid.


Within Reasonable time:

Allotment must be made within the reasonable time, otherwise the application lapses.


Must be communicated:

The allotment must be communicated to the applicant.
Posting at proper address and a stamped letter of allotment is sufficient communication.


Absolute and unconditional:

Allotment must be absolute and in accordance with the terms and conditions of the application, if any.