ALLOTMENT OF SHARES

Allotment oI shares means division, distribution or appropriation oI shares in a company.

It is method oI distributing unissued shares in a company having share capital Irom out oI
the authorized share capital in exchange oI contribution Ior capital. in response to an
application Ior such shares. On receipt oI application money as is called the company
sends a communication to the allottee by dispatching a letter oI allotment to the applicant
stating how many shares have been allotted to the applicant together with rhe amount
paid so Iar. He then has an unconditional Iight to be entered in the register oI members in
respect oI those shares. This happens in the case oI public issue. In the case public issue
there are two situation 1) oversubscription and 2) under subscription. In the case oI
oversubscription the number oI shares applied Ior exceeds the number oI share available.
In such eventuality allotment is made on proportional basis or random draw. II an
applicant is issued less number oI shares than the number oI shares applied Ior, he
receives a reIund order in respect oI excess number oI shares he has applied Ior. Under
subscription oI shares arises when the market does not take entire number oI shares
oIIered. Creation, issue and allotment are three stages towards the Iormation or coming
into existence oI the new share capital. In the cas4e oI Larsen & Toubro Ltd. VS Haresh
Jagtani AIR 1991 SC 1420,( 1991) 2 COMP lj1 Supreme Court held that a contract to
purchase shares or Debentures is concluded by allotment oI shares. to constitute a binding
contract to take shares in a company when such contracts are based on application and
allotment, it is necessary that there should be an application by the intending
shareholders, an allotment by the directors oI the shares applied Ior, and a
communication by the directors to the applicant oI the Iact oI such allotment having been
made. When a return oI allotment is made the entire process oI issue and allotment oI
shares gets completed.

An allotment shall be made within a reasonable period oI time and an applicant is not
bound to accept the shares aIter the lapse oI the reasonable period. A delay oI one year is
unreasonable as held by the Bombay High Court.

When an allotment is made on a binding contract, it can not be cancelled by the company.
Cancellation oI allotment amounts to reducing the share capital oI the company. An
allotment may be made conditionally. In such case the allottee does not become a
member until the condition is IulIilled even iI his name has been entered in the register oI
members. .