Name-Sanket Jamuar, Semester-5,Roll no-128, Id no-

018/2018/1949

Subject- Corporate Law 1

Question no.1.

Introduction

Share offerings are provided on the form issued by the company. Whenever an
application is approved, it leads to an allotment. The term allotment is not specified anywhere in
the Companies Act. This entails and suggests the separation of the share capital into specified
shares of a specific significance or of separate categories,, and allotment of such shares to
separate individuals . e Supreme Court in Sri Gopal Jalan and Co. v. Calcutta Stock Exchange
Association Ltd1. Defined allotment as “Allotment of the previously unalloted wealth of a
company of specified amount of shares to an individual.”

Common Principles regarding allotment of shares

By competent authority

The allocation of shares must be allowed by the competent authority, i.e. the board of directors of
the corporation or the panel approved to assign the shares on account of the directors. An
allocation rendered without lawful authorization would be null.

In the case of P.V. Damodara Reddy v. Indian National Agencies Ltd2, R&N made a application
to the corporation for the the share allocation.Their requests were accepted and approved by the
Board and their details recorded in the list. Nevertheless, the Provisions of the Corporation stated
that the shares can not be allocated to strangers without the permission of the corporation at the
general meeting. After 8 months, on the complaint of the auditor, the allocation was scrapped as
well as their names deleted from the list. The corporation's point was that the approval of the
applications' bids by the directors solely was completely invalid and that no allocations were
made.

1
AIR 1964 SC 250
2
[1945] 15 Comp. Well, Cas. 148 (Mad.)
By implementing the Royal British Bank v. Turquand3, it was held that the Applicants
were allowed to presume that the directors had been behaving Routinely and in fact, the approval
of the company was obtained at the board meeting. In this way, the corporation cannot stop
allocations.

.Allotment should be made only against application

No appropriate allocation could be allowed on a verbal request. According to section 2(55) an

individual should have to consent in writing to become a shareholder. In the case of Manabendra
4
Shah v. Official Liquidator , it was held that without a formal written request, there is
no allocation of shares.

No contravention of any other law while allotting shares

In the case of Re Trans Atlantic Life Assurance Co. Ltd5,it was held that there is no allotment
because shares are offered in the violation of foreign exchange regulation act and hence no right
whatsoever to the allotee.

Also in the case of Unit Trust of India v. Om Prakash Berlia 6, “the the allocation of shares made
for any inappropriate reason is illegal and may be struck down.

Allotment within reasonable time

Shares should be allocation within a rational duration of time; otherwise, application for
allocation expires . what is rational duration of time is always a bone of contention.
The time of approximately Six-months between both the application and the allocation was
considered to not be appropriate.7 Section 6 of the Contract Act shall become operative upon the
end of rational
duration of time and hence applications for the allotment deemed to be cancelled.

3
[1856] 6E & B37
4 1977] 47 Comp. Cas. 356
7
Ramsgate Victoria Hotel Company v. Montefiore [1866] LRI Ex. 109.
5
[1979] 3 All ER 352.
6
[1983] 54 Comp. Cas. 723 (Bom.).

7
Ramsgate Victoria Hotel Company v. Montefiore [1866] LRI Ex. 109.
Allocation of shares after delay of around 1 year after the application was held to be ineffective 8
but in the case of St. M.R.V.R. Murugappa Chettiar v. Pudukottai Ceramics Ltd.9, The shares are
allotted after a delay of almost one year after the date of the application was rejected.
Nevertheless, unless there is an unnecessary delay in the allocation of shares and in spite of the
delay shares are received by the applicant and not rejected, then he could not contend that he
revoked his bid due to a delay in the allotment.

Communication

It is important to notify the applicant about the allocation. A allocation contract is just like any
other contract and no mistake in comparing the contract between one corporation and another
individual applying to be a Member; the situation are changed however the concepts are the
same. The both parties must give their consent. The offer must be accepted by word . This is
important in the event of a share’s application, like in any other contract

In Universal Banking Company, In re10, a person requested for shares and transferred the
application money , however, he never get any confirmation or any details whether the shares
was allocated to him or not, neither any request was made by him regarding the transferred
money, as indicated in the prospectus letter. When he (G) asked about the allocation, he was
informed that it may be checked into. After all, it was reported that shares were alloted to him
and his name has indeed been recorded as in the list of shareholders. However, when the
organisation was directed to be closed down, the issue arises whether G's is a shareholder or not.
It was observed that, in this situation, it was tough to keep that any agreement had been
signed and therefore any information of the registration had been provided to him. It was not
his responsibility to scan the register; thus, his name had to be omitted from the shareholders list.

If a individual does not gets any information about assignment of shares,then he can’t be
regarded
as shareholder11.However, once the shares has been allocated and conveyed, the directors will
have

8
In Karachi Oil Products Ltd. v. Kumar Shree Narendrasinghji [1948] 18 Comp. Cas. 215 (Bom.)
9
. [1955] 25 Comp. Cas. 78 (Mad.).
10
[1867] LR 3 CH APP 40 (CA
11
Changa Mal v. Provincial Bank [1914] 36 ILR 412 (All.)
no authority to relieve the applicant by terminating his allotments and also not on the basis that
the shares had been subscribed by fault12.

Allotment should be without any condition

The allocation of shares should be final and irrevocable, i.e. must be provided on the identical
terms as those set out in the application. Therefore a individual should not be forced to accept
less or more shares than he applied for.13

In the case of -Gackson v.Turquand14,it was held that no preconditions will be added to
the affirmation of an offer to buy shares and if the acceptance has added a new condition, then it
is regarded as a fresh offer will be made by the company and will not be valid until approved by
the applicant.

Prospectus’s registration

According to section 26(4),the prospectus will be submitted with the Registrar on or prior to its
release and signed by each individual who is mentioned as Director of the Company or by his
attorney.

In the event of an infringement of this provision, the company shall be punished with a penalty of
not minimum than 50 thousand rupees and also it could increase to up-to 3 lakh rupees, and any
individual who is willfully related to the release of these prospectus shall be sentenced for a
period of not less than three years or a minimum fine of 50 thousand rupees or both.

8.Application money

12
Supra note 8

14
[1869] LR 4 HL 305
As per section 39(2), the amount due on application for each share wil not minimum than 5% of
the token sum of the share or any other percentage or sum as might be determined by the
Securities and Exchange Board(SEBI) by introducing guidelines in that matter. But according to
the 2009
SEBI guidelines, application money should not be minimum than 25% of nominal price of share

Subscription list closure

Though the Companies Act does not mention about the time-period during which the
subscription list should be remained open, however according to SEBI's Regulations of 2018 the
list the public should remain open for a minimum of 3 business days and maximum 10 business
days. In the event of a modification of the price bond, the company shall increase the of
bidding (issue) duration for not less than 3 business days.

In the situation of rights issue, the issue should stay open for at least 15 days but not more than
30 days.

Stock exchange dealings

According to section section 40, Prior to making public offer, each organization presenting a
public offer should take approval from a stock exchanges and seek authorization for stocks
dealing in those exchanges or exchanges.

In case a prospectus specifies that a application made pursuant to sub-section (1), the prospectus
should also mention the name or names of the stock exchange where the stocks are offered to
public. In the case of Rishyashringa Jewellery Ltd. v. Stock Exchange, it was held by supreme
court, if no authorization has been given by any of the stock exchanges named in the prospectus
for the shares listing, the result is that the whole allocation is void and the granting of
the authorization by one or more of them is irrelevant.

Basis of Allotment

Allocation shall be made on a pro - rata basis within the designated groups. Lowest
possible allocation shall be equivalent to the least application size as set and announced by the
issuer.
Over- subscription

According to the SEBI Regulations, 2018, no allocation will be made by the issuer in surplus of
the mandated securities mentioned in the offer-letter. But, in the event of oversubscription, the
allocation of maximum 10% of the original offer should be offered to the public the reason of
making allocation in lowest lots.

IPO rules for public offerings

What is IPO?

The initial public offering (IPO) corresponds to the method of selling shares of a private
company in the market in the form of a new share issuance. Public share issue enables a
corporation to collect money from public investors. The move from a private to a public
corporation may be a significant period for private investors to make full profit from their
investment because it normally entails equity premiums for private investors at present. In the
meantime, it also requires public investors to engage in the offering of shares.

Rules regarding IPO

Eligibility of issuers while issuing IPO

1.The issuer has total physical assets of minimum 3 Crore Rupees, measured on combined
basis of the previous three full years (Twelve months each) and maximum 50% held as
monetary asset.

“If more than fifty per cent of the net tangible assets are held in monetary assets, the
issuer should have utilised or made firm commitments to utilise such excess monetary
assets in its business or project”

2. It should have an average operating income of minimum 15 crore rs, estimated

on combined basis, during the previous 3 years ( Twelve months each), with operating
profit in every of the previous 3 Years.
3. it will have a net value of minimum 1 crore rs during each of the previous 3years
(twelve months each), measured on the combined Basis

4. If the issuer has altered its name during the past 1 year then minimum 15% of
his turnover measured on combined basis, for the previous 1 full year , will be shown by
his new name.

General condition

Following things issuer have to look before issuing IPO

1. The issuer has applied to one or more stock exchanges to obtain permission for the
inclusion of its stated shares on that stock Exchanges and has selected one of them as
designated stock exchange .
2. The issuer has reached into an arrangement with the depository for Dematerialization
Of the shares already authorized and planned to be issued;
3. All of its mentioned securities owned by the sponsors shall be in dematerialized form
before the submission of the offer report;
4. Almost all of its of its current partially paid-up shares would either completely paid-
up or been taken away.
5. The issuer has made definite financial arrangements by way of provable means
approximately 75% of the resources provided for a particular project planned to be
financed from the proceeds of the issue, minus the sum to be generated by or by the
planned public issue via current known internal accrual.

The sum for general corporate uses, as shown in the purpose of the issue in the
proposed bid document and the bid document should not be surpassed 25% of the sum
generated by the issuer.

FPO
What is FPO?
 A follow-on public offering (often, but mistakenly referred to as a secondary offering)
is the issue of stock following the offering of IPO by the company. FPO is of 2 types
(or a combination of both): dilutive and non-dilution. A secondary offering is an
selling of shares to the stockholder of the corporation (as opposed to the corporation
itself, that is a primary offering). A FPO is followed by the publication of a prospectus
similar to IPO: a follow-up to the public offer (FPO).

Eligibility requirements for issuing FPO

1.The issuer will only offer FPO If he has altered its name during the past 1 year then minimum
50% of his turnover from activity for the previous 1 year , will be shown by his new name.

2. An issuer which does not comply with the requirements mentioned in sub-regulation (1) can
offer FPO unless if the issue is brought into a book-building procedure and the issuer commits to
offer minimum 75% of the net offering available to eligible institutional purchasers and to make a
complete refund of subscription amount and if it is unable to offer minimum allocation to eligible
institutional purchasers.

General conditions

1.The issuer has applied to one or more stock exchanges to obtain permission for the inclusion of
its stated shares on that stock Exchanges and has selected one of them as designated stock
exchange
.2. Almost all of its of its current partially paid-up shares would either completely paid-up or
been taken away.

3. The issuer has made definite financial arrangements by way of provable means approximately
75% of the resources provided for a particular project planned to be financed from the proceeds
of the issue, minus the sum to be generated by or by the planned public issue via current known
internal accrual

4. The issuer has reached into an arrangement with the depository for Dematerialization of the
shares already authorized and planned to be issued
Hence, these are rules and regulation for allotment of shares while keeping the rules of IPO as
well as FPO.

Ques No. 2

Introduction

Government company is defined under Section 2(45) of Companies Act,2013. According to this
section,

“Government company means any company in which not less than fifty-one per cent of the paid-
up share capital is held by the Central Government, or by any State Government or
Governments, or partly by the Central Government and partly by one or more State
Governments, and includes a company which is a subsidiary company of such a Government
company”

A state subsidiary is also regarded as a government corporation. Such corporations are licenced
as sole proprietorships by way of their operation and their supervision is in the hands of
the government. It is a form of company in which both the state and private entities are
stakeholders. Often these businesses are considered a mixed-ownership corporation.

A government company signifies 'any company' according to the meaning of section 2(45) and
the word 'company' in the Statute implies a company as described in section 2(20) of the Statute,
in which a corporation is the one that has been founded and licensed under 2013 act or under any
prior act.

Position of Government companies

16
[1967] 2 Comp. LJ 106
17
AIR 1964 SC 1486
18
15 AIR 1982 SC 696
[1897] AC 22
Cases laws starting from Solomon v. A Solomon & Co.Ltd15. , which has held that a company
formed under the Companies Act has an independent entity and that the law acknowledges a

16
[1967] 2 Comp. LJ 106
17
AIR 1964 SC 1486
18
15 AIR 1982 SC 696
[1897] AC 22
company as a legal entity different and unique from that of a company members. This
incarnation arises from the minute it is formed and from that date, the individuals who
conform to their memorandum of association and those who join them as members shall be
treated as an established body or as a corporate aggregate and the new individual shall begin to
act as an organization. The prerogative and responsibilities of a corporation vary from its
stakeholders.

Thus the, the legal rights of a government - owned company is not compromised simply because
the government contributes to the company's shares and most of its stocks are owned by the
India’s president or the State’s governor and by some appointed government officials.

In re, River Steam Navigation Co. Ltd16, Justice P.L. Mukherjee observes the following things
regarding the position of government companies:

“Government today is a competitor with public/private companies and corporations, and doing
trade or business or commerce. In doing so the Government is not doing it qua Government. It
joins the field of competition in these diverse spheres and fields as Government companies, as
State trading corporations and in many other forms under particular statutes.”

The general idea prevailing is that, whenever government operates in a business endeavors by
forming company under company’s act, it is not participating as a political state, but as a business
entity having no essence of government and its department. In the case of Andhra Pradesh State
Road Transport Corporation v. ITO17, the Andhra Pradesh Road Transport Corporation
demanded waiver from Taxation by referencing Article 289 of the Constitution , whereby
the assets and revenue of the State are excluded from taxation by the center. While dismissing
the Organization's request, the Court Ruled that although it was entirely regulated by the
government of the State, it still had a distinct identity and therefore its earnings isn't the revenue
of the Government of the
State.

16
[1967] 2 Comp. LJ 106
17
AIR 1964 SC 1486
18
15 AIR 1982 SC 696
[1897] AC 22
In the case of Western Coalfields Limited v. Special Area Development Authority18, the SC did
not endorse the argument of Western Coalfields Ltd. that it was entirely controlled by the central

16
[1967] 2 Comp. LJ 106
17
AIR 1964 SC 1486
18
15 AIR 1982 SC 696
[1897] AC 22
Government, and hence the corporations would never be liable to pay property tax. The
observation by SC as follow:

“Even though the entire share capital of the appellant companies has been subscribed by
the Government of India, it cannot be predicted that the companies themselves are owned
by the Government of India. The companies which are incorporated under the Companies Act
have a corporate personality of their own, distinct from that of the Government of India. The land
and buildings are vested in and owned by the companies; the Government of India only owns the
share capital.”

On the basis of the above-mentioned decisions referred to above, In the case of Hindustan Steel
Works Construction Co. Ltd. v. State of Kerala19 , it was observed that a corporation is neither a
government agency nor a government institution, despite all the pervading government power. It
is only a government department, and therefore not excluded from the Kerala
Construction Workers Welfare Fund Act's scope. Again in the case of Electronics Corporation of
India Ltd. v. Govt. of Andhra Pradesh20, the court held that a company owned by central
government does have to pay tax to state government.

A governmental company may also prosecute the government in its own name as a petitioner.
However, when long-standing disputes between a government corporation and government
agency, on the other, results in a loss of taxpayer money, time, such conflicts are solved as far as
possible outside the legal process without much loss of time21.

The workers of a government corporation are not workers of the central government or of the
state government. Because workers of government corporations are not staff of the Government,
they have no statutory right to say that the Government has to pay their wages or that the extra
costs accrued as a result of the adjustment of their pay scales should be met by the Government.
A government company can, in reality, be ended up like every other company incorporated under
the
Act. It could become bankrupt or may not be able to pay bills. This does not imply that
the

22
Ibid
23
Article 12, Constitution of India 1950
24
21 AIR 1979 SCCompany
GK Kapoor, 1628 law and practice 24th edition, page no-57, 58
19
[1998] 2 CLJ 383
20
[1999] 97 Comp. Cas. 470 (SC).

22
Ibid
23
Article 12, Constitution of India 1950
24
21 AIR 1979 SCCompany
GK Kapoor, 1628 law and practice 24th edition, page no-57, 58
stakeholder government, i.e. the central government or the state, as the case could be, has also
became Insolvent.22

Hence from these cases, it could be right to say that the autonomy of government companies is
intact and they are free to run there all the functions without governmental intervention,
even though majority of the share of these companies is owned and controlled by the
government.

Government company as state

Article 12 of the Constitution defines state as follow:” In this Part, unless the context otherwise
requires, “the State‟‟ includes the Government and Parliament of India and the Government and
the Legislature of each of the States and all local or other authorities within the territory of India
or under the control of the Government of India23.”

In different words, the State shall consist of the following for the purposes of Part III of
the
Constitution:

1. Government and parliament, that is central executive and legislature

2. All State government and their legislative assemblies
3. All local or other authority situated in Indian boundary
4. All local and other authority with the control and influence of central government.

CASE LAWS

In the case Ramana Dayaram Shetty vs. the Indian International Airport Authority and Ors24
were mainly concerned with the question whether a governmental company is a state or
not. The Supreme Court created a test to indicate whether companies formed under the acts are
an entity or a government instrumentality. The test here is as follow:

22
Ibid
23
Article 12, Constitution of India 1950
24
21 AIR 1979 SCCompany
GK Kapoor, 1628 law and practice 24th edition, page no-57, 58
1.If the entire share capital of the company is owned by the Government, it will be held, then it is
fair to consider to the company is an instrumentality or the Government entity;

2.The presence of a deep and widespread state control can act as a sign that the company shall be
a State department or entity

3.This could also be a significant factor, if the company enjoys the monopoly position bestowed
by the State

4.If the activities of the company are of public interest and are of near concern to the functions of
the Government, this will be a significant factor in the identification as an instrumentality
of government

5. Particularly, if a government agency is moved to a company, that would have been a key
aspect to endorse this conclusion of becoming a company, an instrumentality or a government
entity.

The implications of the above-mentioned test of “agency or instrumentality” was that the
Government Corporations, as set out in Section 2(45) of the Companies Act, 2013, had begun to
be treated as a State as set out in Article 12 of the Constitution.

This is clear from a number of case laws in which the Supreme Court has stated that, government
companies come within the scope of article 12 and hence they are State. In the case of Som
Prakash v. Union of India25, the issue emerges as to whether or not Bharat Petroleum Corporation
will be considered an authority or State under article 12 , which is a government owned
company registered under the Company Law. The Court held that the corporation must come
within the scope of Article 12. The corporation can be seen as an authentic self of the
government.

Ten years after the judgment of Som Prakash, another judgment of the Court was taken in the
matter of Chander Mohan Khanna v. the National Council for Educational Research and
Training26. This court held that Article 12 should not be applied to include any independent entity
with any link with the government in compliance with the term 'State.' Whereas the state's power
over an entity is vast and omnipresent, it cannot be a key element that the entity is a 'State.

25
AIR 1981 SC 212.
26
(1991) 4 SCC 578 : AIR 1992 SC 76
However, the apex Court in Ajay hasia v Khalid Majid27 ruled that a company owned
by government is representing state. It was observed by court Justice Bhagwati as follow:

“It is immaterial for the purpose whether the corporation is created by a statute or under a
statute. The test is whether it is an instrumentality or agency of the Government and not as to
how it is created. The enquiry has to be not as to how the juristic person is born but why it has
been brought into existence. The corporation may be a statutory corporation created by a statute
or it may be a Government company formed under the Companies Act, or it may be a society
registered under the Societies Registration Act, 1860 or any other similar statute. Whatever be its
genetical origin, it would be an authority within the meaning of Article 12 if it is an
instrumentality or agency of the Government and that would have to be decided on a proper
assessment of the facts in the light of the relevant factors. The concept of instrumentality or
agency of the Government is not limited to a corporation created by a statute but is equally
applicable to a company or society and in a given case it would have to be decided on a
consideration of the relevant factors whether the company or society is an instrumentality or
agency of the Government so as to come within the meaning of the expression „authority‟ in
Article 12.”

In Mysore Paper Mills Ltd. v. Mysore Paper Mills Officers' Association28, the key question was
that it is a government Government Company or not, as set out in Section 617 of the Companies
Act(1956 company act), is a "state" with regard to Article 12. It was stated that the state
government had considerable influence over the operations of the company and its daily
functioning; thus, the company was the government entity or instrumentality, thus accordance
with the criterion that had established in the case of R D Shetty. Accordingly, the Court held that
the Government Company will be a State as provided for in Article 12.

In Rajasthan Electricity Board v. Mohan Lal29, the Apex court held that 'other authorities' must
include all bodies constituted by the constitution or by the law to which the functions are granted
by law. Such constitutional authority shall not be involved in the exercise of government
or
27
AIR 1981 SC 496
28
[2002] 37 SCL 742 (SC).
29
AIR 1967 SC 1857
constitutional functions. The Court stressed that it is irrelevant whether or not the control
bestowed on the entity is of a financial nature.

In the case of Pradeep Kr. Biswas vs Indian Institute of Chemical Biology30, In that matter, the
apex Court held that the Council of Science and Industrial Research (CSIR) was a body under
Art. 12 and compelled by Art. 14. The Court decided that the "Control of the Government in the
CSIR is widespread and it came within the scope of Article 12

Hence, in all the cases mentioned above, the government companies are held as state by the court
under Article 12 of the constitution.

30
(Appeal civil 992 of 2002)