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ALLOTMENT OF SHARES Allotment of shares means division, distribution or appropriation of shares in a company.

It is method of distributing unissued shares in a company having share capital from out of the authorized share capital in exchange of contribution for capital. in response to an application for such shares. On receipt of application money as is called the company sends a communication to the allottee by dispatching a letter of allotment to the applicant stating how many shares have been allotted to the applicant together with rhe amount paid so far. He then has an unconditional fight to be entered in the register of members in respect of those shares. This happens in the case of public issue. In the case public issue there are two situation 1) oversubscription and 2) under subscription. In the case of oversubscription the number of shares applied for exceeds the number of share available. In such eventuality allotment is made on proportional basis or random draw. If an applicant is issued less number of shares than the number of shares applied for, he receives a refund order in respect of excess number of shares he has applied for. Under subscription of shares arises when the market does not take entire number of shares offered. Creation, issue and allotment are three stages towards the formation or coming into existence of the new share capital. In the cas4e of 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 of 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 of the shares applied for, and a communication by the directors to the applicant of the fact of such allotment having been made. When a return of allotment is made the entire process of issue and allotment of shares gets completed. An allotment shall be made within a reasonable period of time and an applicant is not bound to accept the shares after the lapse of the reasonable period. A delay of 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 of allotment amounts to reducing the share capital of the company. An allotment may be made conditionally. In such case the allottee does not become a member until the condition is fulfilled even if his name has been entered in the register of members. .