Page 204 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Unit 10: Share Capital

Reasonable time – Allotment must be made within a reasonable period of time; otherwise, the Notes
application lapses. What is reasonable time must remain a question of fact in each case. The
interval of about 6 months between application and allotment has been held to be not reasonable
Ramsgate Victoria Hotel Company v. Montefi ore [1866] LRI Ex. 109. On the expiry of reasonable time,
s. 6 of the Indian Contract Act becomes applicable and the application must be deemed to have
been revoked. In Karachi Oil Products Ltd. v. Kumar Shree Narendrasinghji [1948] 18 Comp. 215
(Bom.), it was held that an allotment of shares made almost a year after the date of application
was ineffective. In this case, an application for shares was made on 11-7-1941 and allotment was
made on 15-6-1942. The court observed that an allotment to be valid should be made within a
reasonable time and the applicant is not bound to accept the allotment if made after the lapse of
reasonable time.
However, if there is unreasonable delay in allotment of shares but shares are accepted by applicant
and are not repudiated he cannot plead that his offer had lapsed because of delay. Thus, where the
applications for shares were made on 2-9-1947 posted letters of acceptance allotting the shares to

the defendants and the shares certificates were sent to the defendants on 20-10-1947 which were
received by them but when the company made demands on 31-8-1948 for the share amounts, the
defendants repudiated and denied liability for the amount of the shares allotted to them, it was
held that there was an offer and acceptance sufficient to constitute a concluded contract.

Communication – The allotment of shares must be communicated to the applicant. A contract of
allotment of shares is like any other contract. There is no fallacy in likening the contract, between
a company and a person who makes an application to become a member, to an ordinary contract;
the circumstances are different but the principles are identical. There must be consent of the two
parties. There must be acceptance of the offer by words or conduct to the knowledge of person
who made the offer. That is required in the case of an application of shares, just as in the case of
any other contract.
In Universal Banking Corporation, In re [1867] LR 3 CH APP 40 (CA), one gentleman applied for

shares and remitted application money; but he never received a certificate or a notice of allotment
nor any information that shares had been allotted to him, nor was any demand made on him for
remittance of the applications on allotment, as was stipulated in the prospectus letter. When he
enquired about the allotment, he was told that it would be looked into. However, it was recorded
in the Minute Book that it had been resolved to allot shares to G; his name had already been
entered in the register of shareholders. But as the company had been ordered to be wound up, the
question was whether G’s name had been properly put on the list of contributories. Held, that, in
the circumstances, it was impossible to hold that any contract had been entered into or that any
knowledge of allotment was given to G. It was not his duty to search the register of members; his
name was, therefore, to be deleted from the list of contributories.
Similarly, a person cannot be treated as a shareholder unless a notice of allotment has been sent
to him. However, once allotment is made and communicated, the directors shall have no power
to release the shareholder by cancelling the allotment; even if the shares had been taken under a
mistake.

Posting of a properly addressed and stamped letter of allotment is a suffi cient communication
even if the letter is delayed or lost in the course of post. Household Fire and Carriage Accident
Insurance Co. v. Grant [1874-80] All ER 919 (CA) is the leading authority. The defendant ‘Grant’
applied for some shares in the plaintiff company. His application was sent by post and letter of
allotment was dispatched by the company soon after. But the letter never reached the applicant.
He was nevertheless held liable as a shareholder.
Absolute and unconditional – The allotment must be absolute and unconditional, i.e., must be
made on the same terms as stated in the application. Thus, where a person applied for 500 shares,
he is not bound to accept an allotment of, say, 100 shares.

LOVELY PROFESSIONAL UNIVERSITY 199