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Corporate Legal Framework

Notes Similarly, the applicant applied for shares in a company on the condition that he should
be appointed a branch manager of the company. Shares were allotted to him but he was not
appointed the branch manager. Held, he was not bound by the allotment – Ramanbhai v. Ghasi
Ram [1918] Bom. LR 595.
Likewise, no condition should be attached to the acceptance of an offer to purchase shares. If the
acceptance introduced a new term, it will be a new offer by a company and it shall not be effective
unless it is accepted by the appllicant.
Revocation – Although application to purchase shares amounts to an offer, and allotment to
acceptance but the general rules of revocation of an offer are not applicable to revocation of
an offer to purchase shares of a company. An offer, in general, may be revoked till accepted.
However, section 72(5) of the Companies Act makes an exception to this rule. It provides that
an application made in pursuance of a prospectus issued generally, i.e., issued to persons who
are not existing members or debenture holders of the company is not revocable until after the
expiration of the 5th day from the date of the opening of the subscription list. But, if before the
expiry of the said 5th day a public notice has been given by some person responsible under
s. 62 (for mis-statement in a prospectus) which shall have the effect of excluding, limiting or
diminishing the responsibility of the person giving it, the application shall not be revocable until
the giving of such notice. In other words, an application for shares or debentures may be revoked
only after the expiry of the 5th day after the opening of the subscription list or a after the public
notice as aforesaid but before the allotment.

An allotment of shares is an appropriation by the Board of directors of a certain number of shares
to a person in response to his application for shares. In other words, it is an assignment of shares
of particular value, of different classes, singly or jointly to different persons. But, it should be
remembered that allotment is an appropriation of a certain number of shares, e.g., 10 shares, 50

shares or 100 shares, and not of specific shares with any distinctive numbers.
10.3.1 Statutory Restrictions on Allotment (Sections 69, 70, 72 and 73)

Certain conditions are to be fulfilled before the Board of directors, or its Committee, if one is
appointed by the Board, can proceed to allot shares. These conditions are:
Registration of prospectus [Sec. 60(1)] –A copy of the prospectus signed by every person who is
named therein as a director or proposed director of the company or by his agent authorized in

writing shall be duly filed with Registrar for registration on or before the date of its publication.
Application money [Sec. 69(3)] – An amount payable on application on each share shall not be
less than 5% of the nominal amount of the share. As per SEBI Guidelines, 2000, application money
shall not be less than 25 per cent of the nominal value of the share.

Monies to be kept deposited in a separate bank account [Sec. 69(4)] – All monies received from
applicants for shares shall be deposited and kept deposited in a scheduled bank: (a) until the

certificate to commence business has been obtained under section 149; or (b) where such certifi cate
has already been obtained, until the entire amount payable on application for shares in respect of
the minimum subscription has been received by the company.
Minimum subscription [Sec. 69 (1)] – A public limited company cannot make any allotment
of shares unless: (a) the amount stated in the prospectus as the minimum amount has been
subscribed; and (b) the sum payable on application for such amount has been paid to and received
by the company.
As per SEBI Guidelines, 2000, a company making any public issue of shares must receive a
minimum of 90% subscription against the entire issue as on the date of the closure of the issue
[within 60 days of the closure of the issue, if the issue is underwritten] before making an allotment
of shares to the public. If minimum amount of 90% is not received within the aforesaid period, all

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