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Corporate Legal Framework

Notes day, be jointly and severally liable to repay with interest at the rate of 15% p.a. If default is made
in complying with this provision, then the company and every officer who is in default shall be

liable to be fined up to ` 50,000 and where repayment is not made within six months from the
expiry of the eighth day, also with imprisonment upto one year.
10.3.2 Effect of Irregular Allotment (Section 71)

If a company, without complying with the provisions of Sections 69 and 70 (i.e., minimum
subscription, the application money, or a statement lieu of prospectus), makes an allotment, then
such an allotment is known as irregular allotment and is voidable at the instance of the allottee.
An allottee may avoid the allotment, if he so desires: (i) within two months of the statutory
meeting, or (ii) within two months of allotment, if the allotment was made after the statutory
meeting.
Furthermore, the directors are liable to compensate the company or the allottee for any loss or
damage suffered through such irregular allotment, provided that the proceedings to recover
such loss or damage are commenced before the expiration of two years from the date of the
allotment.
In this connection, provisions of s. 69 regarding the effect of not receiving minimum subscription
should also be noted. If the company is unable to receive minimum subscription within 120 days

after the first issue of the prospectus [According to SEBI Guidelines, 2000, on closure of issue
within 60 days from the closure of the issue, (if the issue is underwritten)], it must refund within
next 10 days [8 days, as per SEBI Guidelines, 2000] all moneys received from the applicants. If the
money is not refunded within the said period of 10 days [8 days, as per SEBI Guidelines, 2000],
then the directors of the company shall be jointly and severally liable to repay that money with
interest at the rate of six per cent per annum [According to SEBI Guidelines @15% p.a.] from the
expiry of the 10th day [8th day as per SEBI Guidelines].
10.3.3 Effect of Allotment of Shares in Contravention of S. 72

The validity of an allotment is not affected by non-compliance of the provisions of s.72. In other
words, the allotment is valid. However, the company and every officer who is in default is liable

to be fi ned upto ` 50,000.

10.3.4 Effect of Contravention of Section 73

The allotment, if made, shall be void, and money becomes refundable to the allottee, as explained
earlier.
Table 10.1 summarises the various provisions relating to allotment of shares and the consequences
of their non-compliance.

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