Page 208 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Unit 10: Share Capital

Notes
Table 10.1 : Irregular Allotment - Its Effects

S. No. Nature of Legal effects on Liability of company/directors, etc.
Irregularity Allotment
1. Copy of a Allotment is valid Company and every person knowingly a party to
prospectus not the issue of such prospectus, punishable with fi ne
delivered to the which may extend to ` 50,000 [Sec. 60(5).
Registrar (Sec. 60)
2. Application money Allotment is (a) Director, willfully authorizing contravention,
being less than voidable [Sec. liable for damages to the company as well as to
5%* of the nominal 71(1)] allottee [Sec. 71 (3)].
value of share [Sec.

69(3)] (b) Company and every officer of the company
punishable with fine which may extend to 5,000

rupees [Sec. 629A-residue clause].
3. Minimum Allotment is One closure of the issue [after 60 days from the
Subscription not voidable [Sec. closure of the issue if the issue is under written],
subscribed for [Sec. 71(1)] all moneys to be refunded to applicants without
69(1)] interest; and after 8 days directors liable to pay
money with 15% p.a. interest [Sec. 69(5) and SEBI
Guidelines]
4. Application money Allotment is Director willfully authorizing the contravention
not kept deposited voidable [Sec. liable for damages to the company as well as the
with a scheduled 71(1)] allottee [Sec. 71(3)]
bank [Sec. 69(4)]
5. Application money Allotment Director willfully authorizing the contravention
not kept deposited is voidable liable for damages to the company as well as the
with a scheduled [Sec.71(1)] allottee [Sec. 71(3)]
bank [Sec.69(4)]
6. A statement is lieu Allotment is (a) Company and every director, responsible for
of prospectus not voidable [Sec. contravention punishable with fi ne upto ` 10,000
delivered to the 71(1)] [Sec. 70(4)]
Registrar [Sec.70]
(b) Director who wilfully authorizes the
contravention liable for damages to the company as
well as the allottee [Sec. 71(3)]
7. Time limit as to Allotment is valid Company and every offi cer who is in default liable
opening of the [Sec. 72(3)] for fi ne upto ` 50,000 [Sec. 72(3)]
subscription list
not observed [Sec.
72]
8. Condition as to Allotment is void If permission is not granted within 10 weeks
listing of shares [Sec. 73(1)] from the date of closing of the subscription list,
on a recognized application money to be refunded. If not refunded
stock exchange within 8 days, directors to repay with interest @
not observed [Sec. 15% p.a. [Sec. 73(2)].
73(1)]
* According to SEBI Guidelines, application money cannot be less than 25% except where the issue size is above ` 500 crores
in which case it cannot be more than 25%.
10.3.5 Matters Connected with Allotment of Shares

Once the statutory conditions for allotment are satisfied, the Board of directors can proceed with

the allotment of shares. If the issue has been just fully subscribed or is short of full subscription
(but not less than the minimum subscription) there is no difficulty in making the allotment of

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