Page 209 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes shares. A resolution sanctioning the allotment to each applicant the actual number of shares
applied for may be passed by the Board.
Allotment in case of Oversubscription. In case, the issue is over-subscribed, the applicants will
have to be allotted lesser number of shares than applied for. The Board of directors may adopt
either the lottery method (i.e., by drawing lots for the purpose of allotment), or pro rata method
(i.e., by allotting shares to each applicant in proportion to the number of shares applied for). In
case, shares have been listed on a stock exchange, then the allotment will be made in consultation
with the stock exchange authorities.
Resolution for Allotment. The Board of directors then passes a resolution making the allotment
of shares and authorising the company secretary to issue letters of allotment and letters of regret,
as the case may be, to the applicants.
Renunciation of Allotment. The Articles of association of a company may give the allottee the
right to renounce his right to be allotted shares in favour of another person. This is known as
renunciation of allotment. The letter of allotment is accompanied by a blank letter of renunciation
and a letter of request for allotment to be filled in by the person in whose favour the allotment has

been renounced. In such a situation the original allottee is simply selling the right to be allotted
the shares. He is not to follow the elaborate procedure of transfer of shares as his name has not

been put on the register of members. As soon as the letter of renunciation duly filled in by the

original allottee and the Letter of Request for allotment duly filled in by the person in whose
favour the allotment is renounced, together with the allotment money, are sent to the company,
the name of the person making the request for allotment is entered in the Register of members.
Request for split. Sometimes, the original allottee may not be interested in selling the right to be
allotted the shares to one person. He may, instead, be interested in selling the right of allotment
to many persons. In that case, he will make a request to the company to “SPLIT” (divide) his
original allotment letter into a number of such letters.

10.3.6 Return as to Allotment

Section 75 provides that after allotment of shares by any company a Return of Allotment in the
prescribed Form No. 2 must be filed with the Registrar within 30 days of the allotment.

(a) Where shares are allotted for cash, the return must state: (i) the number and nominal
amount of the shares allotted; (ii) the names, addresses and occupation of the allottees; (iii)
the amount paid or payable on each share.
The company shall in no case show in such return any shares as having been allotted for
cash if cash has not actually been received in respect of such allotment.
(b) Where shares (other than bonus shares) are allotted fully or partly paid-up otherwise
than in cash for example, where consideration for allotment of shares is paid by way of
property, goods or services, the return of allotment should contain: (i) a written contract
constituting the title of the allottee to the shares, (ii) the contract of sale or for services or
other consideration for which the allotment was made; and (iii) a return stating the number
and nominal amount of the shares so allotted, to the extent to which they are paid up, and
the consideration for which they are allotted.
Where shares are issued as fully or partly paid up in consideration of a property thereafter
to be sold to the company or services to be rendered to the company or in consideration
of the release of a claim or by way of compromise, the issue is for consideration other than
cash.
Where requisite formalities have been complied with, the Tribunal will not interfere merely
on the ground of inadequacy of consideration unless the contract is fraudulent or shows on
the face of it that the consideration given to the company is illusory or clearly not equal to
the nominal value of the shares.

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