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Provisions/Conditions as to the Allotment of Shares

The arrangements applicable in relation to the allotment of shares can be studied as follows:

I. General Provisions:-

Approval on the applications of the applicants is called allotment and as a result of that the contractual relationship between the company and the applicants is born. Therefore, for the establishment of valid contractual relations, acceptance of the applications of shares (ie, allotment of shares should be done properly. For this it is necessary to comply with the following terms or conditions while importing the shares)

1. Allotment must be made by proper authority. Allotment of shares should be done only by proper and empowered person or group of persons of the company. Generally, the Board of Directors has the right to allocate shares, but if there is a provision in the Articles, the Board of Directors can hand over the right of allotment of shares to the Committee of Directors.

2. Allotment of shares must be made within reasonable time– Section 6 of the Indian Contract Act states that the acceptance must be made within reasonable time. This also applies in relation to the acceptance of applications for shares. If the company does not allot the shares on time, the company cannot compel the applicants to take those shares.

The proper timing may vary according to circumstances, but SEBI guidelines have to be followed in case of allotment of shares by public issue. As per these guidelines, at present companies have to make allotments within 15 days from the date of closure of the issue. If the company commits an error in sending the allotment letter or refund order within 15 days from the date of closure of the issue, the company has to pay 15 percent interest on the application fee thereafter.

3. Allotment must be Communicated. When the company allocates the shares, it must send the allotment notice to the applicant. This rule is based on the premise that ‘conveyance of acceptance is necessary. Mere ‘mindset acceptance’ cannot be considered acceptance. If intimation of allotment is not sent to the applicant, he is not bound by the allotment and he cannot be held liable as a shareholder.

4. Allotment must be Unconditional The allotment of shares by the company should be complete and unconditional. Although the applicant can impose conditions of allotment with his application, but the company cannot impose any specific condition regarding the allotment. If the company puts any condition in the allotment, then that allotment is void.

5. Revocation of Proposal to take Share and Revocation of Allotment – According to section 5 of the Indian Contract Act, any offer or acceptance can be revoked. According to this section, any offer can be revoked against the proposer at any time before the transmission of acceptance is completed, whereas acceptance can be revoked at any time before the completion of the transmission of acceptance against the acceptor. .

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