Meaning of Allotment

Offer for shares are made on application forms supplied by the company. When an

application is accepted, it amounts to an allotment.

The expression allotment is not defined under the Companies Act. It means and implies a

division of the share capital into defined shares of a particular value or of different classes

and assignment of such shares to different persons.

General Principles/Rules Regarding Allotment

With regard to the allotment of shares the following general principles should be

observed in addition to the provisions of the Companies Act.

1. Alloted by proper authority — The allotment should be made by proper authority,

i.e., the Board of Directors of the company or a Committee authorised to allot shares on

behalf of the Board. An allotment made without proper authority will be invalid.

2. Allotment against application only — No valid allotment can be made on an oral

request. Section 41 provides that for becoming a member, a person should agree in

writing. Thus, no allotment can be made without a written application for allotment.

3. Allotment not to be in contravention of any other law — If shares are issued in a

manner prohibited by foreign exchange regulations, the issue would be invalid and void

and confer on the allottee no title whatsoever to the shares.

4. Reasonable time — Allotment must be made within a reasonable period of time;

otherwise, the application lapses. What is reasonable time must remain a question of

fact in each case.

5. Communication — The allotment must be communicated to the applicant. A contract

of allotment of shares is like any other contract. There is no fallacy in likening the

contract, between a company and a person who makes an application to become a

member, to an ordinary contract; the circumstances are different but the principles are

identical. There must be the consent of the two parties.

6. Absolute and unconditional — The allotment must be absolute and unconditional,

i.e., must be made on the same terms as stated in the application. Thus, where a person

applied for 500 shares, he is not bound to accept an allotment of, say, 100 shares.

7. 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.