Allotment of securities by company[ Section 39] :

Before we deal with the statutory restrictions in this regard, it will be worthwhile to understand the meaning of the term ‘allotment’. As you know, the intending subscribers send, in reply to the prospectus issued by the company, applications to the company. These applications are mere offers to take, securities since the prospectus is just an invitation to make offer.

Allotment is the acceptance by the company of such offers to take securities. It is an appropriation of securities to an applicant for securities and appropriation out of the previously unappropriated capital of the company. That is why, if the securities which have been forfeited are reissued, you cannot call it an “allotment”. The word “allotment” gives us the notion of a “lot”. Therefore, there must first be a lot of securities then the division of them into value or classes and lastly allocation of them among various applicants [Calcutta Stock Exchange Association, In re., 61 C.W.N. 418 – 0957 Cal. 438].

We shall now discuss the restrictions imposed by the Act on allotment of securities.

(1) Prohibition on allotment of securities: No allotment of any securities of a company offered to the public for subscription shall be made, unless the amount stated in the prospectus as the minimum amount has been subscribed and the sums payable on application for the amount so stated have been paid to and received by the company by cheque or other instrument.

(2) Minimum amount payable on security: The amount payable on application on every security shall not be less than five per cent. of the nominal amount of the security, or such other percentage or amount, as may be specified by the Securities and Exchange Board.

(3) Minimum amount to be received within 30 days: If the stated minimum amount has not been subscribed and the sum payable on application is not received within a period of thirty days from the date of issue of the prospectus, or such other period as may be specified by the Securities and Exchange Board, the amount received shall be returned within such time and manner as may be prescribed.

(4) Filing of return of allotment: Whenever a company having a share capital makes any allotment of securities, it shall file with the Registrar a return of allotment in such manner as may be prescribed.

(5) Penalty in contravention of the provisions: In case of default, the company and its officer who is in default, shall be liable to a penalty, for each default, of one thousand rupees for each day during which such default continues or one lakh rupees, whichever is less.

According to the Companies (Prospectus and Allotment of Securities) Rules, 2014, if the stated minimum amount has not been subscribed and the sum payable on application is not received within the period specified therein, then the application money shall be repaid within a period of fifteen days from the closure of the issue and if any such money is not so repaid within such period, the directors of the company who are officers in default shall jointly and severally be liable to repay that money with interest at the rate of fifteen percent per annum. The application money to be refunded shall be credited only to the bank account from which the subscription was remitted.