Ramanbhai v. Ghasiram

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“Share” is defined as a share of a company’s share capital, including securities, according to Section 84 of the Companies Act 2013. Shares are regarded as a type of investment. Subsection 80 of Section 2 of the Securities Contracts Act, 1956, relates to the concept of securities as specified in clause (h) of Section 2 of the Securities Contracts Act, 1956.

The shares of any individual of a corporation are movable goods, according to Section 44 of the same Act. It is called transferable in the manner set out in the articles of incorporation.

According to Section 45 of the said Act, all companies with a share capital are required to ensure that their shares are identified by a unique number. This provision would not apply if a share is owned by an individual whose name is entered in the depository’s records as a holder of beneficial interest.

Allotment of Securities

Offers for shares are usually rendered as the corporation has application forms. When an applicant is approved, it is called an allotment. It is described as an appropriation of a company’s previously un-appropriated resources. As a result, re-issuing forfeited securities is not the same as issuing an allotment.

For an allotment to be deemed legal, it must meet the conditions of and rules of contract law when they pertain to the acceptance of offers.

Statutory Restrictions on Allotment

Minimum subscription and application money

The first requirement of a legal allotment, according to Section 49 of the Companies Act of 2013, is a minimum subscription. When shares are sold to the public, the value of the minimum subscription must be reported in the company’s prospectus. No shares shall be allocated until a stated sum has been subscribed and the application money, which shall not be less than the amount of the appeal that was found to be successful, the stock exchange’s decision was overturned, and the listing was granted. It will be possible to keep the allotment.

Over-subscribed Prospectus

If a stock exchange grants approval, and the prospectus is declared over-subscribed, a portion of the money collected must be returned to the applicants within the specified time limit, an allotment is valid.

Principles of Allotment of Shares

Allotment of shares by proper authority

A resolution of the Board of Directors is usually used to allocate shares. However, an allotment rendered by secretaries and treasures was kept to be regular where the articles so presented.

Within the reasonable time

The application must be allotted within a fair or prescribed time frame, or the application would expire. The six-month time limit between registration and allotment has been deemed unreasonable.

Shall be communicated

It is important that the claimant receives notification of the allotment. And if the letter is delayed or misplaced, the posting of a duly forwarded and stamped letter of allotment is called appropriate correspondence.

Absolute and unconditional

The allotment must be absolute and unconditional in accordance with the applicant’s terms and conditions. The Bombay High Court held that an individual who applied for 400 shares on the condition that he would be named cashier of a new branch of the corporation was not bound by any allotment until he was so appointed.  (1)

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Global Depository Receipt

A business may pass a resolution in its general meeting under Section 41 of the Companies Act 2013 authorising it to issue depository receipts in any foreign country in the manner and subject to the conditions specified by the company.

Private Placement

A business can make a private placement under Section 42 of the Companies Act 2013 by issuing offer letters for private placement. The provisions of Section 42 apply to such a placement. The provisions of Section 42 apply to such a placement. An offer of securities or an invitation to subscribe for securities can be made to a limited number of people, up to 50 or a higher number as may be required by law. This figure excludes eligible retail investors and workers of the firm who are being sold shares in a system of employee equity options under Section 62(1). (b).

An offer of private placement to more than the specified amount is considered to be an offer to the public and is regulated by the provisions of (Ss. 23-41) pertaining to public matters, according to the first Explanation to sub-section (2). This would be the case if the company wants to enlist in India or elsewhere.

The Second Explanation to Sub-Section (2) notes that the term “qualified institutional buyer” has the following definition for the purposes of this sub-section: “A qualified institutional buyer” means one as specified in SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009, as amended from time to time.

The corporation should not make a new offer or invitation until allotments under any previous offer have been fulfilled or that offer has been withdrawn or abandoned, according to [Section 42(3)].

All subscription payments must be made via check, demand draught, or other banking networks, rather than cash.

Section 42(5) states that securities must be allotted within 60 days of receipt of application money; otherwise, the application money must be refunded within 15 days or 12% interest will be charged. The money collected on application is to be held in a separate bank account in a scheduled bank and used only for adjustments against securities allotments or refunds as provided under Section 42. (6).

Offers can only be made to those whose names have been registered with the firm previous to the sale. They should be addressed by name when they get the bid. The corporation must keep a full record of all offers in a specified way. Within 30 days after the distribution of the related private placement offer letter, full information about the contract must be submitted with the Registrar. A business selling securities under this section is not allowed to use any newspapers, marketing distribution outlets, or agents to warn the public about the bid, as stated in Section 42(7).

After making allotments, the company must file a return of allotment with the Registrar in the form specified by the company, which must include a detailed list of all security holders, their full names, addresses, the number of securities allocated, and any other particulars.

Consequences for the default

Section 42(10) explains that any violation of the section would subject the company, its owners, and directors to a penalty that may be up to the sum involved in the bid, or two crore rupees, whichever is greater. The corporation must then be able to return the money to customers within 30 days of the penalty order being issued.

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Numbering of shares

Any share in a corporation must be identified by a unique number. The proviso to this declaration states that this provision does not extend to a share owned by an individual whose name is entered in the depository’s records as a holder of beneficial interest in a share.

Certification for shares

An allottee is usually allowed to obtain a document from the company, such as a share certificate. And this certificate verifies that the allottee owns the required number of business shares. 9 Shares in a depository record are not allowed to have unique numbers assigned to them. The right of an allottee to receive his certificate cannot be overridden by a right of lien on any outstanding debts owing to the company.

It was permitted to file a lawsuit in a location other than the company’s registered office.

Duplicate Certificate

A shareholder must properly protect and store his certificate for a copy can not be produced unless and unless the original certificate is missing, disabled, or destroyed by some means and surrendered to the corporation.

Case summary 

(1) In Ramanbhai M. Nilkanth vs. Ghashiram Ladliprasad, the claimant applied for some shares in a business on the condition that he will be named as a cashier in the company’s new division. The corporation allocated shares to the claimant without meeting the requirement and requested the share money from him. In this case, the court determined that the petitioner’s application for 100 shares was conditional, and that the corporation had no intention of accepting the terms of the deal in their entirety until he was selected as a cashier by the company, resulting in only a partial approval of the request.