Allotment of Shares and Calls — Company Law Notes

Allotment of Shares and Calls

Applying for shares is just an offer; the company accepts by allotting them. And here is the rule that trips students up: acceptance is complete the moment the allotment letter is posted, even if it is lost in the mail. Contract law’s postal rule quietly governs when you become a shareholder.

Allotment — the general principles

Allotment is the acceptance by the company of an applicant’s offer to take shares — it creates the binding contract that makes the applicant a shareholder. Because it is a contract, ordinary contract rules apply, plus statutory safeguards:

General (contractual) principles:

By proper authority — the Board (or a duly authorised committee) must allot.
Within a reasonable time — an application lapses if not accepted in reasonable time.
Absolute and unconditional — allotment must match the application.
Communicated — but under the postal rule, communication is complete when the allotment letter is posted (Household Fire Insurance v Grant).

Statutory restrictions (for a public issue):

Minimum subscription (s.39) — no allotment until the minimum subscription stated in the prospectus is received; and application money (≥5%) must be received.
Prospectus/return — a prospectus (or private-placement compliance) is needed; a return of allotment (s.39(4)) must be filed with the Registrar.
SEBI/listing conditions for listed public issues.
No allotment at a discount (s.53 prohibits issue of shares at a discount, save sweat equity).

Calls on shares (s.49)

A call is a demand by the company on shareholders to pay the unpaid amount on their partly-paid shares. Essentials of a valid call:

made by a resolution of the Board;
made bona fide in the company’s interest and for its benefit;
uniform on all shares of the same class — this uniformity requirement is what s.49 enacts;
the resolution must specify the amount to be paid and the time and place of payment (a requisite drawn from Table F and the general law of calls).

A call that does not fix the amount and date of payment is invalid — this is the recurring problem.

Section 39(1): “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… have been paid to and received by the company.”

In Simple Terms: Allotment is the company saying “yes” to your offer to buy shares — and in law that “yes” is effective the instant the letter is posted. A call is a later demand for the balance owed on partly-paid shares, and it is only valid if the Board’s resolution fixes the amount, date and place.

flowchart LR
    A["Applicant offers (application)"]:::leaf --> B["Board allots = acceptance"]:::mid
    B --> C["Postal rule (Household 1879): complete on POSTING"]:::leaf
    B --> D["Statutory: min subscription s.39; return of allotment"]:::leaf
    D --> E["Call s.49: amount + date + place, uniform, bona fide"]:::mid2
    classDef mid fill:#DCFCE7,stroke:#166534,color:#000;
    classDef mid2 fill:#FDE8D0,stroke:#92400E,color:#000;
    classDef leaf fill:#E6F3FF,stroke:#1E3A8A,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

🧩 WORKED EXAMPLE — call fixing no date or amount

Facts. Directors, by two resolutions, resolve to make a call for an instalment on shares, but neither resolution specifies the date and amount of payment.

Rule. A valid call (s.49) must fix the amount, time and place of payment; certainty is essential.

Apply. The resolutions leave the amount and date uncertain, so shareholders cannot know what to pay or when.

Decoy. “Two resolutions were passed” — number of resolutions is irrelevant to validity.

Conclusion. The call is invalid for uncertainty; it cannot be enforced against the shareholders.

Case Laws

[C-14] Household Fire Insurance Co. v Grant (1879) — allotment (acceptance) is complete on posting, even if the letter is lost.
Ramsgate Victoria Hotel Co. v Montefiore (1866) — an application not accepted within a reasonable time lapses.

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