# Irregular Allotment

Concept: An allotment is 'irregular' when the company has not complied with the statutory pre-conditions for a valid allotment. Six common scenarios are recognised.

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## 1. No Prospectus Issued [Section 23]

A company is required to issue a prospectus for a public offer per Section 23.
Failure to issue → Irregular allotment.

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## 2. Invalid or Misleading Prospectus

The prospectus must include required details.

If the prospectus lacks required information, OR
Contains misleading, faulty, or incorrect details

→ Allotment is irregular.

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## 3. Prospectus Not Filed with Registrar [Section 26(4)]

The prospectus must be filed with the ROC before issue (Section 26(4)).
Failure to file → Irregular allotment.

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## 4. Minimum Subscription Not Received [Section 39]

Minimum subscription stated in the prospectus must be received.
If not received within 30 days → Allotment is irregular (and refund must follow).

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## 5. Application Money Below 5% of Nominal Value

If the minimum application money is:

Less than 5% of the nominal value of securities, OR
Less than amount prescribed by SEBI (currently 25% of issue price)

→ Allotment is irregular.

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## 6. No Listing Approval [Section 40]

In a public issue:

If listing approval from one or more recognised stock exchanges is not obtained

→ Allotment is irregular.

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## Summary Checklist — Conditions for Valid Allotment

```

✓ Prospectus issued (Sec 23)

✓ Prospectus contains all required disclosures, no misleading info

✓ Prospectus filed with ROC (Sec 26(4))

✓ Minimum subscription received (Sec 39)

✓ Application money ≥ 5% of face value (or SEBI %)

✓ Listing approval from recognised stock exchange (Sec 40)

Missing ANY one → IRREGULAR ALLOTMENT

```

## Effect of Irregular Allotment

Allotment may be voidable or invalid depending on the defect.
Refund obligations kick in.
Officers in default are liable to penalties (under the respective sections).
Investors may seek remedies (rescission, damages).

Worked example

### Example 1

Example 1: ABC Ltd issues a prospectus, files it with ROC, receives ₹100 Cr subscription against ₹120 Cr issue (minimum subscription was ₹108 Cr — 90% of issue). Company allots shares.

Answer: Minimum subscription (₹108 Cr) was not met (only ₹100 Cr received). Allotment is IRREGULAR under Section 39. Refund must be made within 15 days of issue closure.

### Example 2

Example 2: XYZ Ltd makes a public issue without applying to any stock exchange.

Answer: No listing approval → Allotment is IRREGULAR under Section 40. Company faces ₹5L–₹50L penalty; officers in default ₹50,000–₹3L.

### Example 3

Example 3: A company collects only ₹2 application money on shares with face value of ₹100.

Answer: Application money is 2% of nominal value, less than the 5% minimum (and below SEBI's 25% of issue price). Allotment is IRREGULAR.

⚠️ Common exam mistakes

Treating irregular allotment as a 'minor' defect — it is a serious compliance failure with consequences across multiple sections.
Confusing the 5% of nominal value threshold (basic statutory floor) with the SEBI 25% of issue price requirement — both must be considered.
Forgetting that listing approval is required BEFORE the public offer, not after.
Missing that lack of any required disclosure in the prospectus itself can render allotment irregular.
Believing irregular allotment automatically voids share certificates — it depends on the nature of defect; some defects make allotment voidable, others invalid.

Reference: Sections 23, 26, 39, 40 — Companies Act, 2013

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Irregular Allotment - Defaults that Render Allotment Invalid

Worked example

⚠️ Common exam mistakes