## Irregular Allotment — Meaning

An irregular allotment is an allotment made in violation of the statutory pre-conditions for issuing securities. The three principal grounds:

### 1. Prospectus defects (in a public offer)

Company does not issue a prospectus at all, OR
The prospectus issued does not include the matters required under Section 26, OR
The information in the prospectus is misleading, OR
The prospectus is not filed with the ROC.

### 2. Minimum subscription / application money defects

The minimum subscription stated in the prospectus is not received, OR
The amount payable on application is less than the prescribed minimum (typically 5% of the nominal amount of the security, or such other amount as SEBI may specify).

### 3. Listing default

Approval for listing is not obtained from the recognised stock exchange (RSE) where listing was promised.

### Why it matters

An irregular allotment exposes the company to refund obligations, penalties under Section 39/40, and personal liability of directors. The allotment may itself be voidable at the option of the allottee in certain situations.

Worked example

### Example 1

Example: Zeta Ltd files a prospectus stating a minimum subscription of ₹ 50 crores, but receives only ₹ 35 crores within 30 days of issue. Any allotment it nonetheless proceeds to make is irregular — it must instead refund the application money within the statutory window, failing which it pays interest @ 15% p.a. and faces penalties under Section 39(5).

⚠️ Common exam mistakes

Treating 'irregular allotment' as a single section — it is actually a description of multiple breaches across Sections 26, 39 and 40.
Assuming a prospectus that contains all Section 26 matters is automatically safe — if its information is misleading, the allotment is still irregular.

Reference:

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