Effects of an Irregular Allotment of Shares are as follows:
1. Contract voidable:
An irregular allotment of shares is voidable at the option of the allottee. This option is to be exercised by the allottee latest within 2 months after the holding of the statutory meeting by the company or where the company is not required to hold a statutory meeting or where the allotment is made after the holding of the statutory meeting, within 2 months after the date of such allotment except when the shareholder has either expressly or impliedly agreed to the allotment [Sec. 71 (1)].
The option to avoid the allotment of shares can be exercised even after the company has gone into liquidation and is in the course of liquidation. It is not necessary that the allottee should commence actual legal proceedings within two months. It is enough for him to give a notice to the company of his intention to revoke the allotment.
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2. Directors’ liability:
ADVERTISEMENTS:
Every director of the company, who is an officer in default, shall be liable to compensate the company and the allottees for any loss, damages or costs which they may sustain thereby, provided that proceedings for this purpose are started within 2 years from the date of allotment. [Sec. 71 (3)]
3. Fine:
In case of irregular allotment of shares, penalty is prescribed by the Companies Act which may be imposed on the company and every director of the company responsible for the default. These are:
(a) In the event of any contravention of the provisions [Sec. 69(2), (3) and (4)] regarding raising of minimum subscription; receiving 5% of nominal value of share application money; or keeping of application money in a schedule bank, every promoter, director or other person who is knowingly responsible for such contravention shall be punishable with fine which may extend to? 50,000.
ADVERTISEMENTS:
(b) If a company acts in contravention of provision [Sec. 70 (1) or (2)] regarding filing of statement in lieu of prospectus, the company, and every director of the company who willfully authorises or permits the contravention, shall be punishable with fine which may extend to Rs. 10,000.