Mandatory share application payment and delayed acceptance can invalidate allotment and prevent enforcement of share money

A share allotment made without payment of the mandatory 5 per cent on application under the Companies Act, 1913 is invalid, and any attempted waiver of that statutory condition is void. On that basis, the company cannot enforce later payment of the balance of the share money. The text also states that, under the Indian Contract Act, 1872, an offer may be revoked by lapse of a reasonable time where acceptance is not communicated in time; mere silence until a later demand does not amount to waiver. The stated effect is that no enforceable contract arose in the covered cases.

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Issues: (i) Whether allotment of shares made without the applicant paying 5 per cent of the nominal value along with the application was valid. (ii) Whether, in the absence of timely communication of acceptance, the proposal stood revoked by lapse of reasonable time.

Issue (i): Whether allotment of shares made without the applicant paying 5 per cent of the nominal value along with the application was valid.

Analysis: Section 101 of the Companies Act, 1913 imposed a mandatory requirement that at least 5 per cent of the nominal amount of each share be paid on application. That requirement applied to subsequent allotments as well, and any condition seeking to waive compliance with it was void. An allotment made without observance of this statutory prerequisite could not be treated as a lawful basis for enforcing payment of the balance of the share money. The company could not rely on its own non-compliance to recover the amount later.

Conclusion: The allotment was invalid and the demand for share money could not be enforced.

Issue (ii): Whether, in the absence of timely communication of acceptance, the proposal stood revoked by lapse of reasonable time.

Analysis: Under section 6 of the Indian Contract Act, 1872, an offer may be revoked by lapse of a reasonable time, and the question depended on whether acceptance had been communicated within such time. On the facts, there was no sufficient pleading or proof that intimation of allotment had been sent to the applicants before demand for payment, and mere silence until demand did not amount to waiver of the right to treat the proposal as revoked. The lapse was therefore sufficient to attract revocation in the relevant cases.

Conclusion: The proposal stood revoked for lapse of reasonable time in the covered cases, and no enforceable contract arose.

Final Conclusion: The revision applications succeeded, the applicants were relieved from liability to pay the share money, and the suits were dismissed.

Ratio Decidendi: A share allotment made in breach of a mandatory statutory payment requirement is invalid, and an offer may be treated as revoked when acceptance is not communicated within a reasonable time.

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