TMI Blog2013 (2) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... the prospectus cannot proceed to allotment of shares. The argument advanced on behalf of respondent no.1/company that on receipt of the share application form, a concluded contract came into existence, is a submission which is completely misconceived because if it was so the concerned company would have to, as of necessity, allot to the applicant, without fail, the exact number of shares for which a request is lodged. As is well known, on very many occasions the opposite happens. This is legitimate since in law, a share application is only an offer. Therefore, the minimum subscription clause appearing in the prospectus would have to yield to the right of an applicant to withdraw his offer before its acceptance. The prospectus issued by a company was an invitation to offer and if the application for shares is made, pursuant to issuance of a prospectus, it was only an offer which could be withdrawn at any stage before its acceptance. Thus minimum subscription would have to be calculated after taking into account the requests made for withdrawal of share application.[See Official Liquidator of Bellary Electric Supply Co. Ltd. Vs. Kanniram Rawoothmal and A. Sirkar vs Parjoar Hosiery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent no.1/company received 51,37,100 applications by the date of closure i.e., 08.03.1996. 3.3 Evidently, there were certain withdrawals as well as rejection of the share applications filed with the Registrar to the Share Issue (in short the Registrar). Undisputedly 23,13,800 share applications were withdrawn, while 3,25,700 share applications were rejected on one ground or the other by the Registrar. Two important facts emerged by virtue of the aforesaid events. 3.4 First, that on the date of closure i.e., 08.03.1996, the public issue of respondent no.1/company was over-subscribed by almost 1.71 times. However, if the rejected share applications were taken into account which, as indicated above, numbered 3,25,700, on the date of closure i.e., 08.03.1996 the public issue was over-subscribed by 1.60 times as against 1.71 times, if all application forms were taken into account. 3.5 Second, if, however, the share applications in respect of which request for withdrawal had been received from the applicants were taken into account the subscription to the public issue of respondent no.1 fell to 94% of the total public issue. Similarly, if both the rejected share applications and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Securities Exchange Board of India Act, 1992 and the Companies Act, 1956 (in short the Companies Act). It may also be pertinent to note that in this very communication of 07.06.1996, there was a discussion as to the applicability of the provisions of Section 72(5) of the Companies Act. SEBI seems to have indicated in the said communication that, the applicant(s) who were desirous of being allotted shares, could withdraw their application after the expiry of the 5th day from the opening of the subscription list. A reference was also given to a previous precedent wherein SEBI had come to the same conclusion. A copy of the said appellate decision, in the case of Vishwalaxmi Petro Products Limited, was also, evidently furnished to respondent no.1/company. 4.4 It appears that being aggrieved, respondent no.1/company filed an appeal with SAT which, by an order dated 20.11.1996, rejected the appeal on the ground that the order impugned was not appealable as it was not an order passed under the provisions of the SEBI Act. Respondent no.1/company was thus permitted to approach the Chairman of the SEBI for redressal of its grievance. 4.5 Accordingly, respondent no.1/company appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of the share application money can only be accepted by the company i.e., in this case respondent no.1/company and not by the Registrar. It is evidently the stand of respondent no.1/company that on the date of closure the public issue was over-subscribed by 1.71 times which was well over the minimum subscription of 100% as per the requirement stipulated in respondent no.1/company s prospectus and therefore, the condition prescribed therein was met. The provisions of Rule 2(3) of the SEBI, Registrar to an issue and Share Transfer Agents Rules 1993 are sought to be invoked to establish that it was never within the remit of the Registrar to permit withdrawal of the share applications. It is sought to be submitted that power, if any, to permit withdrawal of the share application vested with the Board of Directors of respondent no.1/company, and that, the Registrar in that regard had no power to return the share application money to the subscribers. 7. On the other hand, learned counsel for the petitioner, Ms. Acharya has submitted that it is well settled that the prospectus is an invitation to offer and that an applicant desirous of applying for shares, if any, of a listed company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count for determining whether or not the petitioner company achieved the minimum subscription. Undoubtedly, what can be said in favour of respondent no.1/company that the clause pertaining to minimum subscription, as appearing in the prospectus, did indicate that respondent no.1/company was required to refund subscription amount received if it did not receive 100% of the total issue amount till the date of closure of the issue. However, this contractual clause has to be understood in the context of the transaction at hand. The transaction at hand concerns an application for shares which is made by an entity including an individual to a company, pursuant to a prospectus being issued, in this case by respondent no.1/company. 9.1. If that be so a share application is like any other offer which would require acceptance of the offer made. The acceptance of an offer of this nature can only be brought about, inter alia by allotment of shares made in favour of the applicant by some overt method. Like in any other transaction between two individuals before an offer is accepted, the offerer is entitled to revoke the offer. This is precisely what happened in the present case. The minimum su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount is not reached, which is the case in the present petition, then surely no allotment can be made. There can be no dispute about this position in view of the provisions of Section 69 of the Companies Act. The minimum subscription, therefore, would have to be calculated by taking into account the factum of number of withdrawal request rejections made qua share application received. Since the contract between the applicant and the company is concluded only on the allotment of shares the withdrawal request can be made by an applicant well before the said date. There is no dispute vis-a-vis the fact that withdrawal requests were made. 10. The other aspect of the matter which has come to fore is, does the request for withdrawal get triggered automatically or does it require acceptance. The stand of the respondent no.1/company which has been accepted by SAT is that the withdrawal can only take place if its is accepted by the company and since in the present case, the withdrawal request was accepted by the Registrar the order of the Chairman SEBI had to be reversed. As rightly argued by Ms. Acharya, the fallacy in this conclusion is that it is premised on the reasoning that a re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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