COMMERCIAL LAW

CASE STUDY
PRESENTED BY GROUP -4
GROUP MEMBERS
HARISH-(13)
NILESH-(29)
ARUN-(32)
JAGHADEESH-(26)
SUNIL-(19)
 Case No.-31
a.) The Articles of ABC & Company required
that all deeds, documents etc should be
signed by Managing Directors, Secretary
and a Working Director on behalf of the
company. One Mrs. M accepted a deed
of mortgage executed by the Secretary
and Working Director only.
Say whether the mortgage is valid or
not?
FACTS OF THE CASE:-
• The company name is ABC & Company
 b.) One Mr. K applied for 4000 shares in a
company. No allotment was however
made to him. Later the company
transferred 4000 shares to him and
name was placed in register of share
holders. When it was made known to
him he took no steps to have it rectified.
The company was wound up and his
name was placed in the list of
contributories.
Say whether he is liable as contributory
or not?
FACTS OF CASE:-
• The company is public limited
company
• Mr. K applied for 4000 shares in a
company.
• No allotment was made to him.
 • Later they transferred 4000 shares to
him and name was placed in register
of share holders.
• The company was wound up and his
name was placed in the list of
contributories.

ANALYSIS OF THE CASE (b):-

Subscriptions are invited from public through
the issue of prospectus. On the basis of the
prospectus prospective investors apply for
shares. Once a person applies for shares he is
said to make an offer for buying shares in the
company. If his application is accepted the
company proceeds to allot him shares. With
the issue of an allotment letter (irrespective
of its being lost in transit) the offer stands
accepted thereby giving rise to a legally
binding contract.
LEGAL PROVISIONS REGARDING
ALLOTMENT
(A) General Provisions
Application and allotment of shares is
governed by rules of offer and acceptance
as stipulated in the Indian Contract Act,
1872. These are as follows:
a) Allotment of shares can be made only
after the board of directors have passed
a resolution to that effect.
b) Allotment must be made within a
reasonable time of the application made.
If despite an unreasonable delay in
allotment shares are accepted, the
applicant will be bound by such
allotment.
c) Allotment must be duly communicated
to the applicant. As soon as the letter of
acceptance complete in all regards is
posted by the company, the allotment is
complete even if the letter of the
acceptance never reaches the applicant.
d) Allotment must be absolute and
unconditional. If an application is subject
to some condition, the applicant is not
bound to accept shares unless the
condition stipulated has been fulfilled.
Similarly, any condition acceptance by
the company would not constitute valid
allotment as it tantamount to making a
counter offer.
e) An application for shares may be
revoked any time before its acceptance
by the company i.e. before the company
has posted the letter of allotment.
Similarly, the allotment may be revoked
by the company before it has come to
the knowledge of the offeror i.e. the
applicant.

CONCLUSION:-
As Mr. K applied for shares in that
company. This means he had made an
offer to that company for this company
shares. The company transferred 4000
shares later and also it was made known
to him but Mr. K took no steps to have it
rectified. Therefore he becomes the
shareholder of the company because the
allotment of shares amounts to
acceptance of the offer made by Mr. K.
Held, Mr. K is liable as contributory.
 CASE (A)
• Its Articles states that it required that
all deeds, documents etc should be
signed by Managing Directors,
Secretary and a Working Directors on
behalf of the company.
• Mrs. M accepted a deed of mortgage
executed by the Secretary and
Working Director only.
ANALYSIS OF THE CASE:-
CONSTRUCTIVE NOTICE
The memorandum and articles of association
on being registered become public
documents. Any person dealing with the
company is deemed to have the knowledge of
the contents of these documents. This is
known as the ‘doctrine of constructive notice’.
A party dealing with the company is
presumed to have read and understood the
proper meaning of these two documents.
Subsequently, such a party cannot plead
ignorance of the contents of these documents
and seek exemption from being liable.

The articles provided for all deeds to be

signed by the managing directors, secretary
and a working director, a deed signed by a
working director and secretary was held to be
inoperative and the party was not allowed to
seek shelter under the plea that he had not
read the articles.
CONCLUSION:-
Held, the mortgage executed by the Secretary
and Working Director only to Mrs. M is not
valid.