Hiranand v Raoji
Rule established
Allotment of shares is complete only when the letter of allotment is communicated to the applicant; until communication, no binding contract exists.
Facts
- The applicant applied for shares in a company. The Board of Directors passed a resolution allotting shares to the applicant. The allotment letter was not communicated to the applicant before the applicant sought to withdraw the application.
Issue
- Whether an allotment of shares is complete upon the passing of a Board resolution, or only upon communication of the allotment to the applicant.
Held
- The Court held that allotment is essentially the acceptance of an offer (application for shares) and, as per general contract law principles, acceptance must be communicated to the offeror. A Board resolution to allot shares without communication to the applicant does not constitute a completed allotment. The applicant was entitled to withdraw before communication.
Ratio Decidendi
Allotment of shares is governed by the general principles of contract law. Since an application for shares is an offer, allotment is the acceptance of that offer. Acceptance is not complete until it is communicated to the offeror (applicant). A mere internal resolution by the Board does not bind the applicant unless and until the allotment is properly communicated. Key quotable line: "Allotment being in the nature of acceptance of an offer, it must be communicated to the applicant to be binding."
How to use it in an exam
Use in questions on the procedure and essentials of allotment of shares, particularly to illustrate that allotment follows contract law principles of communication of acceptance. Also relevant for distinguishing the postal rule (Household Fire Insurance) from situations where no dispatch has occurred.
Source
Source: AIR 1946 Nagpur 305
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.