Read the following passage and answer question from:

Azad Limited having a nominal Capital of ₹3,00,000 divided into shares of ₹10 each offered for public subscription of 20,000 shares payable as ₹2 on application, ₹3 on allotment and balance in two calls of ₹2.50 each. Application were received for 24,000 shares by the company. All the applicants were allotted shares on pro-rata and balance in excess of application was adjusted towards allotment and balance, if any is to be returned.
Azad Limited did not make calls, as it failed to receive allotment money from those shareholder's who had applied for 4800 shares.
Azad Limited also purchased a Machine of ₹25,00,000 at ₹24,00,000 from Hari Limited and issued 7% Debentures of ₹100 each at a discount of 20% as purchase consideration. These debentures were to be redeemed after 5 years at a premium of 10%.

Identify the type of issue being discussed above in the case of Azad Limited.

Over Subscription

The correct answer is option 1- Over Subscription.

Nominal capital = ₹300000 of ₹10 each
Shares = 300000/10
           = 30000
Nominal shares = 30000

Issued shares = 20000
Application received = 24000
Applications received are more than offered shares so it means that there is over subscription of 4000 shares(24000-20000).

In a case of oversubscription, three alternatives are available to the directors to deal with the situation:
(1) they can accept some applications in full and totally reject the others;
(2) they can make a pro-rata allotment to all; and
(3) they can adopt a combination of the above two alternatives which happens to be the most common course adopted in practice.