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CA Intermediate · Corporate and Other Laws · Prospectus and Allotment of Securities

Kaveri Infra Ltd., a public company, has made a public offer and has not yet received minimum subscription as stated in its prospectus. Several applicants have paid application money into the separate bank account. Which statement reflects the correct legal position?

If minimum subscription is not received within the prescribed period, the company cannot allot shares and must refund the application money. Until allotment conditions are satisfied, the money must be kept in a separate bank account and cannot be used for business needs.

  1. AThe company may allot shares and refund the balance later
  2. BMoney received must be returned if minimum subscription is not received within the prescribed period, and until then it must be kept in a separate bank accountCorrect
  3. CApplication money may be used immediately for business needs
  4. DAllotment may be made to promoters to meet the shortfall

Explanation

Allotment cannot be made unless the minimum subscription stated in the prospectus is received within the prescribed period. Application money must be held in a separate bank account until allotment conditions are met, and if minimum subscription is not received, the amount is to be refunded within the prescribed time. Using the money or allotting to promoters to cover the shortfall is not permitted.

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