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

Kaveri Infra Ltd, a public company, made a public offer and its prospectus stated that shares would be listed on a recognised stock exchange. The company applied to one recognised stock exchange for permission to deal in the shares, but permission was refused. Which is the correct legal consequence for allotment under the Companies Act, 2013?

If the stock exchange refuses permission to deal in the shares, the allotment made under the prospectus becomes void, and the company must repay all application money received within the prescribed time. Failing repayment, directors become jointly and severally liable to repay with interest.

  1. AThe allotment becomes void, and the company must repay all application money receivedCorrect
  2. BThe allotment remains valid because listing is only voluntary
  3. CThe allotment is valid but the allottees may not transfer shares for one year
  4. DThe allotment is voidable only at the option of the Registrar

Explanation

Where a prospectus states that an application has been made for permission to deal on a stock exchange, and permission is refused, the allotment becomes void. The company must repay the application money within the prescribed time, failing which directors are jointly and severally liable with interest. Voluntary listing, a lock-in or Registrar's option are not the rule.

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