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

Kaveri Textiles Ltd, a public company, makes a public offer of shares. The company's application form states that the minimum subscription is 90% of the issue size. Only 82% of the issue is subscribed within the prescribed period after the issue of the prospectus. What is the legal position regarding the application money received?

The company must refund all application money received, because the minimum subscription stated in the prospectus was not obtained within the prescribed period. It cannot allot shares on the 82% subscribed or retain the money indefinitely. Delay in refund exposes directors to joint and several liability with interest.

  1. AThe company may retain the money and allot shares for 82% of the issue
  2. BThe company must refund all application money within the prescribed time, as the minimum subscription stated was not receivedCorrect
  3. CThe company may keep the money in a separate account indefinitely until the balance is raised
  4. DOnly applicants of more than 100 shares are entitled to a refund

Explanation

If the minimum subscription stated in the prospectus is not received within the prescribed period, the company must refund all money received from applicants within the prescribed time. Directors who fail to repay in time become jointly and severally liable with interest. Partial allotment on 82% is not permitted because the stated minimum was 90%.

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