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

Lotus Retail Ltd. allotted shares to Vivek, whose application was made in a name that was fictitious, with the intention of obtaining shares in that false name. Which statement states the correct legal position under the Companies Act, 2013?

A person who applies for securities in a fictitious name, or induces a company to allot securities to him in such a name, is liable to be punished as for fraud under the Companies Act, 2013. Payment received by the company does not make the application valid or protect the applicant.

  1. AThe allotment is valid because the company received the money
  2. BA person who makes an application in a fictitious name to acquire shares is punishable under the Act as for fraudCorrect
  3. CThe allotment is valid but voidable by the Registrar
  4. DOnly the company is liable, and the applicant is not

Explanation

The Act provides that a person who makes or abets the making of an application in a fictitious name to a company for acquiring or subscribing for its securities, or otherwise induces a company to allot securities to him in a fictitious name, is liable for action under the fraud provisions. Receipt of money does not validate such an application, and the applicant is not exempt.

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