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

Meera Foods Ltd, a public company, received applications for shares under its prospectus. Which of the following is the correct rule regarding application money held before allotment?

Application money received on a prospectus must be kept in a separate account with a scheduled bank. It can be used only for adjustment against allotment or for repayment where allotment cannot be made, and not for business operations, investments or advances to promoters before the statutory conditions are met.

  1. AThe money may be used immediately for business operations
  2. BThe money received must be kept in a separate bank account in a scheduled bank and cannot be used for any purpose other than adjustment against allotment or repayment until the allotment conditions are satisfiedCorrect
  3. CThe money may be invested in any securities of the company's choice
  4. DThe money may be paid to promoters as advances

Explanation

Application money received on a prospectus must be kept in a separate bank account with a scheduled bank and utilised only for the purposes permitted, such as adjusting against allotment or repaying when allotment cannot proceed. Using it for operations or advances before permitted conditions are met violates the Act. Hence option B is correct.

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