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CS Executive · Capital Market and Securities Laws · Issue and Listing of Non-Convertible Securities

Orchid Housing Ltd collects subscription money for a private placement of NCDs. Which statement conforms to section 42 of the Companies Act, 2013?

Application money must be held in a separate account in a scheduled bank and used only to adjust against allotment or to refund if allotment fails. It cannot be received in cash or used before allotment and filing of the return.

  1. AMoney may be received in cash up to a small limit
  2. BMoney may be used immediately on receipt for working capital
  3. CMoney must be kept in a separate account in a scheduled bank and not used except for adjustment against allotment or refundCorrect
  4. DMoney may be kept in the company's general current account until allotment

Explanation

Section 42(6) proviso requires application monies to be kept in a separate bank account in a scheduled bank, usable only for adjustment against allotment or repayment. Payment must be by cheque, demand draft or banking channel, not cash, and monies cannot be used until allotment is made and the return filed.

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