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

Orchid Infra Ltd, an unlisted public company, allotted shares to a subscriber. The company later discovered that the allotment was made to a person who had applied in a fictitious name. Mr. Sen, an officer of the company, knowingly made the allotment. Which statement best reflects the legal position on fictitious applications for securities?

Applying for or inducing allotment of securities in a fictitious name is an offence under the Act's personation provision, attracting liability as for fraud. Paying the full money does not cure it, and the provision is not limited to listed companies or to the applicant alone.

  1. AOnly the applicant in the fictitious name is liable, never the company officer
  2. BA person who makes or abets an application in a fictitious name, or induces a company to allot securities to him in a fictitious name, is liable for action under the Act's provision on personation for acquisition of securities, which attracts liability for fraudCorrect
  3. CThe allotment is valid and no liability arises if full money is paid
  4. DOnly SEBI can act and the Companies Act does not apply to unlisted companies

Explanation

The Act penalises any person who makes an application in a fictitious name, or otherwise induces a company to allot or register securities to him in a fictitious name; such conduct is treated as fraud-related liability. Payment of full money does not cure the offence. The provision applies to companies generally, not only listed ones.

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