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

Vihaan Pharma Ltd, a public company, issued a prospectus inviting subscription. Its articles are silent on allotment conditions. Which of the following is the correct legal position regarding the minimum subscription and the application money?

Application money must be kept in a separate bank account and cannot be used before allotment conditions are met. If the minimum subscription stated in the prospectus is not received within the prescribed time, the company must refund the money to applicants.

  1. AApplication money must be kept in a separate bank account, and if the minimum subscription stated in the prospectus is not received within the prescribed period, the money must be refundedCorrect
  2. BThe company may use application money immediately for business expenses before allotment
  3. CMinimum subscription is irrelevant once a prospectus is issued
  4. DThe company may retain the application money for one year even if minimum subscription is not received

Explanation

Application money received must be held in a separate bank account and cannot be used until the company has received the minimum subscription and has complied with the allotment requirements. If it cannot be allotted in time, the money must be returned. Using it earlier or retaining it is contrary to the law.

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