Chapter III - Prospectus and Allotment of Securities
Section 38
Section 38: fictitious and multiple applications for securities
Section 38 targets people who apply for or obtain securities under false or multiple identities. Anyone who does so, or abets it, is liable for action under section 447, the fraud provision of the Act.
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This article is for general information. Refer to the Companies Act, 2013 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Any person who—(a) makes or abets making of an application in a fictitious name to a company for acquiring, or subscribing for, its securities; or (b) makes or abets making of multiple applications to a company in different names or in different combinations of his name or surname for acquiring or subscribing for its securities; or (c) otherwise induces directly or indirectly a company to allot, or register any transfer of, securities to him, or to any other person in a fictitious name, shall be liable for action under section 447. (2) The provisions of sub-section (1) shall be prominently reproduced in every prospectus issued by a company and in every form of application for securities. (3) Where a person has been convicted under this section, the Court may also order disgorgement of gain, if any, made by, and seizure and disposal of the securities in possession of, such person. (4) The amount received through disgorgement or disposal of securities under sub-section (3) shall be credited to the Investor Education and Protection Fund.
Introduction
The section also requires its own text to be printed prominently in every prospectus and application form, and allows the court to order disgorgement of gains and seizure of the securities. Money recovered goes to the Investor Education and Protection Fund.
Section 38 commenced on 12 September 2013 under S.O. 2754(E). The India Code consolidated text shows no amendment, and the text is identical to the Act as published in 2013.
Key takeaways
Three kinds of conduct
Applying in a fictitious name, making multiple applications in different names or name combinations, and otherwise inducing allotment or transfer to a fictitious person.
Fraud consequences
A person who does any of these, or abets the first two, is liable for action under section 447.
Mandatory warning
Sub-section (1) must be reproduced prominently in every prospectus and every application form for securities.
Disgorgement
On conviction the court may order disgorgement of gains and seizure and disposal of the securities; the proceeds go to the Investor Education and Protection Fund.
What is prohibited
Section 38(1) covers any person who (a) makes or abets making an application in a fictitious name to a company to acquire or subscribe for its securities; (b) makes or abets making multiple applications to a company in different names, or in different combinations of his name or surname, to acquire or subscribe for its securities; or (c) otherwise induces a company, directly or indirectly, to allot or register a transfer of securities to him or to any other person in a fictitious name. Such a person is liable for action under section 447.
Warning in every prospectus and form
Section 38(2) requires the provisions of sub-section (1) to be prominently reproduced in every prospectus issued by a company and in every form of application for securities. This is why offer documents and application forms carry the section 38 warning.
Disgorgement and the IEPF
Where a person has been convicted under section 38, the court may also order disgorgement of any gain made, and seizure and disposal of the securities in that person’s possession (sub-section (3)). The amounts received through disgorgement or disposal are credited to the Investor Education and Protection Fund (sub-section (4)).
Practical preparation
For issuers: print the section 38(1) text prominently in the prospectus and every application form; use permanent account and depository details to detect duplicate applications; report suspected fictitious applications. For applicants: apply only once, in your own name as recorded with your depository participant.
Practical checklist
Do
- Reproduce section 38(1) prominently in every prospectus and application form.
- Screen applications for duplicate identities before allotment.
Avoid
- Do not apply in the names of relatives or employees to increase your allotment.
- Do not register a transfer you know to be in a fictitious name.
Illustrative example
Hypothetical: multiple applications in an issue
An investor submits several applications in a public issue using variations of his own name, to improve his chances of allotment.
Detection
The registrar finds that the applications share the same identity details.
Liability
The conduct falls within section 38(1)(b), so he is liable for action under section 447.
Court order
On conviction, the court may order disgorgement of gains and seizure of the securities; proceeds go to the IEPF.
Outcome
- The warning printed in the application form under section 38(2) makes it hard to claim ignorance.
Glossary
- Personation
- Pretending to be another person, or using a fictitious identity, here to obtain securities.
- Disgorgement
- An order to give up gains made from the wrongdoing.
- Investor Education and Protection Fund
- The fund under section 125 of the Act to which disgorged amounts under section 38(4) are credited.
Frequently asked questions
Is applying through several family members’ names an offence?
Applications made in the genuine names of separate applicants are not fictitious. But making or abetting multiple applications in different names or name combinations to acquire securities for yourself falls within section 38(1)(b).
What punishment applies?
Section 38(1) makes the person liable for action under section 447, which deals with punishment for fraud.
Where does disgorged money go?
To the Investor Education and Protection Fund, under section 38(4).
Need help applying this provision to your situation?
Contact BizeneedLast updated 11 October 2026