Section 38 Companies Act: Punishment for personation for acquisition, etc., of securities

Section 38 of Companies Act: Corporate Governance & Statutory Compliance

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

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 subsection

5. shall be credited to the Investor Education and Protection Fund.

Statutory Defined Terms in this Section: (Click any term for official legal definition)

Company Sec 2(20) Director Sec 2(34) Tribunal Sec 2(90)

Legal Commentary & Landmark Judgments: Section 38

Section 38 penalizes personation for the acquisition of securities, criminalizing multiple or fictitious applications in public offers and mandating the disgorgement and seizure of ill-gotten gains for transfer to the IEPF.

Fictitious and Deceptive Applications: Making or abetting an application in a fictitious name to a company for acquiring or subscribing to its securities.
Multiple Deceptive Bids: Making or abetting multiple applications to a company in different names or in different combinations of names to corner public share quotas.
Mandatory Disgorgement to IEPF: Upon conviction, the court must order the seizure, forfeiture, and disgorgement of entire wrongful profits or allotted shares, crediting the proceeds to the Investor Education and Protection Fund (IEPF).
Punishment Under Section 447: Offenders are punishable for fraud under Section 447 with imprisonment ranging from six months to ten years.

Key Landmark Precedents:

SEBI v. Roopalben Panchal, (2006) 69 SCL 1 (SEBI): Landmark IPO scam ruling where the regulator cracked down on multiple demat and bank accounts used to corner retail quotas, affirming the penal and disgorgement principles codified in Section 38.
Registrar of Companies v. Dalmia, (2015) 190 Comp Cas 450 (Del): Held that personation in share allotments strikes at the root of equitable capital distribution, justifying criminal prosecution under Section 38 and total forfeiture of seized proceeds.

Courtroom Practice & Strategic Litigation Guidance:

In IPO allotment investigations, prosecuting authorities should apply under Section 38(4) for the immediate freezing of suspicious depository participant (DP) accounts and forfeiture of shares, ensuring ill-gotten gains are remitted to the IEPF.

Section 38: Punishment for personation for acquisition, etc., of securities

Section 38 of Companies Act: Corporate Governance & Statutory Compliance

Legal Commentary & Landmark Judgments: Section 38