Under this clause of the Act, a person making fictitious applications to a company for acquiring shares could be punishable with imprisonment up to five years. Under the new Companies Act, Sebi was also granted powers to prosecute sush persons, Sebi board member JR Varma told The Financial Express here. Earlier only the Department of Company Affairs was armed with these powers.

"The system was evolved with a view to deterring multiple appications. Still some people might be resorting to such tricks and we have now put in place a mechanism to detect such violators," Prof Verma added. Many investors were resorting to this means to ensure better chances of allotment of shares of some good companies for themselves, but it vitiated the proportionate allotment system followed in such allotments. Under the new norms based on the group's recommendations, the registrar to the issue has to send the list of suspected applicants to Sebi based on the specified parametres so that it could initiate investigation followed by legal action. For this purpose, Sebi has suggested registrars to adopt parameters such as noting the address of the person, bank account(s) and similarity in signatures (though they are in different names), Prof Varma said.

The Sebi group has, however, decided not to bring genuine investors filing appilications though in their own name as the first applicant and the second applicant (usually in the names of their children) were different. But such applicants should disclose about all the applications they have filed. But in a bid to ensure that there would not be any misuse by such investors and put them on a par with other investors their applications would be bunched for allotment. Shares would allowed to be allotted to suspected applicants on proportionate basis as usual, but as a precaution such shares would be frozen till the person concerned is cleared in the case. At the instance of some members of the group, it was decided that the shares would be allowed to be sold by the investor when the share's market price is falling, so that he would not incur any loss due to the norm. But in that case the proceeds would be frozen till the case is resolved, Prof Varma added. In case of wrong/false declaration by the applicant, allhis applications would be compulsorily rejected and the application money forfeited. Another major decision of the group was to do away with the requirement of share allotments in market lots as all the new issues would be compulsorily traded on screen.