In the case of under subscription of shares.

The correct answer is Option (1) → Shares are allotted only when the company receives the subscription and application money on minimum subscription as stated in the prospectus.

Under subscription means applications are received for fewer shares than offered. The company then allots shares only to those who applied, and only if it has received the minimum subscription stated in the prospectus. If even the minimum subscription is not received, the allotment cannot be made and the application money is refunded.

Option (2) Shares are allotted to all applicants without considering anything — Incorrect. Allotment is conditional on minimum subscription, so it cannot be made "without considering anything".

Option (3) All the issued shares are allotted to all applicants proportionally — Incorrect. Pro-rata allotment is a way of handling over-subscription; under subscription leaves too few applications to share out.

Option (4) The issue is closed and application money is refunded. — Incorrect. A refund follows only when the minimum subscription is not received. Under subscription alone does not close the issue: if the minimum is reached, the shares applied for are allotted.