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PROSPECTU
S
PRESENTED BY-
VANDANA DHOUNDIYAL
DEFINITION
 Prospectus s defined under section 2(70) in the folloowing words-
“’Prospectus’ means any document prescribed or issued as a prospectus and
includes a red herring prospectus referred in section 32 or shelf prospectus
referred to in section 31 or any notice, circular, advertisement or other document
inviting offers from the public for subscription or purchase of any securities of a
body corporate.”
 A public company is entitled to invite applications for its shares and debentures by
issuing a prospectus.
APPLICATION FORMS [SEC. 33]
 Application forms can not be issued unless they are accompanied by a
memorandum containing such salient features of a prospectus as may be
prescribed.
 A copy of the prospectus has to be given to a person who requests it before
closing of the offer and the subscription list[sec. 33(2)]
A default makes the company liabke to a penalty of Rupees 50000 for each
default.
PUBLIC OFFER AND PRIVATE PLACEMENT
[SEC 23]
 A public company may issue securities to public through prospectus (to be
referred to as public offer by complying with the provisions of part I of chapter 3
on prospectus and allotment of securities).
 It may also be done through private placement by complying with the provisions of
part II of chapter 3.
 It may also be done through rights issues or bonus issue by complying with the
provisions of the act and in the case of listed companies by complying with the
provisions of SEBI Act, 1992, and rules and regulations made under it.
Cont.
 A private company ay issue securities by way of rights issue or bonus issue or
through private placement by complying with the provisions of part II of chapter 3.
 A private company cannot issue prospectus to invite applications for its shares or
debentures.
Variation in terms of contractor objects
stated in prospectus [Sec. 27]
The terms of contract referred to in the prospectus or objects for
which prospectus has been issued can be varied only with the
authority of the company given by it in general meeting by way of
special resolution.
Offer of sale of shares of certain members
[Sec. 28]
Where certain members of the company, in consultation with the
board of directors, and in accordance with the applicable law,
propose to offer the whole or a part of their holding shares to the
public they may do so in accordance with the prescribed
procedure.
Types of Prospectus
 Abridged Prospectus
According to Section 2(1) of the Act, abridged prospectus means a memorandum
containing such salient features of a prospectus as may be specified by the SEBI by
making regulations in this behalf. It means that a company cannot issue application
form for purchase of securities unless such form is accompanied by an abridged
prospectus.
 Deemed Prospectus
According to Section 25(1) of the Act, where a company allots or
agrees to allot any securities of the company with a view to all or
any of those securities being offered for sale to the public. Any
document by which such offer for sale to the public is made is
deemed to be a prospectus by implication of law.
 Shelf Prospectus
According to Section 31 of the Act, Shelf prospectus is a
prospectus in respect of which the securities or class of securities
included therein are issued for subscription in one or more issues
over a certain period without the issue of a further
prospectus. Only the companies which have been prescribed by
the SEBI can issue a Shelf prospectus with the Registrar.
 Red Herring Prospectus (RHP)
According to Section 32 of the Act, an RHP means a prospectus
which does not have complete particulars on the price of the
securities offered and quantum of securities to be issued. A
company may issue an RHP prior to the issue of a prospectus. The
company shall file RHP with Registrar at least three days prior to
the opening of the subscription list and the offer. An RHP carries
the same obligations as are applicable to a prospectus and any
variation between the RHP and a prospectus shall be highlighted as
variations in the prospectus
REQUIREMENTS OF PROSPECTUS
 Prospectus must be dated i.e. publication date.
 It must include an auditor’s report on last five years profit and loss account and on
balance sheet at last date on which accounts were prepared being a date not more
than 120 days before the date of issue of the prospectus.
 It must be issued/published not less than seven or more than thirty days before the
subscription date.
 If prospectus includes a statement made by an expert, the expert must not be
engaged or interested in the formation or promotion or in the management of the
company. A written consent of the expert should also be obtained before the issue of
prospectus with the statement.
 In case of a listed company approval of the SEBI must be obtained within sixty days
before the date of issue of prospectus .However , Commission may, impose such
conditions as it may deem necessary.
 A copy of prospectus must be sent to the registrar before the issue of
 prospectus.
 Registrar shall not register the prospectus unless the above requirements have been
complied with.
 A sufficient number of copies of the prospectus issued under subsection (1) of section
53 shall be made available at the registered office of the company with the stock
exchange at which the company is listed or is proposed to be listed and with the
bankers to the issue and the prospectus in its full text or in such abridged form as may
be prescribed shall be published at least in one local daily and one
 English daily newspaper having circulation in the province where stock exchange is
situated at which the company is listed.
DOCUMENTS REQUIRED
 DOCUMENTS REQUIRED TO BE ATTACHED TO THE PROSPECTUS:
 Consent of expert; and
 In the case of a prospectus issued generally;
a copy of contracts regarding remuneration of Chief Executive etc and in case of
an unwritten contract, a memorandum thereof, and a report from the auditors
regarding any adjustments to assets and liabilities of the company and reason
thereof.
LIABILITY FOR MISSTATEMENT IN THE
PROSPECTUS
 Those who issue prospectus holding out to the public the great advantages which
will accrue to persons who will take shares in a proposed undertaking, and inviting
the to take shares on the faith of the representations therein contained, are bound
to state everything with strict and scrupulous accuracy and not only to abstain
from stating as fact that which is not so, but to omit no one fact within their
knowledge, the existence of which might in any degree affect the nature or extent
and quality of the privileges and advantages which the prospectus holds as
inducement to take shares.
LIABILITY FOR MISSTATEMENT IN THE
PROSPECTUS
 1.) CIVIL LIABILITY
 • AGAINST THE COMPANY
 ▫ TO RESCIND THE CONTRACT
 ▫ TO CLAIM THE DAMAGES
 • AGAINST THE DIRECTORS, PROMOTERS AND EXPERTS
 ▫ COMPENSATION
 ▫ DAMAGES
 ▫ DAMAGES UNDER GENERAL LAW
 2.) CRIMINAL LIABILITY
WHO CAN BE SUED?
• The company
• Every director
• Every person whose name appeared in the prospectus as a proposed
director
• Every promoter
• Every person who authorised the issue of prospectus
• An expert ( an engineer, a chartered accountant, a company
secretary, a cost accountant, etc.)
ONUS OF PROOF
 • An allottee must prove that:
 • The misrepresentation was of fact;
 • It was in respect of material fact;
 • He acted on the misrepresentation; and
 • He has suffered damages in consequence.
CIVIL LIABILITY FOR MISSTATEMENTS
IN
PROSPECTUS
 1.Where a person has subscribed for securities of a company acting on any statement included, or
the inclusion or omission of any matter, in the prospectus which is misleading and has sustained
any loss or damage as a consequence thereof, the company and every person who—
 • a. is a director of the company at the time of the issue of the prospectus;
 • b. has authorised himself to be named and is named in the prospectus as a director of the
company, or has agreed to become such director, either immediately or after an interval of time;
 • c. is a promoter of the company;
 • d. has authorised the issue of the prospectus; and
 • e. is an expert referred to in sub-section (5) of section 26, shall, without prejudice to any
punishment to which any person may be liable under section 36, be liable to pay compensation to
every person who has sustained such loss or damage.
 2. No person shall be liable under sub-section (1), if he proves—
 • a. that, having consented to become a director of the company, he withdrew his consent before
the issue of the prospectus, and that it was issued without his authority or consent; or
 • b. that the prospectus was issued without his knowledge or consent,
 and that on becoming aware of its issue, he forthwith gave a reasonable public notice that it was
issued without his knowledge or consent.
 3. Notwithstanding anything contained in this section, where it is proved that a prospectus has
been issued with intent to defraud the applicants for the securities of a company or any other
person or for any fraudulent purpose, every person referred to in subsection (1) shall be
personally responsible, without any limitation of liability, for all or any of the losses or damages
that may have been incurred byany person who subscribed to the securities on the basis of such
prospectus.
REMEDIES AGAINST THE COMPANY
 1.) Recession of the contract: The right to rescind the contract is
 available if he proves the following:
 Prospectus was issued by or on behalf of the company.
 Statement must be untrue.
 Statement must be material misrepresentation.
 The misrepresentation must have induced the shareholders to rely on the statement in
applying for shares.
 Misrepresentation must be of the facts and not of law( expression of opinion).
 That he has taken action promptly to rescind the contract.
 2.) Right of action for damages for deceit: This remedy is available even after
the company has gone into liquidation only if following conditions are satisfied:
 Person who issued the prospectus knew that statement was false.
 That person was authorised to issue the prospectus.
 That the allottee has suffered the loss due to misrepresentation.
REMEDIES AGAINST THE DIRECTORS,
PROMOTERS AND EXPERTS
 1.) Compensation: The liability consists in paying damages by way of
compensation to the aggrieved party. The compensation payable will be the
difference between the price paid for shares and their value at the date they are
allotted to the subscriber.
 2.) Damages for non compliance with section 26: The remedy is to recover
damages and not of recession.
 3.) Damages under General Law: Plaintiff has to establish the following:
 There was a fraudulent misstatement.
 False representation related to material facts.
Defences of Directors, Promoters and
Experts:
• They can escape the liability for damages if they prove the following:
 They withdrew the consent before the prospectus
 was issued.
 Issued without the knowledge.
 Reasonable ground for belief.
CRIMINAL LIABILITY FOR
MISSTATEMENTS IN PROSPECTUS
 Where a prospectus, issued, circulated or distributed under this Chapter, includes any statement
which is untrue or misleading in form or context in which it is included or where any inclusion or
omission of any matter is likely to mislead, every person who authorizes the issue of such
prospectus shall be liable under section 447.
 Imprisonment for a term which may not be less than six months but which may extend to
10 years; or
 Amount not less than the amount involved in fraud but it may extend to three times the
amount of fraud;
 or both imprisonment and fine.
• Provided that nothing in this section shall apply to a person if he proves that such statement or
omission was immaterial or that he had reasonable grounds to believe, and did up to the time of
issue of the prospectus believe, that the statement was true or the inclusion or omission was
necessary.
THANK YOU

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Corporate Law- Prospectus

  • 2. DEFINITION  Prospectus s defined under section 2(70) in the folloowing words- “’Prospectus’ means any document prescribed or issued as a prospectus and includes a red herring prospectus referred in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for subscription or purchase of any securities of a body corporate.”  A public company is entitled to invite applications for its shares and debentures by issuing a prospectus.
  • 3. APPLICATION FORMS [SEC. 33]  Application forms can not be issued unless they are accompanied by a memorandum containing such salient features of a prospectus as may be prescribed.  A copy of the prospectus has to be given to a person who requests it before closing of the offer and the subscription list[sec. 33(2)] A default makes the company liabke to a penalty of Rupees 50000 for each default.
  • 4. PUBLIC OFFER AND PRIVATE PLACEMENT [SEC 23]  A public company may issue securities to public through prospectus (to be referred to as public offer by complying with the provisions of part I of chapter 3 on prospectus and allotment of securities).  It may also be done through private placement by complying with the provisions of part II of chapter 3.  It may also be done through rights issues or bonus issue by complying with the provisions of the act and in the case of listed companies by complying with the provisions of SEBI Act, 1992, and rules and regulations made under it.
  • 5. Cont.  A private company ay issue securities by way of rights issue or bonus issue or through private placement by complying with the provisions of part II of chapter 3.  A private company cannot issue prospectus to invite applications for its shares or debentures.
  • 6. Variation in terms of contractor objects stated in prospectus [Sec. 27] The terms of contract referred to in the prospectus or objects for which prospectus has been issued can be varied only with the authority of the company given by it in general meeting by way of special resolution.
  • 7. Offer of sale of shares of certain members [Sec. 28] Where certain members of the company, in consultation with the board of directors, and in accordance with the applicable law, propose to offer the whole or a part of their holding shares to the public they may do so in accordance with the prescribed procedure.
  • 8. Types of Prospectus  Abridged Prospectus According to Section 2(1) of the Act, abridged prospectus means a memorandum containing such salient features of a prospectus as may be specified by the SEBI by making regulations in this behalf. It means that a company cannot issue application form for purchase of securities unless such form is accompanied by an abridged prospectus.
  • 9.  Deemed Prospectus According to Section 25(1) of the Act, where a company allots or agrees to allot any securities of the company with a view to all or any of those securities being offered for sale to the public. Any document by which such offer for sale to the public is made is deemed to be a prospectus by implication of law.  Shelf Prospectus According to Section 31 of the Act, Shelf prospectus is a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus. Only the companies which have been prescribed by the SEBI can issue a Shelf prospectus with the Registrar.
  • 10.  Red Herring Prospectus (RHP) According to Section 32 of the Act, an RHP means a prospectus which does not have complete particulars on the price of the securities offered and quantum of securities to be issued. A company may issue an RHP prior to the issue of a prospectus. The company shall file RHP with Registrar at least three days prior to the opening of the subscription list and the offer. An RHP carries the same obligations as are applicable to a prospectus and any variation between the RHP and a prospectus shall be highlighted as variations in the prospectus
  • 11. REQUIREMENTS OF PROSPECTUS  Prospectus must be dated i.e. publication date.  It must include an auditor’s report on last five years profit and loss account and on balance sheet at last date on which accounts were prepared being a date not more than 120 days before the date of issue of the prospectus.  It must be issued/published not less than seven or more than thirty days before the subscription date.  If prospectus includes a statement made by an expert, the expert must not be engaged or interested in the formation or promotion or in the management of the company. A written consent of the expert should also be obtained before the issue of prospectus with the statement.  In case of a listed company approval of the SEBI must be obtained within sixty days before the date of issue of prospectus .However , Commission may, impose such conditions as it may deem necessary.
  • 12.  A copy of prospectus must be sent to the registrar before the issue of  prospectus.  Registrar shall not register the prospectus unless the above requirements have been complied with.  A sufficient number of copies of the prospectus issued under subsection (1) of section 53 shall be made available at the registered office of the company with the stock exchange at which the company is listed or is proposed to be listed and with the bankers to the issue and the prospectus in its full text or in such abridged form as may be prescribed shall be published at least in one local daily and one  English daily newspaper having circulation in the province where stock exchange is situated at which the company is listed.
  • 13. DOCUMENTS REQUIRED  DOCUMENTS REQUIRED TO BE ATTACHED TO THE PROSPECTUS:  Consent of expert; and  In the case of a prospectus issued generally; a copy of contracts regarding remuneration of Chief Executive etc and in case of an unwritten contract, a memorandum thereof, and a report from the auditors regarding any adjustments to assets and liabilities of the company and reason thereof.
  • 14. LIABILITY FOR MISSTATEMENT IN THE PROSPECTUS  Those who issue prospectus holding out to the public the great advantages which will accrue to persons who will take shares in a proposed undertaking, and inviting the to take shares on the faith of the representations therein contained, are bound to state everything with strict and scrupulous accuracy and not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge, the existence of which might in any degree affect the nature or extent and quality of the privileges and advantages which the prospectus holds as inducement to take shares.
  • 15. LIABILITY FOR MISSTATEMENT IN THE PROSPECTUS  1.) CIVIL LIABILITY  • AGAINST THE COMPANY  ▫ TO RESCIND THE CONTRACT  ▫ TO CLAIM THE DAMAGES  • AGAINST THE DIRECTORS, PROMOTERS AND EXPERTS  ▫ COMPENSATION  ▫ DAMAGES  ▫ DAMAGES UNDER GENERAL LAW  2.) CRIMINAL LIABILITY
  • 16. WHO CAN BE SUED? • The company • Every director • Every person whose name appeared in the prospectus as a proposed director • Every promoter • Every person who authorised the issue of prospectus • An expert ( an engineer, a chartered accountant, a company secretary, a cost accountant, etc.)
  • 17. ONUS OF PROOF  • An allottee must prove that:  • The misrepresentation was of fact;  • It was in respect of material fact;  • He acted on the misrepresentation; and  • He has suffered damages in consequence.
  • 18. CIVIL LIABILITY FOR MISSTATEMENTS IN PROSPECTUS  1.Where a person has subscribed for securities of a company acting on any statement included, or the inclusion or omission of any matter, in the prospectus which is misleading and has sustained any loss or damage as a consequence thereof, the company and every person who—  • a. is a director of the company at the time of the issue of the prospectus;  • b. has authorised himself to be named and is named in the prospectus as a director of the company, or has agreed to become such director, either immediately or after an interval of time;  • c. is a promoter of the company;  • d. has authorised the issue of the prospectus; and  • e. is an expert referred to in sub-section (5) of section 26, shall, without prejudice to any punishment to which any person may be liable under section 36, be liable to pay compensation to every person who has sustained such loss or damage.
  • 19.  2. No person shall be liable under sub-section (1), if he proves—  • a. that, having consented to become a director of the company, he withdrew his consent before the issue of the prospectus, and that it was issued without his authority or consent; or  • b. that the prospectus was issued without his knowledge or consent,  and that on becoming aware of its issue, he forthwith gave a reasonable public notice that it was issued without his knowledge or consent.  3. Notwithstanding anything contained in this section, where it is proved that a prospectus has been issued with intent to defraud the applicants for the securities of a company or any other person or for any fraudulent purpose, every person referred to in subsection (1) shall be personally responsible, without any limitation of liability, for all or any of the losses or damages that may have been incurred byany person who subscribed to the securities on the basis of such prospectus.
  • 20. REMEDIES AGAINST THE COMPANY  1.) Recession of the contract: The right to rescind the contract is  available if he proves the following:  Prospectus was issued by or on behalf of the company.  Statement must be untrue.  Statement must be material misrepresentation.  The misrepresentation must have induced the shareholders to rely on the statement in applying for shares.  Misrepresentation must be of the facts and not of law( expression of opinion).  That he has taken action promptly to rescind the contract.
  • 21.  2.) Right of action for damages for deceit: This remedy is available even after the company has gone into liquidation only if following conditions are satisfied:  Person who issued the prospectus knew that statement was false.  That person was authorised to issue the prospectus.  That the allottee has suffered the loss due to misrepresentation.
  • 22. REMEDIES AGAINST THE DIRECTORS, PROMOTERS AND EXPERTS  1.) Compensation: The liability consists in paying damages by way of compensation to the aggrieved party. The compensation payable will be the difference between the price paid for shares and their value at the date they are allotted to the subscriber.  2.) Damages for non compliance with section 26: The remedy is to recover damages and not of recession.  3.) Damages under General Law: Plaintiff has to establish the following:  There was a fraudulent misstatement.  False representation related to material facts.
  • 23. Defences of Directors, Promoters and Experts: • They can escape the liability for damages if they prove the following:  They withdrew the consent before the prospectus  was issued.  Issued without the knowledge.  Reasonable ground for belief.
  • 24. CRIMINAL LIABILITY FOR MISSTATEMENTS IN PROSPECTUS  Where a prospectus, issued, circulated or distributed under this Chapter, includes any statement which is untrue or misleading in form or context in which it is included or where any inclusion or omission of any matter is likely to mislead, every person who authorizes the issue of such prospectus shall be liable under section 447.  Imprisonment for a term which may not be less than six months but which may extend to 10 years; or  Amount not less than the amount involved in fraud but it may extend to three times the amount of fraud;  or both imprisonment and fine. • Provided that nothing in this section shall apply to a person if he proves that such statement or omission was immaterial or that he had reasonable grounds to believe, and did up to the time of issue of the prospectus believe, that the statement was true or the inclusion or omission was necessary.