ASSIGNMENT ON

Prospectus

Submitted To: Authored by:

(Prof.) Dr. R.P. Yadav NAME: Saket
Associate Professor LL.M (Corporate Law)
School of Law Roll No.:200962025
Sharda University Sharda University

TABLE OF CONTENTS

1
Topic Name Page No

1. INTRODUCTION……………………………………………….…… 3
2. ESSENTIAL FOR A DOCUMENT CALLED AS PROSPECTUS.….3
3. TYPES OF PROSPECTUSES…………………………………….……4
4. STATEMENT IN LIEU OF PROSPECTUS…………………………...4
5. SHELF PROSPECTUS…………………………………………………4
6. INFROMATION MEMORANDUM…………………………………...5
7. RED HERRING PROSPECTUS……………………………….……….5
8. ABRIDGED PROSPECTUS……………………………………………6
9. DEEMED PROSPECTUS………………………………………………6
10.CONTENT OF PROSPECTUS…………………………………………7
11.PROCESS FOR FILING & ISSUSING PROSPECTUS……………….7
12.ADVERTISMENT OF PROSPECTUS………………………………...7
13.FILING COPY WITH REGISTRAR…………………………………...8
14.DELIVERY COPY OF PROSPECTUS………………………………...8
15.REGISTRATION OF PROSPECTUS………………………………….9
16.ISSUSING OF PROSPECTUS……………………………...………….9
17.CONTRAVENTION OF THE SECTION.26……………………….….9
18.CONCLUSION…………………………………………………………10
19.BIBLIOGRAPHY………………………………..……………………..11

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PROSPECTUS

INTRODUCTION

The Companies Act, 2013 defines a prospectus under section 2(70). Prospectus can be
defined as “any document which is described or issued as a prospectus”. This also includes
any notice, circular, advertisement or any other document acting as an invitation to offers
from the public. Such an invitation to offer should be for the purchase of any securities of a
corporate body. Shelf prospectus and red herring prospectus are also considered as a
prospectus.

A prospectus is usually a circular or newspaper, advertisement published by the promoters

after the formation of the company to induce the public to take shares in the company. It is an
invitation to the public to subscribe to the share capital of the company.

The Companies Act, 1956 defines prospectus as any document described or issued as a
prospectus and include any notice, circular, advertisement or other document inviting deposit
from the public for the subscription of shares.

It is circulated among the public in printed pamphlets. It gives all necessary information
about the company so that the information about the company. So that the prospectus
prospective shareholders may fully understand the objectives & the plans of the company.

Any Advertisement inviting the public for purchase of shares or debentures of the company is
called “Prospectus”.

Case: Pramatha Nath Sanyal v. Kamil Kumar Dutt (1925).1

An advertisement was given in a Newspaper stating: - “Some shares are still available for
sale according to the terms of the prospectus of the company which can be obtained on
application”. It was held to be prospectus as it invited the public to purchase share.

Case: Re South of England Natural Gas and Petroleum Co. Ltd (1911).2
It was held that the prospectus was an offer of shares “to the public “even though it was
marked as “for private circulation only”.

1
(1925) ILR 52 Cal 440
2
(1911) ILR 76 Cal 470

3
ESSENTIAL FOR A DOCUMENT CALLED AS PROSPECTUS3

The following are the essential for a document considered as prospectus:

1. The document should invite the subscription to public share or debentures, or it

should invite deposits.
2. Such an invitation should be made to the public.
3. The invitation should be made by the company or on the behalf company.
4. The invitation should relate to shares, debentures or such other instruments.

TYPES OF PROSPECTUSES4

The following are the types of prospectuses:

STATEMENT IN LIEU OF PROSPECTUS

Every public company either issue a prospectus or file a statement in lieu of prospectus. This
is not mandatory for a private company. But when a private company converts from private
to public company, it must have to either file a prospectus if earlier issued or it has to file a
statement in lieu of prospectus. The provisions regarding the statement in lieu of prospectus
have been stated under section70 of the Companies Act 2013.

SHELF PROSPECTUS

Shelf prospectus can be defined as a prospectus that has been issued by any public financial
institution, company or bank for one or more issues of securities or class of securities as
mentioned in the prospectus. When a shelf prospectus is issued then the issuer does not need
to issue a separate prospectus for each offering, he can offer or sell securities without issuing
any further prospectus.

The provisions related to shelf prospectus has been discussed under section31 of the
Companies Act, 2013.

3
Avatar Singh , Company Law, Sixteenth Edition,2015.p.154
4
Ibid

4
The regulations are to be provided by the Securities and Exchange Board of India for any
class or classes of companies that may file a shelf prospectus at the stage of the first offer of
securities to the registrar.

The prospectus shall prescribe the validity period of the prospectus and it should be not be
exceeding one year. This period commences from the opening date of the first offer of the
securities. For any second or further offer, no separate prospectus is required.

While filing for a shelf prospectus, a company is required to file an information

memorandum along with it.

INFROMATION MEMORANDAM [ S.31(2)]5

The company which is filing a shelf prospectus is required to file the information
memorandum. It should contain all the facts regarding the new charges created, what changes
have undergone in the financial position of the company since the first offer of the security or
between the two offers.

It should be filed with the registrar within three months before the issue of the second or
subsequent offer made under the shelf prospectus as given under Rule 4CCA of section 60
(3) under the Companies (Central Government’s) General Rules and Forms, 1956.

When any company or a person has received an application for the allotment of securities
with advance payment of subscription before any changes have been made, then he must be
informed about the changes. If he desires to withdraw the application within 15 days then the
money must be refunded to them.

After the information memorandum has been filed, if any offer or securities is made, the
memorandum along with the shelf prospectus is considered as a prospectus.

RED HERRING PROSPECTUS

5
Avatar Singh , Company Law, Sixteenth Edition,2015.p.154

5
Red herring prospectus is the prospectus which lacks the complete particulars about the
quantum of the price of the securities. A company may issue a red herring prospectus prior
to the issue of prospectus when it is proposing to make an offer of securities.

This type of prospectus needs to be filed with the registrar at least three days prior to the
opening of the subscription list or the offer. The obligations carried by a red herring
prospectus are same as a prospectus. If there is any variation between a red herring
prospectus and a prospectus then it should be highlighted in the prospectus as variations.

When the offer of securities closes then the prospectus has to state the total capital raised
either raised by the way of debt or share capital. It also has to state the closing price of the
securities. Any other details which have not been included in the prospectus need to be
registered with the registrar and SEBI.

The applicant or subscriber has right under Section 60B(7) to withdraw the application on
any intimation of variation within 7 days of such intimation and the withdrawal should be
communicated in writing.

ABRIDGED PROSPECTUS

The abridged prospectus is a summary of a prospectus filed before the registrar. It contains all
the features of a prospectus. An abridged prospectus contains all the information of the
prospectus in brief so that it should be convenient and quick for an investor to know all the
useful information in short.

Section33(1) of the Companies Act, 2013 also states that when any form for the purchase of
securities of a company is issued, it must be accompanied by an abridged prospectus.

It contains all the useful and materialistic information so that the investor can take a rational
decision and it also reduces the cost of public issue of the capital as it is a short form of a
prospectus.

DEEMED PROSPECTUS

A deemed prospectus has been stated under section .25(1) of the Companies Act,2013.

6
When any company to offer securities for sale to the public, allots or agrees to allot securities,
the document will be considered as a deemed prospectus through which the offer is made to
the public for sale. The document is deemed to be a prospectus of a company for all purposes
and all the provision of content and liabilities of a prospectus will be applied upon it.

In the case of SEBI v. Kunnakulam Paper mills Ltd.6 it was held by the court that where a
rights issue is made to the existing members with a right to renounce in the favour of others,it
becomes a deemed prospectus if the number of such others exceeds fifty.

ADVERTISMENT OF PROSPECTUS7

Section 30 of the Companies Act 2013 contains the provisions regarding the advertisement of
the prospectus. This section states that when in any manner the advertisement of a prospectus
is published, it is mandatory to specify the contents of the memorandum of the company
regarding the object, member’s liabilities, amount of the company’s share capital, signatories
and the number of shares subscribed by them and the capital structure of the company

PROCESS FOR FILING & ISSUSING PROSPECTUS8

APPLICATION FORMS:

As stated under section 33, the application form for the securities is issued only when they
are accompanied by a memorandum with all the features of prospectus referred to as an
abridged prospectus.

The exceptions to this rule are:

 When an application form is issued as an invitation to a person to enter into

underwriting agreement regarding securities.
 Application issued for the securities not offered to the public.

6
(2013) 178 Comp Cas 371 Ker.
7
Avatar Singh, Company Law, Sixteenth Edition,2015. P.155
8
Ibid

7
CONTENTS OF PROSPECTUS9

For filing and issuing the prospectus of a public company, it must be signed and dated and
contain all the necessary information as stated under section 26 of the Companies Act 2013:

1. Name and registered address of the office, its secretary, auditor, legal advisor,
bankers, trustees, etc.
2. Date of the opening and closing of the issue.
3. Statements of the Board of Directors about separate bank accounts where receipts of
issues are to be kept.
4. Statement of the Board of Directors about the details of utilization and non-utilisation
of receipts of previous issues.
5. Consent of the directors, auditors, bankers to the issue, expert opinions.
6. Authority for the issue and details of the resolution passed for it.
7. Procedure and time scheduled for the allotment and issue of securities.
8. The capital structure of the in the manner which may be prescribed.
9. The objective of a public offer.
10. The objective of the business and its location.
11. Particulars related to risk factors of the specific project, gestation period of the
project, any pending legal action and other important details related to the project.
12. Minimum subscription and what amount is payable on the premium.
13. Details of directors, their remuneration and extent of their interest in the company.
14. Reports for the purpose of financial information such as auditor’s report, report of
profit and loss of the five financial years, business and transaction reports, statement
of compliance with the provisions of the Act and any other report.

FILING A COPY WITH THE REGISTRAR10

9
Taxmann, Companies Act 2013, p.80
10
Taxmann, Companies Act 2013, p.80

8
As stated under sub-section 4 of section 26 of the Companies Act, 2013, the prospectus is
not to be issued by a company or on its behalf unless on or before the date of publication, a
copy of the prospectus is delivered to the registrar for registration.

The copy should be signed by every person whose name has been mentioned in the
prospectus as a director or proposed director or the assigned attorney on his behalf.

DELIVERY OF COPY OF THE PROSPECTUS11

As per section 26 (6) of the Companies Act 2013, the prospectus should mention that its
copy has been delivered to the registrar on its face. The statement should also mention the
document submitted to the registrar along with the copy of the prospectus.

REGISTRATION OF PROSPECTUS

Section 26(7) states about the registration of a prospectus by the registrar. According to this
section, when the registrar can register a prospectus when:

1. It fulfils the requirements of this section, i.e., section 26 of the Companies Act, 2013;
and
2. It contains the consent of all the persons named in the prospectus in writing.

ISSUSING OF PROSPECTUS12

If a prospectus is not issued before 90 days from the date from which a copy was delivered
before the registrar, then it is considered to be invalid.

CONTRAVAENTION OF THIS SECTION

11
Ibid
12
Taxmann, Companies Act 2013, p.81

9
If a prospectus is issued in contravention of the provision under section 26 of the Companies
Act 2013, then the company can be punished under section 26. The punishment for the
contravention is:

 Fine of not less than Rs. 50,000 extending up to 3,00,000.

If any person becomes aware of such prospectus after knowing the fact that such prospectus
is being issued in contravention of section 26 then he is punishable with the following penal
provisions.

 Imprisonment up to a term of 3 years, or

 Fine of more than Rs. 50,000 not exceeding Rs. 3,00,000.

CONCLUSION

A prospectus is basically a formal and legal document issued by a body corporate which acts
for inviting offers from the public for subscription or purchase of any securities. Every public
company is entitled to issue the prospectus for its shares or debentures. But the same is not
required for a private company.

A prospectus for being a valid one it must contain essential requisites and it must be
registered. If any prospectus is not registered, it is considered as an invalid one and with
contravention to provisions laid down for the valid prospectus. Such contravention is
punishable under section 26(9). Whenever the advertisement if the prospectus is made, it
must contain the memorandum of the company. When a company is making a proposal for an
offer of securities, then prior to issuing a prospectus, it may issue a red herring prospectus. A
company can also issue a shelf prospectus when it has to make an offer one or more securities
or class of securities and then it does not have to issue a prospectus before issuing an offer of
each security.

So, a prospectus plays an important role for any public company and it must be under the
provisions laid down under the Companies Act 2013.

BIBLIOGRAPHY

BOOKS

10
 Avatar Singh, Company Law, Sixteenth Edition,2015.
 Taxmann, Company Act, Eighteen Edition, 2017
 Taxmann, A Comparative Study of Companies Act 2013 and Companies Act
1956.

REFERENCES

 https://indiankanoon.org/search/?formInput=misstatement%20in
%20prospectus&pagenum=2.
 https://www.icsi.edu/media/webmodules/publications/Company%20Law.pdf.
 https://legalsarcasm.com/legal-notes/prospectus-issues-contents-and-kinds-under-
companies-act-2013/ .

11