5. PROSPECTUS 1Q.No.1. Explain the meaning, role and significance of the Prospectus. (C) (PM) ] MEANING: As per Sec.2 (70) of the Companies Act, 2013, “Prospectus” means: a) Any document described or issued as a prospectus and includes a red-herring prospectus (sec 32), or shelf prospectus (sec 31), or b) Any notice, circular, advertisement or other document inviting offers from the public for the subscription of purchase of any securities of a body corporate. Note: The prospectus must be in writing An oral invitation to subscribe for shares will not be considered prospectus. Television of film advertisement cannot be treated as prospectus. ROLE OF THE PROSPECTUS: 1. Prospectus is not an offer in itself but an invitation to make an offer 2. Even if a member of the public accepts such invitation to the offer, a binding contract between him and the company does not come into existence 3. Application for purchase of shares or debentures or for making a deposit constitutes an offer by the subscriber to the company. On acceptance by the company, a binding contract comes into existence. SIGNIFICANCE OF PROSPECTUS ‘+The prospectus is the main / basic document decide whether to subscribe to the share: basis of which the intending investors fentures or not, + The information in the prospectus is or Concealment of material facts m: material aspect and any misstatements it in huge losses to the investing public + Therefore, the Companies Act, fide sec.34 and 35 imposes both criminal liability and civil liability for untrue and misleadiNg statements in the prospectus. SIMILAR QUESTION: 1. State whether television advertisements and visual clips giving all required details can be treated as a prospectus? A. No. Because a prospectus must be in writing. Refer sec. 25 (Prospectus is a document), 2. As per the Companies Act, 2013, any document by which the offer or sale of shares or debentures to the public is made shall for all purpose be treated as prospectus issued by the company. A. Correct, Refer the above answer. 1.No.2. What are the different modes of issue of securities by a Company? (Sec.23) (C) (SM) | Sec 23 of the Companies Act, 2013 prescribes the mode of issuing securities by a public and a private company. 1. Issue of securities by public company: As per sec 23, a public company may issue Securities in the following manner - a) to public through prospectus (herein referred to as "public offer"): or b) through private placement; or IPCC_37e_C.Law_Prospectus 5.1No.1 for CAICWA & MECICEC MASTER MINDS ¢) through a rights issue or a bonus issue. Here term, “public offer” includes Initial Public Offer (IPO) (or) Further Public Offer (FPO) of securities to the public by a company, (or) an offer for sale of securities to the public by an existing shareholder, through issue of a prospectus. 2. Issue of securities by private company: A private company may issue securities a) by way of rights issue or bonus issue; or b) Through private placement, Q.No.3. State the conditions where under the issuing of prospectus is not necessary under the Provisions of the Companies Act, 2013. (A) (PM, M11 - 4m) PROSPECTUS — AN IMPERATIVI + Under sec 23(1) of the Companies Act, 2013, A company cannot issue securities of any nature to the public except through a prospectus ‘+ Further u/s 25, any document by which securities of the company are offered for sale to the public, shall be deemed to be a Prospectus. ‘* In case of public issue of securities there is no situation under which a company can dispense with the issue of a prospectus. Because any document offering the sale will be deemed to be a prospectus. However, the issue of prospectus is not necessary in the following exceptional cases- a) Where a company makes a private placement th sue of a private placement letter in terms of sec 42 of the Companies. Act, RNS b) Where securities are offered to existing hol ‘such securities under a rights issue or a bonus issue in accordance with the prov) this Act, fer into an underwriting agreement with regard c) Where a person is a bona fide invits to any securities, Note: A private company is prohibited securities of the company, SIMILAR QUESTION: 4, Discuss the cases in which a prospectus with contents according to companies Act is not required to be issued Refer the above exceptions. Im making invitation to the public to subscribe for any 2. Private companies as well as private placement by any company, do not require the issue of a prospectus? A. Yes, 1Q.No.4. What are the matters that are to be stated in the prospectus [Sec 26]? (C) (SM) MATTERS THAT ARE TO BE STATED IN THE PROSPECTUS: (SEC.26) Names & addresses of registered office and the other persons connected with the issue. Opening and closing dates of the issue. A statement by the BOD about the separate bank A/c for deposit of application money. Details of the underwriters and the amount underwritten by them. Consent of directors, auditors, bankers to the issue and expert's ete. eRere IPCC_37e_C.Law_Prospectus 5.2Ph: 98851 25025/26 www.mastermindsindia.com 6. Capital structure of the company in the prescribed manner, 7. Main objects of public offer. 8, Management view of risk factors specific to the project. 9. Any litigation or legal action pending against the company, its directors, promoters ete. 10. Reports by the auditors of the company with respect to its profits and losses for previous § financial years. 14. A statement to the effect that nothing in the prospectus is contrary to the provisions of this Act, the Securities Contracts (Regulation) Act, [SCRA] 1956 and the SEBI Act, 1992 and the rules and regulations made thereunder. 12, Such other matters and set out such other reports, as may be prescribed (IMMEDIATELY REFER PRACTICAL QUESTION NO. 1) Q.No.5. What are the golden rules (Or) Important rules for framing Prospectus? (B) (SM) GOLDEN RULE FOR FRAMING PROSPECTUS: a) The prospectus must present the whole picture of the company b) The prospectus must disclose all material facts truly, honestly and accurately. ©) All facts are likely to influence the decision regarding applying for shares must be disclosed d) No fact should be omitted, the existence of which in any degree, affect the nature of quality of privileges and advantages disclosed rospectus [Rex Vs Kylsant] CASE: New Burnswick and Canada Railway& ‘Co. Vs Muggeridge a) Those who issue prospectus holding out public great advantage which will accrue to persons who take up shares on the r tations contained therein, b) They are bound to state everything ‘crupulous accuracy and ©) They shail not state @ fact which YS9ot so and also not to omit fact within their knowledge, the existence of which might in any degree affect the nature or extent or quality of the privilege and advantages which the prospectus holds out as an inducement to take shares. Q.No.6. What is the procedure for variation in terms of contract or objects in prospectus and requirements that needs to be complied with? (A) (sm) Sec.27 of the Companies Act, 2013 and Rule.7 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 provides for the requirements when there is a variation in terms of contract or objects referred to in prospectus, which are as follows: a) Variation by SR: Where the company has raised money from public through prospectus and has any unutilized amount out of the money so raised, it shall not vary the terms of contracts referred to in the prospectus or objects for which the prospectus was issued except by passing a ‘SR’ through postal ballot b) Notice of resolution to shareholders: The advertisement of the notice of resolution passed for varying the terms of any contract or altering the objects of the prospectus shall be published simultaneously with dispatch of postal ballot notices to Shareholders, The notice shall also be placed on the website of the company, if any. ¢) Restriction on Utilisation: Such company shall not use any amount raised by it through prospectus for buying, trading or otherwise dealing in equity shares of any other listed ‘company. IPCC_37e_C.Law_Prospectus 5.3No.1 for CAICWA & MECICEC MASTER MINDS d) Exit offer: The dissenting shareholders shall be given an exit offer by promoters or controlling shareholders. Note: Dissenting shareholders are shareholders who have not agreed to the proposal to vary the terms of contracts or objects referred to in the prospectus. SIMILAR QUESTION: 1. Lotus valley Ltd. issued a prospectus with the object of setting up of a chain of hotels. However, later it decided to set-up a Pharmaceutical Manufacturing unit. Keeping in view of the provisions of the Companies Act, 2013, state whether Lotus valley Ltd. can do so and if it can be done, also state the procedure to be followed for variation in the objects in the prospectus. (RTP - M16) A. Yes. Lotus valley Itd. can change the object mentioned in the prospectus from setting up a chain of hotels to setting up of a pharmaceutical manufacturing unit by following the above mentioned procedure. Q.No.7. What is meant by “Abridged Prospectus”? Is it necessary to furnish abridged form of prospectus along with the application form for shares? Under what circumstances an abridged prospectus need not accompany the detailed information regarding prospectus along with the application form? (A) (PM) SEC 33 OF THE COMPANIES ACT, 2013 CONTAINS THE PROVISIONS RELATING TO “ABRIDGED PROSPECTUS” a) Meaning of Abridged Prospectus: As per sec abridged prospectus means a memorandum, prospectus as may be specified by the SEB! b; b) Abridged prospectus to be issued songh i) Sec. 33(1) of the Companies Act, ites that no application form for the purchase of any of the securities of a cor "an be issued unless such form is accompanied by an abridged prospectus. ii) The abridged prospectus and application form should bear the same printed number. iii) The investor may detach the share application form along the perforated line, after he gets an opportunity to study the contents of this abridged prospectus. the Companies. Act, 2013, an ining such salient features of a ig regulations in this behalf pplication form: iv) The objective of the abridged prospectus is to reduce the cost of the issue. Because the detailed prospectus is a very bulky document whereas the contents of abridged prospectus are limited ¢) Complete Prospectus on request: As per Sec.33 (2), a copy of the prospectus shall be given to any person who made a request before the closing date of the subscription list and the offer, d) Circumstances under which the abridged prospectus need not accompany the application forms: In terms of the Proviso to sec 33(1) an abridged prospectus need not accompany the application form if it is shown that the form of application was issued. i) In connection with a bona fide invitation to a person to enter into an underwriting ‘agreement with respect to such securities; or ) Where the securities are not offered to the public, e) Penalty: Ifa company makes any default in complying with the provisions of this section, it shall be liable to a penalty of Rs.50,000 for each default. SIMILAR QUESTIO! 1, Discuss about abridged prospectus. IPCC_37e_C.Law_Prospectus 5.4Ph: 98851 25025/26 www.mastermindsindia.com 2. When and in what manner a company be permitted to furnish an abridged form of prospectus? Under what circumstances such abridged prospectus is not required to be accompanied with the share application form? A. Refer the above answer. Q.No.8. Document containing offer of securities for sale to be deemed prospectus. Comment. [Sec.25] (A) (sm) SEC.25 OF THE COMPANIES ACT, 2013 CONTAINS THE PROVISIONS RELATING TO “DEEMED PROSPECTUS”: 1. Meaning: As per Sec. 25, where a company allots or agrees to allot any securities of the ‘company with @ view to all or any of those securities being offered for sale to the public, then any document by which the offer for sale to the public is made shall be deemed to be a prospectus issued by the company. 2. Effect: All enactments and rules of law as to the contents of prospectus and as to liability in respect of mis-statements, in and omissions from prospectus, or otherwise relating to prospectus, shall apply with the modifications u/s 26(3) & (4) 3. Conditions to be satisfied for presuming that allotment is made with a view to offer to publi a) Offer of the securities or of any of them for sale to the public was made within 6 months after the allotment or agreement to allot; or b) Whole consideration to be received by the cony been received by it on the date of offer. 4, Additional matters to be disclosed matters specified u/s 26, the above dee! matters respect of the securities had not th pectus[Sec.26(3)]: In addition to the spectus shall also contain the following SS ecelved or to be received by the company in RE offer relates; and a) The net amount of the consid respect of the securities to w RA b) The time and place at which th® contract where under the said securities have been or are to be allotted may be inspected 5. Signing of deemed prospectus[Sec.26(4)]: Where a person making an offer to which this section relates is a company or a firm, it shall be sufficient that deemed prospectus, is signed on behalf of the company or firm by- i) 2 directors of the company, or i) not less than 1/2 of the partners in the firm, as the case may be. 6. Liability for mis-statements: a) The persons making the offer were deemed to be persons named in the prospectus as directors of a company b) The liability of the persons by whom the offer is made in respect of misstatements in the document or otherwise, remains same as that in the case of a prospectus. 4. From the above provision it is quite clear that the deemed prospectus is not intended to be a document with any exceptions or concessions vis a vis a prospectus 2. It is designed to prevent companies from making mis-leading statements through various documents, notices or circulars while keeping the formal prospectus documents clean, IPCC_37e_C.Law_ProspectusNo.1 for CAICWA & MECICEC MASTER MINDS SIMILAR QUESTION: 1. When does the issue of a prospectus amounts to an offer to public? In what cases shall a document containing an offer of sale of Shares / debentures be deemed as a prospectus? 2. Explain the concept of “Deemed Prospectus" under the Companies Act, 2013. Point out the circumstances where under issuing such prospectus is not mandatory. (PM, N15 - 4M) A. Refer the above answer and non-mandatory cases are covered in Q.No.3. Q.No.9. Explain the concept of “Offer of sale” of shares by certain members of the| company. [Sec.28] (A) (sm) SEC.28 OF THE COMPANIES ACT, 2013 CONTAINS THE PROVISIONS RELATING TO “OFFER FOR SALE”: a) Members propose to offer holding of shares to the public: Where certain members of a company propose to offer whole or part of their holding of shares to the public, they may consult the BOD of the company and shall follow the prescribed procedure. b) Members collectively authorize the company to take action: Such members shall collectively authorize the company to take all actions in respect of offer of sale on their behalf. Such members shall reimburse the company all expenses incurred by it in this respect, c) Document of offer to sale be deemed as Prospectus: Any document by which the offer of sale to the public is made, shall be deemed to errs issued by the company and all laws and rules relating to the: © ones ofthe prospects S liability in respect of mis-statements ri in the prospectus; shall apply, as it such document is ane is issued by the company. SIMILAR QUESTION: 1. As per the Companies Act, 2013, any document by which the offer for sale of shares or debentures to the public is made shall for all purpose be treated as prospectus issued by the company. Comment? A. Correct. Any document by which the offer of sale to the public is made shall be deemed to be a prospectus issued by the company ‘Q.No.10, Explain the concept of “Shelf Prospectus” in the light of Companies Act, 2013. What is the law relating to issuing and filing of such prospectus? (A) (PM, N43 — 4M, N16 — 4M) SEC.31 OF THE COMPANIES ACT, 2013 CONTAINS PROVISIONS RELATING TO “SHELF PROSPECTUS’ 1. Meaning: A shelf prospectus means 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, 2. Validity: A shelf prospectus can have a validity of a maximum period of 1 year during which the company may bring out a number of issues of securities, covered by the same prospectus. This shall commence from the date of opening of the first offer. 3. Applicability and Filing: Any class or classes of companies, as specified by SEBL may file @ shelf prospectus with the ROC at the stage of the first offer of securities IPCC_37e_C.Law_Prospectus 5.6Ph: 98851 25025/26 www.mastermindsindi com 4, “Information Memorandum” (ILM): a) In respect of a second or subsequent offer of such securities issued during the period of validity of that prospectus, no further prospectus is required. b) U/s 31(2), The company filing shelf prospectus shall be required to file an information memorandum on all material facts relating to: i) new charges created ii) changes in the financial position of the company as have occurred between the first offer of securities or any previous offer of securities and the succeeding offer of securities. iil) other changes as may be prescribed. c) U/s 31(3), Where an information memorandum is filed every time an offer of securities is made, such memorandum together with the shelf prospectus shall be deemed to be the prospectus. ([.e. LM + S.P = Prospectus u/s 2(70) 5. _Intimation of changes to the applicants: a) If a company or any other person has received applications for the allotment of securities along with advance payments of subscription before making any change, b) In such a case, the company or other person shall intimate the changes to such applicants. If they express a desire to withdraw their application, the company or other person shall refund all the monies received as subscription within 15 days, 6. Compliance: A shelf prospectus is also a prospectus defined u/s 2(70). Hence it must comply with all the provisions of Sec.26 of the ich lays down the matters to be included in @ prospectus and filing of the sam 1@ ROC. It must also comply with other relevant and applicable sections of the rospectus. SIMILAR QUESTION: 1. When is a company required to issue a ‘shelf prospectus’ under the provisions of the Companies Act, 2013? Explain the provisions of the Act relating to the issue of ‘shelf prospectus’ and filing it with the ROC? (PM) 2. What is meant by ‘shelf prospectus"? Who can file a shelf prospectus to ROC? Stating the provisions of the Companies Act, 2013 point out the circumstances under which such prospectus is required to be filed with ROC? A. Refer the above answer 3. What are the provisions relating to “Information memorandum” as contained in Companies Act, 2013 (148m) A. Refer the above points “d and e” ‘Q.No.11. What is meant by ‘Red-herring prospectus? State the circumstances under h such prospectus is required to be filed with the ROC. What is the requirement relating to filing of final prospectus in such cases? (A) (PM) SEC 32 OF THE COMPANIES ACT, 2013 CONTAINS PROVISIONS RELATING TO RED - HERRING PROSPECTUS (RHP): 4, Meaning: RHP means a prospectus which does not include complete particulars of the price or the quantum of securities offered therein 2. Issue of RHP [Sec.32(1)]: A public company proposing to make an offer of securities may issue a RHP prior to the issue of a prospectus. Therefore, the issue of a RHP does not absolve a company from issuing a regular prospectus under the relevant provisions of the Companies Act, 2013. IPCC_37e_C.Law_Prospectus 5.7No.1 for CAICWA & MECICEC MASTER MINDS 3. Filing of RHP with ROC [Sec.32 (2)]: A company proposing to issue a RHP shall file it with the ROC at least 3 days prior to the opening of the subscription list and the offer, 4, Effect [Sec.32 (3)]: A RHP shall carry the same obligations as are applicable to a prospectus. This is because Sec. 2(70) defines, ‘Prospectus’ includes ‘RHP’ within its scope Any variation between the RHP and a prospectus shall be highlighted as variations in the prospectus. 5. Closing of offer: On the basis of offers received, company will finalise the issue price and issue size and then close the offer. 6. Filing of Final Prospectus with ROC & SEBI: Sec.32(4) states that upon the closing of the offer of securities, the prospectus stating therein - a. the total capital raised, whether by way of debt or share capital, and b. the closing price of the securities and ¢. any other details as are not included in the RHP. shall be filed with ROC and SEBI |Q.No.12. What are the liabilities for Misstatements in Prospectus? (A) sm] The legal consequence of inclusion of mis-statement in a prospectus is that it attaches criminal and civil lability to certain persons [Sec 34 and 35 of the Companies Act, 2013] A. CRIMINAL LIABILITY FOR MISSTATEMENTS IfPPROSPECTUS [SEC _34 THE COMPANIES ACT, 2013]: 1. Applicability: Where a prospectus is issi ‘ulated or distributed, and it includes in relation to it a) Any statement which is nue easing in form or context in which it is included, or b) Where any inclusion or ot matter is likely to mislead 2. Punishment: Every person who authorizes the issue of such prospectus shall be liable u/s 447 of ‘Companies Act, 2013 (Guilty of fraud). It states that they shall be punishable with i) Imprisonment: ‘+ Term which shall not be less than 6 months but which may extend upto 10 vears. ‘+ If the fraud involves public interest, the term of imprisonment shall not be less than 3 years, and ii) Fine: which shall not be less than the amount involved in the fraud, but which may extend to 3 times the amount involved in the fraud. 3. Exce) ns: No liability under this sec shall apply to a person it he proves that a) Such statement or omission was immaterial, or b) If he had reasonable grounds to believe that the statement was true or the inclusion or omission was necessary. B. CIVIL_LIABILITY FOR MISSTATEMENTS IN PROSPECTUS [SEC _35 OF THE COMPANIES ACT, 201: 1. Persons liable for the misstatement: Where a person has subsoribed 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 - IPCC_37e_C.Law_Prospectus 5.8Ph: 98851 25025/26 www.mastermindsindi 2. 4. SIMILAR QUESTIO! 1. What is the law relating to crimina| com ‘* is a director of the company at the time of the issue of the prospectus ‘+ 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 * is a promoter of the company ‘* has authorised the issue of the prospectus; and * is an expert referred in sec 26 of the Companies Act, 2013 Punishment: a) They shall be liable to pay compensation to every person who has sustained such loss or damage. b) Also punishable u/s 36 for fraudulently inducing persons to invest money. Exceptions: No person shalll be liable, if he proves that a) Where a person consented to become a director of the company and withdrew his consent before the issue of the prospectus, and it was issued without his authority for consent; or b) 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. Fraudulent Intention: ‘© Where a prospectus has been issued with an intention to defraud the applicants for the securities of a company or any other peys@ippr for any fraudulent purpose. ‘They shall be personally responsible Nny limitation of liability, for all or any of the losses or damages that mas subscribed to the securities on the bj Be _been incurred by any person who ‘SbSuch prospectus for mis-statement in the prospectus u/s 34? (N14 - 4m) 2. When director is not liable to an aggrieved party for a misstatement in a prospectus? In what manner he can defend himself for non-compliance? (PM) A. Refer the above ‘exceptions’ in both civil and criminal cases. (IMMEDIATELY REFER PRACTICAL QUESTION NO. 2) 1Q.No. Who an expert? When is he liable for any mi When is he not liable? (A) MEANING OF AN EXPER \s per Sec 2(38) of Companies Act, 2013 Expert includes - = anengineer, - avaluer, — achartered accountant, peered ‘To MASTER MINDS, Guntur — acompany secretary, — acost accountant and — any other person who has the power or authority to issue a certificate in pursuance of any law for the time being in force. IPCC_37e_C.Law_Prospectus. 5.9No.1 for CAICWA & MECICEC MASTER MINDS 1. Inclusion of expert report in the prospectus [Sec 26(5) of the Companies Act, 2013] Expert report can be included in the prospectus even a) Ihe is not connected with the formation or promotion or management of the company; b) has given his written consent to the issue of the prospectus and has not withdrawn before the delivery of a copy of the prospectus to the Registrar for registration, and ¢) Astatementto that effect shall be included in the prospectus, 2. Liabilities of an expert: a) Sec 34 imposes criminal liability on every person who authorizes the issue of prospectus for mis-statement in prospectus. it shall not apply to an expert as he gives an expert view on specific matters but does not authorize the issue of the prospectus, b) Sec 35 imposes civil liability on the company and every director, promoter, expert and any authorised person to issue prospectus, to pay compensation to every person who has sustained any loss or damage by subscribing for securities of the company by relying on any mis-leading statement in the prospectus. Thus, the liability of an expert in case of misrepresentation in the prospectus will arise in terms of sec 35 and will be specific to any mis statements made by him as an expert. Exception to Liability: An expert will not be liable for any mis statements in the prospectus under the following situations’ i) Sec 26(5): if having given his consent, he wil in writing before delivery of the copy of prospectus for registration or WS SS ) Sec 35(2): if the prospectus was issue his knowledge or consent and that on becoming aware of its issue, he fort ive @ reasonable public notice that it was issued without his knowledge or c os SIMILAR QUESTION: 1. When an expert is not liable for untrue statements in the prospectus issued by a ‘company? A. Refer above ‘Exception to liability’ for Experts 2. State the liability of an ‘expert’ in case of misrepresentation in the prospectus. When an expert will not be liable for untrue statement made in the prospectus? (N12-8M) A. Refer the above point 2 3. What is the extent of liability of an expert, in relation to publication of prospectus, for any misstatement in the report given by him? (PM) A. Refer the above answer. (IMMEDIATELY REFER PRACTICAL QUESTION NO.3) ‘What are the penalties for fraudulently inducing a person to invest money? (B) (SM) PUNISHMENT FOR FRAUDENTLY INDUCING PERSONS TO INVEST MONEY [SEC 36]; Any person who knowingly or recklessly, makes any statement, promise or forecast which is false, deceptive or misleading, or deliberately conceals any material facts, to induce another ‘person to enter into, or to offer to enter into,- a) Any agreement for acquiring, disposing of, subscribing for, or underwriting securities; or IPCC_37e_C.Law_Prospectus 5.10Ph: 98851 25025/26 www.mastermindsindi com b) Any agreement, the purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities: ot ¢) Any agreement for obtaining credit facilities from any bank or financial institution, then, he shall be punishable for fraud u/s 447. NOTE: A person can be punished either a b) “U/s 36 of Companies Act, 2013 - Penalty for fraudulently inducing a person to invest money’. ‘Us 34 of Companies Act, 2013 - Criminal Liability for Mis-statement in a prospectus" or Q.No.15, State the remedies available against a company to a subscriber for allotment of shares on the faith of a misleading prospectus. What conditions must be satisfied by such a subscriber before opting for the remedies? (A) (PM) a) The remedies available to a subscriber arise more from the Indian Contract Act, 1872 than from the Companies Act, 2013. b) The Companies Act, 2013: It lays down the punishment for the company and the responsible persons (which will include directors, promoters, experts etc.) cc) The Indian Contract Act, 1872: Hence, we have to turn to sec 19 of the Contract Act, Which states that when consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is voidable at the option of the party whose consent was 80 caused. Therefore, to summarize, the remedies available \subscriber for mis-statements in prospectus are as under. ‘ a, He may claim compensation from decoy, Yoters or experts for any loss or damage sustained by such purchase’ b. He may avoid the contract u/s 19 of t in Contract Act, 1872; or (ced in the position in which he would have been if ‘rue. (This is an unlikely situation and may not be c, He may enforce the contract an the representation made has b practically possible) ACTION BY AFFECTED PERSONS [SEC 37 OF THE COMPANIES ACT, 20131: What action? The sec 37 of the Companies Act, 2013, provides that a a) Suit may be filed or b) Any other action may be taken u/s 34 or 35 or 36 By whom? — Any person, — group of persons or — any association of persons Who have been affected by any misleading statement or the inclusion/ omission of any matter in the prospectus [This sec is applicable for sec 34, 35 & 36 of the Companies Act, 2013) Note: A subscriber to the MOA has no right to claim compensation as the company itself is not in existence when he signed the MOA. Further he has not bought the shares based on the prospectus. IPCC_37e_C.Law_Prospectus 5.11No.1 for CAICWA & MECICEC MASTER MINDS SIMILAR QUESTION: 1. State the remedies available to a person who has been deceived by a false and misleading prospectus. (16 - 4m) A. Refer the above answer. 2. Who has remedy against any misstatement in the prospectus? Can a person who did not subscribe to shares sue for mis-statement in the prospectus? What conditions must be satisfied by such a subscriber before opting for remedies? A. Refer the above answer. (IMMEDIATELY REFER PRACTICAL QUESTION NO 4, 6, 6, 7) Q.No.16, What is the punishment for personation for acquisition, etc of securities? (A) (SM) PUNISHMENT FOR “PERSONATION FOR ACQUISITION ETC. OF THE SECURITIES” [SEC 38): 1. Personation of secu: fies: Any person who a) Makes an application for acquiring or subscription of securities in a fictitious name; or b) Makes muttiple applications in different names or different combinations of name or ‘sumame; or ¢) Induces a company to transfer securities in a te then, he shall be liable for action u/s 447. 2. Provisions shall be stated in every prosf@&yls and application: The above provisions R every prospectus and in every form of 3. Order of court on conviction: WQdW% person has convicted for the above offense, the court may order ‘+ disgorgement of gain, if any, made by such person, and ‘* seizure and disposal of securities in possession of such person. 4. Amount to be credited to IEPF: The amount received through disaorgement or disposal of securities shall be credited to Investor Education and Protection Fund (IEPF (IMMEDIATELY REFER PRACTICAL QUESTION NO. 8) No. hat is private placement of securities and state the conditions for issue of| private placement of securities? (A) (sm) As per Sec.42 of the Companies Act, 2013, a company may make an offer or invitation for subscription of securities by way of private placement. "Private Placement” means any offer of securities or invitation for subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a ‘private placement offer letter and by fulfillment of the conditions specified in this sec 42. CONDITIONS / PROCEDURES FOR ISSUE OF PRIVATE PLACEMENT OF SECURITIES: 1. Issue of private placement offer letter [sec 42(1)]: Without effecting to the provisions of sec.26, a company may make private placement through issue of a private placement offer letter IPCC_37e_C.Law_Prospectus 5.12Ph: 98851 25025/26 www.mastermindsindi com 2. Offer! invitation to number of persons [sec 42(2)]: The offer of securities or invitation to subscribe securities, shall be made to a maximum of 200 persons * in a financial year and ‘on such conditions (including the form and manner of private placement) as may be prescribed. However this does not include- Qualified Institutional Buyers (QI8) and employees of the company under ESOP (employees stock option) scheme as per sec 62(1)(b)]. Note: *As per the Companies Act, 2013, the offer of securities or invitation to subscribe securities shall be made to such number of persons not exceeding 50 or such higher number as may be prescribed. As per Rule 14(2) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 limit on membership i.e., the higher number, have been prescribed. According to it, offer of securities or invitation to subscribe securities shall be made to not more than 200 in the agaregate in a financial year. 3. No issue of fresh offer / invitation [sec 42(3)]: No fresh offer or invitation shall be made, unless a) the allotments with respect to any offer or invitation made earlier have been completed, or b) that offer or invitation has been withdrawn, or ¢) Abandoned by the company. 4. Offer / invitation treated as public offer [sec 42(4)]: Any offer or invitation not_in compliance with the provisions of sec 42 shall be treated as a public offer and all provisions of this Act, and the Securities Contracts (Regulation) and the SEBI Act, 1992 shall be complied with 5. Payment of amount [sec 42(5)]: All moni ble towards subscription of securities under this sec. shall be paid through chy demand draft or other banking channels but not by cash ime for allotment of securities under this sec. shall allot its 3% application money for such secur 7. Defautt in allotment of securit within stated period, '2(6)]: A company making an offer or invitation FS within 60 days from the date of receipt of the 8 [Sec 42(6)]: If the company is not able to allot the securities a) it shall repay the application money to the subscribers within 15 days from the date of completion of 60 days and b) if the company fails to repay the application money within the said period, it shall be liable to repay that money with interest at the rate of 12% p.a from the expiry of the 60" day. 8. Separate Bank A/c: Monies received on application shall be kept in a separate bank account in a scheduled bank and shall be utilised only for the following purposes - a) For adjustment against allotment of securities; or b) For the repayment of monies where the company is unable to allot securities, 9. Offers made to the persons whose name is recorded [sec 42(7)]: a) Offers shall be made to those, whose names are recorded by the company prior to the invitation to subsoribe, and they shall receive the offer by name and b) Complete record of such offers shall be kept by the company and ¢) Complete information of such offer shall be filed with the ROC within a period of 30 days of circulation of relevant private placement offer letter IPCC_37e_C.Law_Prospectus 5.13No.1 for CAICWA & MECICEC MASTER MINDS 10. No publicity required [sec 42(8)]: Company offering securities under this sec shall not release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an offer. ing the registrar [sec 42(9)]: Whenever a company makes any allotment of securities, it shall file with the ROC a return of allotment, including the complete list of all security holders, with their full names, addresses, number of securities allotted and other relevant information. 1. 12, Consequences of Non-Compliance [sec 42(10)]: If a company makes an offer or accepts monies in contravention of this sec 42 - PERSON LIABLE PENALTY PENALTY | 4) Company i), Amount involved in the offer, or b) Promoters ii) Rs. 2 Crores, ¢) Directors Whichever is higher ‘Company shall refund all monies to subscribers within a period of 30 days of REFUND | the order imposing the penalty. Note The Companies (Prospectus and Allotment of Securities) Rules, 2014, also provides ‘certain limitations on the companies with respect to making of a private placement SIMILAR QUESTIONS: 1, Describe the procedure for private placement of securities by a Company as per the provisions of the Companies Act, 2013. THE COMPANIES (PROSPECTUS AND ALLOTMENT OF SECURITIES) RULES, 2014, PROVIDES CERTAIN LIMITATIONS ON THE COMPANIES WITH RESPECT TO MAKING OF A PRIVATE PLACEMENT, WHICH ARE AS FOLLOWS: a) Previous approval of shareholder: i) The proposed offer or invitation to subscribe securities has been previously approved by the shareholders by a SR for each of the offers or Invitations. i) Explanatory statement annexed to the notice for the GM shall disclose the ba: justification for the price (including premium) of such offer or invitation In case of offer or invitation for non-convertible debentures, it shall be sufficient if the ‘company passes previous SR only once in a year for all the offers or invitation for such debentures during the year. b) Offer/ i) Offer or invitation shall be made to not more than 200 persons in the aggregate in a financial year ii) Any offer or invitation made to qualified institutional buyers (QIB), or to employees of the company under a scheme of employees stock option (ESOP) u/s 62(1)(b) shall not be considered while calculating the limit of 200 persons itation to the number of persons: ¢) Minimum value of offer / invitation: The value of such offer or invitation per person shall be with an investment size of not less than Rs.20,000/- of face value of the securities; IPCC_37e_C.Law_Prospectus 5.14Ph: 98851 25025/26 www.mastermindsindia.com d) Company to maintain record of bank A/c: i) The payment to be made for subscription to securities shall be made from the bank A/c of the person subscribing to such securities and ii) The company shall keep the record of the bank A/c from where such payments for subscription have been received USI EET STOE Ue UEg offer? (C) (sm) |Q.No.19. What is Deemed Pub! DEEMED PUBLIC OFFE! 1. Offer! invitation made to more than the prescribed number of persons: A company, listed / unlisted, makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to more than the prescribed number of persons, Then the same shall be deemed to be an offer to the public and shall be governed by the provisions related to public offer irrespective of the fact as to whether - ‘+ The company is listed or unlisted; or ‘+ Itintends to get its shares listed on any stock exchange or not; or SS %r invitation not in compliance with the fer and all provisions of this Act and the ‘the SEBI Act, 1992 shall be required to be ‘© Ithas received the payment for the aeuie re 2. Offer / invitation treated as public offer provisions of sec 42 shall be treated as a p Securities Contracts (Regulation) Act, 1 complied with. 1Q.No.20. What is misleading pro: (SM) MISLEADING PROSPECTUS: The prospectus in the below circumstances may be described as a ‘misleading prospectus’ a) A prospectus will be called as false & misleading if it contains an untrue statement b) An untrue statement or misstatement is one, which is misleading, in the form and context in which it has been included in the prospectus. c) Where a certain matter which is material enough has been omitted from the prospectus to mislead those who act on the faith of the prospectus, the prospectus shall be deemed to be a prospectus in which an untrue statement is included, Consequence: The inclusion of mis-statement in a prospectus may lead to criminal and civil liability, SIMILAR QUESTION: 1. What is the mis-statement as regards to prospectus? Copyrights Reserved To MASTER MINDS, Guntur IPCC_37e_C.Law_Prospectus 5.15No.1 for CAICWA & MECICEC MASTER MINDS Q.No.21. What are the statutory requirements relating to issue of the Prospectus. (C) (PM) STATUTORY REQUIREMENTS RELATING TO ISSUE OF THE PROSPECTUS [SEC 26]: a) Matters to be stated in a Prospectus ~ In order to provide thorough and comprehensive information on all aspects of the company and the proposed issue, sec 26(1) of the Companies Act, 2013 lists down a large list of items that must be stated in the Prospectus. b) Registration of prospectus — Sec 26 (4) provides that ‘* 10 prospectus shall be issued by or on behalf of a company or in relation to an intended company, unless on or before the date of its publication, there has been delivered to the Registrar for registration, a copy thereof signed by every person or his duly authorized representative, who is named therein as a director or proposed director of the company. ‘* Under sub sec (7) it is provided that the ROC shall not reaister the prospectus unless the requirements for registration u/s 26 are complied with and the prospectus is ‘accompanied by the consent of all the persons named in the prospectus. ‘+ No prospectus shall be valid if itis issued more than 90 days after the date on which a copy is delivered to the registrar. ¢) Approval of prospectus by various agencies: The draft prospectus has to be approved by various agencies before itis filed with the ROC of the concerned State. d) The lead financial institution underwriting the issue, if applicable: The draft prospectus is vetted by SEBI to ensure adequacy of, sures, However, vetting by SEBI does not amount to approval of prospectus. SEB) jot take any responsibility for the correctness of the statements made or opinion: ‘sed in the prospectus. SIMILAR QUESTIO! ‘SIMILAR QUESTION: RS 4. What are the authorities whose approval must be sought for issue of prospectus? A. SEBI, Lead Financial Institution an 8 other agencies involved in issue 2. Explain the Requirements as to registration of prospectus? (PM) bai tae sit by A. Refer the above answer. /Q.No.1. State the given statement is True or False and explain with reason? "No additional information in addition to the statutory requirements can be given in the prospectus’ False ‘+ Every prospectus shall state the information and set out the reports specified u/s 26 of the Companies Act, 2013. + The section does not contain any negative provision regarding inclusion of additional information in the prospectus. + Therefore any additional information which may useful to the investors can be given in the prospectus, ‘+ In other words, the contents given in Seo. 26 are only minimum, IPCC_37e_C.Law_Prospectus 5.16Ph: 98851 25025/26 www.mastermindsindi com /Q.No.2. An allottee of shares in the Company brought an action against a director Q in respect lof false statements in the prospectus. The director contended that the statements were prepared by promoters and he has relied on them. Is the director liable under the| circumstances? Decide referring to the provisions of the Companies Act, 2013, (PM, RTP - N14, N15) Provision: Sec 34 and 35 of Companies Act, 2013 — Criminal & Civil ibility for misstatements in prospectus. The only situations when a director will not incur any liability for misstatements in a prospectus are as under: 4. No criminal liability u/s 34 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. 2. No civil liability for any misstatement u/s 35 shall apply to a person, if he proves that a) 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) 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. Analysis: in the given case, the director conten: the statements are prepared by promoters and he had relied on them. Relying 9 fatement made by promoters is not a ground included in the above defences. Q.No.3. Modern Furnitures limited was willing to purchase teakwood estate in Chhattisgarh ‘State. Its prospectus contained some important extracts from an expert report giving the number of teakwood trees and other relevant information in the estate in Chhattisgarh State. ‘The report was found inaccurate. Mr. 'X’ purchased the shares of Modern Furnitures Limited lon the basis of the above statement in the prospectus. Will Mr. "X’ have any remedy against the company? When will an expert not be liable? State the provisions of the Companies Act, 2013 in this respect (PM) (Or) X Company. Ltd, intended to buy a rubber estate in Peru. Its prospectus contained extracts from an experts’ report giving the number of rubber trees in the estate. The report was inaccurate. Will any shareholder buying the shares of the Company. on the basis of the above representation have any remedy against the Company.? Can the persons authorising the| issue of prospectus escape from their liability? (Nog - 5M) 1. Remedy of Mr. X against the Company: Provision and Analysis: a) As per Sec.35 of the Companies Act, 2013, if a person has subscribed for shares on the faith of prospectus and has sustained any loss or damage, then he can claim ‘compensation from the company and other responsible persons. IPCC_37e_C.Law_Prospectus 5.17No.1 for CAICWA & MECICEC MASTER MINDS b) The Companies Act, 2013 only provides punishment for company and responsible persons but does not provide legal remedies to aggrieved persons. But the Indian Contract Act, 1872 provides various remedies for contracts induced by coercion, undue influence, misrepresentation, frauds or mistake, which covers the present case. ¢) In order to claim compensation u/s 35, the subscriber has to prove that he has suffered losses. In the given case, nothing is mentioned regarding whether Mr. X has suffered any loss or damage due to mis-statement in prospectus, Conclusi expert, 2. When expert is not liable: An expert will not be liable for any mis statements in the prospectus under the following situations: a) Section 26(5): if having given his consent, he withdraw it in writing before delivery of the copy of prospectus for registration or b) Section 35(2): if 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. An expert will not be liable for any statement not made him in the capacity of an expert and included in the prospectus as such, Therefore he cannot claim any compensation against the company or an Q.No.4. A company issued a prospectus. All statements in a prospectus issued by X & Co. Ltd. were literally true, but it failed to disclose that the dividends stated in it as paid were not paid out of revenue profits, but out of realised capital profits. The statement that the Company] had paid dividends for a number of years was true. Bu all those years, however, no disclosure of this was, shares wanted to avoid the allotment on the grou ‘he prospectus did not disclose this jucceed? (PM, RTP - M15, M17) fact which, in his opinion, was very material. Wo) XYZ Ltd issued a prospectus inviting the % subscription of its equity shares stating in it that the company possess good fi health and paying dividends to its equity| Shareholders consistently and regu! 20% over the last five years, The fact was, company was running in losses since We last three years and it was paying dividends to its [shareholders out of accumulated profits. Mr. Amit read the prospectus and bought 500 shares {rom the company. Discovering the misstatement made by the company in the prospectus, he ‘wants to rescind the contract and claim the damages from the company. Referring the provisions of Companies Act, 2013 decide whether Mr, Amit will succeed? (M13 - 4M) ‘ompany had incurred losses for in the prospectus. An allottee of Provision and Analysi a) Sec 34 and 36 of the Companies Act, 2013 provides the criminal and civil liabilities of the guilty parties in case of mis-statements and misleading inclusions and omissions in a prospectus. Further, sec 36 states the punishment for fraudulently inducing persons to invest moneys. b) However, the present case is not in respect of liability for a possible misstatement but on the right of the allottee to avoid the contract of purchasing the shares. In order to decide this, key factor is to determine, if any material mis representation or concealment of a material fact has taken place and if such misrepresentation is fraudulent ¢) The non disclosure of the fact that dividends are distributed out of capital profits is a concealment of material fact because normally company distributes dividend only from trading or revenue profits except in certain circumstances when dividends can be paid out of capital profits, d) Hence it is covered under material misrepresentation and consequence of such misrepresentation on the contract is governed by the Indian Contract Act, 1872. IPCC_37e_C.Law_Prospectus 5.18Ph: 98851 25025/26 www.mastermindsindi com e) Sec 19 of the Indian Contract Act, 1872 states that when consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. (Rex V. Lord Kylsant) Conclusion: Hence, in the given case the allottee can avoid the contract of allotment of shares. Q.No.5. M applies for share on the basis of a prospectus which contains mis~statement. The shares are allotted to him, who afterwards transfers them to N. Can N bring an action for a rescission on the ground of mis-statement? Decide under the provisions of the Companies| Act, 20137 (PM) Provision and Analysi a) As per sec 37 of the Companies Act, 2013 a suit may be filed or any other action may be taken u/s 34 or 35 or 36 only by any person, group of persons or any association of persons affected by any misleading statement or the inclusion or omission of any matter in the prospectus. b) Sec 19 of the Indian Contract Act, 1872 states that when consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused ¢) Allotment of shares is @ contract and such contract can be rescinded (or cancelled) if there is a mis-statement in prospectus (which is regarded as mis-representation) d) However, in the case of Peek vs Gurney it has been held that a purchaser of shares in the ‘open market cannot be said to have been influenced by mis-representation in the prospectus, e) In the given case N obtained shares from M througtptransfer and not contracted with the uls 37. company, but did not apply for allot public was completed by the compal bought 2000 shares through the stock exchange at a higher price which later on fell sharply, X| sold these shares at a heavy loss. Mr. X claims damages from the company for the loss ‘suffered on the ground the prospectus issued by the company contained a false statement Referring to the provisions of the Companies Act, 2013 examine whether X's claim for damages is justified (For Student Self Study) (PM) AS PER PRACTICE MANUAL: Provision and Analysis Sec 2(70) of the Companies Act, 2013, “prospectus” means any document described or issued as a prospectus and includes a RHP (sec 32) or shelf prospectus (sec 31) or any notice, circular, advertisement or other document inviting offers from the public for the ‘subscription or purchase of any securities of a body corporate A prospectus is a document inviting offers from the public. The prospectus and any statement therein has no legal binding either on the company or its directors, promoters or experts to a person who has not purchased securities in response to it. Conelu: Since X purchased shares through the stock exchange open market which cannot be said to have bought shares on the basis of prospectus. X cannot bring action for deceit against the directors. X will not succeed. It was held in the case of Peek vs. Gurney that the above mentioned remedy by way of damage will not be available to a person if he has not purchased the shares on the basis of prospectus. IPCC_37e_C.Law_Prospectus 5.19No.1 for CAICWA & MECICEC MASTER MINDS AS PER OUR OPINIOI Provision and Analysis a) Sec 19 of the Indian Contract Act, 1872 states that when consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is @ contract voidable at the option of the party whose consent was so caused b) Allotment of shares is a contract. Therefore such contract can be rescinded (or cancelled) if there is a mis-statement in prospectus (which is regarded as mis-representation). c) However, in the case of Peek vs Gumey it has been held that a purchaser of shares in the open market cannot be said to have been influenced by mis-representation in the prospectus, d) As per sec 37 of the Companies Act, 2013 a suit may be filed or any other action may be taken under sec 34 or 35 or 36 only by any person, group of persons or any association of persons affected by any misleading statement or the inclusion or omission of any matter in the prospectus. e) The prospectus and any statement therein has no leaal binding either on the company or its directors, promoters or experts to a person who has not purchased securities in response to it f) It was held in the case of Peek Vs. Gurney that the abovementioned remedy by way of damage will not be available to a person if he has not purchased the shares on the basis of prospectus, Conclusion: X cannot bring action for deceit against the directors. X will not succeed, Q.No.7. Peek Ltd. Company issued and published purchase its shares. The said prospectus containes partly paid shares of the company in good faith company was wound up and the name of Mr.X, Whether Mr.X is liable to pay the unpaii Can Mr.X sue the directors of the coy pectus to invite the investors to statement. Mr. X purchased some stock exchange. Subsequently, the| ‘the list of contributors. Decide: lo recover damages? (PM, M16 - 4M) AS PER PRACTICE MANUAL: Yes, X is liable to pay the unpaid amount on the shares. As X has purchased partly paid shares, so he is liable for the remaining value of the shares. At the time of winding up he is liable as a contributory. The related case law in this subject matter is Peak vs. Gurney. No, X cannot sue the directors to recover damages for the misstatement in the prospectus, The shareholder must have relied on the statement in the prospectus in applying for shares offered by it to hold the responsible persons liable. If a person purchases shares in the open market, the prospectus is non operative as far as he is concerned. In the present case, Mr. X purchased shares on the stock exchange even if he did so, on good faith he had not relied on the statement in prospectus. AS PER OUR OPINIOI Provision and Analy’ a) As per Sec. 19 of the Indian Contract Act, 1872, when a consent of the party to the contract is obtained, among other things, by mis-tepresentation, then such contract is voidable at the option of the party whose consent is so obtained. b) Allotment of shares is a contract. Therefore such contract can be rescinded (or cancelled) if there is a mis-statement in prospectus (which is regarded as mis-representation), ¢) However, in the case of Peek vs Gurney it has been held that a purchaser of shares in the open market cannot be said to have been influenced by mis-representation in the prospectus. Therefore, he will have no remedy against the company IPCC_37e_C.Law_Prospectus 5.20Ph: 98851 25025/26 www.mastermindsindi com ) In the given case Mr.X has purchased the shares on the stock exchange. Therefore he will not have any remedy. In other words Mr.X cannot cancel the contract of allotment and accordingly he is liable to pay the call money. Conclu: Mr. X is liable to pay the unpaid amount on the shares ii) X cannot sue the directors to recover damages for the misstatement in the prospectus. Q.No.8. Mr. M applied for allotment of shares in the name of Mr.Dara. Subsequently it transpired that the particular application made in the name of Mr.Dara was in fictitious name. Did Mr. M. incur any penalty under the Companies Act, 2013? (Pm) Provision: According to sec 38 of the Companies Act, 2013, any person who a) Makes an application for acquiring or subscription of securities in a fictitious name; or b) Makes multiple applications to a company in different names or in different combinations of name or surname ¢) Induces a company to transfer securities in a fictitious name shall be liable for action u/s 447. Analysis and Conclusi In the given case, Mr. M has applied for shares in the name of Mr.Dara which is fictitious. There Mr. Mis liable for fine u/s 447. SECTION NunBeR® CONCEPT SECTION NO. Definition of Prospectus 2(70) Modes of Issuing Securities S&S 23 Deemed prospectus S; 25 Matters to be stated in prospectus 26 Variation of objects referred to in prospectus 27 Offer for Sale 28 Issue securities in dematerialized form 29 Requirements for Advertisement of Prospectus 30 Shelf Prospectus El Red herring prospectus 32 Abridged Prospectus 33 Criminal liabilities for mis-statement in prospectus 34 Civil liabilities for mis-statement in prospectus 36 Penalties for fraudulently inducing a person to invest money 36 Actions by affected person 7 Punishment for personation for acquisition ete. of securities 38 Conditions for issue of private placement 42 IPCC_37e_C.Law_Prospectus 5.21No.1 for CAICWA & MECICEC MASTER MINDS PENALTY S.NO DEFAULT PERSON LIABLE PENALTY 1. [Non-compliance of provisions | Company Rs.50,000 for each of Abridged Prospectus default (sec.33) 2. | Criminal liability for | Every person who | Punishable for fraud u/s misstatement in prospectus | authorizes the issue | 447. (refer below table) (sec.34) of misleading prospectus 3. | Civil ability for misstatement in | Company and other | Liable to prospectus (sec.36) specified persons | « compensate the Loss sustained + Punishable u/s 36 4. |Fraudulently inducing the | Any person Punishable for fraud u/s person to invest money 447. (refer below table) (sec.36) 8. |Defaut in repayment of | Company 12% interest p.a. from the application money within 15 expiry of 60" day. days from the completion of 60 days from the receipt of application money. 6. [Makes an offer or accepts| 1) Compa ‘@) Amount of offer, or monies in contravention of | 2) Pro b) Rs. 2 Crores, conditions for Private Whichever is higher placement (sec.42 ) Punishment for Fraud u/s 447 states the nef dtisonment & penalty as follows, Imprisonment Penalty a. 6 months to 10 years. b. If public interest is involved then minimum imprisonment of 3 years. S ‘Amount involved in the fraud, which may extend upto 3 times of the amount involved in the fraud. TIME IMITS PARTICULARS TIME - LIMIT Condition for deemed allotment u/s 25 sale to the public was made within six months after the allotment or agreement to allot Validity period of shelf prospectus maximum period of 1 year from the date of opening of the first offer Validity period of a prospectus after its registration with ROC. Not more than 90 days after it was delivered to ROC, Filing of RHP with ROC at least 3 days prior to the opening of the subscription list and the offer Time for allotment of securities under Private Placement (sec 42) within 60 days from the date of receipt of the application money for such securities Time limit for refund of application money in case of failure to allot the securities within 60 days (sec 42) 15 days from the date of completion of sixty days ETRCCES 7 C.Lea weit eros pe cure eee 5.22Ph: 98851 25025/26 www.mastermindsindia.com Filing of Complete details of issue of private | within a period of thirty days of circulation of placement and information with ROC relevant private placement offer letter. Makes an offer or accepts monies in Company shall refund all monies to ‘contravention of conditions for Private subscribers within a period of thirty days of placement (sec.42 ) the order imposing the penalty u/s 42 SASS hy When a director is not liable for a misstatement in a prospectus? ~ A limited company willing to purchase a tea estate in Assam. Extracts from experts report mentioning number of tea plants and other relevant information was incorporated in the prospectus. The expert report was found to be incorrect. Does any prospective applicant shareholder buying the shares on the basis of false information has any remedy against the company? (PM) » ‘Amar subscribed shares issued by F Ltd. The prospectus of F Ltd. included a statement which was misleading in the forms and contents. On the faith of the prospectus believing it to be a true, Amar subscribed for shares and sustained loss. Can Amar sue for ‘compensation of loss? If so, who will be sued for such loss? = Pick out the correct answer from the following and give reasons: A prospectus issued by the financial institutions or bank for one or more issues of the securities or class of securities specified in the prospagtus is called a. Deemed prospectus YF b. Red-herting prospectus RS . Abridged prospectus K d. Shelf prospectus Verified By: Adithya Kiran Sir, Pavan Sir, Executed By: Sai Kumar Sir THE END IPCC_37e_C.Law_Prospectus 5.23