DEPT.

OF LEGAL SCIENCE

PROJECT
ON
“PROSPECTUS: ISSUES, CONTENTS AND KINDS OF PROSPECTUS
UNDER COMPANIES ACT,2013”

SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR

THE AWARD OF THE DEGREE OF BACHELOR OF LAWS

SUBMITTED BY
SHUBHAM JINDAL
ID NO.: 211002010017
SUBJECT: CRIMINAL PROCEDURE CODE
L.L.B (3RD SEMESTER)

SUBMITTED TO
PROF. SUKANYA MAJILYA
 PREFACE

Financial markets have an important relationship with economic development. A company

decides to issue securities for different reasons; the main reason being raising capital to meet
its financial requirements may be for starting a venture, repaying debts, expansion and
diversification. This actually reflects indulgence of enormous investor wealth for the sublime
reason of economic development. This economic dependence of the corporate sector is a
compelling rationale for an orderly regulated environment that boosts investor confidence
and assures conformity with prescribed norms. It helps in creating conducive ownership base
and wide capacities to create an impact on the national economy. When an investor buys
securities he is enabling the company to carry on its business using those funds.

The researcher in this research work has discussed the term ‘Prospectus’ in details and this
research work contains the various provisions related to prospects, the contents and
requirements, types of prospectuses and also the liability of mis-statements in the Prospectus.

2
 ACKNOWLEDGEMENT

I express my thanks towards my professors and faculty members of The Techno India
University, Department of Law. A debt gratitude towards my guide Prof. Sukanya Majilya,
for patiently hearing me out and giving me valuable inputs on my research work.

I would also like to make special thanks to my parents, without whose blessings, this project
would not be possible

3
RESEARCH OBJECTIVES

 To study the importance of the Prospectus as a tool for the investor

 To study the various provisions related to the Prospectus
 To study the various contents and requirements for filing of the prospectus
 To study the different types of Prospectuses
 To study the various consequences of mis-statements in the Prospectus
 To study the procedure of filing the prospectus

RESEARCH QUESTIONS

 What is the importance of the Prospectus as a tool for the investor?

 What are the various provisions related to the Prospectus?
 What are various contents and requirements for filing of Prospectus?
 What are the different types of Prospectus?
 What are the various consequences of mis-statements in the Prospectus?
 What are the procedures for filing of the Prospectus?

4
 RESEARCH METHODOLOGY

The researcher has used the doctrinal research methodology and resource like books and web
resources have been used to carry out the research.

5
 REVIEW OF LITERATURE

The researcher has analyzed the books on Company Law by Avatar Singh and Bare Act of
Companies Act, 2013 to study the concept of Prospectus and various internet sources to
analyses the concept. The researcher found that the information given is accurate and true.

6
 HYPOTHESIS

The researcher has formulated the following hypothesis:

 Prospectus is a statement in which the investor has faith before buying the shares
hence the mis-statements have to be severely dealt with

 SEBI Guidelines and the Provisions of the Companies Act, 2013 have to be made
more stringent in order to have effective check on the appropriate and true disclosures
in the Prospectus.

Based on the research work the researcher has proved the hypothesis.

7
 INTRODUCTION

Capital in a company is important because it represents a company's available funds and is

used by businesses to pay for ongoing production of goods and services in order to generate a
profit. The greater the capital, the greater the company's expansion. Debt or equity financing
can be used by businesses to raise funds. In such cases, a prospectus is an indispensable tool.
A prospectus is a detailed document that contains information about securities issued by a
company in order to invite the general public and investors to subscribe to the securities.

Prospectus refers to an information booklet or offer document on the basis of which an

investor invests in the securities of an issuer company. It has been defined under section
2(70) so as to mean any document described or issued as prospectus and includes a red
herring prospectus referred to 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 the
subscription or purchase of any securities of a body corporate.

A prospectus, in other words, is any advertisement, circular, or document that invites public
deposits or offers to subscribe for or purchase any shares or debentures of a corporate body.
A prospectus discloses the company's operations and objectives, as well as the purpose of the
securities being offered. Only a public company may issue a prospectus to offer its shares and
debentures. A prospectus cannot be issued by a private company because they are small in
size, issue fewer shares, and share transferability is limited, resulting in low liquidity of the
private company's stocks. A prospectus is a document issued by or on behalf of a public
company in connection with the formation of the company or on behalf of any individual
who is, has been, or will be a shareholder of the company.

Prospectus It is extremely beneficial to investors because they can learn about the risks
associated with purchasing securities or funds. When a company raises funds by issuing
stocks or bonds, it is the responsibility of investors to examine the company's financials to
ensure that it is financially stable enough to meet its obligations.1

1
https://tavaga.com/tavagapedia/prospectus/

8
 IS PROSPECTUS WRITTEN OR ORAL?

Whether a television advertisement and visual clips which give all the required details of the
company and also give the information regarding new shares and debentures are termed as
Prospectus?

No, the Prospectus shall not be oral. According to Section 25 of the Companies Act, the
Prospectus must be in writing because it is a document.

IS PROSPECTUS AN OFFER OR INVITATION TO OFFER?

The Prospectus has issued to the public at large, so the question arises that the prospectus is
whether a general offer to the public? No, a prospectus is not an offer but merely it is an
invitation to offer according to the Indian Contract Act. The prospectus is a constructed
document that shall be issued to the public as an invitation for the subscription of shares.

In the case of Pramatha Nath Sanyal V. Kali Kumar Dutt(1924) 2, an advertisement was
published in the newspaper which stated that. “Some shares are still available for sale”
according to the terms of the prospectus of the Company which can be obtained for
application. It was held that this advertisement is a prospectus as it invited public to purchase
shares.

WHAT IS STATEMENT IN LIEU OF PROSPECTUS?

The Statement in Lieu of Prospectus is a document filed with the Registrar of the Companies
(ROC) when the company has not issued prospectus to the public for inviting them to
subscribe for shares. The statement must contain the signatures of all the directors or their
agents authorised in writing. It is similar to a prospectus but contains brief information.

The Statement in Lieu of Prospectus needs to be filed with the registrar if the company does
not issue prospectus or the company issued prospectus but because minimum subscription has
not been received the company has not proceeded for the allotment of shares.

2
AIR 1925 Cal 714
9
 CONTENTS OF THE PROSPECTUS

The Prospectus has issued on the behalf of the company. Section 26 of the Companies Act,
2013, read with Rule 3 of the Companies (Prospectus and Allotment of Securities) Rule
2012: - For the formation of the Public Company, the prospectus must be signed and dated
and contains the following information:

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-
utilization 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 are 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

10
REQUIREMENTS TO BE FULFILLED FOR FILING OF PROSPECTUS

 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.

 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.
 Section26(7) states about the registration of a prospectus by the registrar. According
to this section, when the registrar can register a prospectus when:

i) It fulfils the requirements of this section, i.e., section 26 of the Companies

Act, 2013; and

ii) It contains the consent of all the persons named in the prospectus in
writing.

 Issue of Prospectus after registration – 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.

ADVERTISEMENT OF THE PROSPECTUS

Section 30 of the Companies Act of 2013 contains provisions for prospectus advertising. This
section states that when a prospectus advertisement is published in any form, the contents of
the company's memorandum 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 must be specified.

11
 WHEN THE COMPANY IS NOT REQUIRED TO ISSUE
PROSPECTUS

The issue of prospectus is not necessary in the following cases [SEC 26(2)]

 Offer or invitation is made to the existing members or debenture holders of the

company
 Offer or invitation is made to subscribe for shares or debentures which are uniform in
all respects with shares or debentures previously issued and dealt in or quoted on a
recognized stock exchange
 No offer or invitation is made for issue of shares or debentures to public
 Where shares or debentures are issued by private company.

TYPES OF PROSPECTUSES

The types of prospectuses are as follows: -

1. Red Herring Prospectus

Red Herring prospectus means a prospectus which does not include complete particulars of
the quantum or price of the securities included therein. In simple terms a red herring
prospectus contains most of the information pertaining to the company’s operation and
prospects, but does not include key details of the issue such as its price and the number of
shares offered.

According to section 32 a company proposing to make an offer of securities may issue a red
herring prospectus prior to issue of a prospectus. Such company proposing to issue a red
herring prospectus shall file it with the registrar at least three days prior to the opening of the
subscription list and the offer.

2. Shelf Prospectus

The provision is given under section 31 of the Companies Act, 2013. Shelf prospectus means
a prospectus in respect of which the securities or class of securities included therein are

12
issued for subscription in one or more issues over a certain period without the issue of a
further prospectus.

In simple terms Shelf Prospectus is a single prospectus for multiple public issue. Issuer is
permitted to offer and sell securities to the public without a separate prospectus for each act
of offering for a certain period.

3. Abridged Prospectus

The abridged prospectus is a summary of a prospectus that has been filed with the registrar. It
has all of the characteristics of a prospectus. An abridged prospectus condenses all of the
prospectus's information so that an investor can learn all of the important information quickly
and easily.

Section 33(1) of the Companies Act of 2013 also requires that any form for the purchase of a
company's securities be accompanied by an abridged prospectus.

It contains all of the necessary and materialistic information for the investor to make an
informed decision, and it also lowers the cost of the capital's public offering because it is a
condensed version of a prospectus.

4. Deemed Prospectus

Section 25(1) of the Companies Act of 2013 defines a deemed prospectus. When a company
offers or agrees to offer securities for sale to the public, the document will be considered a
deemed prospectus through which the offer is made to the public for sale. For all purposes,
the document is deemed to be a prospectus of a company, and all of the provisions of content
and liabilities of a prospectus will be applied to it.

GOLDEN RULE OF PROSPECTUS

In the case of by Justice Kindersley in New Brunswick and Canada Railway and Land Co. v.
Muggeridge (1860). The golden rule were given which stated that whatever information
comes from the company to the public, through the medium of a prospectus, must be true,

13
fair and accurate. Those who issue a prospectus hold out to the public great advantages which
will accrue to the persons who will take shares in the proposed undertaking

LIABILITY FOR MIS-STATEMENTS

CRIMINAL LIABILITY

As per Section 447 of this Act any person who is found to be guilty of fraud, shall be
punishable with imprisonment for a term which shall not be less than six months but which
may extend to 10 years and shall also be liable to fine which shall not be less than the amount
involved in the fraud, but which may extend to three times the amount involved in fraud.

CIVIL LIABILITY

The following civil remedies are available for mis-statement or untrue statement:

1. Recission of the contract

An original allottee can rescind the contract if it has been made by mis-statement be it
innocent or fraudulent. By the essential requirement s of this would be:

 There is a false representation in the prospectus

 The false representation is of fact and not that of law
 The allottee must have relied and acted on the false statement
 The prospectus was issued by the company or with someone with the authority of the
company

2. Liability for omission under section 26

 Section 26 states the particulars to be stated in the prospectus and imposes penalty for
its contravention. The section does not entitle an allottee to rescind the contract by
reason merely of the omission of any of the facts required to be disclosed by the
section provided there is no fraud or misrepresentation within the meaning of section
17 and 18 of the Indian Contract Act, 1872.

14
3. Compensation for untrue statement under section 35 - Persons mentioned under section
35 are personally liable to compensate the investor for any loss sustained by due to untrue
statement in the prospectus.

CONCLUSION AND SUGGESTIONS

A prospectus is basically, a formal and legal document issued by a corporation to solicit

offers from the public for the subscription or purchase of securities. Every public company
has the right to issue a prospectus for its stock or debentures. However, a private company is
exempt from this requirement.

A prospectus must contain essential requirements and be registered in order to be valid. If a

prospectus is not registered, it is considered invalid and in violation of the provisions for a
valid prospectus. Section 26(9) makes such a violation punishable.

Whenever a prospectus advertisement is made, it must include the company's memorandum.

When a company makes a proposal for a securities offering, it may issue a red herring
prospectus before issuing a prospectus. A company can also issue a shelf prospectus when it
needs to make an offer on one or more securities or classes of securities but does not need to
issue a prospectus for each security.

As a result, a prospectus is essential for any public company, and it must comply with the
provisions of the Companies Act 2013.

15
 BIBLIOGRAPHY

Books
 Bare Act of The Companies Act,2013
 Company Law by Avatar Singh Seventeenth Edition published by EBC

Websites

 www.indiankanoon.org
 https://blog.ipleaders.in/types-of-prospectus/
 www.keydifferences.com
 www.corporatelawrefencer.com

16