CA Inter Law May 2024

Prospectus
 Public Offer and Private Placement [Sec.23]

Public Private
Type of Issue
Company Company

Public Offer (including IPO, FPO or OFS) Yes No

Private Placement Yes Yes

Rights issue / Bonus Issue Yes Yes

Sec.27

Variation of terms or Exit option to

object as mentioned in S.R Advt. dissenting shareholders
prospectus

Sec.28 Offer for sale (OFS)

Existing Approach Public
Company Public
member To sell their
shares offer
• Document  Deemed Prospectus
• No rule of min-Subscriptions & min
Sec.29 Demat / electronic form application money

1) Every Public offer To bed one in demat

2) Any offer by unlisted Public Co. (electronic) form
Advertisement of Prospectus (Sec 30 )

Where an advertisement of any prospectus of a company is published in any manner, it shall be necessary to specify
therein the contents of its memorandum as regards :-

1. the objects,
2. the liability of members and
3. the amount of share capital of the company, and
4. the names of the signatories to the memorandum and
5. the number of shares subscribed for by them, and
6. its capital structure.
 Prospectus [Sec. 2(70)]

Basics Where req. Where not req. Reports to be Process

filled with ROC
Writing i) Public offer RRIP
(IPO/FPO/OFS) DS-DS-DI i. Prepare
 prospectus
 ii) Deemed to be 
 Sec. 26
• Oral – X Public offer i. R  Right issue 1. D  Declaration that
• Co. Act
 Dated
• Audio – X Pvt Placement ii. R  Repeat issue  Sign by All dir
• SEBI Act
• Video – X  with same T&C • SCRA Act and proposed
• Define U/s Complied dir and Expert
Sec. 2(70) – More than 200 iii. I  Invitation to (if req)
underwriters 2. S As prescr. by SEBI
• Prospectus  3. D Dated ii. File with ROC
means
In a F.Y iv. P  Pvt.
documents 4. S Signed Within
issued as Placement 90 days
Prospectus except 5. D Disclosure that
and includes filled with ROC
shelf , • QIB
redherring 6. I  Info iii.Issue to Public
and deemed • Employees under PPOL (PAS-4) a) Gen- Info.
ESOP Scheme b) Fin- Info. (via advt. )
c) Issue T&C
 TYPES OF PROSPECTUS
BASIS Shelf Prospectus (S.P) Sec. 31 Red Herring Prospectus Deemed Prospectus
(RHP) Sec. 32 Sec. 25
Why To Save cost in multiple issue To ascertains price per share Legal compliance
Applicable Co. Prescribed by SEBI i. Price discovery Offer for sale through issue house /
to ii. Book building process merchant bankers/ underwriters
Procedure i. File S.P @ 1st offer i. File RHP with ROC without Condition
ii. Valid for 1 year from opening a) Price per shares i. Offer to Public
of 1st offer b) No. of shares Within 6 months from allotment
iii. Any change in T&C in subseq. Atleast 3 days before &
Offer within period opening of offer Ii Whole consideration not received
 ii. Invite bids through I.M when offer to Public made
File Info Memorandum(I.M) iii. Decide price 
 iv. Commn though I.M Document through which OFS
At least 1 month before offer v. File final prospectus with i. Should contain all contents as
 ROC after closing of offer per Sec. 26
ROC before issue Co. - 2 Dtr.
• Shelf + I.M = Prospectus ii. Signed by
Firm -. Half
partners
 GOLDEN RULES FOR FRAMING THE PROPECTUS

1) It should show whole picture of the Company.

2) No suppression of facts.
3) All material facts should be disclosed. (Rex vs kylsant )
4) Prospectus should not be misleading / untrue.
 Remedies to investors – for mis-statement in Prospectus

Against Against direc/ promoter / expert Others

Company (Sec. 36)
Criminal liability Civil liability
Any person
• Contract avoid Section 34 35 other than co/
(shares/ deb.
Basis Intentional Unintentional dir/ Promoter
return )
• Damages
Punishment 447 Punishment Damages claim 
action
claim Induce to
Protection i. Information i. Prosp. Issued without his
• No
immaterial consent
others
punishment
ii. He believed it to be ii. Once he knew of mis-stat he fraudulently
true withdrew his consent
iii. They believed it to be true

 Sec. 447
On basis of Punished
a) Public document
b) Expert report basis
 Note : PQ alert
1. No Protection if believed it to be true on basis of promoter’s report
2. No remedy  if
Not original allottee Peek vs
Gurney
Purchase from stock exchange
No damage loss caused  Derry vs peek
3. Sec. 37  Investors can do class action (Group)
 SEC 447 : PUNISHMENT FOR FRAUD.

Punishment for Fraud [Sec. 447]

Punishment u/s 447 of
frauds of at least Rs. 10 Fraud involves public Any other case
lakh or 1% of the interest
turnover of the
company, whichever is
lower Min. Imprisonment 3 years 6 months

Max. Imprisonment 10 years

Min. Fine Amount involved in the fraud
Max. Fine 3 times the amount involved in the fraud
Punishment u/s 447 for (a)imprisonment upto 5 years; or
frauds of lesser amount (b)fine upto Rs, 50 lakh; or
(c)both.
 Sec. 40 Underwriting Commission

Rate Conditions

1. SHARES 1. Authorized by AOA

5% of Issue Price 2. Cannot be paid on Private Placement.
Or 3. Can be paid out of
As per Articles of Association • proceeds of share; or
(w.e.L.) • profits of company or both
4. Disclose details in prospectus-
2. DEBENTURES • name of u/w;
2.5% of Issue Price • rate & amt of comm payable;
Or • no. of securities underwritten
As per Articles of Association 5. A copy of underwriting agreement to be
(w.e.L.) filed to ROC along with Prospectus to be
deliverd.
 Allotment of Securities (Sec. 39 & Sec. 40)

 Before prospectus, make application to one or more stock

Listing exchange if public offer
Permission  Mention this in prospectus

 At least 5% of nominal value or amount prescribed by SEBI

Obtain share  Deposit money in separate bank account
application
money Can be utilized Adjusting against allotment
only for Refund if cannot allot shares
  As provided in prospectus
Obtain
 Received within 30 days of issue of prospectus
minimum
 If not - repay within 15 days
subscription
 If late - 15% p.a. interest

Allot security

 Within 30days

File return of  With ROC in form no. PAS 3

allotment  Mentioning:
a) List of allottee
b) Contract copy (if consideration other than cash)
c) Copy of resolution (bonus shares)
 Examples Of Irregular Allotment

1. Pubic Offer without issue of Prospectus

2. Untrue or Misleading Prospecus
3. Prosp issued to Public without registration with Roc
4. Allotment without minimum Subscription
5. Application Money less than 5 %
6. Return of allotment not filled with ROC
7. No listing permission on Public Offer
Global Depository Receipt [GDR] (sec 41)
● "Global Depository Receipt [GDR]" means :-
 any instrument in the form of a depository receipt, by whatever name called,
 created by a foreign depository outside India and
 authorised by a company making an issue of such depository receipts.
● Board Resolution
● Special Resolution
● The depository receipts shall be issued by an overseas depository bank appointed by the company and
the underlying shares shall be kept in the custody of a domestic custodian bank.
● Reserve Bank of India guidelines complied
● The company shall appoint a merchant banker or a practising CA/CS/CMA to oversee all the compliances
● A holder of GDR may become a member of the company and shall be entitled to vote as such only on
conversion of the depository receipts into underlying shares
● Until the conversion of depository receipts, the overseas depository shall be entitled to vote on behalf
of the holders of GDR in accordance with the provisions of the agreement entered into between the
depository, holders of depository receipts and the company in this regard.
 Private Placement (Sec. 42)

Meaning Restrictions Others

IMP Pts.
(Eq. Pref. ocb)
i. Resduction-S.R.
i. Max  200 person/ per kind of Sec. / Per ii. Application money
Offer to F.Y. receive
specified
/Identified  Within 60 days
Exceed  deemed to be public offer Allotment within 15 days
person Exception  (i) OIB (ii) ESOP

 ii. No Advt. Return
Decide by BOD iii. No cash /only banking channel 
 iv. No fresh ofer till old offer is completed / Internal Reu
Through PPOL withdown / abanadned/ iii. After alloment
(Pas-4) v. No right of renunciation Who 15 days

Notes - If any restriction not fulfilled it will be deemed to be public offer
File ROA with ROC in pass -3