9992

Chapter 4
PROSPECTUS

Synopsis
4.1 Meaning of Prospectus [Section 2(70)] 36
4.2 Public Offer and Private Placement [Section 23] 36
4.3 Deemed Prospectus or Prospectus by Implication or Offer for Sale [Section 25] 37
4.4 Matters to be Stated in the Prospectus [Section 26] 37
4.5 Variation In Terms of Contract or Objects in Prospectus [Section 27] 38
4.6 Offer of Sale of Shares by Certain Members of Company [Section 28] 39
4.7 Public Offer of Securities to be in Dematerialised Form [Section 29 along with Companies (Prospectus
and Allotment of Securities) Rules, 2014] 39
4.8 Advertisement of Prospectus [Section 30] 41
4.9 Shelf Prospectus [Section 31] 42
4.10 Red Herring Prospectus [Section 32] 43
4.11 Misleading Prospectus or Prospectus Containing Untrue Statement 43
4.12 Penalty for Fraudulently Inducing Persons to Invest Money [Section 36] 44
4.13 Action by Affected Persons [Section 37] 44
4.14 Punishment for Fraud 45
4.15 Legal Rules under the Companies Act, 2013 45
4.16 Offer of Invitation for Subscription of Securities on Private Placement (Section 42) 46

4.1 MEANING OF PROSPECTUS [Section 2(70)]

Meaning Section 2(70) defines the Prospectus as

“Any document described or issued as a prospectus
and includes a red herring prospectus (section 32), or
shelf prospectus (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”

4.2 PUBLIC OFFER AND PRIVATE PLACEMENT [Section 23]

1. Modes of issue 1. to public through prospectus; or

by Public 2. through private placement; or
Company
3. through a rights issue or a bonus issue, and
4. in case of a listed company or a company which intends to get its securities
listed, with the provisions of the Securities and Exchange Board of India Act,
1992 and the rules and regulations made there under.
Chap. 4 Prospectus 37

2. Modes of issue 1. By way of Right issue or Bonus issue

by Private 2. Through Private Placement
Company

4.3 DEEMED PROSPECTUS OR PROSPECTUS BY IMPLICATION OR OFFER FOR SALE

[Section 25]

1. Meaning ▪ Where the company allots or agrees to allot any securities

▪ With a view that such securities would be offered to public for sale
▪ Any such document by which this offer for sale to public is made
▪ shall be deemed to be a prospectus issued by a company and
▪ All provisions applicable to prospectus shall be applicable to it with specified
modification.

2. Presumption It will be evident that an allotment or an agreement to allot securities was made
with Deemed with a view to offer them to public in case:-
Prospectus (a) Shares were offered to the public for sale within 6 months after they were
allotted or agreed to be allotted to issuing house, or
(b) Whole consideration in respect of shares/debentures had not been received by
the company.

4.4 MATTERS TO BE STATED IN THE PROSPECTUS [Section 26]

1. Contents of the Every prospectus issued by or on behalf of a public company shall be dated and
prospectus signed and shall state such information and set out such reports on financial
information as may be specified by the Securities and Exchange Board in
consultation with the Central Government:
Provided that until the Securities and Exchange Board specifies the information and
reports on financial information under this sub- section, the regulations made by the
Securities and Exchange Board under the Securities and Exchange Board of India
Act, 1992, in respect of such financial information or reports on financial
information shall apply.
Prospectus shall make a declaration about the compliance of the provisions of this
Act and a statement to the effect that nothing in the prospectus is contrary to the
provisions of this Act, the Securities Contracts (Regulation) Act, 1956 and the
Securities and Exchange Board of India Act, 1992 and the rules and regulations
made thereunder

2. No requirement (a) Right Shares- To the issue to existing members or debenture-holders of a

of Prospectus company, of a prospectus or form of application relating to shares in or debentures
of the company, whether an applicant has a right to renounce the shares or not in
favour of any other person; or
(b) Bonus Shares- to the issue of a prospectus or form of application relating to
shares or debentures which are in all respects uniform with shares or debentures
previously issued and for the time being dealt in or quoted on a recognised stock
exchange.
38 Prospectus Chap. 4

4.4 MATTERS TO BE STATED IN THE PROSPECTUS [Section 26]

3. Date of The date indicated in the prospectus shall be deemed to be the date of its
Prospectus publication.

4. Prospectus to be No prospectus shall be issued by or on behalf of a company unless on or before the

issued after date of its publication, there has been delivered to the Registrar for registration, a
registration and copy thereof signed by every person who is named therein as a director or proposed
compliance with director of the company or by his duly authorised attorney.
other formalities:

5. Experts A prospectus issued shall not include a statement purporting to be made by an

‘excluded from expert unless
making a statement
• the expert is a person who is not, and has not been, engaged or interested
in the formation or promotion or management, of the company;
• has given his written consent to the issue of the prospectus;
• has not withdrawn such consent before the delivery of a copy of the
prospectus to the Registrar for registration; and
• a statement to that effect shall be included in the prospectus.

6. Compliances Every prospectus issued under sub-section (1) shall, on the face of it—
(a) state that a copy has been delivered for registration to the Registrar; and
(b) specify any documents required by this section to be attached to the copy so
delivered or refer to statements included in the prospectus which specify these
documents.

7. Compliance of The Registrar shall not register a prospectus unless the requirements of this section
requirements of with respect to its registration are complied with and the prospectus is accompanied
this section before by the consent in writing of all the persons named in the prospectus.
registration

8. Period for the No prospectus shall be valid if it is issued more than ninety days after the date on
issue of prospectus which a copy thereof is delivered to the Registrar

4.5 VARIATION IN TERMS OF CONTRACT OR OBJECTS IN PROSPECTUS [Section 27]

Special Resolution A company shall not, vary the terms of a contract referred to in the prospectus
except by way of special resolution.

Notice of resolution The details of the notice in respect of such resolution to shareholders, shall also be
to shareholders published in the newspapers (one in English and one in vernacular language) in the
city where the registered office of the company is situated indicating clearly the
justification for such variation.

Exit offer to The dissenting shareholders being those shareholders who have not agreed to the
dissenting proposal to vary the terms of contracts or objects referred to in the prospectus, shall
shareholders be given an exit offer by promoters or controlling shareholders at such exit price,
and in such manner and conditions as may be specified by the Securities and
Exchange Board by making regulations in this behalf.
Chap. 4 Prospectus 39
Provisions as per ▪ Where the company has raised money from public through prospectus and has
Companies any unutilized amount out of the money so raised, it shall not vary the terms of
(Prospectus and contracts referred to in the prospectus or objects for which the prospectus was
Allotment of issued except by passing a special resolution through postal ballot.
Securities) Rules, ▪ The advertisement of the notice of resolution passed for varying the terms of
2014 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.

4.6 OFFER OF SALE OF SHARES BY CERTAIN MEMBERS OF COMPANY [Section 28]

Provision (1) Where certain members of a company propose, in consultation with the Board of
Directors to offer, whole or part of their holding of shares to the public, they may do
so in accordance with such procedure as may be prescribed.
(2) Any document by which the offer of sale to the public is made shall, for all
purposes, be deemed to be a prospectus issued by the company and all laws and rules
made thereunder as to the contents of the prospectus and as to liability in respect of
mis-statements in and omission from prospectus or otherwise relating to prospectus
shall apply as if this is a prospectus issued by the company.
(3) The members, whether individuals or bodies corporate or both, whose shares are
proposed to be offered to the public, shall collectively authorise the company, whose
shares are offered for sale to the public, to take all actions in respect of offer of sale
for and on their behalf and they shall reimburse the company all expenses incurred
by it on this matter.
Exceptions to According to Rule 8(1), the provisions of Part I of Chapter III namely “Prospectus
certain Matters: and Allotment of Securities” and rules made thereunder shall be applicable to an
offer of sale referred to in section 28 except for the following, namely:—
(a) the provisions relating to minimum subscription;
(b) the provisions for minimum application value;
(c) the provisions requiring any statement to be made by the Board of directors in
respect of the utilization of money; and
(d) any other provision or information which cannot be compiled or gathered by the
offeror, with detailed justifications for not being able to comply with such
provisions.

4.7 PUBLIC OFFER OF SECURITIES TO BE IN DEMATERIALISED FORM [Section 29 along

with Companies (Prospectus and Allotment of Securities) Rules, 2014]

Which company • Every company making public offer; and

need shares in
• Such other class or classes of public companies as may be prescribed,
Demat Form
shall issue the securities only in dematerialised form by complying with the
provisions of the Depositories Act, 1996 and the regulations made thereunder.
Any company, other than a company mentioned above may convert its securities into
dematerialised form or issue its securities in physical form in accordance with the
provisions of this Act or in dematerialised form in accordance with the provisions of
the Depositories Act, 1996 and the regulations made thereunder.
40 Prospectus Chap. 4
Dematerialisation of Securities: Promoters of every public company making a
public offer of any convertible securities may hold such securities only in
dematerialised form.
It is provided that the entire holding of convertible securities of the company by the
promoters held in physical form up to the date of the initial public offer shall be
converted into dematerialised form before such offer is made and thereafter such
promoter shareholding shall be held in dematerialised form only.
In case of such class or classes of unlisted companies as may be prescribed, the
securities shall be held or transferred only in dematerialised form in the
manner laid down in the Depositories Act, 1996 and the regulations made
thereunder.
Issue of securities in dematerialised form by unlisted public companies:
According to Rule 9A(1), every unlisted public company (excluding a Nidhi, a
Government company and a wholly owned subsidiary) shall issue the securities only
in dematerialised form and also facilitate Dematerialisation of all its existing
securities in accordance with provisions of the Depositories Act, 1996 and
regulations made there under.
Conversion of securities in dematerialised form:
Every unlisted public company making any offer for issue of any securities or
buyback of securities or issue of bonus shares or rights offer shall ensure that before
making such offer, entire holding of securities of its promoters, directors, key
managerial personnel has been dematerialised in accordance with provisions of the
Depositories Act, 1996 and regulations made there under.
Responsibility of every holder of securities of an unlisted public company:
According to Rule 9A (3), every holder of securities of an unlisted public company:
(a) who intends to transfer such securities on or after 2nd October, 2018, shall get
such securities dematerialised before the transfer; or
(b) who subscribes to any securities of an unlisted public company (whether by way
of private placement or bonus shares or rights offer) on or after 2nd October,
2018
shall ensure that all his existing securities are held in dematerialized form before
such subscription.
Application to the depository:
As per Rule 9A, every unlisted public company shall facilitate Dematerialisation of
all its existing securities by making necessary application to a depository as defined
in section 2(1)(e) of the Depositories Act, 1996 and shall secure International
Security Identification Number (ISIN) for each type of security and shall inform all
its existing security holders about such facility.
Obligations of every unlisted public company:
According to Rule 9A(5), every unlisted public company shall ensure that—
(a) it makes timely payment of fees (admission as well as annual) to the depository
and registrar to an issue and share transfer agent in accordance with the
agreement executed between the parties;
(b) it maintains security deposit, at all times, of not less than two years’ fees with
the depository and registrar to an issue and share transfer agent, in such form as
may be agreed between the parties; and
Chap. 4 Prospectus 41
(c) it complies with the regulations or directions or guidelines or circulars, if any,
issued by the Securities and Exchange Board or Depository from time to time
with respect to dematerialisation of shares of unlisted public companies and
matters incidental or related thereto.
Prohibition on defaulting unlisted public company:
Rule 9A further states that no unlisted public company which has defaulted in sub-
rule (5) shall make offer of any securities or buyback its securities or issue any bonus
or right shares till the payments to depositories or registrar to an issue and share
transfer agent are made.
Application of certain provisions:
Provisions of the Depositories Act, 1996, the Securities and Exchange Board of
India (Depositories and Participants) Regulations, 2018 and the Securities and
Exchange Board of India (Registrars to an Issue and Share Transfer Agents)
Regulations, 1993 shall apply mutatis mutandis to dematerialisation of securities of
unlisted public companies.
Filing with the Registrar:
Rules 9A prescribes that every unlisted public company governed by Rule 9A shall
submit Form PAS-6 to the Registrar with such fee as provided in the Companies
(Registration Offices and Fees) Rules, 2014 within 60 days from the conclusion of
each half year duly certified by a company secretary in practice or chartered
accountant in practice.
Reporting of difference:
As per Rule 9A, the company shall immediately bring to the notice of the
depositories any difference observed in its issued capital and the capital held in
dematerialised form.
Grievances redressal mechanism:
the grievances, if any, of security holders of unlisted public companies under Rule
9A shall be filed before the Investor Education and Protection Fund Authority
(IEPF).
Initiation of action by IEPF Authority:
Investor Education and Protection Fund Authority shall initiate any action against a
depository or participant or registrar to an issue and share transfer agent after prior
consultation with the Securities and Exchange Board of India

4.8 ADVERTISEMENT OF PROSPECTUS [Section 30]

According to Section 30, where an advertisement of any prospectus of a company

Provision of Section is published in any manner, it shall be necessary to specify therein the contents of
its memorandum as regards the following:
(i) the objects,
(ii) the liability of members and the amount of share capital of the company,
(iii) the names of the signatories to the memorandum,
(iv) the number of shares subscribed for by the signatories, and
(v) the capital structure of the company.
42 Prospectus Chap. 4

4.9 SHELF PROSPECTUS [Section 31]

1. Why Shelf ▪ A public company is required to issue a prospectus for raising finance from
Prospectus the public.
▪ Every time a fresh issue of securities is made, issuing a fresh prospectus is
a costly and time consuming process.
▪ In order to minimize such burden, the concept of 'shelf prospectus' is
introduced which will be valid for a period of one year.

2. Document For any subsequent offering within the validity period only an 'information
required along with memorandum' for updating the information under the specified heads is required
Shelf Prospectus to be filed.

3. Meaning of Shelf It means a prospectus in respect of which the securities or class of securities
Prospectus included therein are issued for subscription in one or more issues over a certain
period without the issue of a further prospectus.

4. By Whom Shelf Any class or classes of companies, as the Securities and Exchange Board may
Prospectus is provide by regulations in this behalf, may file a shelf prospectus with the Registrar.
required to be filled

5. Validity For a period not exceeding one year which shall commence from the date of
opening of the first offer of securities under that prospectus

6. Benefit of Filing A company filing a shelf prospectus with the Registrar shall not be required to
Shelf Prospectus issue prospectus afresh at every stage of offer of securities by it within a period of
validity of such shelf prospectus.
Thus at the time of making any subsequent offer, company shall-
▪ File an updated Information memorandum
▪ Issue to the public, updated information memorandum along with shelf
prospectus

7. Information ▪ Creation of New Charge; and

Memorandum shall ▪ Changes in Financial position of company which has occurred between the
contain material first offer of security, previous offer of security and the succeeding offer of
facts which pertains security.
to

8. Intimation of Where a company or any other person has received applications for the allotment of
change to securities along with advance payments of subscription before the making of any
applicants such change, the company or other person shall intimate the changes to such
applicants and if they express a desire to withdraw their application, the company
or other person shall refund all the monies received as subscription within fifteen
days thereof.

9. Shelf prospectus Where an information memorandum is filed, every time an offer of securities is
with information made with all the material facts with the registrar, such memorandum together with
memorandum the shelf prospectus shall be deemed to be a prospectus.
deemed to be
prospectus:
Chap. 4 Prospectus 43

4.10 RED HERRING PROSPECTUS [Section 32]

1. Meaning of Red- "Red-herring prospectus" means a prospectus which does not have complete
herring Prospectus particulars on the price of the securities offered and the quantum of securities
offered.
2. Issue of red Company proposing to make an offer of securities may issue a red herring
herring prospectus prospectus prior to the issue of a prospectus.
prior to prospectus
3. Filing with the A company proposing to issue a red herring prospectus shall file it with the
registrar Registrar at least three days prior to the opening of the subscription list.
4. Obligation and A red herring prospectus shall carry the same obligations as are applicable to a
any variation in prospectus and any variation between the red herring prospectus and a prospectus
the red herring shall be highlighted as variations in the prospectus.
prospectus is same
as that of
prospectus
5. Prospectus with Upon the closing of the offer of securities, the prospectus stating therein the total
the details not capital raised and the closing price of the securities and any other details as are not
included in the red included in the red herring prospectus shall be filed with the Registrar and the
herring prospectus Securities and Exchange Board.

4.11 MISLEADING PROSPECTUS OR PROSPECTUS CONTAINING UNTRUE STATEMENT

Meaning of (a) It contain any statement which is untrue, and
misleading (b) It omits any matter which is calculated to mislead.
prospectus
Liability incase of Mis-statement in prospectus
Criminal liability Where a prospectus, issued, circulated or distributed under this Chapter, includes
for misstatements any statement which is untrue or misleading in form or where any inclusion or
in prospectus omission of any matter is likely to mislead, every person who authorizes the issue
(Section 34): of such prospectus shall be liable under section 447:
Provided that nothing in this section shall apply to a person if he proves that such
statement or omission was immaterial or that he had reasonable grounds to believe,
and did up to the time of issue of the prospectus believe, that the statement was true
or the inclusion or omission was necessary.
Civil liability for Company and every person who—
misstatements in (a) is a director of the company at the time of the issue of the prospectus;
prospectus(Section
35) (b) has authorised himself to be named and is named in the prospectus as a director
of the company, or has agreed to become such director,
(c) is a promoter of the company;
(d) has authorised the issue of the prospectus; and
(e) is an expert referred in section 26,
shall, be liable to pay compensation to every person who has sustained such loss or
damage.
44 Prospectus Chap. 4

No person shall be (a) that, having consented to become a director of the company, he withdrew his
liable u/s 35, if he consent before the issue of the prospectus, and that it was issued without his
proves authority or consent; or
(b) that the prospectus was issued without his knowledge or consent, and that on
becoming aware of its issue, he forthwith gave a reasonable public notice that it
was issued without his knowledge or consent.
(c) that, he had reasonable ground to believe and did up to the time of the issue of
the prospectus believe, that the person making the statement was competent to
make it and that the said person had given the consent required u/s 26 to the
issue of the prospectus and had not withdrawn that consent before delivery of a
copy of the prospectus for registration or, to the defendant's knowledge, before
allotment thereunder.

Liability on Where it is proved that a prospectus has been issued with intent to defraud the
defraud applicants for the securities of a company or any other person or for any fraudulent
purpose, every person referred to in sub-section (1) shall be personally responsible,
without any limitation of liability, for all or any of the losses or damages that may
have been incurred by any person who subscribed to the securities on the basis of
such prospectus.

4.12 PENALTY FOR FRAUDULENTLY INDUCING PERSONS TO INVEST MONEY [Section 36]

When this Section is attracted where any person who, induces or attempts to induce another
Provision shall person to enter into, or to offer to enter some agreement by making any false,
apply deceptive or misleading statement, promise or forecast or by any dishonest
concealment of material:
Attempt to induce 1 Any agreement for, the acquisition, disposal, subscribing for, or underwriting
must be to enters Shares or debentures
into any of
2 Any agreement for the purpose of securing any profit to any of the parties from
following
the yield of shares or debentures, or from fluctuations in the value of shares or
agreement
debentures
3 Any agreement for obtaining credit facilities from any bank or financial
institution.

4.13 ACTION BY AFFECTED PERSONS [Section 37]

Why this Section • The need for these types of suits was felt during the time of Satyam Scam,
where a large group of people were cheated regarding their hard-earned money
invested in Stock Market.
• During said scam, it was felt that it was not at all viable regarding cost
effectiveness for a small stakeholder to file a case independently against the
defendant.
• Lacs of investors who lost their hard earned money during that time formed a
large group and filed the case against the company, but since there was no
available legal remedy or law which can actually support this type of litigation
of a group filing charges, it became tough for those investors to take a recourse
or gain advantage in the Indian Judicial System by this method.
Chap. 4 Prospectus 45

Right to submit The section 37 of the Companies Act, 2013, provides that a suit may be filed or any
suit other action may be taken by 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.

4.14 PUNISHMENT FOR FRAUD

Meaning of fraud “Fraud” in relation to affairs of a company or any body corporate, includes-
• any act,
• omission,
• concealment of any fact, or
• abuse of position
committed by any person, or any other person with the connivance in any manner,
with intent to deceive, to gain undue advantage from, or to injure the interests of, the
company or its shareholders or its creditors or any other person whether or not there
is any wrongful gain or wrongful loss

Provisions of Sec ▪ According to section 447 of the Act, any person who is found to be guilty of
447 fraud involving an amount of at least ten lakh rupees or one per cent. of the
turnover of the company, whichever is lower shall be punishable with
imprisonment for a term
which shall not be less than six months but which may extend to ten 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 the fraud:
▪ Provided that where the fraud in question involves public interest, the term
of imprisonment shall not be less than three years.
▪ Provided further that where the fraud involves an amount less than ten lakh
rupees or one per cent. of the turnover of the company, whichever is lower,
and does not involve public interest, any person guilty of such fraud shall be
punishable with imprisonment for a term which may extend to five years or
with fine which may extend to fifty lakh rupees or with both.

4.15 LEGAL RULES UNDER THE COMPANIES ACT, 2013

1. Minimum Minimum ▪ It means receipt of an application for at least 90% of the

subscriptions and Subscription shares issued
application money ▪ No allotment shall be made unless the amount of minimum
[Section 39] subscription has been subscribed and received by company

Application ▪ It the amount which is payable on each share along with the
money application for purchase or shares.
▪ This amount must not be less than 5% of the nominal value of
shares.
46 Prospectus Chap. 4

2. Consequences in Company shall keep the entire amount received on application with Scheduled
case of failure to bank and in case company failed in obtaining Minimum Subscription within 30
received Minimum days, or such period as may be prescribed by SEBI, the amount received shall be
Subscription returned within such time and manner as may be prescribed.

3. Provisions as per Where the minimum subscription amount has not been subscribed, then the
According to the application money shall be repaid within a period of fifteen days from the closure
Companies of the issue.
(Prospectus and Directors of the company who are officers in default shall jointly and severally be
Allotment of liable to repay that money with interest at the rate of fifteen percent per annum. The
Securities) application money to be refunded shall be credited only to the bank account from
Rules, 2014 which the subscription was remitted.

4. Listing of public ▪ Every public company, who intends to offer its shares or debentures to the
issue with public for subscription by the issue of a prospectus, must make an application
recognized stock to at least one recognized stock exchange for permission for its shares or
exchange debentures to be dealt with the stock exchange.
[Section 40] ▪ Such an application shall be made prior to issue of shares
▪ Fact of Such Application must be stated in Prospectus
▪ No allotment shall be made unless approval has been obtained from all such
stock exchange where such application was filed.

4.16 OFFER OF INVITATION FOR SUBSCRIPTION OF SECURITIES ON PRIVATE

PLACEMENT (Section 42)

Meaning of The term "private placement" means any offer of securities or invitation to subscribe
Private Placement 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

Prescribed Conditions

1. Offer/invitation The offer of securities or invitation to subscribe securities, only to a select group of
to number of persons who have been identified by the Board subject to maximum to 200 persons
persons in a financial year
It does not include- qualified institutional buyers and employees of the company
being offered securities under a scheme of employees stock option as per provisions
of section 62(1)(b)

Special Note Restrictions aforesaid would be reckoned individually for each kind of security that
is equity share, preference share or debenture.

2. Issue of Private A company making private placement shall issue private placement offer and
Placement offer application in such form and manner as may be prescribed to identified persons,
letter whose names and addresses are recorded by the company in such manner as may be
prescribed:
Provided that the private placement offer and application shall not carry any right of
renunciation.
Chap. 4 Prospectus 47

3. No fresh Private No fresh offer or invitation under this section shall be made unless the allotments
placement till with respect to any offer or invitation made earlier have been completed or that offer
completion of or invitation has been withdrawn or abandoned by the company:
earlier offer Provided that, subject to the maximum number of identified persons, a company
may, at any time, make more than one issue of securities to such class of identified
persons as may be prescribed.

4. No No company issuing securities under this section shall release any public
Advertisement advertisements or utilise any media, marketing or distribution channels or agents to
inform the public at large about such an issue.

5. Submission of A company making any allotment of securities under this section, shall file with the
Return of Registrar a return of allotment within fifteen days from the date of the allotment in
Allotment such manner as may be prescribed, including a complete list of all allottees, with
their full names, addresses, number of securities allotted and such other relevant
information as may be prescribed
If a company defaults in filing the return of allotment within the period prescribed,
the company, its promoters and directors shall be liable to a penalty for each default
of one thousand rupees for each day during which such default continues but not
exceeding twenty-five lakh rupees.

6. Offer/invitation Where a company, listed/unlisted, makes an offer to allot or invites subscription to

to more than more than the prescribed number of persons, the same shall be deemed to be an offer
prescribed to the public.
number of persons

7. Payment of All monies payable towards subscription of securities under this section shall be paid
amount through cheque or demand draft or other banking channels but not by cash.
Provided that a company shall not utilise monies raised through private placement
unless allotment is made and the return of allotment is filed with the Registrar

8. Time for A company making an offer or invitation under this section shall allot its securities
allotment of within 60 days from the date of receipt of the application money for such securities
securities

9. Default in Where the company is not able to allot the securities within stated period, it shall
allotment of repay the application money to the subscribers within 15 days from the date of
securities completion of sixty days and if the company fails to repay the application money
within the aforesaid period, it shall be liable to repay that money with interest @ of
12% per annum from the expiry of the sixtieth day:
Provided that monies received on application under this section shall be kept in a
separate bank account in a scheduled bank and shall not be utilised for any purpose
other than—
(a) for adjustment against allotment of securities; or
(b) for the repayment of monies where the company is unable to allot securities.

10. Consequences If a company makes an offer or accepts monies in contravention of this section, the
of default company, its promoters and directors shall be liable for a penalty which may extend
to the amount raised through the private placement or two crore rupees, whichever is
lower, and the company shall also refund all monies with interest as specified in sub-
section (6) to subscribers within a period of thirty days of the order imposing the
penalty.
48 Prospectus Chap. 4

The Companies (Prospectus and Allotment of Securities) Rules, 2014, provides certain limitations on the
companies with respect to making of a private placement

1. Previous The proposed offer of securities or invitation to subscribe securities has been
approval of previously approved by the shareholders of the company, by a Special Resolution
shareholder Provided that in the explanatory statement annexed to the notice for the general
meeting the basis or justification for the price (including premium, if any) at which
the offer or invitation is being made shall be disclosed.
Provided further that this sub-rule shall not apply in case of offer or invitation for.
non-convertible debentures, where the proposed amount to be raised through such
offer or invitation does not exceed the limit as specified in clause (c) of sub section
(1) of section 180 and in such cases relevant Board resolution under clause (c) of
subsection (3) of section 179 would be adequate:
Provided also that in case of offer or invitation for non-convertible debentures,
where the proposed amount to be raised through such offer or invitation exceeds the
limit as specified in clause (c) of sub-section (1) of section 180, it shall be sufficient
if the company passes a previous special resolution only once in a year for all the
offers or invitations for such debentures during the year.

2. Minimum The value of such offer or invitation per person shall be with an investment size of
Investment not less than twenty thousand rupees of face value of the securities;