Essentials For A Document To Be Called As A Prospectus: Section 2 (70

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

a prospectus
For any document to considered as a prospectus, it should satisfy two
conditions.
1. The document should invite the subscription to public share or

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

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

stated under section 70 of the Companies Act 2013.
Golden Rule Of Disclosure: Golden Legacy
Nothing in the prospectus should be stated as a fact which is not one or
nothing of such value should be omitted, the presence of which might
affect the nature or quality of the privileges and advantages which a
prospectus holds out as inducement to take shares. This was called as the
golden rule of disclosure in the case of New Burnswick Canadian Railway
Company v. Muggerdge[5] and as golden legacy in Henderson v. Lacon[6]
Advertisement of prospectus
Section 30 of the Companies Act 2013 contains the provisions regarding the
advertisement of the prospectus. This section states that when in any
manner the advertisement of a prospectus is published, it is mandatory to
specify the contents of the memorandum of the company regarding the
object, member’s liabilities, amount of the company’s share capital,
signatories and the number of shares subscribed by them and the capital
structure of the company. Types of the prospectus as follows.
 Red Herring Prospectus

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

31 of the Companies Act, 2013.
The regulations are to be provided by the Securities and Exchange Board of

India for any class or classes of companies that may file a shelf prospectus at
the stage of the first offer of securities to the registrar.
The prospectus shall prescribe the validity period of the prospectus and it
should be not be exceeding one year. This period commences from the
opening date of the first offer of the securities. For any second or further
offer, no separate prospectus is required.
While filing for a shelf prospectus, a company is required to file an

information memorandum along with it.
Information Memorandum [Section 31(2)]
The company which is filing a shelf prospectus is required to file the

information memorandum. It should contain all the facts regarding the new
charges created, what changes have undergone in the financial position of
the company since the first offer of the security or between the two offers.
It should be filed with the registrar within three months before the issue of
the second or subsequent offer made under the shelf prospectus as given
under Rule 4CCA of section 60A(3) under the Companies (Central
Government’s) General Rules and Forms, 1956.
When any company or a person has received an application for the allotment
of securities with advance payment of subscription before any changes have
been made, then he must be informed about the changes. If he desires to
withdraw the application within 15 days then the money must be refunded to
them.
After the information memorandum has been filed, if any offer or securities is
made, the memorandum along with the shelf prospectus is considered as a
prospectus.
Red herring prospectus

Red herring prospectus is the prospectus which lacks the complete
particulars about the quantum of the price of the securities. A company may
issue a red herring prospectus prior to the issue of prospectus when it is
proposing to make an offer of securities.
This type of prospectus needs to be filed with the registrar at least three
days prior to the opening of the subscription list or the offer. The obligations
carried by a red herring prospectus are same as a prospectus. If there is any
variation between a red herring prospectus and a prospectus then it should
be highlighted in the prospectus as variations.
When the offer of securities closes then the prospectus has to state the total
capital raised either raised by the way of debt or share capital. It also has to
state the closing price of the securities. Any other details which have not
been included in the prospectus need to be registered with the registrar and
SEBI.
The applicant or subscriber has right under Section60B(7) to withdraw the

application on any intimation of variation within 7 days of such intimation
and the withdrawal should be communicated in writing.
Abridged Prospectus
The abridged prospectus is a summary of a prospectus filed before the
registrar. It contains all the features of a prospectus. An abridged prospectus
contains all the information of the prospectus in brief so that it should be
convenient and quick for an investor to know all the useful information in
short.
Section33(1) of the Companies Act, 2013 also states that when any form
for the purchase of securities of a company is issued, it must be
accompanied by an abridged prospectus.
It contains all the useful and materialistic information so that the investor
can take a rational decision and it also reduces the cost of public issue of the
capital as it is a short form of a prospectus.
Deemed Prospectus
A deemed prospectus has been stated under section 25(1) of the
Companies Act, 2013.
When any company to offer securities for sale to the public, allots or agrees
to allot securities, the document will be considered as a deemed prospectus
through which the offer is made to the public for sale. The document is
deemed to be a prospectus of a company for all purposes and all the
provision of content and liabilities of a prospectus will be applied upon it.
In the case of SEBI v. Kunnamkulam Paper Mills Ltd., it was held by the
court that where a rights issue is made to the existing members with a right
to renounce in the favour of others, it becomes a deemed prospectus if the
number of such others exceeds fifty.
Process for filing and issuing a prospectus
Application forms
As stated under section 33, the application form for the securities is issued
only when they are accompanied by a memorandum with all the features of
prospectus referred to as an abridged prospectus.
The exceptions to this rule are:
 When an application form is issued as an invitation to a person to

enter into underwriting agreement regarding securities.
 Application issued for the securities not offered to the public.
Contents
For filing and issuing the prospectus of a public company, it must be signed
and dated and contain all the necessary information as stated under section
26 of the Companies Act,2013:
1. Name and registered address of the office, its secretary, auditor,

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

As stated under sub-section 4 of section26 of the Companies Act,
2013, the prospectus is not to be issued by a company or on its behalf
unless on or before the date of publication, a copy of the prospectus is
delivered to the registrar for registration.
The copy should be signed by every person whose name has been mentioned
in the prospectus as a director or proposed director or the assigned attorney
on his behalf.
Delivery of copy of the prospectus to the registrar

As per section26(6) of the Companies Act 2013, the prospectus should
mention that its copy has been delivered to the registrar on its face. The
statement should also mention the document submitted to the registrar
along with the copy of the prospectus.
Registration of prospectus
Section26(7) states about the registration of a prospectus by the
registrar. According to this section, when the registrar can register a
prospectus when:
1. It fulfils the requirements of this section, i.e., section 26 of the

Companies Act, 2013; and
2. It contains the consent of all the persons named in the prospectus in
writing.
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.
Contravention of section
If a prospectus is issued in contravention of the provision under section 26 of

the Companies Act 2013, then the company can be punished under section
26(9). The punishment for the contravention is:
 Fine of not less than Rs. 50,000 extending up to 3,00,000.
If any person becomes aware of such prospectus after knowing the fact that
such prospectus is being issued in contravention of section 26 then he is
punishable with the following penal provisions.
 Imprisonment up to a term of 3 years, or

 Fine of more than Rs. 50,000 not exceeding Rs. 3,00,000.
Liabilities For Mis-Statement In Prospectus

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The Companies Act, 2013 defines a prospectus under

Essentials for a document to be called as

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

Statement in lieu of prospectus

The provisions regarding the statement in lieu of prospectus have been

 Red Herring Prospectus

The provisions related to shelf prospectus has been discussed under section

The regulations are to be provided by the Securities and Exchange Board of

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

Information Memorandum [Section 31(2)]

The company which is filing a shelf prospectus is required to file the

Red herring prospectus

The applicant or subscriber has right under Section60B(7) to withdraw the

Process for filing and issuing a prospectus

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

1. Name and registered address of the office, its secretary, auditor,

Filing of copy with the registrar

Delivery of copy of the prospectus to the registrar

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

If a prospectus is issued in contravention of the provision under section 26 of

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

 Imprisonment up to a term of 3 years, or

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