Prospectus and Allotment of Securities | Corporate & Other Laws for CA Intermediate PDF Download

 Page 1


                                 
   
 
 
PROSPECTUS AND ALLOTMENT OF SECUTITIES  
 
• ISSUE OF SECURITIES BY THE COMPANY  
 
            PUBLIC COMPANY        PRIVATE COMPANY  
  
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 Matters to be stated in prospectus[Section 26] 
(1)   Dated: Every prospectus must be dated. The date appearing on the prospectus 
is deemed to be date of publishing prospectus 
(2)    Registered: The prospectus must be registered with ROC on or before issue of 
prospectus to public 
(3)   Issued: The prospectus must be issued to public within 90 days of registration 
with ROC. Any issue of securities under the prospectus which is issued beyond 
90 days shall be deemed to be an issue without a prospectus. 
(4)   Contents of the prospectus: Every prospectus issued by or on behalf of a 
public company either with reference to its formation or subsequently, or by or on 
behalf of any person who is or has been engaged or interested in the formation of 
a public company, shall be dated and 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: 
 
 
  General Information Financial Information Statutory Information 

 Variation in terms of contract or objects in prospectus (Section 27) 
•   special resolution 
•   Notice of resolution to shareholders:  
•   Exit offer to dissenting shareholders: 
'Public offer' 
through issue of 
prospectus. 
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 
(Section 23 to 
41); 
Private placement 
by complying with 
the provisions of 
Section 42 of 
Companies Act, 
2013. 
Rights or bonus 
issue in 
accordance with 
the provisions of 
the Companies 
Act and the 
Securities and 
Exchange Board 
of India Act, 
1992. 
Private 
placement by 
complying with 
the provisions of 
Section 42 of 
Companies Act, 
2013; 
Rights or bonus 
issue in 
accordance with 
the provisions of 
the Companies 
Act 
Page 2


                                 
   
 
 
PROSPECTUS AND ALLOTMENT OF SECUTITIES  
 
• ISSUE OF SECURITIES BY THE COMPANY  
 
            PUBLIC COMPANY        PRIVATE COMPANY  
  
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 Matters to be stated in prospectus[Section 26] 
(1)   Dated: Every prospectus must be dated. The date appearing on the prospectus 
is deemed to be date of publishing prospectus 
(2)    Registered: The prospectus must be registered with ROC on or before issue of 
prospectus to public 
(3)   Issued: The prospectus must be issued to public within 90 days of registration 
with ROC. Any issue of securities under the prospectus which is issued beyond 
90 days shall be deemed to be an issue without a prospectus. 
(4)   Contents of the prospectus: Every prospectus issued by or on behalf of a 
public company either with reference to its formation or subsequently, or by or on 
behalf of any person who is or has been engaged or interested in the formation of 
a public company, shall be dated and 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: 
 
 
  General Information Financial Information Statutory Information 

 Variation in terms of contract or objects in prospectus (Section 27) 
•   special resolution 
•   Notice of resolution to shareholders:  
•   Exit offer to dissenting shareholders: 
'Public offer' 
through issue of 
prospectus. 
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 
(Section 23 to 
41); 
Private placement 
by complying with 
the provisions of 
Section 42 of 
Companies Act, 
2013. 
Rights or bonus 
issue in 
accordance with 
the provisions of 
the Companies 
Act and the 
Securities and 
Exchange Board 
of India Act, 
1992. 
Private 
placement by 
complying with 
the provisions of 
Section 42 of 
Companies Act, 
2013; 
Rights or bonus 
issue in 
accordance with 
the provisions of 
the Companies 
Act 
                                 
TYPES OF PROSPECTUS 
 

 Shelf Prospectus (Section 31) 
The Companies Act, 2013 defines the term "shelf prospectus" which 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. 
  Section 31 
 
•   Filing of shelf prospectus with registrar:  
(i)   At the stage of the first offer of securities included therein, which shall 
indicate a period not exceeding one year as the period of validity of such 
prospectus which shall commence from the date of opening of the first offer 
of securities under that prospectus, and  
 
(ii)  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. 
 
• • • •   Filing of an information memorandum containing all material facts with the 
registrar-   
 
• • • •   Shelf prospectus with information memorandum deemed to be prospectus: 
 

 Red Herring Prospectus (Section 32) 
  The expression "red herring prospectus" means a prospectus which does not include 
complete particulars of the quantum or price of the securities included therein. Red 
Herring Prospectus' concept has been introduced to facilitate Book Building method for 
public issue of securities.  
•   Issue of red herring prospectus prior to prospectus:  
•   Filing with the registrar: 
•   Obligation and any variation in the red herring prospectus is same as that of 
prospectus: 
•   Prospectus with the details not included in the red herring prospectus: 

 Abridged Prospectus 
  Section 33 of the Act relating to the issue of application forms for securities says that: 
(1) The form of application for the purchase of any of the securities of a company 
shall be issued along with an abridged prospectus. 
  As per the definition contained in the section 2(1) of the Companies Act, 2013, 
abridged prospectus means a memorandum containing such salient 
features of a prospectus as may be specified by the Securities and Exchange 
board by making regulations in this behalf. 
  Exceptions: There are, however, certain exceptions to the above provision, 
where an abridged prospectus containing all the prescribed details need not 
accompany the Application Forms sent out. These exceptions are: 
(a)   In connection with a bona fide invitation to a person to enter into  an 
underwriting agreement with respect to such securities; or 
(b)   In relation to securities which were not offered to the public. 
 
Page 3


                                 
   
 
 
PROSPECTUS AND ALLOTMENT OF SECUTITIES  
 
• ISSUE OF SECURITIES BY THE COMPANY  
 
            PUBLIC COMPANY        PRIVATE COMPANY  
  
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 Matters to be stated in prospectus[Section 26] 
(1)   Dated: Every prospectus must be dated. The date appearing on the prospectus 
is deemed to be date of publishing prospectus 
(2)    Registered: The prospectus must be registered with ROC on or before issue of 
prospectus to public 
(3)   Issued: The prospectus must be issued to public within 90 days of registration 
with ROC. Any issue of securities under the prospectus which is issued beyond 
90 days shall be deemed to be an issue without a prospectus. 
(4)   Contents of the prospectus: Every prospectus issued by or on behalf of a 
public company either with reference to its formation or subsequently, or by or on 
behalf of any person who is or has been engaged or interested in the formation of 
a public company, shall be dated and 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: 
 
 
  General Information Financial Information Statutory Information 

 Variation in terms of contract or objects in prospectus (Section 27) 
•   special resolution 
•   Notice of resolution to shareholders:  
•   Exit offer to dissenting shareholders: 
'Public offer' 
through issue of 
prospectus. 
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 
(Section 23 to 
41); 
Private placement 
by complying with 
the provisions of 
Section 42 of 
Companies Act, 
2013. 
Rights or bonus 
issue in 
accordance with 
the provisions of 
the Companies 
Act and the 
Securities and 
Exchange Board 
of India Act, 
1992. 
Private 
placement by 
complying with 
the provisions of 
Section 42 of 
Companies Act, 
2013; 
Rights or bonus 
issue in 
accordance with 
the provisions of 
the Companies 
Act 
                                 
TYPES OF PROSPECTUS 
 

 Shelf Prospectus (Section 31) 
The Companies Act, 2013 defines the term "shelf prospectus" which 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. 
  Section 31 
 
•   Filing of shelf prospectus with registrar:  
(i)   At the stage of the first offer of securities included therein, which shall 
indicate a period not exceeding one year as the period of validity of such 
prospectus which shall commence from the date of opening of the first offer 
of securities under that prospectus, and  
 
(ii)  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. 
 
• • • •   Filing of an information memorandum containing all material facts with the 
registrar-   
 
• • • •   Shelf prospectus with information memorandum deemed to be prospectus: 
 

 Red Herring Prospectus (Section 32) 
  The expression "red herring prospectus" means a prospectus which does not include 
complete particulars of the quantum or price of the securities included therein. Red 
Herring Prospectus' concept has been introduced to facilitate Book Building method for 
public issue of securities.  
•   Issue of red herring prospectus prior to prospectus:  
•   Filing with the registrar: 
•   Obligation and any variation in the red herring prospectus is same as that of 
prospectus: 
•   Prospectus with the details not included in the red herring prospectus: 

 Abridged Prospectus 
  Section 33 of the Act relating to the issue of application forms for securities says that: 
(1) The form of application for the purchase of any of the securities of a company 
shall be issued along with an abridged prospectus. 
  As per the definition contained in the section 2(1) of the Companies Act, 2013, 
abridged prospectus means a memorandum containing such salient 
features of a prospectus as may be specified by the Securities and Exchange 
board by making regulations in this behalf. 
  Exceptions: There are, however, certain exceptions to the above provision, 
where an abridged prospectus containing all the prescribed details need not 
accompany the Application Forms sent out. These exceptions are: 
(a)   In connection with a bona fide invitation to a person to enter into  an 
underwriting agreement with respect to such securities; or 
(b)   In relation to securities which were not offered to the public. 
 
                                 
(2)  A copy of the prospectus shall, on a request being made by any person before the 
closing of the subscription list and the offer, be furnished to him. 
(3) If a company makes any default in complying with the provisions of this section, it 
shall be liable to a penalty of fifty thousand rupees for each default. 

 REMEDIES FOR MISREPRESENTATION IN THE PROSPECTUS 
 
 
 
 
 
 
          
            Refer next page 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Remedies against Company 
1. Rescind the contract.  
2. A person, who takes shares on 
the faith of a prospectus 
containing false statements, 
may apply to the Court for the 
contract to be set aside, and 
his name to be struck off from 
the register of members. 
3. He may also claim his money 
back.  
? But the allottee must act 
within reasonable time, before 
any proceedings to wind up 
the company have been 
commenced. He will lose his 
right to rescind if he attempts 
to sell the shares or attends a 
general meeting of the 
company, or receives 
dividends. 
4. Sue the company for damages 
for deceit. 
Remedies against Directors/ 
Promoters/Expert: 
Criminal Liability 
for mis-statement 
in prospectus 
 
Civil Liability for 
mis-statement in 
prospectus 
 
Page 4


                                 
   
 
 
PROSPECTUS AND ALLOTMENT OF SECUTITIES  
 
• ISSUE OF SECURITIES BY THE COMPANY  
 
            PUBLIC COMPANY        PRIVATE COMPANY  
  
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 Matters to be stated in prospectus[Section 26] 
(1)   Dated: Every prospectus must be dated. The date appearing on the prospectus 
is deemed to be date of publishing prospectus 
(2)    Registered: The prospectus must be registered with ROC on or before issue of 
prospectus to public 
(3)   Issued: The prospectus must be issued to public within 90 days of registration 
with ROC. Any issue of securities under the prospectus which is issued beyond 
90 days shall be deemed to be an issue without a prospectus. 
(4)   Contents of the prospectus: Every prospectus issued by or on behalf of a 
public company either with reference to its formation or subsequently, or by or on 
behalf of any person who is or has been engaged or interested in the formation of 
a public company, shall be dated and 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: 
 
 
  General Information Financial Information Statutory Information 

 Variation in terms of contract or objects in prospectus (Section 27) 
•   special resolution 
•   Notice of resolution to shareholders:  
•   Exit offer to dissenting shareholders: 
'Public offer' 
through issue of 
prospectus. 
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 
(Section 23 to 
41); 
Private placement 
by complying with 
the provisions of 
Section 42 of 
Companies Act, 
2013. 
Rights or bonus 
issue in 
accordance with 
the provisions of 
the Companies 
Act and the 
Securities and 
Exchange Board 
of India Act, 
1992. 
Private 
placement by 
complying with 
the provisions of 
Section 42 of 
Companies Act, 
2013; 
Rights or bonus 
issue in 
accordance with 
the provisions of 
the Companies 
Act 
                                 
TYPES OF PROSPECTUS 
 

 Shelf Prospectus (Section 31) 
The Companies Act, 2013 defines the term "shelf prospectus" which 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. 
  Section 31 
 
•   Filing of shelf prospectus with registrar:  
(i)   At the stage of the first offer of securities included therein, which shall 
indicate a period not exceeding one year as the period of validity of such 
prospectus which shall commence from the date of opening of the first offer 
of securities under that prospectus, and  
 
(ii)  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. 
 
• • • •   Filing of an information memorandum containing all material facts with the 
registrar-   
 
• • • •   Shelf prospectus with information memorandum deemed to be prospectus: 
 

 Red Herring Prospectus (Section 32) 
  The expression "red herring prospectus" means a prospectus which does not include 
complete particulars of the quantum or price of the securities included therein. Red 
Herring Prospectus' concept has been introduced to facilitate Book Building method for 
public issue of securities.  
•   Issue of red herring prospectus prior to prospectus:  
•   Filing with the registrar: 
•   Obligation and any variation in the red herring prospectus is same as that of 
prospectus: 
•   Prospectus with the details not included in the red herring prospectus: 

 Abridged Prospectus 
  Section 33 of the Act relating to the issue of application forms for securities says that: 
(1) The form of application for the purchase of any of the securities of a company 
shall be issued along with an abridged prospectus. 
  As per the definition contained in the section 2(1) of the Companies Act, 2013, 
abridged prospectus means a memorandum containing such salient 
features of a prospectus as may be specified by the Securities and Exchange 
board by making regulations in this behalf. 
  Exceptions: There are, however, certain exceptions to the above provision, 
where an abridged prospectus containing all the prescribed details need not 
accompany the Application Forms sent out. These exceptions are: 
(a)   In connection with a bona fide invitation to a person to enter into  an 
underwriting agreement with respect to such securities; or 
(b)   In relation to securities which were not offered to the public. 
 
                                 
(2)  A copy of the prospectus shall, on a request being made by any person before the 
closing of the subscription list and the offer, be furnished to him. 
(3) If a company makes any default in complying with the provisions of this section, it 
shall be liable to a penalty of fifty thousand rupees for each default. 

 REMEDIES FOR MISREPRESENTATION IN THE PROSPECTUS 
 
 
 
 
 
 
          
            Refer next page 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Remedies against Company 
1. Rescind the contract.  
2. A person, who takes shares on 
the faith of a prospectus 
containing false statements, 
may apply to the Court for the 
contract to be set aside, and 
his name to be struck off from 
the register of members. 
3. He may also claim his money 
back.  
? But the allottee must act 
within reasonable time, before 
any proceedings to wind up 
the company have been 
commenced. He will lose his 
right to rescind if he attempts 
to sell the shares or attends a 
general meeting of the 
company, or receives 
dividends. 
4. Sue the company for damages 
for deceit. 
Remedies against Directors/ 
Promoters/Expert: 
Criminal Liability 
for mis-statement 
in prospectus 
 
Civil Liability for 
mis-statement in 
prospectus 
 
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Criminal Liability for mis-
statement in prospectus: 
Section 34 fastens criminal liability 
for mis-statements in prospectus. 
Where a prospectus, issued, 
circulated or distributed, includes 
any statement which is untrue or 
misleading, every person who has 
authorised the issue of such 
prospectus shall be held guilty for 
fraud involving an amount of at 
least ten lakh rupees or one per 
cent. of the turnover of the 
company, whichever is lower 
punishable with imprisonment and 
fine under section 447.  
 
Section 447 provides the penalty 
for fraud  
• which is imprisonment for a 
term which shall not be less 
than 6 months but which may 
extend to 10 years (Where the 
fraud in question involves 
public interest, the term of 
imprisonment shall not be less 
than 3 years) 
and 
• 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.  

 Where the fraud involves an 
amount less than 10 lakh 
rupees or 1%. 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: Upto 5 years  
Or 
Fine: Upto 20 lakh rupees 
Or 
Both 
Civil Liability for mis-statement in prospectus: 
Section 35 makes the following persons liable to pay 
compensation for loss or damage sustained by 
reason of mis-statement/untrue statement or inclusion 
or omission of any matter in the prospectus:- 
1. Every person who is a director of the company at 
the time of issue of prospectus;  
2.  Every person who has authorized himself to be 
named and is named in the prospectus as a 
director [proposed directors];  
3.  Every person who is a promoter of the company;  
4.  Every person who has authorized the issue of the 
prospectus; and  
5.  Every person who is named in the prospectus as 
an expert.  
 
Exemptions from the liability: No person shall be 
liable for the mis-statement, where such person 
proves that— 
1. Withdrawn his consent before the issue of 
prospectus- Where a person having consented to 
become a director of the company, withdrew his 
consent before the issue of the prospectus, and 
that it was issued without his authority or consent; 
or 
2. Prospectus issued without his knowledge/ 
consent- Where the prospectus was issued 
without the knowledge or consent of a person, and 
that on becoming aware of its issue, he forthwith 
gave a reasonable public notice that it was issued 
without his knowledge 
3. As regards every misleading statement purported 
to be made by an expert or contained in what 
purports to be a copy of or an extract from a report 
or valuation of an expert, it was a correct and fair 
representation of the statement, or a correct copy 
of, or a correct and fair extract from, the report or 
valuation; and 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 by 
section 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 there 
under.. 
Remedies against Directors/ 
Promoters/Expert: 
Page 5


                                 
   
 
 
PROSPECTUS AND ALLOTMENT OF SECUTITIES  
 
• ISSUE OF SECURITIES BY THE COMPANY  
 
            PUBLIC COMPANY        PRIVATE COMPANY  
  
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 Matters to be stated in prospectus[Section 26] 
(1)   Dated: Every prospectus must be dated. The date appearing on the prospectus 
is deemed to be date of publishing prospectus 
(2)    Registered: The prospectus must be registered with ROC on or before issue of 
prospectus to public 
(3)   Issued: The prospectus must be issued to public within 90 days of registration 
with ROC. Any issue of securities under the prospectus which is issued beyond 
90 days shall be deemed to be an issue without a prospectus. 
(4)   Contents of the prospectus: Every prospectus issued by or on behalf of a 
public company either with reference to its formation or subsequently, or by or on 
behalf of any person who is or has been engaged or interested in the formation of 
a public company, shall be dated and 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: 
 
 
  General Information Financial Information Statutory Information 

 Variation in terms of contract or objects in prospectus (Section 27) 
•   special resolution 
•   Notice of resolution to shareholders:  
•   Exit offer to dissenting shareholders: 
'Public offer' 
through issue of 
prospectus. 
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 
(Section 23 to 
41); 
Private placement 
by complying with 
the provisions of 
Section 42 of 
Companies Act, 
2013. 
Rights or bonus 
issue in 
accordance with 
the provisions of 
the Companies 
Act and the 
Securities and 
Exchange Board 
of India Act, 
1992. 
Private 
placement by 
complying with 
the provisions of 
Section 42 of 
Companies Act, 
2013; 
Rights or bonus 
issue in 
accordance with 
the provisions of 
the Companies 
Act 
                                 
TYPES OF PROSPECTUS 
 

 Shelf Prospectus (Section 31) 
The Companies Act, 2013 defines the term "shelf prospectus" which 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. 
  Section 31 
 
•   Filing of shelf prospectus with registrar:  
(i)   At the stage of the first offer of securities included therein, which shall 
indicate a period not exceeding one year as the period of validity of such 
prospectus which shall commence from the date of opening of the first offer 
of securities under that prospectus, and  
 
(ii)  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. 
 
• • • •   Filing of an information memorandum containing all material facts with the 
registrar-   
 
• • • •   Shelf prospectus with information memorandum deemed to be prospectus: 
 

 Red Herring Prospectus (Section 32) 
  The expression "red herring prospectus" means a prospectus which does not include 
complete particulars of the quantum or price of the securities included therein. Red 
Herring Prospectus' concept has been introduced to facilitate Book Building method for 
public issue of securities.  
•   Issue of red herring prospectus prior to prospectus:  
•   Filing with the registrar: 
•   Obligation and any variation in the red herring prospectus is same as that of 
prospectus: 
•   Prospectus with the details not included in the red herring prospectus: 

 Abridged Prospectus 
  Section 33 of the Act relating to the issue of application forms for securities says that: 
(1) The form of application for the purchase of any of the securities of a company 
shall be issued along with an abridged prospectus. 
  As per the definition contained in the section 2(1) of the Companies Act, 2013, 
abridged prospectus means a memorandum containing such salient 
features of a prospectus as may be specified by the Securities and Exchange 
board by making regulations in this behalf. 
  Exceptions: There are, however, certain exceptions to the above provision, 
where an abridged prospectus containing all the prescribed details need not 
accompany the Application Forms sent out. These exceptions are: 
(a)   In connection with a bona fide invitation to a person to enter into  an 
underwriting agreement with respect to such securities; or 
(b)   In relation to securities which were not offered to the public. 
 
                                 
(2)  A copy of the prospectus shall, on a request being made by any person before the 
closing of the subscription list and the offer, be furnished to him. 
(3) If a company makes any default in complying with the provisions of this section, it 
shall be liable to a penalty of fifty thousand rupees for each default. 

 REMEDIES FOR MISREPRESENTATION IN THE PROSPECTUS 
 
 
 
 
 
 
          
            Refer next page 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Remedies against Company 
1. Rescind the contract.  
2. A person, who takes shares on 
the faith of a prospectus 
containing false statements, 
may apply to the Court for the 
contract to be set aside, and 
his name to be struck off from 
the register of members. 
3. He may also claim his money 
back.  
? But the allottee must act 
within reasonable time, before 
any proceedings to wind up 
the company have been 
commenced. He will lose his 
right to rescind if he attempts 
to sell the shares or attends a 
general meeting of the 
company, or receives 
dividends. 
4. Sue the company for damages 
for deceit. 
Remedies against Directors/ 
Promoters/Expert: 
Criminal Liability 
for mis-statement 
in prospectus 
 
Civil Liability for 
mis-statement in 
prospectus 
 
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Criminal Liability for mis-
statement in prospectus: 
Section 34 fastens criminal liability 
for mis-statements in prospectus. 
Where a prospectus, issued, 
circulated or distributed, includes 
any statement which is untrue or 
misleading, every person who has 
authorised the issue of such 
prospectus shall be held guilty for 
fraud involving an amount of at 
least ten lakh rupees or one per 
cent. of the turnover of the 
company, whichever is lower 
punishable with imprisonment and 
fine under section 447.  
 
Section 447 provides the penalty 
for fraud  
• which is imprisonment for a 
term which shall not be less 
than 6 months but which may 
extend to 10 years (Where the 
fraud in question involves 
public interest, the term of 
imprisonment shall not be less 
than 3 years) 
and 
• 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.  

 Where the fraud involves an 
amount less than 10 lakh 
rupees or 1%. 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: Upto 5 years  
Or 
Fine: Upto 20 lakh rupees 
Or 
Both 
Civil Liability for mis-statement in prospectus: 
Section 35 makes the following persons liable to pay 
compensation for loss or damage sustained by 
reason of mis-statement/untrue statement or inclusion 
or omission of any matter in the prospectus:- 
1. Every person who is a director of the company at 
the time of issue of prospectus;  
2.  Every person who has authorized himself to be 
named and is named in the prospectus as a 
director [proposed directors];  
3.  Every person who is a promoter of the company;  
4.  Every person who has authorized the issue of the 
prospectus; and  
5.  Every person who is named in the prospectus as 
an expert.  
 
Exemptions from the liability: No person shall be 
liable for the mis-statement, where such person 
proves that— 
1. Withdrawn his consent before the issue of 
prospectus- Where a person having consented to 
become a director of the company, withdrew his 
consent before the issue of the prospectus, and 
that it was issued without his authority or consent; 
or 
2. Prospectus issued without his knowledge/ 
consent- Where the prospectus was issued 
without the knowledge or consent of a person, and 
that on becoming aware of its issue, he forthwith 
gave a reasonable public notice that it was issued 
without his knowledge 
3. As regards every misleading statement purported 
to be made by an expert or contained in what 
purports to be a copy of or an extract from a report 
or valuation of an expert, it was a correct and fair 
representation of the statement, or a correct copy 
of, or a correct and fair extract from, the report or 
valuation; and 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 by 
section 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 there 
under.. 
Remedies against Directors/ 
Promoters/Expert: 
                                 
Further, Section 36 prescribes punishment for any person who fraudulently induces 
persons to invest money by making statement which is false, deceptive, misleading or 
deliberately concealing any material facts. He will be held guilty for fraud punishable with 
imprisonment and fine under section 447, an offence which is non-compoundable. 
 
Allotment of securities & underwriting commission (section 39 – 40)  

 Allotment should be done by proper authority, allotment should be communicated, it 
should be unconditional etc.  
 

 Application Money : The company must have received in cash the amount payable on 
application, which must not be less than 5% of the nominal value of the securities or 
such other amount or per cent as may be specified by SEBI; and deposited the 
amount received in a separate account.  
 

 Minimum Subscription: The minimum subscription as provided in the prospectus 
must have been received within 30 days from the date of issue of the prospectus or 
such other period as may be specified by SEBI. 
 

 Listing Permission: 
 

 Return of Allotment:  
PAS.3,  
 
 
PRIVATE PLACEMENT [SECTION 42]   

 Definition of Private Placement: Private Placement' means any offer of securities or 
invitation to 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 (Form PAS.4) 
and which satisfies the specified conditions. 

 Important Provisions: Following are the key provisions relating to private placement :  
1. A private placement shall be made only to a select group of persons who have 
been identified by the Board (herein referred to as "identified persons"), whose 
number shall not exceed 50 or such higher number as may be prescribed 
[excluding the qualified institutional buyers and employees of the company being 
offered securities under a scheme of employees stock option, in a financial year 
subject to such conditions as may be prescribed. 
  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 
2. A company making private placement shall issue private placement offer and 
application in such form and manner as may be prescribed to identified persons, 
whose names and addresses are recorded by the company in such manner as 
may be prescribed: 
  The private placement offer and application shall not carry any right of 
renunciation. 
3. If a company, listed or 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, whether the payment for the securities has been received or 
not or whether the company intends to list its securities or not on any recognised 
stock exchange in or outside India, the same shall be deemed to be an offer to 
the public and shall accordingly be governed by the provisions of this 
Chapter.