ASSIGNMENT

Topic-: PROSPECTUS UNDER COMPNIES ACT, 2013:

Submitted By

MOHAMMAD ZI
BALLB (HONS)
SEMESTER-V
ENROLLMENT NO- GI- 6492
FACULTY NO- 17BALLB- 72
MID TERM

Submitted To

PROF. MO SIR

Professor, Faculty of Law

Aligarh Muslim University

ALIGARH-202002 (INDIA)

2020-21
 SYNOPSIS

1-INTRODUCTION.

2- WHAT IS PROSPECTUS AND ITS IMPORTANCE.

3- VARIOUS CATEGORIES OF PROSPECTUS.

4- CONTENT OF PROSPECTUS.

5- PROCESS FOR FILING AND ISSUING OF PROPESCTUS.

6- MISLEADING OR MIS- STATEMENT IN PROSPECTUS.

7- CONCLUSION.

8-BIBLIOGRAPHY.
 ACKNOWLEDGEMENT

I WOULD LIKE TO EXPRESS A DEEP SENSE OF

THANKS & GRATITUDE TO MY PROJECT GUDIE PROFESSOR.

MOH SIR FOR GUIDING ME IMMENSELY

THROUGH THE COURSE OF THE PROJECT.

I ALSO THANKS TO MY SENIORS FOR THEIR MOTIVATION &

SUPPORT. I MUST THANKS TO MY CLASSMATES FOR THEIR
TIMELY HELP & SUPPORT FOR COMPLETION OF THIS PROJECT.

LAST BUT NOT THE LEAST, I WOULD LIKE TO THANKS TO ALL

THOSE WHO HELPED ME DIRECTLY OR INDIRECTLY TOWARDS
THE COMPLETION OF THIS PROJECT.

THANKING YOU

MOHAMMAD ZIYA ANSARI

BALLB-3rd Year GI-6

18BALLB-
1-INTRODUCTION:

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.

The prospectus is a legal document, which outlines the company’s financial securities for sale to
the investors. According to the companies act 2013, there are four types of the prospectus,
abridged prospectus, deemed prospectus, red herring prospectus, and shelf prospectus. The
prospectus is a legal document for market participants and investors to pursue, detailing the
features, prospects, and promise of a financial product. It is mandated by the law to be supplied
to prospective customers.

Prospectus Example: -In an IPO, the prospectus tells potential shareholders about the
company’s plans and business model.

For insurance and investment fund customers, a prospectus lists out the objective of the product,
inclusions, and exclusions, fees, etc.

For an ETF, a prospectus informs likely investors of the fund’s goals, history, portfolio, fees and
costs, and other financial details.

2-WHAT IS A PROSPECTUS AND ITS IMPORTANCE?

The company provides prospectus with capital raising intention. Prospectus helps the investors to
make a well-informed decision because of the prospectus all the required information of the
securities which are offered to the public for sale.

Whenever the company issues the prospectus, the company must file it with the regulator. The
prospectus includes the details of the company’s business, financial statements.
 1. To notify the public of the issue
2. To put the company on record with regards to the terms of the issue and allotment
process
3. To establish accountability on the part of the directors and promoters of the company

3-VARIOUS CATEGORIES OF PROSPECTUS: -

1. Statement in lieu of Prospectus: A public company, which does not raise its capital by public
issue, need not issue a prospectus. In such a case a statement in lieu of, prospectus must be filed
with the Registrar 3 days before the allotment of shares or debentures is made. It should be dated
and signed by each director or proposed director and should contain the same particulars as are
required in case of prospectus proper.

2. Deemed Prospectus: Section 25 of the companies Act, 2013 provides that all documents
containing offer of shares or debentures for sale shall be included within the definition of the
term prospectus and shall be deemed as prospectus by implication of law.

Unless the contrary is proved an allotment of or an agreement to allot shares or debentures shall
be deemed to have been made with a view to the shares or debentures being offered for sale to
the public if it is shown
a. That the offer of the shares or debentures of or any of them for sale to the public was made
within 6 months after the allotment or agreement to allot; or
b. That at the date when the offer was made the whole consideration to be received by the
company in respect of the shares or debentures had not been received by it.
All enactments and rules of law as to the contents of prospectus shall apply to deemed
prospectus.

3-Abridged Prospectus [Sec. 2(1)]: Abridged prospectus means a memorandum containing

such salient features of a prospectus as may be specified by the SEBI by making regulations in
this behalf. No form of application for the purchase of any of the securities of a company shall be
issued unless such form is accompanied by an abridged prospectus. 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.

4-Red Herring Prospectus – Red herring prospectus does not contain all information about the
prices of securities offered and the number of securities to be issued. According to the act, the
firm should issue this prospectus to the registrar at least three before the opening of the offer and
subscription list.

5-Shelf prospectus – Shelf prospectus is stated under section 31 of the Companies Act, 2013.
Shelf prospectus is issued when a company or any public financial institution offers one or more
securities to the public. A company shall provide a validity period of the prospectus, which
should not be more than one year. The validity period starts with the commencement of the first
offer. There is no need for a prospectus on further offers. The organization must provide an
information memorandum when filing the shelf prospectus.

4-CONTENT OF PROSPECTUS:

The prospectus contents are specified in the Companies Act. The prospectus must touch over the
following content points:

1. Details of the company, such as name, registered office address, and objects
2. Details of signatories to the Memorandum and their shareholding particulars
3. Details of the directors
4. Details of shares offered and the class of the issue as well as voting rights
5. Minimum subscription amount
6. The amount payable on application, on allotment, and on further calls
7. Underwriters of the issue
8. Auditors of the company
9. Audited reports regarded profit and losses of the company
5-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.

*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.

6-MISLEADING PROSPECTUS OR MIS-STATEMENT IN PROSPECTUS:

A prospectus is said to be misleading or untrue in two following cases:

1. A statement included in a prospectus shall be deemed to be untrue, if the statement is

misleading in the form and context in which it is included.

2. Omission from prospectus of any matter to mislead the investors.

*CRIMINAL LIABILITY FOR MIS-STATEMENT IN PROSPECTUS (SECTION 34):

Where a prospectus, issued, circulated or distributed:

1. includes any statement which is untrue or misleading in form or context in which it is
included; or
2. where any inclusion or omission of any matter is likely to mislead;
Every person who authorizes the issue of such prospectus shall be liable under section 447 i.e.
fraud.
Defenses available in this section are:
1. Person prove that statement or omission was immaterial;
2. Person has reasonable ground to believe and did believe that statement was true; or
3. Person has reasonable ground to believe and did believe that the inclusion or omission was
necessary.

CIVIL LIABILITY FOR MIS-STATEMENTS IN PROSPECTUS (SECTION 35):

Where a person has subscribed for securities of a company acting upon any misleading
statement, inclusion or omission and has sustained any loss or damage as its consequence, the
company and every person who:
1. is a director at the time of the issue of prospectus;
2. has named as director or as proposed director with his consent;
3. is a promoter of the company;
4. has authorized the issue of the prospectus; and
5. is an expert;
shall be liable to pay compensation to effected person. This civil liability shall be in addition to
the criminal liability under section 36. Where it is proved that a prospectus has been issued with
intent to defraud the applicants for the securities of a company or any other person or for any
fraudulent purpose, every person 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.

Defenses under this section are:

1. he has withdrawn his consent or never give his consent;
2. the prospectus was issued without his knowledge or consent and when he became aware, gave
a reasonable public notice that prospectus was issued without his knowledge or consent.
7-CONCLUSION: -

A prospectus is basically a formal and legal document issued by a body corporate which acts for
inviting offers from the public for subscription or purchase of any securities. Every public
company is entitled to issue the prospectus for its shares or debentures. But the same is not
required for a private company.

A prospectus for being a valid one it must contain essential requisites and it must be registered. If
any prospectus is not registered, it is considered as an invalid one and with contravention to
provisions laid down for the valid prospectus. Such contravention is punishable under section
26(9).

Whenever the advertisement if the prospectus is made, it must contain the memorandum of the
company. When a company is making a proposal for an offer of securities, then prior to issuing a
prospectus, it may issue a red herring prospectus. A company can also issue a shelf prospectus
when it has to make an offer one or more securities or class of securities and then it does not
have to issue a prospectus before issuing an offer of each security.

So, a prospectus plays an important role for any public company and it must be under the
provisions laid down under the Companies Act 2013.

8- BIBLIOGRAPHY: -

1. Singh Avatar, Company Law, Sixteenth Edition,2015

2. SEBI v. Kunnamkulam Paper Mills Ltd. [(2013) 178 Comp Cas 371 Ker]