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Prospectus
CHAPTER CONTENTS

SEBI (lssue of Capital and Disclosure Require-

ments) Regulations, 2009
o Issue of Application Form for
Public Offer and Private Placements (Section 33) Securities
(Section o Criminal Liability for
Prospectus (Section 34) Misstatements in
23)
Power of Securities and
Exchange Board to o Punishment for
Fraud
Regulate Issue and Transfer of Securities, etc. o Punishment for False (Section 447)
(Section 24) Statement
Document Containing Offer of Securities for oCivil Liability for Misstatements in(Section 448)
Sale to be Deemed (Section 35) Prospectus
Prospectus (Section 25) o Punishment for Fraudulenthy
ODefinition Inducing Person
to Invest
Contents of Prospectus/Disclosures in Prospectus Money (Section 36)
o Matters to be
Stated in Prospectus Misstatements in Prospectus and and their
thein
26) (Section Consequences
oVariation in Terms of Contract or Civil Liability (Sec. 35, New
Objects in o Remedies Companies Act)
Prospectus (Section 27) Against the Company
o Remedies
Offer of Sale of Shares
by Certain Members Against the Directors, Promoters
of Company and Experts
(Section 28)
Offer of Securities to be in O
o Public Section 34 (New Companies
Act)
Dematerialised form (Section 29) OAction by Affected Persons (Section 37)
Concept of Dematerialised Shares (Section 29 of o Punishment for Personation for Acquisition,
the Companies Act, etc., of Securities (Section 38)
2013) o Allotment of Securities by Company
Advertisement of Prospectus (Section 30)
O Book Building (Section 39)
o Securities to be Dealt
oWhatis Book Building? with in Stock Exchanges
o Process of
Book Building (Section 40)
oEvaluation of Book Building o Global Depository Receipt (Section 41)
o Offer or Invitation for Subscription of Securities
Shelf prospectus (Section 31) on Private Placement
Red Herring
Prospectus (Section 32) Test Questions
(Section 42)
Practical Problems
 341
DEFINITION
2(76) defines a propectus as any
ring prospectus referred to in Sec. 32document described or issued as
or
shelf prospectus and includes a red
a

advertisement or other document inviting depositsprospectus

advo referred to in Sec. 31 or
from the public or any notice, circular,
heSubscription or purchase of any shares in, or debentures inviting offers from the public for
ment inviting deposits firom the public or of, a body corporate". In
simple words, any
shares or debentures ot a company is a prospectus.
inviting offers from the public for the
subscription of
Prospectus to be in writing. A prospectus must be in
in. or debentures of, a company, or
n writing. An oral invitation to subscribe for shares
deposits is not a
prospectus. Likewise, an advertisement in television
or a film is not treated to be a prospectus.

Invitation to public. A document is not a prospectus unless it is an invitation to the

for sharesin, or
debentures of, a company. But if the document public to subscribe
satisfies the condition of invitation to the
public, it is
a
prospectus even though it is issued to a defined class
AC. 158]. Thus an advertisement which stated that "some of the public [Mash v. Lynde, (1929)
shares are still available for sale
the terms of the company which may be obtained on according to
invited the public to purchase shares [Pramatha Nath application" was held to be a
prospectus as it
Sanyal v. Kali Kumar Dutt,
A.I.R. (1925) Cal.
7141. If. however, the invitation is made to a small circle of friends of the
directors or the existing
shareholders, it is not an offer to the general public.
Offer to the public, i.e., public issue. Whether shares have been 'offered to the public' is a matter of
fact and will depend on the circumstances of a particular case.
How many persons constitute public ? Under the proviso to subsection (2) of Sec. 42, the offer of
securities or invitation to subscribe securities, shall be made to such number of persons not exceeding
fifty or such higher number as may be prescribed treated as made to the public.

CONTENTS OF PROsPECTUS/DISCLOSURES IN PROSPECTUS

The 'Golden Rule' as to framing of prospectus. The "golden rule as to framing of prospectuses' was
laid down by V.C. Kindersley in New Brunswick & Canada Rly. & Land Co. v. Muggeridge. (1860) 1
Dr. and Sm. 363 in the following words
Those who issue prospectus holding out to the public the great advantages which will acerue
to persons who will take shares in a proposed undertaking, and inviting them to take shares on
the faith of the representations therein contained, are bound to state every thing with strict and
scrupulous accuracy and not only to abstain from stating as fact that which is not so, but to omit
no one fact within their knowledge, the existence ofwhichmight in any degree afect the nature
or extent and quality ofthe privileges and advantages which the prospectus holds as inducement
to take shares".
Prospectus is the window through which an investor ean look into the soundness of a conmpany's
venture. The investor must, therefore, be given a complete picture of the company's intended activities
and its position. This is done through prospectus which must secure the fullest disclosure of all material
ud essential particulars and lay the same in full view of all intending purchasers of shares.
In order to finance its activities, a company needs capital which is raised by a public company by
ne issue of a prospectus inviting offers for shares and debentures from the public. A private company is
to subscribe for any shares in, debentures of, the
making any invitation to the public
or
pronibited from
company. Hence, it need not issue a prospectus.
 PANTES ACT, 2013
The central theme of prospecths, from the
money raising point of view. is that it sets outit prospectus
ofthe company and the purpose for which the capital is required. The prospectus is the the neo.
the perspective investors fom their basis on
opinion and take decisions as to the worth and prospects
company prospects of the
Matters to be Stated in Prospectus (Section 26)
(1)Every prospectus issued by behalf of a public company either with reference to
or on
or
subscquently. by or on behalf of any person who is or has been engaged or
or
its
formatine
formation of a public interested in th e
company, shall be dated and signed and shall
State such information and set out such
by the Sccurities and
reports on financial information as may be
Exchange Board in consultation with the Central Government. specified
(a) Information to be stated in the
(i) names and addresses
prospectus state the following information, namely
of the registered office of the
Chief Financial Officer auditors,
company, company secretary
legal advisers, bankers, trustees, if any. underwriters
and such other persons as
may be prescribed;
(ii) dates of the
opening and closing of the issue, and declaration about the issue of
allotment letters and refunds within the
(ii) a statement by the Board of Directors
prescribed time;
about the separate bank account
monies received out of the issue are to be transferred where all
and disclosure of details of all
monies including utilised and unutilised
monies out of the previous issue in
the
prescribed manner;
(iv) details about underwriting of the issue;
(v consent of the directors, auditors, banker to the issue, expert's
such other persons, as may be opinion, if any, and of
prescribed;
the authority for the issue and the
(vi) details of the resolution
(vii) passed therefor:
procedure and time schedule for allotment and issue of securities:
(vii) capital structure of the company in the prescribed manner;
ix) main objects of public offer, terms of
the present issue and such other
may be prescribed; particularsas

(x) main objects and present business of the

implementation of the project; company and its location, schedule ot

(xi) particulars relating to -

(a) management perception of risk factors specific to the project;
(b) gestation period of the
project;
(c) extent of progress in the
(d) deadlines for
project;
completion of the project; and
(e) any litigation legal action pending or taken by a Government
or

statutory body during the last five years Department or a

SSue of prospectus immediately preceding the year ot the

against the promoter of the company;
(xii) minimum subscription, amount
than on cash;
payable by way of premium, issue of shares otherwise
(xii) details of directors
including their appointments and remuneration, and such
of the nature and extent of,
their interests in the company
particulai
and
as may be prescriocu
(xiv) disclosures in such manner as may be prescribed about sources of promoter
contribution;
 hi Reports to be included in the prospectus set out the following reports for the purposes ot
the financial information, namely
(i) reports by the auditors of the company with respect to its profits and losses and assets
and liabilities and such other matters as may be prescribed
(i) reports relating to prolits and losses for each of the five financial years immediately
preceding the financial years of the issue of prospectus including such reports of its
subsidiaries and in such manner as may be prescribed:
Provided that in case of a company with respect to which a period of five years
has not elapsed from the date of incorporation, the prospectus shall set out in such
manner as may be prescribed, the reports relating to profits and losses for each of the
financial years immediately preceding the financial year of the issue of prospectus
including such reports of its subsidiaries;
(i) reports made in the prescribed manner by the auditors upon the profits and losses of
the business of the company for each of the five financial years immediately preceding
issue and assets and liabilities of its business on the last date to which the accounts of
the business were made up, being a date not more than one hundred and eighty days
before the issue of the prospectus:
Provided that in case of a company with respect to which a period of five years
has not elapsed from the date of incorporation, the prospectus shall set out inthe
manner, the reports made by the auditors upon the profits
and losses of the
prescribed
business ofthe company for all financial years from the date of its incorporation, and
assets and liabilities of its business on the last date before the issue of prospectus
and
of the securities are to
(iv) reports about the business or transaction to which the proceeds
be applied directly or indirectly;
of
c) Declaration to be included in the prospectus make a declaration about the compliance
that nothing in the prospectus is
the provisions of this Act and a statement to the effect
Securities Contracts (Regulation) Act, 1956 and
contrary to the provisions of this Act, the
rules and regulations made
the Securities and Exchange Board of India Act, 1992 and the
thereunder, and
state such other matters and
(d) Other matters and Reports to be included in the prospectus
set out such other reports, as be prescribed.
(2) Nothing in sub-section (1) shall apply of a prospectus or form
existing members or debenture-holders of company,
a
a)to the issue to
the company, whether an applicant has a
of application relating to shares in or debentures of
to renounce the shares or not under sub-clause (ii)
of sub-section (1) of Section 62 in
ight
favour of any other person; or
10 the 1Ssue of a prospectus or from of application relating
to shares or debentures which are,
D
the
or are to be, in all respects uniform with shares or
debentures previously issued and for
ime being dealt in or quoted on a recognized stock exchange.
toa prospectus or a fromot
Subyect to sub-section (2), the provisions ofsub-section (1) shall apply
Ppication, whether issued on or with reference to the formation of a company orsubsequenuy.
the date ot its
aplanation The date indicated in the prospectus shall be deemed to be
publication.
(4) prospectus shall be issued by or on behalf of a company or in relation to an intended company
delivered to the Registrar for filing,
has been
e s s on or before the date or its publication, there
 CONCEPT OF DEMATERIALISED
(Section 29 of the Companies Act,SHARES 2013)
arally a company issuing share capital to the
public issues shares certificates to the members. A share
rtificate is a certificate in physical form issued to the members
1ccifving the number of shares held by a member and the amount
by the company under its common seal,
is a Drima facie evidence of number of shares held and paid up value. paid on each share. A share certificate
It involves a declaration by the
camnany to the world that the person in whose
name the certificate is made out and to
whom it is given
isabonatide shareholder of the company.
Under Section 29 of the Companies Act, 2013, every listed company
making an Initial Public Offering
IPO) of 7 10 crores or more should issue securities only in dematerialised form in accordance with
Depositories Act, 1996.

Dematerialised Securities are the securities held in electronic from instead of the physical from.
Dematerialised securities/ shares do not have any distinctive numbers. All the holdings ofa particular
security are identical and interchangeable. The process by which physical certificates of an investor are
converted to an equivalent number of securities in electronic form and credited into the investor's account
with his Depository Participant is called as 'dematerialisation'. The process by which electronic holdings
are converted back into physical certificates is called 'rematerialisation'.
There are several benefits of holding securities in electronic form as demateralised securities.
Some of these are as under:
There is elimination of risks associated with physical certificates such as theft, loss of share
certificates, fake securities, bad delivery.
No stamp duty on transfer of securities.
Immediate transfer of securities.
Reduction in paper work involved in transfer of securities.
Reduction in transaction cost for purchase and sale of securities.
Increased liquidity of securities.
 BuSINESS LAw || THE CoMPANIES
346 ACT, 2013
share can be sold.
even one
No odd lot problem:
Nomination facility. securities.
convenient way to hold
A safeand
It 1S CSsential to understand the Depositores.
In the context of dematerialiscd securities, sitores system
1. What is a Depository?
A depository is an organization which hoids securities of investors in electronic from at fha request o
the investors through a registered Depostory r'aruCipant, it also provides services related to sactieons

in securities.
A depository can be compared with a bank, which holds the funds for depositors. A Bank Deposito
sitory
analogy is given in the table below:
Bank Depositony
Holds funds in an account Holds, securities in an account
Transfers funds between accounts on the Transfer securities between accounts on the
instruction of the account holder instruction of the account holder
Facilitates transferwithout having to handle Facilitates transfer of ownership without having
money to handle securities
Facilitates safekeeping of money Facilitates safekeeping of securities

The minimum net worth stipulated by SEBI for a Depository is 100 crore.
At present, two Depositories, viz., National Securities Depository Limited (NSDL) and Central
Depository Services (l) Limited (CDSL) are registered with SEBI.
2. Who is a
Depository Participant?
ADepository Participant (DP) is an agent of the Depository through which it interfaces with the investor.
A DP can offer depository services only after it gets proper registration from SEBI. Banking services
can be availed through a branch whereas depository services can be availed through a DP.
As on 31.03.2005, 477 Depository Participants (DPs) are registered with SEBI.

3. Is it
compulsory for every investor to open a depository account to trade in the capital market?
As per available statistics at BSE and NSE, 99.9% settlement takes place in demat mode only. Therefore,
inview of the convenience in settlement through demat mode, it is advisable to have a beneficiary owner
(BO) account to trade at the exchanges.
4. How services
can
ofa depository be availed?
To avail the services ofa
depository an investor is required to open an account with a Depository Partic1pant
of any depository.
How Can One Open an Account?

First, an investor has

to approach a DP and fill up an account
opening form. The account opening from
must be supported by copies of any one of the approved documents to serve as proof of Identity (POI)
and proof of Address (POA) as
specified by SEBI.
All applicants should carry original document for verification by an authorized oficial of the
Depository Participant, under his signature.
Further, the investor has to sign an agreement with DP in a depository prescribed standard format,
which details rights and duties of investor and DP. DP should provide the investor with a copy of the
 PROSPECTUS 347

ereement and schedule of charges for their fiuture reference. The DP will open the account in the system
d give an account number, which is also called BO ID (Beneficiary Owner Identification) number.

s Mhat is dematerialisation? How can one convert physical holding into electronic holding i.e., how can
one dematerialise securities?

Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent
into the investor's account with his/ her DP.
electronic from and credited
number of securities in
securities one has to fill in a DRF (Demat Request Form) which is
In order to dematerialize physical
same for along with physical certificates one wishes to dematerialise.
aailable with the DP and submit the dematerialisation is
has to be filled for each ISIN Number. The complete process of
Separate DRF
outlined below:

Surrender certificates for dematerialisation to your depository Participant.

the system.
.Depository Participant intimates Depository of the request through Issuer Company.
certificates to the Registrar of the
Depository Participant submits the
Registrar confirms the dematerialisation request
from depository
accounts and informs depository of the
After dematerialising the certificates, Registrar updates
completion of dematerialisation.

accounts and informs the Depository Participant.

Depository updates its
the demat account ofthe investor.
Depository Participant updates
dematerialised securities?
6. What is the procedure for buying and selling
dematerialised securities is similar o
the procedure for buying and
The procedure for buying and selling and receipt (in
of delivery (in case of sale)
The difference lies in the process
selling physical securities.
case of purchase) of
securities.

In case of purchase- day.

securities in his account on the payout
The broker will receive the account and credit
investor's account
instruction to its DP to debit his from.
The broker will give credit by filling appropriate
Instruction' to DP for receiving obviate the need
Investor will give 'Receipt one's account that will
instruction for credit in to
However one can give standing
time.
of giving Receipt Instruction every
account.
of sale credit the broker's
In case his account and
-

instruction to DP to debit otherwise DP will

The investor will give delivery before the pay-in as

reach the DP's office at last 24 hours

Duch should
instruction
investor 's risk.
accept the instruction only at the
offering directly in the electronieform?
securities allotted in public In the
it possible to get in the electronic form.
s
offering directly
allotted to in public an investor
wants the
is
it possible to get securities m a n n e r in which
Tes, to indicate the form.
application form, there is a provision the name and ID of the DP on the application
PuDC Ssue BO ID and
allotted. He has to mention the
CCurities BO account.
credited into the
ny allotment made will be
received?
benefits such as dividend / interest the date of the
i o w are cash corporate as on
holders and their holdings
obtains the details
beneficiary of made by the company
the investors will be
Concerned company The payment to
the dividend/
interest
book / record date from Depositories. available. Thus
Clearing Service)
facility, wherever
Ough the ECS (Electronic
 ECS facility is not available, dividend/ interest will
will be credited to your bank account directly. Where
be given by issuing warrants on which your bank account details are printed. The bank account details will

be those which you would have mentioned in your account opening form or changed thereafter.

Advertisement of Prospectus (Section 30)

Where an advertisement of any prospectus of a company is published in any manner, it shall be necessary
to specify therein the contents of its memorandum es regards the objects, the liability of members and
the amount ofshare capital of the company, and the names of the signatories to the memorandum and the
number of shares subscribed for by, them, and its capital structure.
Shelf Prospectus |Sec. 31]. 'Shelfprospectus' means a prospectus issued by any financial institution or
bank for one or more issues of the securities or class of securities specified in that prospectus.
Any public financial institution, public sector bank or scheduled bank whose main object is financing
shall file a shelfprospectus. 'Financing' means making loans to or subscribing in the capital ofa private
industrial enterprise engaged in infrastructural or, such other company as the Central Government may
notify in this behalf.
A company filing a shelf prospectus with the Registrar shall not be required to file prospectus afresh
at every stage of offer of securities by it within a period of validity of such shelf prospectus. It shall be
required tofile an information memorandum on all material facts relating to new charges created, changes
in the financial position as have occurred between the first offer of securities, previous offer of securities
and the succeeding offer of securities within the time prescribed by the Central Government, prior to
making ofa second or subsequent offer of securities under the shelf prospectus.
An information memorandum shall be issued to the public along with shelf prospectus filed at the
stage of the first offer of securities and such prospectus shall be valid for a period of one year from the
date of opening of the first issue of securities under that
prospectus.
Where an update of information memorandum is filed every time an offer or securities is made, such
memorandum together with the shelf prospectus shall constitute the prospectus.
Information Memorandum. Information memorandum means a process undertaken prior to the filing
ofa prospectus by which a demand for the securities proposed to be issued by a company is elicited, and
the price and the terms of issue for such securities is assessed, by means of a notice, circular, advertisement
or document.

Circulation ofinformation memorandum prior to the opening of subscription lists. A

public company
making an issue of securities may circulate information memorandum to the public prior to filling of a
prospectus.

BOOK BUILDING*
The success of an issue of securities depends, to a large extent, on the price at which it is made. An issue
at discount maybe fully subscribed, but it provides company costly funds. A premium issue promises
cheap funds but reduces chances for full subscription. Thus, issue pricing is an important question an
calls for considerable expertise on the part of issuers and promoters of any company. The problem could
be still mote serious if the
organisation is a new company.
Market value-based pricing- The securities are issued at a price at which any security ofthe
same company has been previously or currently traded. As per this method the issue price is fixeu
near to the market value of the share.
 .Net Asset Value INAVI-based pricing The issue price is fixed on basis of NAV of company.
The NAV is calculated on the basis of assets and liabilities figures appearing in the balance sheet
of the company.
. Reference pricing The price is determined in comparison with other similar companies. The
shares are issued al a price at which the share of some other same company is valued.
. Tender pricing-This method is also known as bid-determined pricing or Book Building.

What is Book Building?

Raok Building' means a process undertaken by which a demand for the securities proposed to be issued
h abody corporate is elicited and built up and the price for such securities is assessed for the determination
of the quantum of such securities to be issucd by means of a notice, circular, advertisement or offer
document.

Bids are collected from investors, at various prices which are above or equal to the floor price (the
date, based on certain
minimum price). The final price of the share is determined after the bid closing
the IPO will be
evaluation criteria. The bidders can offer their bids during a certain period for which
open Price band is the
Price band comes into play when IPOs are done through a book-building process.
lower and the upper share price declared by the company in the
issue document when it adopts book-
building route.
Issue of 8,00,000
For instance, Punjab National Bank (PNB), which had come out in 2005 with public
390 per equity share.
Equity shares of 7 10 each, had indicated the price band of 7 350 to In the exampie of
in the price band the lower end is called floor price and the higher end cap price.
investors who desire to
PNB given above, 350 is the floor price and F 390 the cap price. It means the
least 350 per share and the maximum
apply for the shares of this company would be ready to pay at the
amount that the share price may go cannot exceed 390.
20% of the floor price of the
As per SEBI guidelines, the cap of the price band shall not be than
120% of the floor price of the band.
band, i.e., cap of the price band shall be less than or equal to
Bid shall be open for at least 5 days and not more than 10 days.
for retail
Individual investors encouraged by reserving a portion of the issue
are
category.
who have bid the final price or
When all the bids are received and the final price is decided, those
above get the allotments and other would get refund, Those retail
investors who do not want to take a
haveoption to bid at 'cut-off". which
quoting the bid price and want assured allotment,
an
d i c e in
However.
at the final price decided through the BB route.
dns they are agreeable to have shares allotted
y are required to pay money at the bid stage itself, at the cap price.
book-built portion and the remaining 25°% is to be
In partial book building, 75% of the issue is the is reserved for the book building
0aded in the general market. In 100% book building, the entire issue
O PNB issue is an example for 100°o Book
n and nothingis for the general market. The recent
kept
Building issue.
 uS.
Red Herring Prospectus (Section 32)
Aconmpany proposing to make an ofter of securities
may issue a red herring
issue of a prospectus. prospectus prior to the
Acompany proposing to 1ssue a red
herring prospectus under sub-section (I ) shall file it with the
Registrar atleast three days prior to the
opening of the subscription list and the offer.
Ared
(3) herring prospectus shall carry the same obligation as are
ariation between the red applicable to prospectus and any
herring prospectus and a prospectus shall
a

be highlighted as variations in
the prospectus.
ALinon the closing of the offer of securities under this section, the
total capital raised, whether by way of debt or share prospectus stating therein the
capital, and the closing price of the securities
and any other details as are not included in the red
Registrar and the Securities and Exchange Board.
herring prospectus shall be filed with the
Explanation For the purposes of this section, the expression "red herring
-

prospectus" means a
prospectus which does not include complete particulars of the quantum or price of the securities
included therein.

Issue of Application Form for Securities (Section 33)

(1) No form of application for the purchase of any
ofthe securities of a company shall be unless such
foom is accompanied by an abridged prospectus
Provided that nothing in this sub-section shall apply if it is show that the form of
was issued -
application
(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) fa company makes any default in complying with the provisions ofthis section, it shall be liable
to a
penalty of fifty thousand rupees for each default.
Criminal Liability for Misstatements in Prospectus (Section 34)
Where
unrue
a
prospectus, issued, circulated or distributed under this Chapter, includesany statement which is
or misleading in form or context in which it is included or where any inclusion or omission of any
ndter is ikely to mislead, every who person who authorizes the issue of such prospectus shal be liable
under section 447:
 COMPANIES ACT, 2011
352
to a person if he proves that such
this section shall apply
Provided that nothing in
reasonable grounds to
believe, and did upand
up to th time
to the
of
tatement or
immaterial or that he had issue af
omission was
true or the inclusion or
omission was n necessary
ece
was
that the statement
the prospectus believe,

Punishment for Fraud (Section 447)

dept under this Act or any other l a e
Without prejudice to any liability including repayment of any
shall be punishable with imnehe the
any person who
is found to be guilty of fraud,
time being in force, extend to ten years and shall
which shall not be less than six months but which may o be
for a term
less than amount involved in the traud, but which may extend to
liable to fine which shall not be ree
times the amount involved in the fraud:
Provided that where the fraud in question involves public interest, the term of imprisonment shal

not be less than three years.

Explanation For the purpose of this section-

-

(i)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
interest of, the company or its shareholders or its creditors or any other person, whether or not
there is any wrongful gain or wrongful loss
(ii) "wrongful gain'" means the gain by unlawful means of property to which the person gainingis not

legally entitled;
Gii) wrongful loss" means the loss by unlawful means of property to which person losingis legaly
entitled.

Punishment for False Statement (Section 448)

Save as otherwise provided in the this Act, if in any return, report, certificate, financial statement
of
prospectus, statement, prospectus, statement or other document required by, or for, the purposes any
of the provisions o f this Act or the rules made thereunder, any person make a statement -

(a) which is false in any material particulars, knowing it to be false; or

b) which omits any material fact, knowing it to be material, he shall be liable under section 44

Civil Liability for Misstatements in Prospectus (Section 35)

(1) Where a person has subscribed for securities of a company acting on any statement inchudeu. o
the inclusion or omission of any matter, in the prospectus which is misleading and has sustatee

any loss or damage as a consequence thereof, the company and every person who-
(a) is a director of the company at the time of the issue of the prospectus;
the
(by has authorised himself to be named and is named in the prospectus as a director o
company, or has agreed to become such director, either immediately or after an interval
time,
(c) is a promoter of the company;
(d) has authorised the issue of the prospectus; and
(e) is an expert referred to in sub-section (5) of section 26,
be
shall, without prejudice to any punishment to which any person may be liableunder sect
able to pay compensation to every person who has sustained such loss or damage.
(2) No person shall be liable under sub-section (1), if he proves -
 (a that, having consented to become a director of the
company, he withdrew his consent before
the issue of the prospectus, and that it was issued without his
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
knowledge or consent.
public notice that it was issued without his
c) that. regards every misleading statement purported to be made by an expert or contained
as

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 sub-section
(5) of section 26 to the issue of the prospectus and had not withdrawn that consent before
delivery ofa copy ofthe prospectus for filing or, to the defendant's knowledge. before allotment
thereunder.
) Notwithstanding anything contained in this section, where it is proved that a prospectus has been
issued with intent to defraud the applicants for the securities ofa company or any other person or
foranyfraudulent 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.
Punishment for Fraudulently Inducing Person to Invest Money (Section 36)
Any person who, either knowingly or recklessly makes any statement, promise or forecast which is
false, deceptive or misleading, or deliberately conceals any material facts, to induce another person to
enter into, or offer to enter into-
(a) any agreement for, or with a view to, acquiring, disposing of, subscribing for, or underwriting
securities; or
(b) any agreement, the purpose or the pretended purpose of which is to secure a profit to any of the
parties from the yield of securities or by reference to fluctuation in the value of securities: or
tinancial
a n y agreement for, or with a view to obtaining credit facilities from any bank or institution,

shall be liable for action under section 447.

Liability for misstatements in prospectus

Civil liability (Sec. 35) Criminal liability tSec. 34)

Against the Against the directors,

company promoters and experts

Rescission Claim for Damages Compensation Damages for

of
damages non-compliance
contract

For frauo ent For innocent

misrepresentation misrepresentation