Page 105 - DCOM106_COMPANY_LAW

Company Law

Notes Question
Is it right on the part of Olivaylle to nominate 30 June 2006 as the reasonable period of
th
grace? Why? (Hint: Refer para 2 in the case)

7.9 Summary

A prospectus, as per s.2 (36), means any document described or issued as prospectus and
includes any notice, circular, advertisement.
Section 64 has been designed to check the bypassing of the provisions of s.56 as given
above, by making an offer of sale of shares or debentures through the medium of Issue
Houses.
Whether a document containing an offer for sale of shares or debentures is a prospectus or
not, depends upon whether it extends an invitation to the public to subscribe or not.

Section 56 lays down that the matters and reports stated in Schedule II to the Act must be
included in a prospectus.
Section 60A makes provisions for a shelf-prospectus in certain situations.

Section 56(3) requires that no one shall issue any form of application for shares or debentures
of a company unless, the same is accompanied by a memorandum, (known as ‘Abridged
Prospectus’).

7.10 Keywords

Abridge Prospectus: An ‘abridged prospectus’ need only be appended to the application form.
Prospectus: A prospectus, as per s.2 (36), means any document described or issued as prospectus
and includes any notice, circular, advertisement.
Red Herring Prospectus: The ‘red-herring’ prospectus means, a prospectus which does not have
the complete particulars on the price of the securities offered and the quantum of securities
offered.
Shelf Prospectus: A ‘shelf-prospectus’ 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.

7.11 Review Questions

1. Define a prospectus. Detail out its contents.
2. Explain the provisions of the Companies Act, 1956 with regard to the registration of a
prospectus of a public company going for public issue of equity shares. What are the
documents required to be submitted by the company to the Registrar for this purpose?
3. Explain the remedies available to an allottee who has subscribed for the shares on the faith
of a false and misleading prospectus.
4. Describe the defences available to a director in case of a suit against him for misstatements
made in the prospectus.
5. Enumerate cases in which a prospectus is not required to be issued by a public company.
6. State the consequences of non-disclosure of matters, which ought to be included in the
prospectus.

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