Page 173 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes What constitutes an offer to the public? Section 67 lays down two-way criteria as to what shall
constitute an invitation to the public. These are:
1. An invitation to the public shall include an invitation to any section of the public, whether
selected as members or debenture holders of the company concerned or as clients of the
person issuing the prospectus or in any other manner. However, a document by way of
invitation to existing members or debenture holders to subscribe to shares or debenture by
way of right is not a prospectus [s.56 (5)].
2. An invitation shall not be an invitation to the public if it cannot be calculated to result,
directly or indirectly, in the shares or debentures becoming available for subscription
or purchase by persons other than those receiving the invitation. Thus, it will not be an
invitation to public where B, a friend of A who receives the invitation, also desires to
subscribe, but his offer shall be refused because he was not invited to make the same. On
the other hand, it will become an invitation to public where his (B’s) offer shall also be
accepted.
The offering of shares of kith and kin of a director is not an invitation to the public to buy shares
[Rattan Singh v. Moga Transport Co. Ltd. (1959) 20 Comp. Cas. 165]. Further, the learned judge in
this case held that in all cases the determination of the question of an offer being made to the
public depends upon the facts and language of the notice and the particular circumstance of each
case.
In Nash v. Lynde (1929, A.C. 1585). Justice Viscount Summer observed: “The ‘public’ is of course

a general word. No particular numbers are prescribed. Anything from two to infinity may serve;

perhaps even one, if he is intended to be the first of a series of subscribers, but makes further
proceeding needless by himself subscribing the whole. The point is that the offer is such as to
be open to any one who brings his money and applies in due form, whether the prospectus was
addressed to him on behalf of the company or not.”
If a company (other than non-banking finance company and Public Financial Institution) makes

an offer to 50 or more persons, it will be treated as a public issue. In other words, private placement
by a company shall come under the purview of a ‘public issue’.
9.8 Small Depositors (s. 58AA)

To protect small depositors, sections 58AA and 58AAA provide:

(i) A small depositor is one who has deposited, in a financial year a sum not exceeding `
20000 in a company and includes his successors, nominees and legal representatives.
However, the term does not include those small depositors (a) who renewed their deposits
voluntarily; or (b) whose repayment is not made due to death or stay order of a competent
court or authority.
(ii) Any company accepting deposits shall have to inform the Tribunal, on monthly basis, the
names and addresses of each small depositor about its default in repayment of deposit or
payment of interest thereon. A period of 60 days is prescribed for intimation of any default
to the Central Government which shall, after giving the depositor an opportunity of being
heard, pass an appropriate order within 30 days from the date of receipt of such intimation
from the defaulting company.
Such a defaulting company is prohibited to accept further deposits from small depositors
at any time until the defaults are made good.
(iii) The total numbers of small depositors and the amount due to them in respect of which
default is made the fact of wativer of interest accrued on deposits shall be stated in all
future advertisements and application forms inviting deposits from the public. Further
every application form for accepting deposits shall contain a statement that the applicant

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