Page 176 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Unit 9: Prospectus

In order to provide for greater disclosure of information to prospective investors so as to enable Notes
them to take an informed decision regarding investment in shares and debentures, Form 2-A
has been prescribed as a format of abridged prospectus. It is further required that the abridged
prospectus and the share application form should bear the same printed number and the two
should be separated by a perforated line. Accordingly, the investor may detach the application
form before submitting the same to the company or the designated bankers.

When ‘abridged prospectus’ not necessary. In the following circumstances, an ‘abridged
prospectus’ containing the prescribed particulars as per Form 2A need not accompany the

application forms: (i) In the case of a bona fide invitation to a person to enter into an underwriting
agreement with respect to the shares or debentures. (ii) When shares or debentures are not
offered to the public. (iii) Where offer is made only to existing members/debenture holders of
the company by way of rights, whether with or without the right of renunciation. (iv) In the case
of issue of shares or debentures which are in all respects similar to those previously issued and
dealt in and quoted on a recognised stock exchange.
Penalty: Non-compliance of the aforesaid provisions by any person shall attract punishment in

terms of fine which may extend to ` 5,000.
Besides, the omission from a prospectus of a matter required to be included by s.56 may give rise
to an action for damage at the instance of a subscriber for share or debentures who has suffered
loss thereby. It should be noted that the Act does not say that directors shall be liable, but this
seems to be implied from s.56 (4).

9.12 Draft Prospectus to be made Public

SEBI requires making public the draft prospectus filed with it. The lead Merchant Bankers shall

simultaneously file copies of the draft document with the stock exchanges where the issue is
proposed to be listed. Lead Merchant Bankers shall also make copies available to the public. Lead
Managers/stock exchanges can charge an appropriate sum from the person requesting such a
copy(ies).
9.13 The Expert’s Consent to the Issue of Prospectus

A prospectus may contain a statement purporting to be made by an expert. The term ‘expert’
includes an engineer, a valuer, an accountant and any other person whose profession gives
authority to a statement made by him. The reports from an expert must not be included in a
prospectus unless: (i) Such expert is unconnected with the formation or management of the
company (s.57); (ii) he gave his consent (s.58); (iii) he is competent to make the report, valuation
or statement; (iv) a statement that he has given and not withdrawn his consent thereto appears
in the prospectus (s.58).

If the report of the expert is published in contravention of the above mentioned provisions, every
person who is knowingly a party to the issue of the prospectus shall be punishable with fi ne up
to ` 50,000 (s.59).
9.14 Registration of the Prospectus (S. 60)

A copy of the prospectus duly signed by every director or proposed director must be delivered
to the Registrar before its publication. Further, every copy of the prospectus on its face must state
that a copy has been delivered for registration. The copy must have attached to it the following
documents namely:
(i) the consent of the expert to file the prospectus;

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