Page 256 - DMGT407Corporate and Business Laws

Unit 11: Prospectus, Shares and Share Capital

(iii) Where offer is made only to existing members/debenture holders of the company by way Notes
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).

11.1.12 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.

11.1.13 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or statement; (iv) a statement that he has given and not withdrawn his consent thereto appears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
fine up to ` 50,000 (s.59).

11.1.14 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;
(ii) a copy of every contract required to be specified in the prospectus or a memorandum
giving full particulars of a contract not reduced to writing;
(iii) a copy of every contract appointing or fixing the remuneration of a managing director or
manager;
(iv) the consent in writing of a person, if any, named in the prospectus as the auditor, legal
adviser, attorney, solicitor, banker to the company to act in that capacity;

(v) consent of directors under s.266;
(vi) a copy of the underwriting agreement, if any; and

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