Page 257 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes (vii) when the persons making the reports relating to profits and losses, assets and liabilities,
etc., in respect of a business proposed to be acquired have made adjustments to them, a
signed statement by them stating the adjustments and the reasons for the same.

11.1.15 Prospectus by Implication

Section 64 has been designed to check the by-passing 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. The
process involves allotment of shares to an Issue House who, in turn, will issue advertisement
offering shares for sale. Since the advertisement is not issued by the company, it does not
amount to a prospectus and thereby liability of non-compliance of s.56 provisions cannot be
invoked. To check this malady, s.64 provides that all documents containing offer of shares or
debentures for sale shall be included within the definition of the term ‘prospectus’ and shall be
deemed as prospectus by implication of law. All enactments and rules of law as to the contents
of prospectuses and as to the liability in respect of statements and omissions from prospectuses
shall apply in respect of such documents.
Further, s.64 provides that unless the contrary is proved, an allotment of, or an agreement to
allot, shares or debentures shall be deemed to have been made with a view to the shares or
debentures being offered for sale to the public, if it is shown: (a) that the offer of the shares or
debentures for sale to the public was made within 6 months after the allotment or agreement to
allot; or (b) that at the date when the offer was made, the whole consideration to be received by
the company in respect of the shares or debentures had not been received by it.
In case a document is deemed as prospectus, then it must contain the following information in
addition to the information required to be stated in prospectus under s.56: (a) the net amount of
consideration received or to be received by the company in respect of the shares or debentures
to which the offer relates; and (b) the place and time at which the contract under which the said
shares or debentures have been or are to be allotted may be inspected.
For purposes of registration of a prospectus under s.60, the persons making the offer of sale to
the public are to be deemed as directors of the company.
Where the person making the offer is a company or a firm, the documents (i.e., deemed prospectus)
must be signed by at least two directors or one-half of the partners as the case may be.
Circumstances under which a document containing an offer for sale of shares or debentures be
not deemed to be a prospectus. 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. The prima facie test of ‘public offer’ or ‘public invitation’ is whether the terms of the offer
or invitation are such that, despite its limited circulation, it is open to any person who so chooses
to bring his money and apply for shares in response to the invitation. If the offer or invitation is
so open, then it constitutes a ‘public offer’. If, on the other hand, an offer or invitation can be
accepted only by the person to whom it is made and none other, then it will not be deemed to be
an offer or invitation to the public.
The word ‘public’ includes any section of the public (s.67). It may, thus, include all registered
medical practitioners in Delhi, all advocates of High Court of Delhi, all Englishmen living in
India.

However, in the following cases, the document inviting subscription to shares or debentures of
a company shall not be deemed as invitation to the public and hence shall not be a prospectus:
1. A circular inviting existing shareholders or debenture holders of the company. Although
s.67(1) provides that such an offer shall be an offer to the public yet in view of the provisions
of s. 67 (3) and (4) and that of s. 56 (5), considered view of the authors on the subject is that

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