Prospectus Types, Contents and Legal Remedies For Misrepresentation

PROSPECTUS TYPES, CONTENTS
AND LEGAL REMEDIES FOR

MISREPRESENTATION
PROSPECTUS
 Any document described or issued as a prospectus. [Sec. 2(70)]
 Every prospectus issued by or on behalf of a public company must be dated and signed
[Sec. 26(1)]
 Contain such information and reports on financial information as specified by SEBI in

consultation with Central Government (CG)
 Declaration shall be included in prospectus

LEGAL RULES AS TO
PROSPECTUS
 Date indicated shall be deemed to be the date of its publication
 Every prospectus shall state that a copy has been sent to Registrar for filing
 No prospectus shall be valid if issued 90 days after the date on which a copy is delivered to the
Registrar
 Expert’s statement may be included in prospectus upon certain conditions
 Expert includes an engineer, a valuer, a chartered accountant [Sec. 2(38)]

CONTENTS OF PROSPECTUS
Details of corporate like name, registered office address, CIN number and the objects of the
company
Signatories of MOA and particulars of shareholding
Details of Directors
Minimum subscription amount invited to the public
Details of the share
Details of the underwriters
Details of the auditors and their reports on the financial statement of the company
Time schedule for allotment and issue of securities
Pending litigation, if any
TYPES OF PROSPECTUS
 Deemed Prospectus [Sec. 25]
 Shelf Prospectus [Sec. 31]
 Red herring prospectus [Sec. 32]
 Abridged prospectus [Sec. 33]

DEEMED PROSPECTUS
A company allots or agrees to allot any securities being offered for sale to the public, any
document by which the offer for sale to the public is made shall be deemed to be a prospectus
issued by the company
All enactment and Rules of law as to the contents of a prospectus shall apply to deemed
prospectus
Contains contents as specified u/s 26
Must be signed by 2 directors of the company, in case of company or by not less than one-half of
the partners in the firm, in case of a firm
SHELF PROSPECTUS
Securities or class of securities are issued for subscription over a certain period without the issue
of a further prospectus
In simple terms, it is a single prospectus for multiple public
The Issuer is permitted to offer and sell securities to the public without a separate prospectus for
each act of offering for a certain period (not exceeding one year)
An Information Memorandum needs to be filed which shall contain material facts related to new
charges created , changes in the financial position of the company, such other changes as may be
prescribed
RED HERRING PROSPECTUS
Does not include complete particulars of the quantum or price of the securities
Contains information pertaining to company’s operations and prospects, but does not include
key details of issue, such as price and number of shares offered
File with the Registrar at least three days prior to the opening of the subscription list and the
offer
Carry same obligations as applicable to prospectus and any variation shall be highlighted
ABRIDGED PROSPECTUS
Memorandum containing such salient features of a prospectus as specified by the SEBI [Sec.
2(1)]
No form of application for purchase of securities shall be issued unless accompanied by an

abridged prospectus [Sec. 33]
A copy of the prospectus may be furnished to him on request before the closing of
subscription list
CRIMINAL LIABILITIES FOR
MISSTATEMENT IN
PROSPECTUS
If prospectus includes any statement which is misleading, or omission of any matter is
misleading, then, every person authorized to issue shall be liable u/s 447 [Sec 34]
However, if the person proves that the statement or omission was immaterial, then the
liability does not arise
PERSONS LIABLE FOR
MISSTATEMENT
The company;
The director of the company at the time of issue of prospectus;
Every person who has authorized himself to be named and is named in the prospectus as a director of the company;
Every person who is a promoter of the company;
Every person who has authorized the issue of prospectus; and
Every person who is an expert
Every person shall be liable for payment of compensation to every person who has sustained loss or damage or
punishment u/s 36
REMEDIES FOR
MISSTATEMENTS IN
PROSPECTUS
Remedies for civil liability
Revocation of the contract
Damages for fraud, misstatement, non-disclosure
Remedies for criminal liability

Imprisonment up to 2 years or ₹ 50,000 fine
Persons who knowingly issued a misstatement is punishable for imprisonment up to 10
years or with a fine of ₹ 10,00,000 or both [Sec 447]
CASE LAW: REX VS KYLSANT
(1932)
 Name of Company: Royal Mail Steam Packet
 Parties involved: Shareholders of the company and Lord Kylsant, the director of the company
 Case facts:
The company paid dividend every year between 1921 and 1927
Gave impression of a financially stable company
The fact that the company faced considerable losses in each of those years and paid dividend out of
accumulated reserves in previous years was suppressed
 Judgement:
The court held that the prospectus was false suppressing material statement and conveyed a false impression
The court ordered to rescind the contract
Q AND A

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PROSPECTUS TYPES, CONTENTS

AND LEGAL REMEDIES FOR

 Contain such information and reports on financial information as specified by SEBI in

 Declaration shall be included in prospectus

 Expert’s statement may be included in prospectus upon certain conditions

 Expert includes an engineer, a valuer, a chartered accountant [Sec. 2(38)]

 Shelf Prospectus [Sec. 31]

 Red herring prospectus [Sec. 32]

 Abridged prospectus [Sec. 33]

Contains contents as specified u/s 26

In simple terms, it is a single prospectus for multiple public

No form of application for purchase of securities shall be issued unless accompanied by an

The director of the company at the time of issue of prospectus;

Every person who is a promoter of the company;

Every person who has authorized the issue of prospectus; and

Every person who is an expert

Remedies for criminal liability

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