CH.

3 – PROSPECTUS & ALLOTMENT

(Section 23 – 42)

Part I Part II

Prospectus & Allotment (Private place)

of securities Sec 42

SECTION DESCRIPTION
SECTION 23 Public offer & private placement
SECTION 24 Power of securities and exchange board to regulate issue and transfer of securities,
etc.
SECTION 25 Documents containing off of securities for sale to be deemed prospectus
SECTION 26 Matters to be stated in prospectus
SECTION 27 Variation in terms of contract/objects in prospectus
SECTION 28 Offer of sales of shares by certain members of company
SECTION 29 Public offer of securities to be in dematerialized from
SECTION 30 Advertisement of prospectus
SECTION 31 Shelf prospectus
SECTION 32 Red herring prospectus
SECTION 33 Issue of application forms for securities
3ECTION 34 Criminal Liability for mis-statement in prospectus
SECTION 35 Civil Liability for mis-statement in prospectus
SECTION 36 Punishment for fraudulently including persons to invest money
SECTION 37 Action by affected persons
SECTION 38 Punishment for fraudulently inducing personation for acquisition, etc. of securities.
SECTION 39 Allotment of securities by company
SECTION 40 Securities to be dealt within Stock Exchange
SECTION 41 Global Depository Receipts

Unit 2
Prospectus & Allotment of Securities
[Section 23 – 42]

Prospectus – Sec 2(70)

Prospectus means a Document with is described or issued as a prospectus

It includes Red-herring Prospectus (or)

[Shelf Prospectus] (or) any Notice, Circular, Advertisement or any other form
For subscription (or) purchase of [Securities] in a [Body Corporate]
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 SHELF PROSPECTUS
(Section 31)
” Shelf Prospectus” means a prospectus in respect of which the securities (or) class of securities
included therein are issued for subscription in one or more issues over (2) certain period without the
issue of a further prospectus.
Applicability: Provisions of Sec. 31 shall apply to any class (or) classes of companies, as DEBI may
provide by regulations in this behalf.
Procedure for issue of securities under shelf prospectus:
i. Filing of shelf prospectus
Any class or classes of companies, as SEBI may provide by regulations in this behalf may file a shelf
prospectus with the Registrar at the stage of the first offer of securities specified in shelf prospectus
ii. Validity period of shelf prospectus
 The shelf prospectus shall indicate a period not exceeding (1) year as the period of validity of
such prospectus
 The period of (1) year shall commence from the date of opening of the first offer of securities
under shelf prospectus.
 With respect to second (or) any subsequent offer of such securities issued during the period of
validity of shelf prospectus,
No further prospectus shall be required.
iii. Information Memorandum (PAS – 2)
 Prior to the issue of a second (or) subsequent offer of securities under ……prospectus. The
company shall be required its file an information memorandum with Registrar.
 The information memorandum shall be file with the Registrar within such time as may be
prescribed.
– New changes created
– Changes in the financial position of the ……. as have occurred between the first offer of ……
(or) the previous offer of securities and the succeed offer of securities, and
– Such other changes as may be prescribed.
iv. Intimation of changes and opportunity to withdraw application
Where a company has received application for the allotment of securities along with advance
payments of subscription before the making any such change, the company, the company shall
intimate the changes to such application and if they express a desire to withdraw the application,
the company (or) other person shall refund all the monies receive as subscription within 15 days
thereof.
Constructing the term prospectus
Where an information is filed every time an offer of securities is made, the information memorandum
together with the shelf prospectus shall be deemed to be a prospectus.

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 Section 39
Allotment of Securities [PAS 3]
Allotment of Securities

Co. Issue Public Make an Company Allotment of

Public
Prospectus Application Securities to

Co. shall obtain within (3) days from

Underwrites minimum subscription the date of allotment
of securities within co. shall file return of
(30) days allotment of ROC
Commission

Shares Debentures As COA, 2013 As per SEBI

5% of value 25% of value 5% of nominal 90% of

of shares of debenture value of share issue size
(or) Authorised
Authorised in AOA
in AOA
If co. fails to obtain then Company fails to return then
company is liable…………

Deemed prospectus
(Section 25)

Issue House Public

Company offer securities offer securities

Any document offered

Deemed Prospectus
Meaning:
 Where a company allot (or) agree to allot any of its securities
 With a view that all (or) any of those securities offer for sale to public
 Documents by which offers is made shall be deemed to be a prospectus
Presumption as to be deemed prospectus:
Unless contrary proved allotment of securities deemed to be OFs to public if

OFs to pubic Whole consideration

made within 6 months received to co. where
of allotment/agree offer to public was
to allot made

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 All provision of prospectus applicable to deemed prospectus
( Sec 26, Sec 34, Sec 35, Sec 36, Sec 37, Sec 39, Sec 40)

Deemed (P) must be signed by

Person making an Person making an offer

offer is company is firm

Signed by (2) Signed by at least

Directors half of partners

Contents of Deemed (P) – Same as prospectus

+
 Net consideration received
 Time & place for inspection of contract
[Securities allotted]

CONTENTS OF PROSPECTUS
[Section – 26]

1. Prospectus must be [dated] & [signed] signed by BOD (or) Authorized Agent

Any date is mentioned on prospectus i.e. the date of prospectus

If not the date of publication is the date of prospectus

2. Prospectus consists of info & Reports If SEBI is not specified then as mentioned as
specified by SEBI SEBI, Act 1992
3. Prospectus consists of [expert] consent

Includes engineer, CA, CMA, CS any other person who is having authority to issue certificate under
any law for time being in force

Validity period – 90 days

Prospectus are not required When securities are offered to existing shareholders &
debenture holder
When the company issue similar securities
 If the company does default in prospectus penalty 50 k – 3 L

RED HERRING PROSPECTUS

[Section 32]
Definition:
The expression Red Herring Prospectus means a prospectus which does not include complete particulars of
the quantum (or) ……. the securities included thereon.
Procedure of issuing securities under Red Herring Prospectus:

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(a) A company proposing to make an offer of securities may issue a red herring prospectus to the issue of a
prospectus
(b) A company proposing to issue a red herring prospectus shall file it within the registrar and SEBI.
(c) Upon closing of the offer of securities, the prospectus shall be filed with the Registrar and ……..
(d) Any variation between the red herring prospectus and a prospectus shall be highlighted as variations in
the prospectus
(e) The prospectus shall state
i. the total capital raised, whether by way of debt or share capital
ii. the closing price of the securities, and
iii. any other details as were not included in the red herring prospectus

Constructing the term ‘Prospectus’

A red herring prospectus shall carry the same obligations as are applicable to a prospectus.

Misstatement
 It means false statement, untrue statement
 Commission of information which is not required to be disclosed
Omission of information which is required to be disclosed
Liability

Criminal Liability Civil Liability

Sec 37 Sec 35

U/s 447
Company OID

Promoter
Director
Proposed
Director
KMP
Expert
OID is not liable if
(i) he withdraws his consent before issue of prospectus
(ii) withdraw his consent after issue of prospectus but before allotment of securities
To withdraw his consent:
Publish in Newspaper
Publish in Website (Co.)

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 Fraud

Sec 447

Material Immaterial

> 10 L (or) < 10 L (or)

1% of T/O 1% of T/O
Whichever is lower

Penalty Penalty

Fine Imprisonment Fine Imprisonment

Fraud Amt 6 M – 10 y upto 5o L Upto 50L

(or) If public interest
3-times of affected 3y – 10y
Fraud Amt

OFFER FOR SALE BY CERTAIN MEMBERS OF COMPANY

(Under Section 28)

[Member] Consult [BOD]

Collect
authorization [Company] [Public]
to take all actions
for OFS Document
OFS

Member reimburse Deemed

to the all expenses prospectus
incurred
Irregular Allotment
Not following specific provisions under section given below:
1. Public offer – without prospectus [Sec 21]
2. Prospectus but doesn’t contain matters specified (u/s 26)
3. Prospectus without first delivering to ROC [Sec 26]
4. Allotment of securities without receiving minimum subscription [Sec 39]
5. Return of allotment is not filed with ROC within specified time [Sec 39]
6. Public offer of securities for listing securities from Stock Exchange [Sec 40]
7. Money received on application are not kept in a separate Bank A/c [Section 40]
8. Application money payable on securities is < 5% of nominal price (on specie by SEBI [Section 39]

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 Private Placement [Section 42]
Rule 14 of PAS, Rules 2014

 Specified no.
Company Offer the of persons Make an application Allotment of Members
Company
securities to securities to securities
(or)
thin (60) days
 Limited no. of
persons

Money received Co. failure to

shall be deposited allot the
in scheduled Bank Securities

Not exceeding 200 Utilised for Allotment of Co. shall return

in financial year the purpose of expense the money within
15 days
Return of
Private placement money
offer letter Excludes
[PAS – 4] * Existing Employee If failure to If co. fails to
* QIB (Qualified) allot return the money
Institutional Buyer)
Deposit Co. is liable to
interest (12% P.A)
on 61st day onwards

Additional points
1. The restrictions are calculated individually for each kind of securities
[This provision is not applicable NBFC’s HFC (Housing Finance Corporation)
2. The subscription money paid either by way of cheque (or) demand draft (or) any other Banking channel
and not by cash
3. No fresh offer made under this section unless the allotment of earlier offer have been completed
4. Prohibition of pubic advertisement
Record of private placement (PAS – 5]

2 years (Annual Charges)

As Deposit – NSDL
3. Shall ensure that entire holdings of Director / KMP has been dematerialized before offer bonus issue,
right issue
4. Timely payment of [fee] to depositories

Administrative and Annual Fee

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5. Maintain security deposit at all times not less than 2 years fee
6. Comply the regulation of SEBI
7. UPC shall file PAS-6 to ROC within 60 days for conclusion of each half year.
8. Company shall bring into notice to depositors if any difference between holding company and
de-mat
- without following any of above provision – irregular allotment
Duties of Security holders
 Who intendent to transfer securities on (or) after October, 2018 shall get securities?
D-Mat from before transfer
 Who subscribe any securities after 2nd October, 2018? Ensure that all existing shares are de-
materialized.
 Any grievances file before IEPF Authority
(Investor Education Provident Fund]

Public Offer of Securities in De-materialize Form

D-Mat Form [Section-29]
 Every company making public offer issue securities only in D-Mat Form by complying the provisions of
Depositors Act, 1996
 Unlisted Public Company shall issue securities in D-Mat Form then follow Rule – 9A
Rule 9A of Companies (PAS) Rules, 2014

Duties of unlisted Duties of Securities

Public Co. holders

 Issue securities in D-Mat Form as per Depositors Act, 1996

 Existing securities to be de-materialized

Unlisted Application
Depositors
Public Co.

ISIN (International Securities Identification Number]

Communicate to each shareholder

GOLDEN RULE FOR FRAMING THE PROSPECTUS

Meaning of “Untrue Statement” and “Prospectus” contain untrue statement.

i. A statement included in a prospectus shall be deemed to the untrue, if the statement is misleading in the
form and content in which it is included.
ii. Similarly, if the omission from a prospectus of any matter is calculated to mislead the investors the
prospectus is deemed to be a prospectus in which an untrue statement is included.

Golden Rule for framing the Prospectus:

1. The prospectus must present the whole picture of the company

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2. The prospectus must disclose all material facts, truly honestly and accurately.
3. All facts which are likely to influence the decision regarding applying for shares must be disclosed

4. The prospectus should not contain any untrue (or) misleading statement.
5. No fact should be omitted, the existence of which might, in any agree, affect the name (or) quality of
privileges and advantages disclosed by the prospectus
(Rex Vs Ky Isant)
Suppression of a fact, howsoever remote will make a prospectus ‘misleading prospectus’ if inclusion of
such fact might have affected investor’s decision to subscribe for the share (Rex Vs Ky Isant)

Eg: A prospectus stating that the company regularly paying dividend, but not disclosing the many is
incurring losses and that the dividend was paid out of reserves is misleading,
If a company’s shares are dealt in Stock Exchange.
Then it should file application of prospectus with one or more Stock Exchange
Company issue shares only if All Stock Exchanges give permission

To whom such application is

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