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CHAPTER III : PROSPECTUS AND
ALLOTMENT OF SECURITIES
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PART I : PUBLIC OFFER
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Section 23. Public Offer and
Private Placement
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(1) A public company may issue
securities—
(a) to public through prospectus
(herein referred to as "public offer")
by complying with the provisions of
this Part; or
*(b) through private placement by
complying with the provisions of Part
II of this Chapter; or
(c) through a rights issue or a bonus
issue in accordance with the provisions
of this Act and in case of a listed
company or a company which intends to
get its securities listed also with the
provisions of the Securities and
Exchange Board of India Act, 1992 (15
of 1992) and the rules and regulations
made thereunder.
(2) A private company may issue
securities—
(a) by way of rights issue or bonus
issue in accordance with the provisions
of this Act; or
*(b) through private placement by
complying with the provisions of Part
II of this Chapter.
Explanation.—For the purposes of this
Chapter, "public offer" includes
initial public offer or further public
offer of securities to the public by a
company, or an offer for sale of
securities to the public by an existing
shareholder, through issue of a
prospectus.
Note:
*Clause (b) of sub-section (1) and (2)
of section 23 has been notified as on
01/04/2014
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Section 24.
Power of Securities and
Exchange Board to Regulate
Issue and Transfer of
Securities, etc.
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(1) The provisions contained in this
Chapter, Chapter IV and in
section 127
shall,—
(a) in so far as they relate
to —
(i) issue and transfer of
securities; and
(ii) non-payment of dividend,
by listed companies or those companies
which intend to get their securities
listed on any recognised stock exchange
in India, except as provided under this
Act, be administered by the Securities
and Exchange Board by making
regulations in this behalf;
(b) in any other case, be
administered by the Central Government.
Explanation
.—For the removal of doubts, it is
hereby declared that all powers
relating to all other matters relating
to prospectus, return of allotment,
redemption of preference shares and any
other matter specifically provided in
this Act, shall be exercised by the
Central Government, the Tribunal or the
Registrar, as the case may be.
(2) The Securities and Exchange Board
shall, in respect of matters specified
in sub-section (1) and the matters
delegated to it under proviso to
sub-section (1) of
section 458,
exercise the powers conferred upon it
under sub-sections (1), (2A), (3) and
(4) of
section 11,
sections 11A
,
11B
and
11D
of the Securities and Exchange Board of
India Act, 1992 (15 of 1992).
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Section 25. Document Containing
Offer of Securities for Sale to
be Deemed Prospectus
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(1) Where a company allots or agrees to
allot any securities of the company
with a view to all or any of those
securities being offered for sale to
the public, any document by which the
offer for sale to the public is made
shall, for all purposes, be deemed to
be a prospectus issued by the company;
and all enactments and rules of law as
to the contents of prospectus and as to
liability in respect of mis-statements,
in and omissions from, prospectus, or
otherwise relating to prospectus, shall
apply with the modifications specified
in sub-sections (3) and (4) and shall
have effect accordingly, as if the
securities had been offered to the
public for subscription and as if
persons accepting the offer in respect
of any securities were subscribers for
those securities, but without prejudice
to the liability, if any, of the
persons by whom the offer is made in
respect of mis-statements contained in
the document or otherwise in respect
thereof.
(2) For the purposes of this Act, it
shall, unless the contrary is proved,
be evidence that an allotment of, or an
agreement to allot, securities was made
with a view to the securities being
offered for sale to the public if it is
shown—
(a) that an offer of the
securities or of any of them for sale
to the public was made within six
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 securities had not been
received by it.
*(3)
Section 26
as applied by this section shall have
effect as if —
(i) it required a prospectus
to state in addition to the matters
required by that section to be stated
in a prospectus—
(a) the net amount of the
consideration received or to be
received by the company in respect of
the securities to which the offer
relates; and
(b) the time and place at
which the contract where under the said
securities have been or are to be
allotted may be inspected;
(ii) the persons making the
offer were persons named in a
prospectus as directors of a company.
(4) Where a person making an offer to
which this section relates is a company
or a firm, it shall be sufficient if
the document referred to in sub-section
(1) is signed on behalf of the company
or firm by two directors of the company
or by not less than one-half of the
partners in the firm, as the case may
be.
Note:
*Sub-section (3) has been notified as
on 01/04/2014.
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Section 26. Matters to be
Stated in Prospectus
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(1) Every prospectus issued by or on
behalf of a public company either with
reference to its formation or
subsequently, or by or on behalf of any
person who is or has been engaged or
interested in the formation of a public
company, shall be dated and signed and
shall 1[state such
information and set out such reports on
financial information as may be
specified by the Securities and
Exchange Board in consultation with the
Central Government:
Provided that until the Securities and
Exchange Board specifies the
information and reports on financial
information under this sub-section, the
regulations made by the Securities and
Exchange Board under the Securities and
Exchange Board of India Act, 1992, in
respect of such financial information
or reports on financial information
shall apply.]—
1
(a)
1
(b)
(c) make a declaration about
the compliance of the provisions of
this Act and a statement to the effect
that nothing in the prospectus is
contrary to the provisions of this Act,
the Securities Contracts (Regulation)
Act, 1956 (42 of 1956) and the
Securities and Exchange Board of India
Act, 1992 (15 of 1992) and the rules
and regulations made thereunder; and
1
(d)
(2) Nothing in sub-section (1) shall
apply—
(a) to the issue to existing
members or debenture-holders of a
company, of a prospectus or form of
application relating to shares in or
debentures of the company, whether an
applicant has a right to renounce the
shares or not under sub-clause ( ii) of clause (a) of
sub-section (1) of
section 62
in favour of any other person; or
(b) to the issue of a
prospectus or form of application
relating to shares or debentures which
are, or are to be, in all respects
uniform with shares or debentures
previously issued and for the time
being dealt in or quoted on a
recognised stock exchange.
(3) Subject to sub-section (2), the
provisions of sub-section (1) shall
apply to a prospectus or a form of
application, whether issued on or with
reference to the formation of a company
or subsequently.
Explanation
.—The date indicated in the prospectus
shall be deemed to be the date of its
publication.
(4) No prospectus shall be issued by or
on behalf of a company or in relation
to an intended company unless on or
before the date of its publication,
there has been delivered to the
Registrar for registration, a copy
thereof signed by every person who is
named therein as a director or proposed
director of the company or by his duly
authorised attorney.
(5) A prospectus issued under
sub-section (1) shall not include a
statement purporting to be made by an
expert unless the expert is a person
who is not, and has not been, engaged
or interested in the formation or
promotion or management, of the company
and has given his written consent to
the issue of the prospectus and has not
withdrawn such consent before the
delivery of a copy of the prospectus to
the Registrar for registration and a
statement to that effect shall be
included in the prospectus.
(6) Every prospectus issued under
sub-section (1) shall, on the face of
it,—
(a) state that a copy has been
delivered for registration to the
Registrar as required under sub-section
(4); and
(b) specify any documents
required by this section to be attached
to the copy so delivered or refer to
statements included in the prospectus
which specify these documents.
(7) The Registrar shall not register a
prospectus unless the requirements of
this section with respect to its
registration are complied with and the
prospectus is accompanied by the
consent in writing of all the persons
named in the prospectus.
(8) No prospectus shall be valid if it
is issued more than ninety days after
the date on which a copy thereof is
delivered to the Registrar under
sub-section (4).
(9) If a prospectus is issued in
contravention of the provisions of this
section, the company shall be
punishable with fine which shall not be
less than fifty thousand rupees but
which may extend to three lakh rupees
and every person who is knowingly a
party to the issue of such prospectus
shall be punishable with imprisonment
for a term which may extend to three
years or with fine which shall not be
less than fifty thousand rupees but
which may extend to three lakh rupees,
or with both.
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Section 27. Variation in Terms
of Contract or Objects in
Prospectus
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(1) A company shall not, at any time,
vary the terms of a contract referred
to in the prospectus or objects for
which the prospectus was issued, except
subject to the approval of, or except
subject to an authority given by the
company in general meeting by way of
special resolution:
Provided
that the details,
as may be prescribed
, of the notice in respect of such
resolution to shareholders, shall also
be published in the newspapers (one in
English and one in vernacular language)
in the city where the registered office
of the company is situated indicating
clearly the justification for such
variation:
Provided further
that such company shall not use any
amount raised by it through prospectus
for buying, trading or otherwise
dealing in equity shares of any other
listed company.
(2) The dissenting shareholders being
those shareholders who have not agreed
to the proposal to vary the terms of
contracts or objects referred to in the
prospectus, shall be given an exit
offer by promoters or controlling
shareholders at such exit price, and in
such manner and conditions as may be
specified by the Securities and
Exchange Board by making regulations in
this behalf.
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Section 28.Offer of Sale of
Shares by Certain Members of
Company
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(1) Where certain members of a company
propose, in consultation with the Board
of Directors to
offer, in accordance with the
provisions of any law for the time
being in force, whole or
part of their holding of shares to the
public, they may do so in accordance
with such procedure
as may be prescribed
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(2) Any document by which the offer of
sale to the public is made shall, for
all purposes, be deemed to be a
prospectus issued by the company and
all laws and rules made thereunder as
to the contents of the prospectus and
as to liability in respect of
mis-statements in and omission from
prospectus or otherwise relating to
prospectus shall apply as if this is a
prospectus issued by the company.
(3) The members, whether individuals or
bodies corporate or both, whose shares
are proposed to be offered to the
public, shall collectively authorise
the company, whose shares are offered
for sale to the public, to take all
actions in respect of offer of sale for
and on their behalf and they shall
reimburse the company all expenses
incurred by it on this matter.
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Section 29.
Public Offer of Securities to
be in Dematerialised Form
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(1) Notwithstanding anything contained
in any other provisions of this Act,—
(a) every company making
public offer; and
(b) such other class or
classes of public companies
as may be prescribed
,
shall issue the securities only in
dematerialised form by complying with
the provisions of the Depositories Act,
1996 (22 of 1996) and the regulations
made thereunder.
(2) Any company, other than a company
mentioned in sub-section (1), may
convert its securities into
dematerialised form or issue its
securities in physical form in
accordance with the provisions of this
Act or in dematerialised form in
accordance with the provisions of the
Depositories Act, 1996 (22 of 1996) and
the regulations made thereunder.
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Section 30.
Advertisement of Prospectus
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Where an advertisement of any
prospectus of a company is published in
any manner, it shall be necessary to
specify therein the contents of its
memorandum as regards the objects, the
liability of members and the amount of
share capital of the company, and the
names of the signatories to the
memorandum and the number of shares
subscribed for by them, and its capital
structure.
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Section 31.
Shelf Prospectus
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(1) Any class or classes of companies,
as the Securities and Exchange Board
may provide by regulations in this
behalf, may file a shelf prospectus
with the Registrar at the stage of the
first offer of securities included
therein which shall indicate a period
not exceeding one year as the period of
validity of such prospectus which shall
commence from the date of opening of
the first offer of securities under
that prospectus, and in respect of a
second or subsequent offer of such
securities issued during the period of
validity of that prospectus, no further
prospectus is required.
(2) A company filing a shelf prospectus
shall be required to file an
information memorandum containing all
material facts relating to new charges
created, changes in the financial
position of the company as have
occurred between the first offer of
securities or the previous offer of
securities and the succeeding offer of
securities and such other changes
as may be prescribed
, with the Registrar
within the prescribed time
, prior to the issue of a second or
subsequent offer of securities under
the shelf prospectus:
Provided
that where a company or any other
person has received applications for
the allotment of securities along with
advance payments of subscription before
the making of any such change, the
company or other person shall intimate
the changes to such applicants and if
they express a desire to withdraw their
application, the company or other
person shall refund all the monies
received as subscription within fifteen
days thereof.
(3) Where an information memorandum is
filed, every time an offer of
securities is made under sub-section
(2), such memorandum together with the
shelf prospectus shall be deemed to be
a prospectus.
Explanation.—
For the purposes of this section, the
expression "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
a certain period without the issue of a
further prospectus.
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Section 32. Red Herring
Prospectus
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(1) A company proposing to make an
offer of securities may issue a red
herring prospectus prior to the issue
of a prospectus.
(2) A company proposing to issue a red
herring prospectus under sub-section
(1) shall file it with the Registrar at
least three days prior to the opening
of the subscription list and the offer.
(3) A red herring prospectus shall
carry the same obligations as are
applicable to a prospectus and any
variation between the red herring
prospectus and a prospectus shall be
highlighted as variations in the
prospectus.
(4) Upon the closing of the offer of
securities under this section, the
prospectus stating therein the total
capital raised, whether by way of debt
or share capital, and the closing price
of the securities and any other details
as are not included in the red herring
prospectus shall be filed with the
Registrar and the Securities and
Exchange Board.
Explanation.—
For the purposes of this section, the
expression "red herring prospectus"
means a prospectus which does not
include complete particulars of the
quantum or price of the securities
included therein.
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Section 33.
Issue of Application Forms for
Securities
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(1) No form of application for the
purchase of any of the securities of a
company shall be issued unless such
form is accompanied by an abridged
prospectus:
Provided
that nothing in this sub-section shall
apply if it is shown that the form of
application was issued—
(a) in connection with a bona fide invitation to a
person to enter into an underwriting
agreement with respect to such
securities; or
(b) in relation to securities
which were not offered to the public.
(2) A copy of the prospectus shall, on
a request being made by any person
before the closing of the subscription
list and the offer, be furnished to
him.
*(3) If a company makes any default in
complying with the provisions of this
section, it shall be liable to a
penalty of fifty thousand rupees for
each default.
Note:
*Sub-section (3) has been notified as
on 01/04/2014.
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Section 34. Criminal Liability
for Mis-statements in
Prospectus
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Where a prospectus, issued, circulated
or distributed under this Chapter,
includes any statement which is untrue
or misleading in form or context in
which it is included or where any
inclusion or omission of any matter is
likely to mislead, every person who
authorizes the issue of such prospectus
shall be liable under
section 447
:
Provided
that nothing in this section shall
apply to a person if he proves that
such statement or omission was
immaterial or that he had reasonable
grounds to believe, and did up to the
time of issue of the prospectus
believe, that the statement was true or
the inclusion or omission was
necessary.
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Section 35. Civil Liability for
Mis-statements in Prospectus
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(1) Where a person has subscribed for
securities of a company acting on any
statement included, or the inclusion or
omission of any matter, in the
prospectus which is misleading and has
sustained any loss or damage as a
consequence thereof, the company and
every person who—
(a) is a director of the
company at the time of the issue of the
prospectus;
(b) hasauthorised himself to
be named and is named in the prospectus
as a director of the company, or has
agreed to become such director, either
immediately or after an interval of
time;
(c) is a promoter of the
company;
(d) hasauthorised the issue of
the prospectus; and
*(e) is an expert referred to
in sub-section (5) of
section 26,
shall, without prejudice to any
punishment to which any person may be
liable
under section 36,
be liable to pay compensation to every
person who has sustained such loss or
damage.
(2) No person shall be liable under
sub-section (1), if he proves—
(a) that, having consented to
become a director of the company, he
withdrew his consent before the issue
of the prospectus, and that it was
issued without his authority or
consent; or
(b) that the prospectus was
issued without his knowledge or
consent, and that on becoming aware of
its issue, he forthwith gave a
reasonable public notice that it was
issued without his knowledge or
consent.
**1
[(c) that, as regards every misleading
statement purported to be made by an
expert or contained in what purports to
be a copy of or an extract from a
report or valuation of an expert, it
was a correct and fair representation
of the statement, or a correct copy of,
or a correct and fair extract from, the
report or valuation; and he had
reasonable ground to believe and did up
to the time of the issue of the
prospectus believe, that the person
making the statement was competent to
make it and that the said person had
given the consent required by
sub-section (5) of section 26 to the
issue of the prospectus and had not
withdrawn that consent before delivery
of a copy of the prospectus for
registration or, to the defendant's
knowledge, before allotment
thereunder.]
(3) Notwithstanding anything contained
in this section, where it is proved
that a prospectus has been issued with
intent to defraud the applicants for
the securities of a company or any
other person or for any fraudulent
purpose, every person referred to in
sub-section (1) shall be personally
responsible, without any limitation of
liability, for all or any of the losses
or damages that may have been incurred
by any person who subscribed to the
securities on the basis of such
prospectus.
Amendments
1.
Inserted by The Companies
(Amendment) Act, 2017
.
Note:
*Clause (e) of sub-section (1) has been
notified as on 01/04/2014.
**
Clause (c) of sub section (2) has
been notified on 9th Febraury 2018
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Section 36. Punishment for
Fraudulently Inducing Persons
to Invest Money
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Any person who, either knowingly or
recklessly makes any statement, promise
or forecast which is false, deceptive
or misleading, or deliberately conceals
any material facts, to induce another
person to enter into, or to offer to
enter into,—
(a) any agreement for, or with
a view to, acquiring, disposing of,
subscribing for, or underwriting
securities; or
(b) any agreement, the purpose
or the pretended purpose of which is to
secure a profit to any of the parties
from the yield of securities or by
reference to fluctuations in the value of securities; or
(
c
) any agreement for, or with a view
to, obtaining credit facilities
from any bank or financial
institution,
shall be liable for action
under section 447.
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Section 37.
Action by Affected Persons.
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A suit may be filed or any other action
may be taken under
section 34
or
section 35
or
section 36
by any person, group of persons or any
association of persons affected by any
misleading statement or the inclusion
or omission of any matter in the
prospectus.
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Section 38.
Punishment for Personation for
Acquisition, etc., of
Securities.
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(1) Any person who—
(a) makes or abets making of
an application in a fictitious name to
a company for acquiring, or subscribing
for, its securities; or
(b) makes or abets making of
multiple applications to a company in
different names or in different
combinations of his name or surname for
acquiring or subscribing for its
securities; or
(c) otherwise induces directly
or indirectly a company to allot, or
register any transfer of, securities to
him, or to any other person in a
fictitious name,
shall be liable for action under
section 447
.
(2) The provisions of sub-section (1)
shall be prominently reproduced in
every prospectus issued by a company
and in every form of application for
securities.
(3) Where a person has been convicted
under this section, the Court may also
order disgorgement of gain, if any,
made by, and seizure and disposal of
the securities in possession of, such
person.
(4) The amount received through
disgorgement or disposal of securities
under sub-section (3) shall be credited
to the Investor Education and
Protection Fund.
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Section 39.
Allotment of Securities by
Company
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(1) No allotment of any securities of a
company offered to the public for
subscription shall be made unless the
amount stated in the prospectus as the
minimum amount has been subscribed and
the sums payable on application for the
amount so stated have been paid to and
received by the company by cheque or
other instrument.
(2) The amount payable on application
on every security shall not be less
than five per cent of the nominal
amount of the security or such other
percentage or amount, as may be
specified by the Securities and
Exchange Board by making regulations in
this behalf.
(3) If the stated minimum amount has
not been subscribed and the sum payable
on application is not received within a
period of thirty days from the date of
issue of the prospectus, or such other
period as may be specified by the
Securities and Exchange Board, the
amount received under sub-section (1)
shall be returned within such time and
manner
as may be prescribed.
*(4) Whenever a company having a share
capital makes any allotment of
securities, it shall
file with the Registrar a return of
allotment in such manner
as may be prescribed
.
(5) In case of any default under
sub-section (3) or sub-section (4), the
company and its officer who is in
default shall be liable to a penalty,
for each default, of one thousand
rupees for each day during which such
default continues or one lakh rupees,
whichever is less.
Note:
*Sub-section (4) has been notified as
on 01/04/2014.
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Section 40. Securities to be
Dealt with in Stock Exchanges
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(1) Every company making public offer
shall, before making such offer, make
an application to one or more
recognised stock exchange or exchanges
and obtain permission for the
securities to be dealt with in such
stock exchange or exchanges.
(2) Where a prospectus states that an
application under sub-section (1) has
been made, such prospectus shall also
state the name or names of the stock
exchange in which the securities shall
be dealt with.
(3) All monies received on application
from the public for subscription to the
securities shall be kept in a separate
bank account in a scheduled bank and
shall not be utilised for any purpose
other than—
(a) for adjustment against
allotment of securities where the
securities have been permitted to be
dealt with in the stock exchange or
stock exchanges specified in the
prospectus; or
(b) for the repayment of
monies within the time specified by the
Securities and Exchange Board, received
from applicants in pursuance of the
prospectus, where the company is for
any other reason unable to allot
securities.
(4) Any condition purporting to require
or bind any applicant for securities to
waive compliance with any of the
requirements of this section shall be
void.
(5) If a default is made in complying
with the provisions of this section,
the company shall be punishable with a
fine which shall not be less than five
lakh rupees but which may extend to
fifty lakh rupees and every officer of
the company who is in default shall be
punishable with imprisonment for a term
which may extend to one year or with
fine which shall not be less than fifty
thousand rupees but which may extend to
three lakh rupees, or with both.
*(6) A company may pay commission to
any person in connection with the
subscription to its securities subject
to such conditions
as may be prescribed
.
Note:
*Sub-section (6) has been notified as
on 01/04/2014.
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Section 41. Global Depository Receipt
A company may, after passing a special resolution in its
general meeting, issue depository receipts in any foreign
country in such manner, and subject to such conditions,
as may be prescribed.
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