THE COMPANIES BILL, 1997

THE COMPANIES BILL, 1997

PART III

PROSPECTUS, ALLOTMENT, LISTING AND OTHER MATTERS RELATING TO THE ISSUE OF SECURITIES

SECTIONS: 47-60

Prospectus

47 Application of this Part. –

The provisions of this Part, shall be administered-

(a) in the case of listed public companies and to companies proposing to be listed, by the Securities and Exchange Board; and

(b) in any other case, by the Central Government.

48 Matters and reports to be set out in prospectus.-

(1) A prospectus issued by or on behalf of a company, or in relation to an intended company, shall be dated and that date shall be taken to be the date of publication of the prospectus.

(2) Every prospectus issued by or on behalf of a company, or by or on behalf of any person who is or has been engaged or interested in the formation of a company, shall state such matters, set out such reports, and have effect subject to, such provisions as may be prescribed.

(3) Where any prospectus is published as a newspaper advertisement, or in any other manner, it shall be in the form of an abridged prospectus.

(4) A condition requiring or binding an applicant for the securities of a company to waive compliance with any of the requirements of this section, or purporting to affect him with notice of any contract, document or matter not specifically referred to in the prospectus, shall be void.

(5) No one shall issue any form of application for securities of a company, unless the form is accompanied by an abridged prospectus.

Provided that a copy of the prospectus shall, on a request being made by any person before the closing of the subscription list, be furnished to him:

Provided further that this sub-section shall not apply if it is shown that the form of application was issued either-

(a) in connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to the securities; or

(b) in relation to securities which were not offered to the public.

(6) If any person acts in contravention of the provisions of sub-section (5), he shall be punishable with fine which may extend to fifty thousand rupees.

(7) A director or other person responsible for the prospectus shall not incur any liability by reason of any non-compliance with, or contravention of, any of the requirements of this section, if-

(a) as regards any matter not disclosed, he proves that he had no knowledge thereof; or

(b) he proves that the non-compliance or contravention arose from an honest mistake of fact on his part; or

(c) the non-compliance or contravention was in respect of matters which, in the opinion of the Court dealing with the case, were immaterial, or was otherwise such as ought, in the opinion of that Court, having regard to all the circumstances of the case, reasonably to be excused:

Provided that no director or other person shall incur any liability in respect of the failure to include in a prospectus a statement with respect to the extent and nature of the interest, if any, of every director or promoter of the company and to such other matters as may be prescribed, unless it is proved that he had knowledge of the matters not disclosed.

(8) This section shall not apply-

(a) to the issue to the existing holders of securities of a company of a prospectus or form of application relating to securities of the company, whether an applicant for securities will or will not have the right to renounce in favour of other persons; or

(b) to the issue of a prospectus or form of application relating to securities which are, or are to be, in all respects uniform with securities previously issued and for the time being dealt in or quoted on a regional stock exchange;

but subject as aforesaid, this section shall apply to a prospectus or a form of application, whether issued on or with reference to the formation of a company or subsequently.

(9) Nothing in this section shall limit or diminish any liability which any person may incur under the general law or under any other provision of this Act..

49 Statement of expert to be included in a prospectus.-

(1) A prospectus inviting persons to subscribe for securities 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 in the management, of the company.

(2) Where a statement purporting to be made by an expert is included in a prospectus, it shall specify that-

he has given his consent to the issue thereof and is responsible for all the statements included in the prospectus and has not withdrawn from his responsibility before the delivery of a copy of the prospectus for registration; and
he has not withdrawn his consent as aforesaid.

(3) If any prospectus is issued in contravention of this section, the company, and every person, who is knowingly a party to the issue thereof, shall be punishable with fine which may extend to fifty thousand rupees.

(4) In this section, the expression "expert" includes an engineer, a valuer, an accountant and any other person whose profession gives him authority to make a statement confirming certain particulars.

50 Registration of Prospectus –

(1) 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 for registration to the Securities and Exchange Board, a copy thereof signed by every person who is named therein as a director or proposed director of the company or by his agent authorised in writing, and having endorsed thereon or attached thereto-

(a) any responsibility statement of an expert required under section 49; and

(b) in the case of a prospectus issued generally, also such other documents as may be prescribed:

Provided that where a company issues any American, foreign or other depository receipts in accordance with the rules made in this behalf, the details of the circular or prospectus issued outside India, basic data like the price of the depository receipt, the amount subscribed and the material details after conversion into shares shall also be filed along with the prospectus.

(2) Every prospectus to which sub-section (1) applies shall, on the face of it,-

(a) state that a copy has been delivered for registration as required by this section; and

(b) specify any documents required by this section to be endorsed on or attached to the copy so delivered, or refer to statements included in the prospectus which specify those documents.

(3) The Securities and Exchange Board shall not register a prospectus unless the requirements of sections 48, 49 and sub-sections (1) and (2) of this section have been complied with and the prospectus is accompanied by the consent in writing of the person, if any, named therein as the auditor, legal adviser, attorney, solicitor, banker or broker of the company or intended company, to act in that capacity.

(4) A copy of every prospectus which has been filed for registration with the Securities and Exchange Board shall be simultaneously filed with the Registrar.

(5) No prospectus shall be issued more than ninety days after the date on which a copy thereof is delivered for registration; and if a prospectus is so issued, it shall be deemed to be a prospectus, a copy of which has not been delivered under this section to the Securities and Exchange Board or the Registrar.

(6) If a prospectus is issued without a copy thereof being delivered under this section to the Securities and Exchange Board or the Registrar or without the copy so delivered having endorsed thereon or attached thereto the required consent or documents, the company, and every person who is knowingly a party to the issue of the prospectus, shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to one lakh rupees.

50 Registration of Prospectus –

(a) any responsibility statement of an expert required under section 49; and

(b) in the case of a prospectus issued generally, also such other documents as may be prescribed:

(2) Every prospectus to which sub-section (1) applies shall, on the face of it,-

(a) state that a copy has been delivered for registration as required by this section; and

(b) specify any documents required by this section to be endorsed on or attached to the copy so delivered, or refer to statements included in the prospectus which specify those documents.

(4) A copy of every prospectus which has been filed for registration with the Securities and Exchange Board shall be simultaneously filed with the Registrar.

51 Shelf prospectus.3/4

(1) Any public financial institution, public sector bank and Scheduled banks, non-banking financial companies, having the main object of financing, whether by way of making loans or advances to or subscribing to the capital of private industrial enterprises, as and by way of infrastructural financing or such other companies as the Central Government may notify in this behalf, shall be entitled to file a special prospectus known as shelf prospectus.

(2) A shelf prospectus shall comply with all the requirements of this Act in respect of prospectus and the guidelines and directions issued by the Central Government or the Securities and Exchange Board as applicable from time to time.

(3) A shelf prospectus shall remain valid for a period of three hundred sixty five days commencing from the date of opening of the first issue of securities under a shelf prospectus.

(4) A company filing a shelf prospectus with the Registrar shall be entitled to make one or more issues offering securities to the public during the period of validity of a shelf prospectus without filing a fresh prospectus at every stage of offering.

(5) A company filing a shelf prospectus shall be required to file an information memorandum on update of all material facts, new charges created, changes in the financial position as have occured between the first offering, previous offering and the succeeding offerings within such time as may be prescribed by the Central Government, prior to the making of a second or subsequent offerings of securities under the shelf prospectus.

(6) An information memorandum shall be circulated to the members of the public along with the shelf prospectus filed at the stage of the first offering of securities every time an offer is made and the continuation of information memorandum and the shelf prospectus shall constitute the prospectus for all the offerings made after the first.

(7) On the expiry of the period of three hundred sixty-five days, commencing from the date of the opening of the first offering, the shelf prospectus shall lapse and the company shall not be eligible to make an offer of securities beyond the said period.

(8) The provisions of this Act relating to prospectus, including civil and criminal liability for mis-statement in a prospectus shall apply to shelf prospectus and information memorandum to be filed.

52 Book building and information memorandum.3/4

(1) A company making an issue of securities eligible for book building, shall be entitled to circulate information memorandum to the public along with a notice, circular, advertisement or documents which seeks to elicit the demand and assess the price offered for the securities of the company.

(2) A company shall comply with all the requirements of this Act applicable to an issue of securities of the company while engaging in book building except that it shall not authorise its Board of directors and the underwriters in a book building to determine the price and quantum of securities offered at the closing of the offer.

(3) A company inviting subscription under a book building exercise shall be bound to file a prospectus prior to the opening of the subscription lists and the offer as a red-herring prospectus, at least three days before the opening of the offer.

(4) The company's information memorandum and red-herring prospectus shall carry same obligations as are applicable in the case of a prospectus for mis-statement.

(5) Any variation between the information memorandum and the red-herring prospectus shall be highlighted as variations by the issuing company.

(6) Every variation as made and highlighted in accordance with sub-section (5) above shall be individually intimated to the persons invited to subscribe to the issue of securities.

(7) In the event that the issuing company or the underwriters to the issue have invited or received advance subscription by way of post dated cheques, the company or such underwriters or bankers to the issue shall not encash such subscription moneys or post dated cheques or stock-invest before the date of opening of the issue, without having individually intimated the prospective subscribers of the variation and without having offered an opportunity to such prospective subscribers to withdraw their application and cancel their post-dated cheques or stock-invest or seek refunds of subscription moneys.

(8) The applicant or proposed subscriber shall exercise his right to withdraw from the application on any intimation of variation within three days from the date of such intimation and shall indicate such withdrawal in writing to the company and the underwriters to the effect that he has forwarded the initial information memorandum, notice, circular, advertisement or document as referred to in sub-section(1).

(9) Any application for subscription which is acted upon by the company or underwriters or bankers to the issue without having given enough information of any variations, or the particulars of withdrawing the offer or opportunity for cancelling the post dated cheques or stock invest or stop payments for such payments shall be void and the applicants shall be entitled to receive a refund or return of its post-dated cheques or stock-invest or subscription moneys or cancellation of its application, as if the said application had never been made. and the applicants are entitled to receive back their original application and interest at the rate of fifteen per cent from the date of encashment till payment or realisation.

(10) Upon the closing of the offer for securities, a final 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 were not complete in the red-herring prospectus shall be filed with the Registrar.

(11) The provisions relating to civil and criminal liability for mis-statement in a prospectus and the other provisions of this Act applicable to a prospectus, shall apply to the final prospectus.

Explanation : In this section, red-herring prospectus is a prospectus which does not have complete particulars on the price of the securities offered and the quantum of securities offered.

(12): All other disclosures relating to the prospectus shall be final and made in the same manner and in compliance with the disclosure requirements as applicable to other prospectuses governed by this Chapter.

53 Terms of contract mentioned in prospectus not to be varied.- A company shall not, at any time, vary the terms of a contract referred to in the prospectus, except with the approval of, or under an authority given by, the company in general meeting.

54 Civil liability for mis-statements in prospectus. –

(1) Subject to the provisions of this section, where a prospectus invites persons to subscribe for the securities of a company, the following persons shall be liable to pay compensation to every person who subscribes for any securities on the faith of the prospectus for any loss or damage he may have sustained by reason of any untrue statement included therein, that is to say,-

(a) every person who is a director of the company at the time of the issue of the prospectus;

(b) every person who has authorised himself to be named and is named in the prospectus either as a director, or as having agreed to become a director, either immediately or after an interval of time;

(d) every person who has authorised the issue of the prospectus:

Provided that where, under section 49, the consent of a person is required to the issue of a prospectus and he has given that consent, or where under sub-section (3) of section 50, the consent of a person named in a prospectus is required and he has given that consent, he shall not, by reason of having given such consent, be liable under this sub-section as a person who has authorised the issue of the prospectus except in respect of an untrue statement, if any purporting to be made by him as an expert.

(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;

(b) that the prospectus was issued without his knowledge or consent, and that on becoming aware of its issue, he forthwith gave reasonable public notice that it was issued without his knowledge or consent;

(c) that, after the issue of the prospectus and before allotment thereunder, he, on becoming aware of any untrue statement therein, withdrew his consent to the prospectus and gave reasonable public notice of the withdrawal and of the reasons therefor; or

(d) that-

(i) as regards every untrue statement not purporting to be made on the authority of an expert or of a public official document or statement, he had reasonable ground to believe, and did up to the time of the allotment of the securities, as the case may be, believe, that the statement was true; and

(ii) as regards every untrue statement purporting to be a statement 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 that person had given the consent required by section 49 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; and

(iii) as regards every untrue statement purporting to be a statement made by an official person or contained in what purports to be a copy of or extract from a public official document, it was a correct and fair representation of the statement, or a correct copy of or a correct and fair extract from, the document:

Provided that this sub-section shall not apply in the case of a person liable, by reason of his having given a consent required of him under section 49, as a person who has authorised the issue of the prospectus in respect of an untrue statement, purporting to be made by him as an expert.

(3) A person who, apart from this sub-section, would, under sub-section (1), be liable by reason of his having given a consent required of him under section 49 as a person who has authorised the issue of a prospectus in respect of an untrue statement, purporting to be made by him as an expert, shall not be so liable, if he proves-

(a) that, having given his consent under section 49 to the issue of the prospectus, he withdrew it in writing before delivery of a copy of the prospectus for registration; or

(b) that he was competent to make the statement and that he had reasonable ground to believe, and did up to the time of the allotment of the securities, believe, that the statement was true.

(4) Where-

(a) the prospectus specifies the name of a person as a director of the company, or as having agreed to become a director thereof, and he has not consented to become a director, or has withdrawn his consent before the issue of the prospectus, and has not authorised or consented to the issue thereof; or

(b) the consent of a person is required under section 49 to the issue of the prospectus and he either has not given that consent or has withdrawn it before the issue of the prospectus;

the directors of the company excluding those without whose knowledge or consent the prospectus was issued, and every other person who authorised the issue thereof, shall be liable to indemnify the person referred to in clause (a) or clause (b), as the case may be, against all damages, costs and expenses to which he may be made liable by reason of his name having been inserted in the prospectus or of the inclusion therein of a statement purporting to be made by him as an expert, as the case may be, or in defending himself against any suit or legal proceeding brought against him in respect thereof:

Provided that a person shall not be deemed for the purposes of this sub-section to have authorised the issue of a prospectus by reason only of his having given the consent required by section 49 to the inclusion therein of a statement purporting to be made by him as an expert.

(5) Every person who, becomes liable to make any payment by virtue of this section, may recover contribution, as in cases of contract, from any other person who, if sued separately, would have been liable to make the same payment, unless the former person was, and the latter person was not, guilty of fraudulent misrepresentation.

(6) For the purposes of this section-

(a) the expression "promoter" means a promoter who was a party to the preparation of the prospectus or of the portion thereof containing the untrue statement, but does not include any person by reason of his acting in a professional capacity for persons engaged in procuring the formation of the company; and

(b) the expression "expert" has the same meaning as in section 49.

55 Criminal liability for mis-statements in prospectus.-

(1) Where a prospectus includes any untrue statement, every person who authorised the issue of the prospectus shall be punishable with imprisonment for a term which may extend to two years or with fine which may extend to fifty thousand rupees unless he proves either that the statement was immaterial or that he had reasonable ground to believe, and did up to the time of the issue of the prospectus believe, that the statement was true.

(2) A person shall not be deemed for the purposes of this section to have authorised the issue of a prospectus by reason only of his having given-

(a) the consent required by section 49 to the inclusion therein of a statement purporting to be made by him as an expert, or

(b) the consent required by sub-section (3) of section 50.

56 Document containing offer of securities for sale to be deemed prospectus. –

(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 the provisions of this Act as to the contents of prospectus and as to liability in respect of statements in and omissions from prospectus, or otherwise relating to prospectus, shall apply with the modifications specified in sub-sections (3), (4) and (5), and 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 misstatements 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) Sub-section (3) of section 48 as applied by this section shall have effect as if 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 place and time at which the contract under which the said securities have been or are to be allotted may be inspected.

(4) Section 50 as applied by this section shall have effect as if the persons making the offer were persons named in a prospectus as directors of a company.

(5) 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; and any such director or partner may sign by his agent authorised in writing.

57 Interpretation of provisions relating to prospectus.-

(1) For the purposes of the foregoing provisions of this Part-

(a) a statement included in a prospectus shall be deemed to be untrue, if the statement is misleading in the form and context in which it is included; and

(b) where the omission from a prospectus of any matter is calculated to mislead, the prospectus shall be deemed, in respect of such omission, to be a prospectus in which an untrue statement is included.

(2) For the purposes of sections 54 and clause (a) of sub-section (1) of this section, the expression "included" when used with reference to a prospectus, means included in the prospectus itself or contained in any report or memorandum appearing on the face thereof or by reference incorporated therein or issued therewith.

58. Construction of references to offering securities to the public, etc. –

(1) Any reference in this Act or in the articles of a company to offering securities to the public or to invitations to the public to subscribe for securities shall, subject to any provision to the contrary contained in this Act and subject also to the provisions of sub-sections (3) and (4), be construed as including a reference to offering them or to invitations to subscribe for them to any section of the public, whether selected as members or debenture holders of the company concerned or as clients of the person issuing the prospectus or in any other manner.

(2) No offer or invitation shall be treated as made to the public by virtue of sub-section (1) if the offer or invitation can properly be regarded, in all circumstances-

(a) as not being calculated to result, directly or indirectly, in the securities becoming available for subscription or purchase by persons other than those receiving the offer or invitation; or

(b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation.

(3) Without prejudice to the generality of sub-section (2), a provision in a company's articles prohibiting invitations to the public to subscribe for securities shall not be taken as prohibiting the making to members or holders of any other securities of an invitation which can properly be regarded in the manner set forth in that sub-section.

(4) Where any question arises as to the offer of any securities by a company, including the right to restrain any offer or issue it shall be decided by the company.

(5) The provisions of this Act relating to private companies shall be construed in accordance with the provisions contained in sub-sections (1) to (3).

59 Penalty for fraudulently inducing persons to invest money. –

Any person who, either knowingly or recklessly making any statement, promise or forecast which is false, deceptive or misleading, or by any dishonest concealment of material facts, induces or attempts 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 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.

shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to five years and also with fine which may extend to fifty thousand rupees.

60 Impersonation for acquisition, etc., of securities. - ..

(1) Any person who-

(a) makes, in a fictitious name or description, an application to a company for acquiring, or subscribing for, any securities therein, or

(b) otherwise induces a company to allot, or register any transfer of securities therein to him, or any other person in a fictitious name or description,

shall be punishable with imprisonment for a term which may extend to five years.

(2) The provisions of sub-section (1) shall be prominently reproduced in every prospectus issued by the company and in every form of application for securities which is issued by the company to any person.