Professional Documents
Culture Documents
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 there under.
➢ “Public offer" of this chapter includes IPO, FPO and Rights Issue.
❖ SECTION. 24- POWER OF SECURITIES AND EXCHANGE BOARD TO REGULATE ISSUE
AND TRANSFER OF SECURITIES, ETC.-
➢ The provisions contained in this Chapter(Sections 25-42), Chapter IV(Section 43-72)
and in section 127 shall be administered as under-
(a) In so far as they relate to —
(i) Issue and transfer of securities; and
(ii) Non-payment of dividend, forward dealing and Insider trading
By listed companies or those companies which intend to get their securities listed on
any recognized stock exchange in India, except as provided under this Act, be
administered by the SEBI by making regulations in this behalf;
(b) In any other case or in UNLISTED COMPANIES (in most of cases) be administered
by the Central Government.
➢ Explanation :- 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.
➢ Subsection 1 of Sec 458 dealing with Forward dealing and insider trading be
regulated by SEBI.
➢ 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 SEBI Act, 1992, in respect of such financial
information or reports on financial information shall apply.
➢ Section 26(2) – States that Section 26(1) does not apply to:-
(a) To the issue to existing members or debenture-holders of a company, of
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.
➢ Section 26(5) states that Prospectus 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, and has given written
consent to the issue of the prospectus.
➢ SECTION 26(6) :- Every prospectus issued under sub-section (1) shall, on the face of
it,—
(a) state that a copy has been delivered for 5[filing] 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.
➢ Section 26(8) states that Prospectus to be issued within 90 days after the date on
which a copy thereof is delivered to the Registrar.
➢ Section 27(1) States that the variation in the terms of a Contract referred to in the
prospectus or objects for which the prospectus requires passing of a special resolution
through POSTAL BALLOT.
➢ Section 27(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.
❖ SECTION 28- OFFER OF SALE OF SHARES BY CERTAIN MEMBERS OF COMPANY.
Offer of sale by members to the public is made shall, for all purposes, be deemed to
be a prospectus issued by the company but this prospectus shall disclose the name of
the person or persons or entity bearing the cost of making the offer of sale along
with reasons.
➢ SECTION 29(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.
➢ A max of 4 issue of securities can be made under shelf prospectus. It should be used
within a maximum of one year. It can be filled only by companies issuing non-
convertible debt bonds.
➢ The company issuing shelf prospectus should have net worth more than 500 crores,
merchant banker registered with SEBI must be appointed. Debenture Trustee in case
debentures are issued.
➢ If company accepted money from investors before changes were made and if investors
then want their money refunded it should be done within 15 days.
❖ SECTION 32- RED HERRING PROSPECTUS- It means a prospectus which does not
include complete particulars of the quantum or price of the securities included
therein.
➢ Section 32(1)- A company can Issue RHP prior to the issue of the prospectus.
➢ Section 32(2) – Company proposing to issue a RHP shall file it with Registrar at least 3
days prior to the opening of subscription list and the offer.
➢ Upon closing of the offer, Final prospectus shall be filed to ROC and SEBI.
➢ SECTION 33(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.
(c) When offered is made only to the existing members or debenture holders of the
company or without a right to renounce
➢ Default in complying with the provisions of this section will bound company to a
penalty of Rs 50000 for each default.
➢ Where the fraud in question involves public interest, the term of imprisonment shall
not be less than 3 years.
❖ SECTION 35- CIVIL LIABILITY FOR MIS-STATEMENTS IN PROSPECTUS.
➢ SECTION 35(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) has authorised 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.
➢ Onus for Proof of Mis-statement is upon the Allottee. First remedy against the
company is to rescind the contract, Second is to sue for damages for deceit.
(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.
➢ Also a subscriber to the memorandum cannot seek relief, as the company cannot be
said to be in existence when he signed the memorandum.
➢ The allottee cannot retain both the shares and get damages against the company.
➢ If minimum amount is not subscribed with 30 days from the date of issue of
prospectus, the amount should be refunded within 15 days.
➢ SECTION 39(2)- The application deposit payable on security should not be less than
5% of the nominal value.
➢ When the company makes any allotment of securities, Form PAS 3 should be filled
with the Registrar of Companies. Time limit for filling PAS 3 should be 30 days from
the date of allotment.
➢ A company may, subject to the provisions of this section, make a private placement of
securities.
➢ SECTION 42(2) Private placement shall be made to persons not exceeding 50 or such
no. as may be prescribed [ excluding QIBs and Employees of the company being
offered securities under Employee Stock option.]
➢ Rule 14(2)(b) of Companies( prospectus and allotment of securities) Rules 2014, states
that such offer shall not exceed 200 persons in the aggregate in a financial year.
➢ Rule 14(2) of Companies( prospectus and allotment of securities) Rules 2014 states
that a company shall not make a private placement unless offer of securities has been
previously approved by the shareholders of the company by a SPECIAL RESOLUTION.
➢ SECTION 42(3) :- A company making private placement shall issue private placement
offer and application in such form and manner as may be prescribed to identified
persons, whose names and addresses are recorded by the company in such manner as
may be prescribed:- Provided that the private placement offer and application shall not
carry any right of renunciation.
➢ SECTION 42(4) - Every identified person willing to subscribe to the private placement
issue shall apply in the private placement and application issued to such person
alongwith subscription money paid either by cheque or demand draft or other
banking channel and not by cash: Provided that a company shall not utilise monies
raised through private placement unless allotment is made and the return of
allotment is filed with the Registrar in accordance with sub-section (8).
➢ SECTION 42(5)- No fresh offer or invitation under this section shall be made unless the
allotments with respect to any offer or invitation made earlier have been completed or
that offer or invitation has been withdrawn or abandoned by the company. And
company may make more than one issue to the identified person.
➢ SECTION 42(6) Company shall allot its securities within 60 days from the date of
receipt of the application money and if failed to do so it should refund the money to
the subscribers within 15 date from the completion of 60 days and if fail to do that
also then repay with 12% interest rate from the 60th day. For unlisted public company
under IFSC, time period shall be 90 days instead of 60 days.
➢ Subscription money received shall be kept in a separate bank account in a scheduled
bank
➢ RULE 14(1)(B) says record shall be kept in FORM PAS 5.
➢ SECTION 42(7) No company issuing securities under this section shall release any
public advertisements or utilise any media, marketing or distribution channels or
agents to inform the public at large about such an issue.
➢ SECTION 42(8):- A company making any allotment of securities under this section,
shall file with the Registrar a return of allotment within fifteen days from the date of
the allotment in such manner as may be prescribed, including a complete list of all
allottees, with their full names, addresses, number of securities allotted and such
other relevant information as may be prescribed.
➢ SECTION 42(9) If a company defaults in filing the return of allotment within the period
prescribed under sub-section (8), the company, its promoters and directors shall be
liable to a penalty for each default of one thousand rupees for each day during which
such default continues but not exceeding twenty-five lakh rupees.
➢ Return of allotment is a statement which contains the names and address of the
shareholders and the no. of shares allotted to each shareholder. RoA is signed by a
director or secretary. It shows that the company has received the minimum
subscription.
➢ SECTION 42(10) -PENALTY- Promoters and directors are liable for a penalty to the
extent of amount involved in the offer or 2 crore rupees whichever is higher and
companies shall also refund all monies within 30 days of the order imposing penalty.
➢ SECTION 42(11) :- If any offer or invitation has not complied with the provisions of this
section shall be treated as a PUBLIC OFFER and has to comply with SC(R)ACT 1956, SEBI
ACT 1992.