Unit 3
Principal Documents
Q1) WRITE A NOTE ON MEMORANDUM OF ASSOCIATION
A1) The Memorandum of Association or MOA of a company defines the constitution and the scope of powers of the company. In simple words, the MOA is that the foundation on which the company is made.
Object of registering a Memorandum of Association or MOA
Format of Memorandum of Association (MOA)
According to Section 4 of the companies Act, 2013, companies must draw the MOA within the form given in Tables A-E in Schedule I of the Act. Here are the details of the forms:
Table A: Form for the memorandum of association of a company limited by shares.
Table B: Form for the memorandum of association of a company limited by guarantee and not having a share capital.
Table C: Form for the memorandum of association of a company limited by guarantee and having a share capital.
Table D: Form for the memorandum of association of an unlimited company.
Table E: Form for the memorandum of association of an unlimited company and having share capital.
Q2) EXPLAIN THE CONTENT OF THE MOA
A2) The following information is mandatory in an MOA:
1. Name Clause
For a public Ltd. , the name of the company must have the word ‘Limited’ because the last word
For the private Ltd. , the name of the company must have the words ‘Private Limited’ because the last words.
This is not applicable to companies formed under Section 8 of the Act who must include one among the subsequent words, as applicable:
It must specify the State during which the registered office of the company are going to be situated.
2. Object Clause
It must specify the objects that the company is being incorporated. Further, if a corporation changes its activities which aren't reflected in its name, then it can change its name within six months of adjusting its activities. the company must suits all name-change provisions.
3. Liability Clause
4. Capital Clause
This is valid just for companies having share capital. These companies must specify the quantity of Authorized capital divided into shares of fixed amounts. Further, it must state the names of every member and therefore the number of shares against their names.
5. Association Clause
The MOA must clearly specify the will of the subscriber to make a company. this is often the last clause.
For One-Person-Company
The MOA must specify the name of the one that becomes a member of the company within the event of the death of the subscriber.
Keep in mind the subsequent aspects before submitting the MOA:
Q3) EXPLAIN THE ALTERATION OF MEMORANDUM
A3) (1) Save as provided in section 61, a company may, by a special resolution and after complying with the procedure laid out in this section, alter the provisions of its memorandum.
(2) Any change within the name of a company shall be subject to the provisions of subsections (2) and (3) of section 4 and shall not have effect except with the approval of the Central Government in writing:
Provided that no such approval shall be necessary where the sole change within the name of the company is that the deletion therefrom, or addition thereto, of the word Private‖, consequent on the conversion of anybody class of companies to a different class in accordance with the provisions of this Act.
(3) When any change within the name of a company is formed under sub-section (2), the Registrar shall enter the new name within the register of companies in situ of the old name and issue a fresh certificate of incorporation with the new name and therefore the change within the name shall be complete and effective only on the difficulty of such a certificate.
(4) The alteration of the memorandum relating to the place of the registered office from one State to a different shall not have any effect unless it's approved by the Central Government on an application in such form and manner as could also be prescribed.
(5) The Central Government shall eliminate the appliance under sub-section (4) within a period of sixty days and before passing its order may satisfy itself that the alteration has the consent of the creditors, debenture-holders and other persons concerned with the company or that the sufficient provision has been made by the company either for the due discharge of all its debts and obligations or that adequate security has been provided for such discharge.
(6) Save as provided in section 64, a company shall, in reference to any alteration of its memorandum, file with the Registrar—
(a) The special resolution gone by the company under sub-section (1);
(b) The approval of the Central Government under sub-section (2), if the alteration involves any change within the name of the company.
(7) Where an alteration of the memorandum leads to the transfer of the registered office of a company from one State to a different , a licensed copy of the order of the Central Government approving the alteration shall be filed by the company with the Registrar of every of the States within such time and in such manner as could also be prescribed, who shall register an equivalent , and therefore the Registrar of the State where the registered office is being shifted to, shall issue a fresh certificate of incorporation indicating the alteration.
(8) a company, which has raised money from public through prospectus and still has any unutilised amount out of the cash so raised, shall not change its objects that it raised the cash through prospectus unless a special resolution is gone by the company and—
(i) the small print, as could also be prescribed, in respect of such resolution shall even be published within the newspapers (one in English and one in vernacular language) which is in circulation at the place where the registered office of the company is situated and shall even be placed on the web site of the company, if any, indicating therein the justification for such change;
(ii) The dissenting shareholders shall tend a chance to exit by the promoters and shareholders having control in accordance with regulations to be specified by the Securities and Exchange Board.
(9) The Registrar shall register any alteration of the memorandum with reference to the objects of the company and certify the registration within a period of thirty days from the date of filing of the special resolution in accordance with clause (a) of sub-section (6) of this section.
(10) No alteration made under this section shall have any effect until it's been registered in accordance with the provisions of this section 32
(11) Any alteration of the memorandum, within the case of a company limited by guarantee and not having a share capital, purporting to offer a person a right to participate within the divisible profits of the corporate otherwise than as a member, shall be void.
Q4) EXPLAIN THE ARTICLES OF ASSOCIATION
A4) Every company needs a group of rules and regulations to manage its internal affairs. There are two important business documents of a company, namely, Memorandum of Association (MOA) and Articles of Association (AOA). The AOA specifies the internal regulations of the company. during this post, we'll check out the Articles of Association (AOA) in detail.
The AOA contains the bye-laws of the company. Therefore, the director and other members must perform their functions as regards the management of the company, its accounts, and audits in accordance with the AOA.
Content and Model of Articles of Association (AOA)
According to Section 5 of the companies Act, 2013, the AOA must have the subsequent components:
The AOA can contain provisions for entrenchment for specific provisions. The provisions for entrenchment can make sure that the required provisions are altered as long as certain conditions or procedures are met or complied with. These conditions are usually more restrictive than those applicable for a special resolution.
The inclusion of the provisions for entrenchment is possible:
On the formation of the company
Also, by amending the Articles approvingly from all members of the corporate. Further, within the case of a public limited company, with a special resolution.
Regardless of whether the provisions for entrenchment are added on the formation or after an amendment, the company must provide a notice to the Registrar of an equivalent .
Forms of AOA
Schedule I of the companies Act, 2013 provides forms for AOA in tables F, G, H, I and J for various sorts of companies. Further, the articles must be within the respective form.
Model Articles
Parameter | MOA | AOA |
Objectives | It defines and delimits the objectives of a company. Further, it specifies the condition of incorporation | It lays down the rules and regulations for the internal management of the company. Hence, it also contains the bye – law of the company |
Relationship | It defines the relationship of the company with the outside world | It defines the relationship between the company and its members |
Alteration | It can be altered only under special circumstances. Also, it usually requires the permission of the Regional Director to the Tribunal | It can be altered by passing a special resolution |
Ultra vires | Acts beyond the scope of the MOA are ultra vires and void. Furthermore, even unanimous consent of all shareholders cannot ratify it | Acts which are ultra vires the AOA can be ratified by a special resolution of the shareholders. However, such acts should not be ultra vires the MOA |
Q5) EXPLAIN THE ALTERATION OF ARTICLES OF ASSOCIATION
A5) 1) Subject to the provisions of this Act and the conditions contained in its memorandum, if any, a company may, by a special resolution, alter its articles including alterations having the effect of conversion of—
(a) A private company into a public company; or
(b) A public company into a private company:
Provided that where a company being a private company alters its articles in such a manner that they not include the restrictions and limitations which are required to be included within the articles of a private company under this Act, the company shall, as from the date of such alteration, cease to be a private company:
Provided further that any alteration having the effect of conversion of a public company into a personal company shall not be valid unless it's approved by an order of the Central Government on an application made in such form and manner as could also be prescribed:
Provided also that any application pending before the Tribunal, as on the date of commencement of the companies (Amendment) Ordinance,[2019], shall be disposed of by the Tribunal in accordance with the provisions applicable thereto before such commencement.]]]
2) Every alteration of the articles under this section and a copy of the order of the [Central Government]] approving the alteration as per sub-section (1) shall be filed with the Registrar, alongside a printed copy of the altered articles, within a period of fifteen days in such manner as could also be prescribed, who shall register the same.
3) Any alteration of the articles registered under sub-section (2) shall, subject to the provisions of this Act, be valid as if it were originally within the articles.
Q6) WRITE A NOTE ON DOCTRINE OF INDOOR MANAGEMENT
A6) Section 399 of the companies Act, 2013, specifies the rules and regulations governing the inspection, production, and evidence of documents with the Registrar.
Doctrine of Constructive Notice
Section 399 allows any person to electronically inspect, make a record, or get copy/extracts of any document of any company which the Registrar maintains. There’s a fee applicable for the same. The documents include the certificate of incorporation of the company.
By now we know that the Memorandum and Articles of Association are public documents. This section confers the proper of inspection to all or any .
Before any person deals with a company he must inspect its documents and establish conformity with the provisions. However, albeit an individual fails to read them, the law assumes that he's aware of the contents of the documents. Such an implied or presumed notice is called Constructive Notice.
In simpler words, if an individual enters into a contract which is beyond the powers of a corporation, then he has no right under the said contract against the company. The Memorandum of Association defines the powers of the corporate . Also, if the contract is beyond the authority of the administrators as defined within the Articles, the person has no rights.
The doctrine of indoor management is an exception to the earlier doctrine of constructive notice. It’s important to note that the doctrine of constructive notice doesn't allow outsiders to possess notice of the interior affairs of the company.
Hence, if an act is permitted by the Memorandum or Articles of Association, then the outsider can assume that each one detailed formalities are observed in doing the act. This is often the Doctrine of Indoor Management or the Turquand Rule. This is often based on the landmark case between The Royal British Bank and Torqued. In simple words, the doctrine of indoor management means a company’s indoor affairs are the company’s problem.
Therefore, this rule of indoor management is vital to people handling a company through its directors or other persons. they will assume that the members of the company are performing their acts within the scope of their apparent authority. Hence, if an act which is valid under the Articles, is completed during a particular manner, then the outsider handling the corporate can assume that the director/other officers have worked within their authority.
EXCEPTIONS TO THE DOCTRINE OF INDOOR MANAGEMENT
The Turquand rule or the law of indoor management isn't applicable to the subsequent cases:
The outsider has actual or constructive knowledge of an irregularity
In such cases, the rule of indoor management doesn't offer protection to the outsider handling the said company.
The outsider behaves negligently
The rule of Indoor management doesn't protect an individual handling a company if he doesn't initiate an inquiry despite suspecting an irregularity. Further, this rule doesn't offer protection if the circumstances surrounding the contract are suspicious. For example, the outsider should get suspicious if an officer purports to act during a manner outside the scope of his authority.
Forgery
The doctrine of indoor management is applicable to irregularities that affect a transaction apart from forgery. Just in case of a forgery, the transaction is deemed null and void.
Q7) EXPLAIN THE PROSPECTUS IN DETAIL
A7) The 2013 Act has introduced a new section [section 23] to explicitly provide the ways during which a public company or private company may issue securities. This section explains that a public company may issue securities in any of the following manners:
For private companies, this section provides that it's going to issue securities through private placement, by way of rights offering or bonus issue.
Section 23 also provides that compliance with provisions of part I of chapter III is required for the difficulty of securities to public through prospectus. for private placement compliance, with the provisions of part II of chapter III are required.
The 2013 Act also introduces certain changes with reference to prospectus and public offers aimed toward enhancing disclosure requirements also as streamlining the method of issuance of securities.
1. Issue of Prospectus:
Currently, the matters and therefore the reports to be included within the prospectus are laid out in the parts I & II of the Schedule of the 1956 Act. within the 2013 Act, the matters are included within the section 26 of the act. The act mandates certain additional disclosures:
• Any litigation or action pending or taken by a department or a statutory body during the last five years immediately preceding the year of the difficulty of prospectus against the promoter of the company.
• Sources of Promoter’s Contribution.
The 2013 Act has also relaxed the disclosure requirements in some areas. examples of certain which aren't included within the 2013 Act are as follows. Particulars regarding the company and other listed companies under an equivalent management, which made any capital issues during the last 3 years. - Export possibilities and export obligations. - Details regarding collaboration.
The 2013 act states that report by the auditors on the assets & liabilities of business shall not be before 180 days before the difficulty of the prospectus.[section 26 (1) (b) (iii) of 2013 Act ].
The 1956 currently requires that report won't be 120 days before the difficulty of the prospectus.
2. Variation in terms of contracts and obligation:
The 2013 Act requires Special resolution to be passed to vary the terms of the contract and obligations mentioned within the prospectus or objects that the prospectus was issued. [Section 27 (1) of 2013 Act] .
The 1956 Act requires the approval within the general meeting by way of a standard resolution.
The 2013 Act also requires the dissenting shareholders to tend exit offer by promoters or controlling shareholders.
3. Offer of sale of shares by certain members of the company:
The Act 2013 includes a new section under which members of a company, in consultation with the BOD, may offer a part of their holdings to the general public The document by which the offer purchasable shall be made to the public shall be considered because the prospectus. The members shall reimburse all the expenses to the company incurred by it.
4. Shelf Prospectus:
The 2013 Act has extends the facility of the shelf prospectus by enabling SEBI to prescribe the classes of companies which will file a shelf prospectus. The Act 1956 currently limits the power of shelf prospectus to the public financial institutions, public sector banks or scheduled banks. [Section 31 (1) of 2013 Act]
5. GDRs:
The 2013 Act includes a new section to enable the difficulty of depository receipts in any foreign country subject to the prescribed conditions [section 41 of 2013 Act].
Currently the supply of section 81 of the 1956 Act concerning the further issue of shares are getting used in conjunction with requirements mandated by SEBI for the issuance of depository receipts.
In several aspects across the 2013 Act , it appears that the 2013 act supplements the powers of SEBI by incorporating requirements already mandated by the SEBI.
6. Private Placement:
The 2013 Act requires that certain specified conditions are complied with so as to form a suggestion or invitation of offer by way of personal placement or through the difficulty of a prospectus.
The offer of securities or invitation to subscribe securities during a fiscal year shall be made to such number of persons not exceeding 50 or such higher number as could also be prescribed {excluding qualified institutional buyers, and employees of the company being offered securities under a scheme of employees option during a fiscal year and on such conditions (including the shape and manner of private placement) as could also be prescribed}. This provision of the 2013 Act is in line with the prevailing provision of the 1956 Act.
The allotments with reference to any earlier offer or invitation may are completed.
All the money payable towards the subscription of securities shall be paid through cheque, demand draft or the other banking channels but not by cash.
The offers shall be made only to such persons whose names are recorded by the company before the invitation to subscribe, which such persons shall receive the offer by name. • the company offering securities shall not release any advertisements or utilize any media, marketing or distribution channels or agents to tell the general public at large about such an offer [section 42 of 2013 Act].
Contents in prospectus
(1) Every prospectus issued by or on behalf of a public company either with regard 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—
(a) State the following information, namely:—
(i) Names and addresses of the registered office of the company, company secretary, Chief financial officer, auditors, legal advisers, bankers, trustees, if any, underwriters and such other persons as could also be prescribed;
(ii) Dates of the opening and shutting of the issue, and declaration about the issue of allotment letters and refunds within the prescribed time;
(iii) A press release by the Board of Directors about the separate checking account where all monies received out of the issue are to be transferred and disclosure of details of all monies including utilized and unutilized monies out of the previous issue within the prescribed manner;
(iv) Details about underwriting of the issue;
(v) Consent of the administrators, auditors, bankers to the issue, expert‘s opinion, if any, and of such other persons, as could also be prescribed;
(vi)The authority for the issue and therefore the details of the resolution passed therefor;
(vii) Procedure and time schedule for allotment and issue of securities;
(viii) Capital structure of the company within the prescribed manner;
(ix) Main objects of public offer, terms of this issue and such other particulars as could also be prescribed;
(x) Main objects and present business of the company and its location, schedule of implementation of the project;
(xi) Particulars relating to—
(A) Management perception of risk factors specific to the project;
(B) Gestation period of the project;
(C) Extent of progress made within the project;
(D) Deadlines for completion of the project; and
(E) Any litigation or action pending or taken by a government department or a statutory body during the last five years immediately preceding the year of the issue of prospectus against the promoter of the company;
(xii) Minimum subscription, amount payable by way of premium, issue of shares otherwise than on cash;
(xiii) Details of directors including their appointments and remuneration, and such particulars of the character and extent of their interests within the company as may be prescribed;
(xiv) Disclosures in such manner as could also be prescribed about sources of promoter‘s contribution;
(b) Set out the following reports for the needs of the financial information, namely:—
(i) Reports by the auditors of the company with reference to its profits and losses and assets and liabilities and such other matters as could also be prescribed;
(ii) Reports relating to profits and losses for every of the five financial years immediately preceding the fiscal year of the issue of prospectus including such reports of its subsidiaries and in such manner as could also be prescribed:
Provided that just in case of a company with reference to which a period of 5 years has not elapsed from the date of incorporation, the prospectus shall began in such manner as could also be prescribed, the reports concerning profits and losses for every of the fiscal years immediately preceding the financial year of the issue of prospectus including such reports of its subsidiaries;
(iii) Reports made within the prescribed manner by the auditors upon the profits and losses of the business of the company for every of the five financial years immediately preceding issue and assets and liabilities of its business on the last date to which the accounts of the business were made up, being a date less than 100 and eighty days before the difficulty of the prospectus:
Provided that just in case of a company with reference to which a period of 5 years has not elapsed from the date of incorporation, the prospectus shall began within the prescribed manner, the reports made by the auditors upon the profits and losses of the business of the company for all financial years from the date of its incorporation, and assets and liabilities of its business on the last date before the issue of prospectus; and
(iv) reports about the business or transaction to which the proceeds of the securities are to be applied directly or indirectly;
(c) make a declaration about the compliance of the provisions of this Act and a statement to the effect that nothing within the prospectus is contrary to the provisions of this Act, the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and therefore the Securities and Exchange Board of India Act, 1992 (15 of 1992) and therefore the rules and regulations made thereunder; and
(d) State such other matters and began such other reports, as could also be prescribed.
(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 sort of application concerning shares in or debentures of the company, whether an applicant features a right to renounce the shares or not under sub-clause (ii) of clause (a) of sub-section (1) of section 62 in favor of the other person; or
(b) to the difficulty of a prospectus or sort of application relating to shares or debentures which are, or are to be, altogether respects uniform with shares or debentures previously issued and for the nonce dealt in or quoted on a recognized stock exchange.
(3) Subject to sub-section (2), the provisions of sub-section (1) shall apply to a prospectus or a sort of application, whether issued on or with regard to the formation of a company or subsequently.
Explanation.—the date indicated within 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 replica thereof signed by every one who is known as 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 may be a one that isn't , and has not been, engaged or curious about the formation or promotion or management, of the company and has given his written consent to the difficulty of the prospectus and has not withdrawn such consent before the delivery of a replica of the prospectus to the Registrar for registration and a press release thereto effect shall be included within the prospectus.
(6) Every prospectus issued under sub-section (1) shall, on the face of it,—
(a) state that a replica has been delivered for registration to the Registrar as needed under subsection
(b) Specify any documents required by this section to be attached to the copy so delivered or ask statements included within the prospectus which specify these documents.
(7) The Registrar shall not register a prospectus unless the wants of this section with reference to its registration are complied with and therefore the prospectus is amid the consent in writing of all the persons named within the prospectus.
(8) No prospectus shall be valid if it's issued quite ninety days after the date on which a replica 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 but fifty thousand rupees but which can reach three lakh rupees and each one that is knowingly a party to the issue of such prospectus shall be punishable with imprisonment for a term which can reach three years or with fine which shall not be but fifty thousand rupees but which can reach three lakh rupees, or with both.
Q8) EXPLAIN THE ABRIDGED PROSPECTUS
A8) The following shall be applicable with reference to the abridged prospectus annexed to the application form:
(a) The abridged prospectus shall be printed in A4 size sheets. the information shall be provided under the abridged prospectus as given at Annexure-C hereto.
(b) The Abridged Prospectus shall be printed:
• In Times New Roman font,
• In a font size of not less than 10,
• With a line spacing not less than 1.00 lines
• And normal character spacing with 100% scale and no condensation.
(c) A larger font size could also be used, if required, for various heads of data. All major heads shall be in uppercase and bold and in boxes. the primary level subheads shall be in bold and in boxes. the other levels of sub-heads shall be bold and underlined.
(d) The numbering shall be either continuous or with different types of numbering for various heads/ sub-heads.
(e) The appliance form shall be so positioned that on the tearing-off of the application form, no a part of the information given within the abridged prospectus is mutilated.
(f) The order of the contents within the abridged prospectus shall not be changed.
(g) Tabular formats and pointers could also be used wherever possible for efficient understanding. Instructions for filling up the shape , payment instructions and risk factors shall be in pointers and each pointer shall be during a new line.
(h) The top of each page within the abridged prospectus shall have a coloured strap in bold letters incorporating the statement
In the nature of form 2a – memorandum containing salient features of the prospectus“
(i) Under the sections ‘any other information’, any information which is vital for the investor but has not been included within the other heads could also be included.
(j) Risk factors shall be so as long as they convey the risks related to the issue briefly.
(k) A reference could also be made to the prospectus wherever necessary.
6. The issuer and every one the concerned intermediaries are directed to suits the instructions contained during this circular effective from 30 days to the date of this circular.
7. This circular is issued in exercise of powers conferred under Section 11(1) and section 11A of the Securities and Exchange Board of India Act, 1992 read with Regulation 31(1) of SEBI (Issue and Listing of Debt Securities) Regulations, 2008.
8. This circular is out there on SEBI
STATUTORY REQUIREMENTS IN relation to PROSPECTUS – DEEMED PROSPECTUS
(1) Where accompany allots or agrees to all or any of any securities of the corporate with a view to all or any of these securities being offered for sale to the public, any document by which the offer for sale to the public is formed shall, for all purposes, be deemed to be a prospectus issued by the company; and every one enactments and rules of law on the contents of prospectus and on liability in respect of mis-statements, in an omissions from, prospectus, or otherwise relating to prospectus, shall apply with the modifications laid out in subsections (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 formed in respect of mis-statements contained within the document or otherwise in respect thereof.
(2) For the needs 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's 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 entire 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 additionally to the matters required by that section to be stated during 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 are or are to be allotted could also be inspected;
(ii) The persons making the offer were persons named during a prospectus as directors of a company.
(4) Where an individual making an offer to which this section relates may be a company or a firm, it shall be sufficient if the document mentioned in sub-section (1) is signed on behalf of the company or firm by two directors of the company or by not but one-half of the partners within the firm, because the case could also be.
STATUTORY REQUIREMENTS IN RELATION TO PROSPECTUS – SHELF PROSPECTUS
(1) Any class or classes of companies, as the Securities and Exchange Board may provide by regulations during this behalf, may file a shelf prospectus with the Registrar at the stage of the primary offer of securities included therein which shall indicate a period not exceeding one year because the period of validity of such prospectus which shall commence from the date of opening of the primary offer of securities thereunder prospectus, and in respect of a second or subsequent offer of such securities issued during the amount 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 concerning new charges created, changes within the financial position of the company as have occurred between the primary offer of securities or the previous offer of securities and therefore the succeeding offer of securities and such other changes as could also be prescribed, with the Registrar within the prescribed time, before the difficulty 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 alongside 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, whenever an offer of securities is formed under subsection (2), such memorandum along side the shelf prospectus shall be deemed to be a prospectus.
Explanation.—For the needs 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 particular period without the difficulty of an extra prospectus.
Q9) EXPLAIN THE STATEMENT IN LIEU OF PROSPECTUS
A9) The statement in lieu of prospectus may be a document issued by the company when it doesn't offer its securities for public subscription. The Statement in Lieu of Prospectus may be a document filed with the Registrar of the companies (ROC) when the company has not issued prospectus to the general public for inviting them to subscribe for shares. Its objective is to be filed with the registrar if the company doesn't issue prospectus.
It is mandatory for the public limited company to distribute the Prospectus but it's not compulsory altogether aspects. it's also possible to adopt an alternate to the prospectus. it's not necessary to distribute prospectus for the corporate if the directors are ready to raise the specified funds by selling the shares and debentures to their friends and relatives. If the company used the choice of the prospectus, it'll be necessary to submit that replicate to the registrar. it's called substitute prospectus or substitute circular. This substitute holds all the things that are being required within the original prospectus and it must be signed or attested by the directors.
A statement in lieu of prospectus contains the subsequent information
• Name of company
• Account of capital
• Explanation of the business
• Names, addresses, and occupations of directors
• Probable preliminary expenses
• Names of vendors and information of property
• Substance contracts
• Director’s interests
• Least subscription
LIABILITIES FOR MIS-STATEMENT
A prospectus is issued either by or on behalf of a public company on its formation or subsequently or on behalf of a person engaged in formation of a public company.
For the aim of monetary information following reports are issued along side prospectus:
1. Reports by auditors of the company regarding its assets and liabilities and profit and losses.
2. Reports regarding profit and losses for five preceding financial years including report of subsidiaries in such manner as could also be prescribed.
3. Reports about the securities or transaction to which proceeds of securities are to be applied directly or indirectly.
Considering the reporting liabilities of auditor the companies Act, 2013 has also taken appropriate steps for safeguarding the mechanism by including criminal and civil liabilities.
THE SECTION FOR CRIMINAL LIABILITIES READ AS FOLLOWS
“Where a prospectus, issued, circulated or distributed under this Chapter, includes any statement which is untrue or misleading in form or context during which it's included or where any inclusion or omission of any matter is probably going to mislead, everyone who authorizes the issue of such prospectus shall be liable under section 447.
Provided that nothing during 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. “
Section 447 is stringent in its way. The section provides for the punishment for fraud.
This hereby implies that any misstatement in prospectus will cause fraud and can attract section 447.
Section 447 states that without giving effect to any liability under the other law for the nonce in force any person who is guilty of fraud shall be punishable with imprisonment for a term not but six months but which can reach 10 years and shall be liable to fine not but the amount involved in fraud but may reach 3 times the fraud amount.
However, if the fraud involves public interest the term of imprisonment shall not be but 3 years.
THE SECTION FOR CIVIL LIABILITIES READ AS FOLLOWS
“Notwithstanding anything contained during this section, where it's proved that a prospectus has been issued with intent to defraud the applicants for the securities of a company or the other person or for any fraudulent purpose, every one mentioned in subsection (1) shall be personally responsible, with none limitation of liability, for all or any of the losses or damages which will are incurred by a person who subscribed to the securities on the idea of such prospectus”
In accordance with the above section the civil liabilities are going to be imposed on director of the company, issuer of prospectus, promoter of the company, one that has authorized issue of prospectus, expert mentioned in section 26.
Such above person shall personally liable with none limitation or extent and shall be liable to observe the damage or loss caused to the persons who has subscribed such securities on the idea of such prospectus.