This Article is written by Ronak Batra, a law student of B.B.A ll.b at SRM University, Sonepat


A prospectus is a document given by the company welcoming the general population and financial investors for the membership of its protections . A prospectus likewise helps in illuminating the financial backers about the danger regarding putting resources into the company. A Prospectus is needed to be given simply after the joining of the company. These reports portray stocks, bonds and different sorts of protections offered by the company. Shared asset organizations likewise give a prospectus to forthcoming customers, which incorporates a report of the cash’s procedures, the chief’s experience, the asset’s charge structure and an asset’s budget summaries. A prospectus is constantly joined by execution history and monetary data of the company. The explanation behind accompanying such a data alongside the prospectus is to ensure that, the financial backers are very much aware of the company’s experience and generally execution and the financial backers don’t fall into the prey of putting resources into a terrible company.


 Under Section 2(70) of companies act 2013 defines prospectus as, “A prospectus means any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.”

  • Companies that are needed to give a prospectus 
  1.  A public recorded company who means to offer shares or debentures can give prospectus. 
  2. A privately owned business is precluded from welcoming the general population to buy in to their shares and hence can’t give a prospectus. In any case, a privately owned business which has changed over itself into a public company may give a prospectus to offer shares to the general population.


 1. Address of the registered office of the company. 

 2. Name and address of company secretary, examiners, investors, financiers and so forth 

 3. Dates of the opening and shutting of the issue. 

 4. Presentation about the issue of allotment letters and refunds inside the endorsed time. 

5. A statement is passed by the board of  directors about the different financial balance where all monies got out of offers given are to be moved. 

 6. Insights regarding guaranteeing of the issue. 

 7. Assent of chiefs, examiners, investors to the issue, well-qualifier’s assessment assuming any. 

 8. The expert for the issue and the subtleties of the goal passed along these lines. 

 9. Strategy and time plan for assignment and issue of protections. 

 10. Capital construction of the company. 

 11. Main articles and present business of the company and its area. 

 12. Main object of public offer and terms of the current issue. 

 13. Minimum membership, sum payable via premium, issue of offers in any case than on money. 

 14. Directors including their arrangement and compensation. 

 15. Disclosure about sources of advertiser’s commitment. 

 16. Points of interest connection to the executives view of danger factors explicit to the task, incubation time of the venture, degree of progress made in the undertaking and cutoff times for completion of the project.


Shelf prospectus can be characterized as a prospectus that has been given by any open monetary foundation, company or bank for at least one issues of protections or class of protections as referenced in the prospectus. At the point when a shelf prospectus is given then the backer doesn’t have to give a different prospectus for each offering he can offer or sell protections without giving any further prospectus. 

The arrangements identified with shelf prospectus has been examined under section 31 of the Companies Act, 2013. 

 The guidelines are to be given by the Securities and Exchange Board of India for any class or classes of organizations that may document a shelf prospectus at the phase of the primary proposal of protections to the enlistment center. 

 The prospectus will recommend the legitimacy time of the prospectus and it ought to be not be surpassing one year. This period initiates from the initial date of the primary proposal of the protections. For any second or further offer, no different prospectus is required. 

 While petitioning for a shelf prospectus, a company is required to record a data notice alongside it. 

Information Memorandum [Section 31(2)] 

The company which is documenting a shelf prospectus is required to record the data notice. It ought to contain the real factors with respect to the new charges made, what changes have gone through in the monetary situation of the company since the main proposal of the security or between the two offers. 

 It ought to be recorded with the enlistment center inside a quarter of a year prior to the issue of the second or ensuing offer made under the shelf prospectus as given under Rule 4CCA of section 60A (3) under the Companies (Central Government’s) General Rules and Forms, 1956. 

 At the point when any company or an individual has gotten an application for the allocation of protections with advance installment of membership before any progressions have been made, at that point he should be educated about the changes. In the event that he wants to pull out the application inside 15 days, at that point the cash should be discounted to them. 

 After the data reminder has been documented, if any offer or protections is made, the update alongside the shelf prospectus is considered as a prospectus. 

Red herring prospectus 

 Red herring prospectus is the prospectus which comes up short on the total points of interest about the quantum of the cost of the protections. A company may give a red herring prospectus preceding the issue of prospectus when it is proposing to make a proposal of protections. 

 This kind of prospectus should be recorded with the enlistment center in any event three days preceding the kickoff of the membership list or the offer. The commitments conveyed by a red herring prospectus are same as a prospectus. On the off chance that there is any variety between a red herring prospectus and a prospectus then it ought to be featured in the prospectus as varieties. 

 At the point when the proposal of protections closes then the prospectus needs to express the complete capital raised either raised by the method of obligation or offer capital. It additionally needs to express the end cost of the protections. Whatever other subtleties which have not been remembered for the prospectus should be registered with the recorder and SEBI. 

 The candidate or endorser has directly under Section60B(7) to pull out the application on any hint of variety inside 7 days of such suggestion and the withdrawal ought to be conveyed recorded as a hard copy.

Misstatements in the prospectus 

Since prospectus is depended on by the individuals from the general population to buy in or buy the protections of a company, any misstatements on it welcome correctional outcomes. Misstatement may happen when an explanation which is false or deluding in structure or setting is remembered for the prospectus. Likewise, any consideration or exclusion of any matter which is probably going to delude will likewise be considered as a misstatement (sec. 34). For e.g., an assertion on the reason for offering shares which is false, or articulation on the areas of workplaces for a company which is deceiving will add up to misstatement in the prospectus. 

Liability for misstatement in the prospectus 

An individual who has marked and offered agree to the prospectus has liability for misstatement. People who had the administration of the entire, or considerably entire of the undertakings of the company can be held obligated for misstatement in prospectus in the event that they have marked the prospectus and had given assent for the equivalent. Administrators, Company Secretaries, and Directors will go under this classification. Nonetheless, the simple marking of the revelations in the prospectus won’t bring about risk for misstatement if the individual marking is neither a supervisor of the company nor draw compensation from the company. Here, SEBI considered the accommodation of the Company Secretary that he marked the prospectus in the interest of the chiefs under their force of lawyer and reasoned that he was not subject for misstatement as the head of the company.

A misstatement in the prospectus can summon criminal (sec. 34) and civil liabilities (sec. 35). Misstatements can prompt discipline for extortion under Sec. 447. 

Criminal liability 

 An individual who approves the issue of a prospectus which has false or misdirecting articulations is subject for discipline under Sec. 34. Such a discipline is for misrepresentation as set out in Sec. 447. “Misrepresentation” under Sec. 447 incorporates a demonstration, oversight, covering of any reality with an aim to hoodwink, acquire unnecessary favorable position, or to harm the interests of the company or its investors or its creditors or some other individual. It isn’t important that such a demonstration include any unfair addition or illegitimate misfortune. Maltreatment of position submitted by an individual is additionally considered extortion under this segment. Sec. 447 further sets out the discipline for extortion: 

 On the off chance that the misrepresentation includes a measure of ten lakh rupees or more, or one percent. of the turnover of the company (whichever is lower) the individual who is seen as liable of misrepresentation will be culpable with detainment for a base term of a half year which may reach out to ten years. Such an individual will likewise be obligated to a fine of a sum at least the sum engaged with the extortion and the fine may stretch out to multiple times of such sum. 

 On the off chance that the misrepresentation includes a sum under ten lakh rupees or one percent. of the turnover of the company (whichever is lower) and doesn’t include public interest, the detainment may stretch out to five years or with fine which may reach out to fifty lakh rupees or with both. 

 In the event that the misrepresentation being referred to includes public interest, the term of detainment will not be under three years. 

Civil liability 

 Civil liability for misstatements in prospectus will emerge when an individual has supported any misfortune or harm by buying in protections of a company dependent on a deceptive prospectus (sec. 35). In such occurrences the accompanying people will be obligated under sec 447 and should pay to people who have supported such misfortune or harm: 

  1.  Director of the company at the time of the issue of the prospectus;
  2. individual who has consented to be named as a director in the prospectus and is named as a director of the company, or has consented to turn out to be such director; 
  3. is a promotor/advertiser of the company; 
  4. has approved the issue of the prospectus; and 
  5. is a specialist who has been locked in or keen on the development or advancement or the board of the company.

Exceptions from liability for misstatements in Prospectus 

 An individual will not be criminally obligated under sec. 34 on the off chance that he demonstrates that: the assertion or oversight was insignificant or immaterial

  1.  he had sensible grounds to accept that the assertion was valid or the consideration or oversight was vital and had confidence in it up to the hour of issue of the prospectus. 

 Moreover, an individual will not be subject under sub-segment (1) of sec. 35 (civil liability), on the off chance that he demonstrates that: 

  1. he pulled out his agree to turn into a head of the company before the issue of the prospectus, and that it was given without his position or assent; or 
  2. the prospectus was given without his insight or assent, and 
  3. on getting mindful of its issue, he gave a sensible public notification that it was given without his insight or assent. 

An individual may not be liable for making misleading statement if it is made by a specialist if: 

  1.  the report is a right and reasonable portrayal of the assertion, or 
  2.  a right duplicate or a right and reasonable concentrate of the report or valuation; and 
  3.  he had sensible ground to accept that such master was equipped to offer the expression and had given the assent required by sub-segment (5) of segment 26 to the issue of the prospectus and had not removed that assent before conveyance of a duplicate of the prospectus for enlistment. (sec. 35(2)(c)). 


 The prospectus being a solicitation to the general population to buy in to the protections of a company should be made with most extreme consideration. General society depend on the explanations and reports appended to the prospectus to take a speculation choice. In this manner, the Companies Act accommodate liabilities and disciplines for people who give misdirecting and false articulations in the prospectus.


1.Company law- Avtar singh

2.Elements of company law – N.D. kapoor