The (Indian) Companies Act, 2013 ("Companies
Act") requires a company to issue an abridged
prospectus along with the application form for purchase of
securities by public. The Securities and Exchange Board of India
("SEBI") had issued the SEBI (Issue of
Capital and Disclosure Requirements) Regulations, 2009
("Disclosure Regulations") which,
amongst others, provide the requirements for disclosures to be made
in relation to an abridged prospectus. Specifically, Regulation
58(1) read with the Schedule VIII of the Disclosure Regulations
identify the disclosure related requirements for an abridged
In light of the pattern of abridged prospectus practically
issued by companies, SEBI was of the view that the abridged
prospectus have become voluminous which therefore defeat the
purpose of 'abridged' prospectus. In order to make the
abridged prospectus less voluminous and more reader friendly, SEBI,
by way of notification dated 27 October, 2015 issued the
SEBI (Issue of Capital and Disclosure Requirements) (Seventh
Amendment) Regulations, 2015 ("Amendment
Regulations") to amend the disclosure requirements
for an abridged prospectus (i.e. Regulation 58(1) read with
Schedule VIII of the Disclosure Regulations). The Amendment
Regulations require disclosure of 'information' which is
material and appropriate to enable the investors to make informed
decisions. Such information has to be disclosed in the format
specified by SEBI. Accordingly, pursuant to the Amendment
Regulations, SEBI issued a circular dated 30 October, 2015 providing the
revised format of abridged prospectus to make the abridged
prospectus ( a copy of which is to be filed with SEBI) less
voluminous and to contain relevant information for the investors to
make well informed investment decisions. This is applicable on
issues opening for subscription since 1 December, 2015.
The revised format of the abridged prospectus includes, amongst
others, the following: brief details related to the top 5 material
outstanding litigations against the company and the amount
involved; any disciplinary action taken by SEBI or stock exchanges
against the promoters/group companies in the last 5 years
(including any outstanding action); and details of outstanding
criminal proceedings against promoters.
Apart from the disclosures, general instructions have been
prescribed for the abridged prospectus regarding, amongst others,
the format (such as font, font size, line spacing) and number of
pages to not exceed 5 sheets (printed on both sides).
Further, investors have the option to obtain the full prospectus
from the market intermediaries associated with the public issue or
download from the websites of the stock exchanges, merchant bankers
Additionally, all the information in a prospectus must be true
and correct. The Companies Act provides liability for
mis-statements in prospectus. If a prospectus is issued which
includes any statement which is untrue or misleading or where any
inclusion or omission of any matter is likely to mislead, every
person who authorizes the issue (unless such person can prove it
was immaterial or he/she had reasonable grounds to believe that it
was immaterial) will be liable for the offence of 'fraud'
provided under the Companies Act. Further, if any loss is sustained
as a consequence of misleading statement or omission, the company
and every person who, amongst others, is a director at the time of
issuance of prospectus; or authorised himself to be named director
and is named director or agreed to become director either
immediately or after an interval of time; or is a promoter; or
authorised issuance of prospectus, will be liable to pay
compensation (unless it is either proved that he/she withdrew
consent before issuance of prospectus and it was issued without
consent or it is proved that the prospectus was issued without
his/her knowledge/consent and on becoming aware a reasonable public
notice was issued that the issuance was without knowledge/consent).
Accordingly, D&O insurance may cover such risks related to
mis-statements in prospectus, the extent of which may vary from
policy to policy.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The Ministry of Corporate Affairs notified on June 5, 2015 that certain provisions of the Companies Act, 2013 shall not apply to private limited companies or shall apply with such exceptions or modifications as directed in the notification.
Whilst trade and barter have existed since early times, the modern practice of forming business relationships through the means of contract has come into existence only since the industrial revolution in the West.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).