Prospectus

Offer for sale deemed prospectus sec: 64

The provisions related to the prospectus are very stringent and the duty of preparing and filling a prospectus in accordance with the law is extremely onerous. These requirements used to be evaded by companies in the past by allotting the whole of an issue of shares or debentures to an Issuing house.

 The issuing house then published an advertisement in the nature of an offer for sale inviting public to buy the shares or debentures from it at a higher price. Sec 64 now specifically provides that a document by which an offer for sale is made to the public is within the definition of prospectus.

Provisions of sec 64
Prospectus by implications
All documents containing offer of shares or debentures for sale are included within the definition of the term prospectus and are deemed to be a prospectus by implication of law. Any document by which the offer for sale to the public is made by the issuing house, is for all purposes deemed to be a prospectus issued by the company and all enactments and rules of law in regard to prospectus are applicable to it.

 Intention to offer shares or debentures to the public Additional information

Consideration and time and place of inspection of contract Issuing house to be deemed director Signing of prospectus

Misstatements in prospectus and their consequences

If there is any misstatement of a material fact in a prospectus or it the prospectus is wanting in any material fact, there may arise:
Civil liability Criminal liability

Civil liability
Remedies against company
if there is a mis statement or withholding of a material information in a prospectus, and if it has induced any shareholder to purchase shares, he can
Rescind the contract Claim damages form the company whether the statement is fraudulent or an innocent one

 Rescission of contract
He must apply for recession of contract within specific time and company goes into liquidation He will have to surrender to the company the shares allotted to him. The contract can be rescinded if foll conditions are satisfied.
The statement must be a material misrepresentation of fact (eg) the surplus assets as appear by the last balance sheet are more than Rs 1 cr.

 The statement must have induced the shareholder to take the shares The statement must be untrue (Eg) The deceived shareholder is an allottee and he must have relied on the statement in the prospectus Eg The omission of material fact must be misleading before rescission is granted. Eg

 The proceedings for rescission must be started as soon as the allottee comes to know of a misleading statements. 2. Damages for deceit.