Prospectus

“ Any notice, circular,

advertisement or other
document inviting
deposits from the public
or inviting offers from
the public for the
subscription of any
shares or debentures of
a company”
• Prospectus to be in writing
• Invitation to public
• Offer to the public i.e. public issue
• Dating of prospectus
• Signing of prospectus
• Registration of Prospectus
Red Herring Prospectus
The term red herring originates from the
tradition whereby young hunting dogs in
Britain were trained to follow a scent
with the use of a "red" (salted and
smoked) herring. This pungent fish
would be dragged across a trail until the
puppy learned to follow the scent. The
reason it is called a red herring is due to
a disclosure statement printed in red ink
on the cover which explicitly states that
the issuing company is not attempting to
sell its shares.
•Shelf Prospectus

•Abridged Prospectus

•Deemed Prospectus

•Statement in lieu of prospectus

 Book Building Process
• Refers to the process of generating, capturing,
and recording investor demand for shares during
an IPO (or other securities during their issuance
process)
• in order to support efficient price discovery.
• Issuer appoints a major investment bank to act as
a major securities underwriter or bookrunner. The
“book” is the off-market collation of investor
demand by the bookrunner and is confidential to
the bookrunner, issuer, and underwriter.
 GOLDEN RULE OR GOLDEN LEGACY
• Everything must be stated with strict and
scrupulous accuracy.
• Nothing should be stated as a fact which is not
so
• No fact should be omitted, the existence of which
might in any degree affect inducement to take
shares.
• In short, the true nature of the company venture
should be “disclosed”.
• If concealment of any material fact has
prevented an adequate appreciation of
what was stated, it would amount to
misrepresentation.
• Thus, even if every specific statement
is literally true, the prospectus may be
false if by reason of the suppression of
other material facts, it conveys a false
impression.
 MISSTATEMENTS IN PROSPECTUS
Civil Liability
1.Remedies against the company
(b)Rescission of Contract

(i)The statement must be a material

misrepresentation of fact
(ii)The statement must have induced the
shareholder to take the shares
(iii) The statement must be untrue
Case: R.v Kylsant [ Payment of dividend
between 1921 to 1927]
(iv) Deceived shareholder must be allottee and
must have relied upon the s/m
(v) The omission of material fact must be
misleading before the rescission is granted
(vi) Rescission before liquidation of company
(b) Damages for deceit
2. Remedies against the directors, promoters and
experts
(i) Liability for misstatement in prospectus:
Defences of directors:
• Withdrawal of consent
• Absent of consent
• Ignorance of un true statement
• Reasonable ground for belief
• Statement of expert
(ii) Liability for damages for non-compliances
with Sec 56
(iii) Liability under general law

Criminal Liability
• Rs 5000 or
• Imprisonment for two years or
• Bboth
 THANK YOU

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