Stock Market and Prospectus

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Chapter 5



• Any document inviting deposits from the public for the subscription or purchase of any securities of a body corporate. Following types of documents are prospectus: - ❑ Any document described or issued as prospectus; including ❑ any notice,

❑ circular,
❑ advertisement or
❑ other document
• Ingredient to constitute a “prospectus”
i) There must be an “invitation to the public”;
ii) The invitation must be made by or on behalf of the company or in relation to an intended company; iii) The invitation must be “to subscribe or purchase “ iv) The invitation must relate to securities or such other instrument. • Invitation to public means

An offer or invitation shall be treated as made to the public; keeping in view all circumstances as calculated to result directly or indirectly, it may properly be regarded, the securities of the company become available for subscription or purchase by persons other than those receiving the offer or invitation. [The word "calculated" in suggests design, forethought or intention to accomplish a purpose.] • The test is not who receives the offer but who accepts the offer. CASE EXAMPLES

In Pramatha Nath Sanyal Vs Kali Kumar Dutt, an advertisement was inserted in a newspaper stating, “Some shares are still available for sale according to the terms of the prospectus of the company which can be obtained on application”. This was held to be a prospectus as it invited the public to purchase the shares. The prosecution was accordingly launched on the Directors for non-compliance. “Public” is a general word, and includes any section of the public. This means that if a document inviting persons to buy shares is issued for example to all advocates or to all doctors, or to all foreigners living in India or to all Indian citizens or to all shareholders in a particular company, it will still be deemed to be issued to the public with in the meaning of the Act (In re: South of England Natural Gas and Petroleum Co. Ltd). In this case, 3000 copies of a document in the form of a prospectus were sent out and distributed among the members of certain gas companies only. It was held that it was prospectus issued to the public.

When prospectus is not required to be issued

• The issue of a prospectus is not necessary in the following cases: 1. When shares/debentures are offered to 50 or less persons. 2. When shares or debentures are offered to existing holders of shares or debentures.(Rights Issue) 3. Where a person is bona fide invited to enter into an underwriting agreement. 4. Where shares are not offered to the public e.g. when shares are placed privately. EXCLUSIVE AUTHORITY TO SEBI'S TO DEAL WITH MARKET RELATED MATTERS (SECTION 55A) • Section 55A confers power on SEBI to deal exclusively in respect of listed/to be listed companies in the following areas relating to issue and transfer of securities and non-payment of dividend: ❑ Sections 55 to 84 (other than sections 68A, 77, 77 A, 77B, 79A, 80A) ❑ Matters relating to prospectus, and other matters relating to issue of shares or debentures; allotment of shares and further issue of capital; public deposits. ❑ Section 68A - Personation for acquisition etc. of shares. ❑ Section 77 - Restriction on purchase by company, etc., of its own or holding company's shares. ❑ Section 77A - Power of company to buy its own shares. ❑ Section 77B - Prohibition for buy-back in certain circumstances. ❑ Section 79A - Issue of sweat equity shares.

❑ Section 80A - Redemption of irredeemable preference shares etc. ❑ Sections 108 to 110 - Transfer of shares.
❑ Section 112 - Certification of transfers.
❑ Section 113 - Limitation of time for issue of certificates. ❑ Section 116 - Penalty for personation of shareholder. ❑ Sections 117 to 122 - Provisions relating to...
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