INTRODUCTION
Understanding Red Herring prospectus necessitates first understanding the definition of prospectus. A “prospectus” is defined in Section 2(70)[3] of the Companies Act, 2013 as follows:
“Prospectus” means any document described or issued as a prospectus, including a red herring prospectus referred to in section 32 or a shelf prospectus referred to in section 31, as well as any notice, circular, advertisement, or other document inviting public offers to subscribe for or purchase any securities of a body corporate.
As a result, we can conclude that the prospectus of any company is a document that is considered a prospectus, as mentioned in Section 31[4], and it should also include any notice, advertisement, circular, or any other document that invites offers from the public for the subscription or purchase of any securities of a company.

WHAT IS RED HERRING PROSPECTUS
The purpose and process of a Red Herring Prospectus are explained in Section 32 of the Companies Act of 2013, which corresponds to Section 60B of the Companies Act of 1956. When a corporation proposes to make an offer of securities, it is issued prior to the issuing of the prospectus (which should contain the names and addresses of the Registered Office, the capital structure of the company, the dates of opening and closing of issues, and other essential information as stipulated in Section 26 of the Companies Act, 2013), and the explanation to Section 32 of the Companies Act, 2013 defines an Red Herring Prospectus as
“a prospectus which does not include complete particulars.”

A Red Herring Prospectus is an effective instrument for determining the price of a publicly traded security using the “book- building” method. It is used by merchant bankers who handle public offerings of Debentures or Shares of a company to test the demand and price for the securities proposed to be offered and, as a result, to determine the final size and prize for the public offer.

By carefully reading all four sub-sections of Section 32 of the Companies Act, 2013, we can conclude that all the implications that come with concealment, misstatement, and inaccuracies, as well as all the requirements to exercise due care and diligence while drafting a prospectus, should also be followed and borne in mind when drafting a Red Herring Prospectus.

WHY IS RED HERRING PROSPECTUS USED?

A red-herring prospectus is typically issued in connection with a book-building process, which is a process for marketing a public offer of equity shares of a company, though this practise is relatively new in most developed countries, having originated in India. The process of collecting offers from prospective investors based on an indicative price range that aims at fair pricing of the issue to be emerged from the offers given by various investors is known as book building. The final price is determined at a time close to the opening of the offer.
In regulation 2(1)(f) of the SEBI (ICDR) Regulations, 2009, book building is defined as “a process undertaken to elicit demand and assess the price for determination of the quantum or value.”

STATUTORY PROVISIONS
Prior to issuing a prospectus, a company proposing to make an offer of securities may issue a red herring prospectus. [Section 32(1)] 
At least three days before the subscription list and offer open, a copy of the red herring prospectus must be filed with the Registrar. [Section 32(2)] 
A red herring prospectus is subject to the same obligations as a prospectus, and any differences between the red herring prospectus and a prospectus must be highlighted as variations in the prospectus. [Section 32(3)]. On the closing date of the offer of securities under this section, the prospectus stating the total
capital raised, whether by debt or share capital, as well as the closing price of the securities and any other information are not included in the red herring prospectus shall be filed with the Registrar and the Securities and Exchange Board. [Section 32(4)]

WHY IS IT NAMED “RED HERRING”?
The red herring prospectus is notable for being an incomplete preliminary document, as indicated by the word “Red Herring” on the prospectus cover. The red herring is thus a disclaimer provided on the document’s cover, reminding readers that the prospectus is incomplete. The term “red herring” is thus derived from the bold disclaimer in red on the preliminary prospectus’s cover page. Simultaneously, it informs the investor that the company has filed for an initial public offering (IPO).

A red herring prospectus is filed with the SEBI but is only distributed to potential investors who want to buy shares during the IPO. During the IPO period, investors bid at a variety of prices based on their estimates, which are more or less equal to the floor price. The Red herring prospectus includes the floor price of securities given or a price band, as well as the range within which bids are able to move. The applicants tender for the shares, stating the amount and the amount at which they intend to bid. A red herring prospectus is used by merchant bankers to understand the demand for securities and their price. Later, they use that to determine the final price of the securities and the quantity for the public offering, providing the company with a more complete picture.

JUDICIAL STAND REGARDING RED HERRING PROSPECTUS
There may be discrepancies between the red herring prospectus and the final prospectus provided or shared by a corporation, which may result in a large number of complaints. The problem is one of misstatements or false representations in a prospectus. In India, both civil and criminal liability would be imposed for misstatement. As the transaction involves monetary harm, civil liability would be attracted, and compensation would be required under it. Under the Companies Act of 2013, criminal liability for fraud is the same as criminal liability for misinterpretation. Questions were raised about the need for both criminal and civil liability for the same irregularity of misstatement or misrepresentation. This issue was
addressed in the case of R. v. Kylsant (also known as the ‘Royal Mail Case’).

In this case, the court determined that by doing so, the enterprise jeopardized the interests of the buyers’ investments. As a result, the organization was held accountable. Similarly, this case highlighted the fact that in criminal complaints, as opposed to civil complaints, even actual statements made within the prospectus may be inferred as false if there is any doubt. The employer in Ajay Jain v. Registrar of Companies issued a prospectus for inviting buyers in which it stated that it might engage in leasing sports. It also indicated that the organization had begun to make profits. However, the true goal of the corporation’s directors became to collect funds from the general public. As a result, it appeared at first glance that the directors were aware that the prospectus’s declaration had become false.

There was a misrepresentation in the draught “red herring prospectus” in the case of Kimsuk Krishna Sinha v. SEBI[33]. “SEBI was empowered to examine the draught red herring prospectus and insist on complete and truthful disclosure of all relevant facts,” the court ruled. the fact that the public offering has ended does not absolve Sebi of its statutory duty to investigate the veracity of the statements made in the prospectus.”

CONCLUSION
This section is critical because any company that wants to issue securities to the public must comply with requirements that it provide some basic relevant information to investors. a red herring prospectus is one such method of disseminating information. it is a critical requirement that businesses must adhere to. for misstatement and providing incorrect information in a red herring prospectus, the member and the company would suffer significant loss and penalties. the primary reason for having such a document is to ensure the welfare of investors, that misappropriation of funds raised by companies through the sale of
securities does not occur, and that investors’ interests and rights are protected. 

REFERENCES
 https://www.ijlmh.com/paper/red-herring-prospectus/
 https://www.investopedia.com/terms/r/redherring.asp


https://www.researchgate.net/publication/346955693_a_short_doctrinal_analysis_on_red
_herring_prospectus_alongwith_judicial_stances
 Company Law- Avtar Singh
 The Companies Act, 2013.

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