This article has been written by Mr.Aditya Jain, a student of Maharishi University of Information Technology
Introduction
A prospectus refers to a legal document by the means of which a Public Company raises the funds subsequently after its incorporation. A vital role by the Promoters is played in the creation of the prospectus. Prospectus is an advertisement, document, notice, through which the public company requests for funds from the public.
Categories of the prospectus are stated as follows.
- Shelf Prospectus
- Red Herring Prospectus
- Deemed Prospectus
- Abridged prospectus
Shelf prospectus definition and applicability as per Companies Act, 2013
Companies of any the class or classes, in accordance with the Securities and Exchange Board rules, might file with the Registrar a shelf prospectus in case of first offer of the securities included within, which shall indicate a timeline not greater than a year as the period of validity of the shelf prospectus that shall begin from the opening day of the primary offer of securities which are listed in that shelf prospectus and in respect of the next or succeeding proposal of such securities that are issued in the period of validity of that shelf prospectus, no additional prospectus is needed.
A company that is filing such shelf prospectus shall be instructed to file with the Registrar an information memorandum including all the practical facts in respect of the new changes, deviations in the company’s economic position that have happened between the original offer of securities or else the former offer of the securities and the subsequent offer of the same and the other prescribed changes, within the specified time, before the issue of a subsequent or succeeding offer of the securities enumerated in the shelf prospectus:
On condition that where the company has before the creation of any of the said change accepted an application of securities’ allotment together with the advance costs of the subscription, the company will communicate the changes to such sort of applicants and in case they plan to remove their application, then the company will refund all the collected funds as subscription in fifteen days therefrom.
When the filing of an information memorandum has been done every single time whenever an offer of the securities has been made then such an information memorandum along with shelf prospectus will be considered as a prospectus
Shelf prospectus denotes a prospectus within which securities or else the classes of securities pronounced in it are presented to the public for subscription without the necessity of a prospectus.
The class or the classes of companies might submit the shelf prospectus to the Registrar in the Form PAS 1, as per Section 31 of the Companies Act, 2013.
Entities authorized to issue a shelf prospectus
The categories of entities which have the authority to issue shelf prospectus are:
- Public Financial Institutions: Public Financial Institutions are those entities the paid-up share of which is obtained by the Central Government to the degree of in excess of 51%. Some of the examples of Public Financial Institutions are Life Insurance Corporation of India and Industrial Finance Corporation of India.
- Public Sector Banks: the banks in which the holding of the State Government or the Central Government or any other public sector bank not less than or equal to 51 per cent are public sector banks.
- Non-banking Finance Companies: Non-banking Finance Companies are corporations that offer a range of financial facilities but then again do not hold a banking license.
- Listed companies: listed company is a sort of establishment the securities of which are listed on the National Stock Exchange, or the Bombay Stock Exchange, or the Calcutta Stock Exchange.
Conditions for issuance of a shelf prospectus
the conditions which the company should obey for issuance of a shelf prospectus are the following:
- The net worth of the establishment should be in excess of Rs.500 crores.
- The company ought to have had made profit throughout the past three years.
- The company must have a plan for the dematerialization of its securities with a Securities and Exchange Board of India -registered depository.
- The company should have a merchant banker registered with the Securities and Exchange Board of India in place meant for the purpose of subscription of securities.
- The entity ought to have selected a debenture trustee in the event debentures are issued.
- An entity ought to have held a credit rating of AA or greater than that from Securities and Exchange Board of India registered agencies for the securities.
- The concern’s promoters or the directors must have a spotless track record in obeying the regulatory compliances.
- The company ought to not have committed any fault on the account of payment of the deposits throughout the prior three years.
- The company ought to have upheld the honesty of its listing contract in the previous three years.
The role of the Information Memorandum
Fluctuations might happen in the company’s economic situation post-filing of shelf prospectus. These fluctuations have to be revealed to the Registrar of Companies through filing of an Information Memorandum in the form PAS-2.
The company ought to file an information Memorandum in the second, third, as well as the fourth offer of the securities that is made under a shelf prospectus.
How is a shelf prospectus useful for an investor?
A shelf prospectus aids the regulators to confirm that the company that is offering the securities is of trustworthy stature, consequently passing the trustworthiness onto the securities which they are offering. By means of a sequence of guidelines, rules and requirements, a corporation can be momentarily yet competently assessed through the shelf prospectus. Nevertheless, it benefits the investors also.
Case Laws
APL Industries Ltd. v. Securities and Exchange Board of India
In this case, Securities and Exchange Board of India instructed the company to repay the amount of the subscription back to subscribers when public issue of shares had been unsubscribed.
Derry v. Peek,
Prospectus of the company comprised that the corporation had been approved to use the steam power in the moving of its trams. In truth, the corporation did not have such a right as that had to be permitted by the Board of Trade. Acquisition of the consent for such a right from the Board had been thought out to be a formality in such kind of situations and the claim had been put in the prospectus by means of this information in observance. Nevertheless, the entitlement of the concern for this right had been later rejected by the Board. The court had held that there was no misstatement within the prospectus and that the Board of Directors is not thought to be guilty of fraud, for the reason that they were true and they stated the declaration in good faith. They had not planned to betray anyone.
Henderson v. Lacon
In this case within the prospectus, it had been contended that directors as well as their friends had subscribed to a large number of shares and they offered to the public only the residual shares. But in truth, the directors had only subscribed to 10 shares each and the court had held that the contract can be rescinded by the subscribers.
Conclusion
Specifying the provision of Section 31 of the Companies Act, 2013 , the term shelf prospectus denotes a prospectus with regard to which securities are distributed for subscription in either one or additional issues done in a specified timeline without the issuing an additional prospectus.
References
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