This article has been written by Ms. Ankita Bharti, a 2nd year LL.B  student from Faculty Of Law, Delhi University.

An abridged prospectus is a condensed version of a company’s prospectus that is intended to provide potential investors with key information about a securities offering. It is often used in initial public offerings (IPOs) and other types of public offerings, and serves as a tool for companies to raise capital and investors to make informed decisions.

The abridged prospectus includes the most important information about the company, its operations, and its securities, and is designed to be easily understandable for the average investor. It typically contains a summary of the company’s financial performance, risk factors, and details about the securities being offered, including their pricing and how they will be traded.

One of the key benefits of an abridged prospectus is that it allows potential investors to quickly assess whether or not they are interested in investing in a particular company or securities offering. This is important because many investors are busy and don’t have the time or resources to thoroughly analyze a full-length prospectus.

An abridged prospectus is a shorter version of a prospectus that companies issue to provide information to investors. It is a document that outlines the key features of the investment, such as the price, the risks involved, and any other relevant information. The abridged prospectus is typically issued alongside a full prospectus, which provides more detailed information about the investment. In this article, we will discuss the concept of abridged prospectus, its purpose, recent developments, examples, and case laws.

Concept of Abridged Prospectus

An abridged prospectus is a condensed version of a full prospectus that is provided to potential investors. It contains key information that an investor needs to know before investing in a company or securities. An abridged prospectus typically includes details about the company, such as its history, operations, financials, management, and any potential risks involved with investing in the company. The purpose of the abridged prospectus is to provide investors with a quick overview of the investment opportunity, while the full prospectus provides more detailed information.

The abridged prospectus is typically issued as part of the initial public offering (IPO) process, where companies go public and offer shares to the public for the first time. The abridged prospectus provides potential investors with an overview of the investment opportunity, allowing them to make informed decisions about whether to invest in the company.

Purpose of Abridged Prospectus

The primary purpose of the abridged prospectus is to provide investors with key information about the investment opportunity. This information helps investors to make informed decisions about whether to invest in a company or securities. The abridged prospectus is designed to be easy to read and understand, allowing investors to quickly assess the investment opportunity.

The abridged prospectus typically includes information such as:

• Company history and operations
• Management and board of directors
• Financials and performance metrics
• Potential risks and uncertainties involved in the investment

The abridged prospectus also serves as a marketing tool for the company, helping to generate interest and attract potential investors. By providing key information about the investment opportunity, the abridged prospectus helps to build confidence in the company and its management team.

Recent Developments

The Securities and Exchange Board of India (SEBI) has made several recent developments regarding the abridged prospectus. In March 2021, SEBI issued new guidelines regarding the format and content of the abridged prospectus for public issue of equity shares and convertible securities. The new guidelines are aimed at improving the quality of disclosure and ensuring that investors are provided with accurate and complete information.

Under the new guidelines, the abridged prospectus must contain the following information:

• Company overview and industry overview
• Financial information and performance metrics
• Management and board of directors
• Capital structure and shareholding pattern
• Risk factors
• Other regulatory and statutory disclosures

The abridged prospectus must also include a section on “Objects of the Issue,” which provides information about how the funds raised from the public issue will be used.

In addition to the new guidelines, SEBI has also introduced a system for online filing of abridged prospectus. This system allows companies to file their abridged prospectus electronically, making it easier and more efficient to comply with regulatory requirements.

Examples

One recent example of an abridged prospectus is the one issued by Zomato Limited, a food delivery and restaurant discovery platform based in India. The company went public in July 2021, offering shares to the public through an initial public offering (IPO). As part of the IPO process, the company issued an abridged prospectus, providing potential investors with key information about the investment opportunity.

The abridged prospectus included information about the company’s history, operations, financials, and management team.

The abridged prospectus typically includes the following sections:

Introduction: This section provides an overview of the company and its securities offering. It may include a brief history of the company, its business model, and its future plans.

Risk factors: This section outlines the risks associated with investing in the company’s securities. This may include risks related to the company’s industry, competition, regulatory environment, and other factors that could affect its performance.

Financial information: This section provides an overview of the company’s financial performance. It may include information about the company’s revenue, expenses, profitability, and other key financial metrics.

Management: This section provides information about the company’s management team, including their experience and qualifications. It may also include information about the company’s board of directors and any other key personnel.

Securities offering: This section provides details about the securities being offered, including their pricing, how they will be traded, and any other relevant information.

The abridged prospectus is typically distributed to potential investors in advance of an offering, either in print or online. It is important for investors to read the abridged prospectus carefully and to seek advice from a financial professional if they have any questions or concerns.

It is worth noting that an abridged prospectus is not a replacement for a full-length prospectus. While it provides key information about a securities offering, it does not provide the same level of detail and analysis that a full-length prospectus does.

In addition, investors should be aware that an abridged prospectus is typically written by the company offering the securities, and may therefore be biased in favor of the company. Investors should therefore conduct their own research and analysis before making any investment decisions.

CASE LAWS

Sahara India Real Estate Corporation Ltd. and Sahara Housing Investment Corporation Ltd. vs Securities and Exchange Board of India (SEBI)

In this case, SEBI had ordered the Sahara group to refund over Rs 24,000 crore to investors for violating the regulations related to issuance of securities. Sahara had issued optionally fully convertible debentures (OFCDs) to the public without filing a prospectus. Instead, they had issued a document called “information memorandum,” which was considered an abridged prospectus. However, SEBI held that the document did not contain all the necessary information required by law and thus ordered the refund. The Sahara group challenged the order in the Supreme Court, but the court upheld SEBI’s order.

This case highlights the importance of complying with regulatory requirements while issuing an abridged prospectus. Companies must ensure that all necessary information is provided in the abridged prospectus, failing which they may face legal consequences.

Sebi vs Edserv Softsystems Ltd.

In this case, SEBI had imposed a penalty on Edserv Softsystems Ltd. for failing to provide complete and accurate information in its abridged prospectus. The company had issued an abridged prospectus for an IPO in which it had failed to disclose certain material information, such as its financial performance for the previous year. SEBI found that the company had violated the provisions of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR Regulations) and imposed a penalty of Rs 10 lakh.

This case highlights the importance of providing complete and accurate information in the abridged prospectus. Companies must ensure that all material information is disclosed in the abridged prospectus to avoid penalties and legal consequences.

Securities and Exchange Board of India vs Prakash Industries Ltd.

In this case, SEBI had ordered Prakash Industries Ltd. to refund the money collected from investors for violating the regulations related to issuance of securities. The company had issued an abridged prospectus for an IPO in which it had failed to disclose certain material information, such as its litigation history and the risk factors involved in the investment. SEBI found that the company had violated the provisions of the ICDR Regulations and ordered the refund. The company challenged the order in the Securities Appellate Tribunal (SAT), but the SAT upheld SEBI’s order.

This case highlights the importance of providing complete and accurate information in the abridged prospectus. Companies must ensure that all material information is disclosed in the abridged prospectus to avoid penalties and legal consequences.

CONCLUSION

In summary, an abridged prospectus is a condensed version of a company’s prospectus that is intended to provide potential investors with key information about a securities offering. It is an important tool for companies to raise capital and for investors to make informed decisions, but it is not a replacement for a full-length prospectus and investors should conduct their own research and analysis before investing. The abridged prospectus is an important document that provides investors with key information about the investment opportunity. Companies must ensure that they comply with regulatory requirements and provide complete and accurate information in the abridged prospectus to avoid legal consequences. The case laws discussed above provide guidance on the legal obligations and responsibilities of companies when issuing an abridged prospectus to investors. Companies must learn from these case laws and ensure that they follow best practices while issuing an abridged prospectus.

REFERENCES:

1. www.angelone,in
2. www.upstox.com
3. www.myespresso.com
4. www.indiafilings.com
5. Sahara India Real Estate Corporation Ltd. and Sahara Housing Investment Corporation Ltd. vs Securities and Exchange Board of India (SEBI)
6. Sebi vs Edserv Softsystems Ltd. Case
7. Securities and Exchange Board of India vs Prakash Industries Ltd.