Companies Act Section 26 — Matters to be stated in prospectus

CHAPTER III PROSPECTUS AND ALLOTMENT OF SECURITIES

Commercial / Corporate

Summary

Sub-section (1) requires every prospectus issued by or on behalf of a public company, whether at its formation or later, or by anyone involved in forming the company, to be dated and signed. It must state the information and set out the financial reports specified by the Securities and Exchange Board in consultation with the Central Government. Until such specifications are made, the regulations on financial information made by the Securities and Exchange Board under the Securities and Exchange Board of India Act, 1992, will apply. The prospectus must also include a declaration that the provisions of this Act have been complied with, and a statement that nothing in the prospectus is contrary to this Act, the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, and the rules and regulations made under those Acts.

Sub-section (2) states that the requirements of sub-section (1) do not apply in two situations. Under clause (a), they do not apply to a prospectus or application form issued to existing members or debenture-holders of a company for shares or debentures of that company, whether or not the applicant has a right to renounce the shares in favour of someone else under section 62. Under clause (b), they do not apply to a prospectus or application form for shares or debentures that are, or will be, in all respects identical to shares or debentures already issued and currently traded or quoted on a recognised stock exchange.

Sub-section (3) says that, subject to sub-section (2), the requirements of sub-section (1) apply to a prospectus or application form, whether issued at the formation of a company or later. The explanation clarifies that the date shown on the prospectus is treated as the date of its publication.

Sub-section (4) prohibits issuing a prospectus by or on behalf of a company, or in relation to a proposed company, unless a signed copy has been delivered to the Registrar for filing on or before the date of publication. The copy must be signed by every person named in the prospectus as a director or proposed director, or by their authorised attorney.

Sub-section (5) states that a prospectus issued under sub-section (1) must not include a statement purporting to be made by an expert unless that expert is not, and has not been, involved in the formation, promotion, or management of the company. The expert must also have given written consent to the prospectus's issue and must not have withdrawn that consent before the copy is delivered to the Registrar for filing. A statement to this effect must be included in the prospectus.

Sub-section (6) requires every prospectus issued under sub-section (1) to state on its face that a copy has been delivered for filing to the Registrar as required under sub-section (4). It must also specify any documents required by this section to be attached to that copy, or refer to statements in the prospectus that specify these documents.

Sub-section (8) provides that no prospectus is valid if it is issued more than ninety days after the date on which a copy of it is delivered to the Registrar under sub-section (4).

Sub-section (9) sets out the penalties for issuing a prospectus in violation of this section. The company is punishable with a fine of not less than fifty thousand rupees, which may extend to three lakh rupees. Every person who knowingly is a party to the issue of such a prospectus is also punishable with a fine of not less than fifty thousand rupees, which may extend to three lakh rupees.

Official Text

(1) Every prospectus issued by or on behalf of a public company either with reference to its formation or subsequently, or by or on behalf of any person who is or has been engaged or interested in the formation of a public company, shall be dated and signed and shall, 1[state such information and set out such reports on financial information as may be specified by the Securities and Exchange Board in consultation with the Central Government: Provided that until the Securities and Exchange Board specifies the information and reports on financial information under this sub-section, the regulations made by the Securities and Exchange Board under the Securities and Exchange Board of India Act, 1992 (15 of 1992), in respect of such financial information or reports on financial information shall apply]; — 1* * * * *

(c) make a declaration about the compliance of the provisions of this Act and a statement to the effect that nothing in the prospectus is contrary to the provisions of this Act, the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the rules and regulations made thereunder; and 2* * * * *

(2) Nothing in sub-section (1) shall apply—

(a) to the issue to existing members or debenture-holders of a company, of a prospectus or form of application relating to shares in or debentures of the company, whether an applicant has a right to renounce the shares or not under sub-clause (ii) of clause (a) of sub-section (1) of section 62 in favour of any other person; or

(b) to the issue of a prospectus or form of application relating to shares or debentures which are, or are to be, in all respects uniform with shares or debentures previously issued and for the time being dealt in or quoted on a recognised stock exchange.

(3) Subject to sub-section (2), the provisions of sub-section (1) shall apply to a prospectus or a form of application, whether issued on or with reference to the formation of a company or subsequently.

Explanation.—The date indicated in the prospectus shall be deemed to be the date of its publication.

(4) No prospectus shall be issued by or on behalf of a company or in relation to an intended company unless on or before the date of its publication, there has been delivered to the Registrar for 2[filing], a copy thereof signed by every person who is named there in as a director or proposed director of the company or by his duly authorised attorney.

(5) A prospectus issued under sub-section (1) shall not include a statement purporting to be made by an expert unless the expert is a person who is not, and has not been, engaged or interested in the formation or promotion or management, of the company and has given his written consent to the issue of the prospectus and has not withdrawn such consent before the delivery of a copy of the prospectus to the Registrar for 1[filing] and a statement to that effect shall be included in the prospectus.

(6) Every prospectus issued under sub-section (1) shall, on the face of it,—

(a) state that a copy has been delivered for 1[filing] to the Registrar as required under sub-section (4); and

(b) specify any documents required by this section to be attached to the copy so delivered or refer to statements included in the prospectus which specify these documents. 3* * * * *

(8) No prospectus shall be valid if it is issued more than ninety days after the date on which a copy thereof is delivered to the Registrar under sub-section (4).

(9) If a prospectus is issued in contravention of the provisions of this section, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees and every person who is knowingly a party to the issue of such prospectus shall be punishable 4*** with fine which shall not be less than fifty thousand rupees but which may extend to 5[three lakh rupees].