legal importance of prospectus
mahendrakumar
(Querist) 21 November 2009
This query is : Resolved
what is the legal importance of prospectus as a document/evidence?
can any adverse clauses not explicitly mentioned in the prospectus legally sustainable/enforceable?
Raj Kumar Makkad
(Expert) 21 November 2009
Prospectus duly proved is an important evidence to be taken into consideration and if anything contrary has deliberately been suppressed therefrom can be taken as adversely.
A V Vishal
(Expert) 21 November 2009
S.56. of the Companies Act, 1956 states the Matters to be stated and reports to be set out in prospectus
(1) Every prospectus issued-
(a) by or on behalf of a company, or
(b) by or on behalf of any person who is or has been engaged or interested in the formation of a company, shall state the matters specified in Part I of Schedule II and set out the reports specified in Part II of that Schedule; and the said Parts I and II shall have effect subject to the provisions contained in Part III of that Schedule.
(2) A condition requiring or binding an applicant for shares in or debentures of a company to waive compliance with any of the requirements of this section, or purporting to affect him with notice of any contract, document or matter not specifically referred to in the prospectus, shall be void.
(3) No one shall issue any form of application for shares in or debentures of a company, unless the form is accompanied 1[by a memorandum containing such salient features of a prospectus as may be prescribed] which complies with the requirements of this section:
2[Provided that a copy of the prospectus shall, on a request being made by any person before the closing of the subscription list, be furnished to him:
Provided further that] this sub-section shall not apply if it is shown that the form of application was issued either-
(a) in connection with a bona fade invitation to a person to enter into an underwriting agreement with respect to the shares or debentures; or
(b) in relation to shares or debentures which were not offered to the public.
If any person acts in contravention of the provisions of this sub-section, he shall be punishable with fine which may extend to 3[fifty thousand rupees].
(4) A director or other person responsible for the prospectus shall not incur any liability by reason of any non-compliance with, or contravention of, any of the requirements of this section, if-
(a) as regards any matter not disclosed, he proves that he had no knowledge thereof; or
(b) he proves that the non-compliance or contravention arose from an honest mistake of fact on his part; or
(c) the non-compliance or contravention was in respect of matters which, in the opinion of the Court dealing with the case, 4[were immaterial], or was otherwise such as ought, in the opinion of that Court, having regard to all the circumstances of the case, reasonably to be excused:
Provided that no director or other person shall incur any liability in respect of the failure to include in a prospectus a statement with respect to the matters specified in clause 18 of Schedule II, unless it is proved that he had knowledge of the matters not disclosed.
(5) This section shall not 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 for shares or debentures will or will not have the right to renounce in favour of other persons; 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;
but subject as aforesaid, this section shall apply to a prospectus or a form of application, whether issued on or with reference to the formation of a company or subsequently.
(6) Nothing in this section shall limit or diminish any liability which any person may incur under the general law or under this Act apart from this section.
62. Civil liability for misstatements in prospectus
(1) Subject to the provisions of this section, where a prospectus invites persons to subscribe for shares in or debentures of a company, the following persons shall be liable to pay compensation to every person who subscribes for any shares or debentures on the faith of the prospectus for any loss or damage he may have sustained by reason of any untrue statement included therein, that is to say,-
(a) Every person who is a director of the company at the time of the issue of the prospectus;
(b) Every person who has authorised himself to be named and is named in the prospectus either as a director, or as having agreed to become a director, either immediately or after an interval of time;
(c) Every person who is a promoter of the company; and
(d) Every person who has authorised the issue of the prospectus:
Provided that where, under section 58, the consent of a person is required to the issue of a prospectus and he has given that consent, or where under 1[***] sub-section (3) of section 60, the consent of a person named in a prospectus is required and he has given that consent, he shall not, by reason of having given such consent, be liable under this sub-section as a person who has authorised the issue of the prospectus except in respect of an untrue statement, if any purporting to be made by him as an expert.
(2) No person shall be liable under sub-section (1), if he proves-
(a) That, having consented to become a director of the company, he withdrew his consent before the issue of the prospectus, and that it was issued without his authority or consent;
(b) that the prospectus was issued without his knowledge or consent, and that on becoming aware of its issue, he forthwith gave reasonable public notice that it was issued without his knowledge or consent;
(c) that, after the issue of the prospectus and before allotment thereunder, he, on becoming aware of any untrue statement therein, withdrew his consent to the prospectus and gave reasonable public notice of the withdrawal and of the reason therefor; or
(d) that-
(i) as regards every untrue statement not purporting to be made on the authority of an expert or of a public official document or statement, he had reasonable ground to believe, and did up to the time of the allotment of the shares or debentures, as the case may be, believe, that the statement was true; and
(ii) as regards every untrue statement purporting to be a statement by an expert or contained in what purports to be a copy of or an extract from a report or valuation of an expert, it was a correct and fair representation of the statement, or a correct copy of, or a correct and fair extract from, the report or valuation; and he had reasonable ground to believe, and did up to the time of the issue of the prospectus believe, that the person making the statement was competent to make it and that that person had given the consent required by section 58 to the issue of the prospectus and had not withdrawn that consent before delivery of a copy of the prospectus for registration or, to the defendant's knowledge, before allotment thereunder; and
(iii) as regards every untrue statement purporting to be a statement made by an official person or contained in what purports to be a copy of or extract from a public official document, it was a correct and fair representation of the statement, or a correct copy of or a correct and fair extract from, the document:
Provided that this sub-section shall not apply in the case of a person liable, by reason of his having given a consent required of him by section 58, as a person who has authorised the issue of the prospectus in respect of an untrue statement, purporting to be made by him as an expert.
(3) A person who, apart from this sub-section, would, under sub-section (1), be liable by reason of his having given a consent required of him by section 58 as a person who has authorised the issue of a prospectus in respect of an untrue statement, purporting to be made by him as an expert, shall not be so liable, if he proves-
(a) that, having given his consent under section 58 to the issue of the prospectus, he withdrew it in writing before delivery of a copy of the prospectus for registration;
(b) that, after delivery of a copy of the prospectus for registration and before allotment thereunder, he, on becoming aware of the untrue statement, withdrew his consent in writing and gave reasonable public notice of the withdrawal and of the reason therefor; or
(c) that he was competent to make the statement and that he has reasonable ground to believe, and did up to the time of the allotment of the shares or debentures, believe, that the statement was true.
(4) Where-
(a) the prospectus specifies the name of a person as a director of the company, or as having agreed to become a director thereof, and he has not consented to become a director, or has withdrawn his consent before the issue of the prospectus, and has not authorised or consented to the issue thereof; or
(b) the consent of a person is required under section 58 to the issue of the prospectus and he either has not given that consent or has withdrawn it before the issue of the prospectus;
the directors of the company excluding those without whose knowledge or consent the prospectus was issued, and every other person who authorised the issue thereof, shall be liable to indemnify the person referred to in clause (a) or clause (b), as the case may be, against all damages, costs and expenses to which he may be made liable by reason of his name having been inserted in the prospectus or of the inclusion therein of a statement purporting to be made by him as an expert, as the case may be, or in defending himself against any suit or legal proceeding brought against him in respect thereof:
Provided that a person shall not be deemed for the purposes of this sub-section to have authorised the issue of a prospectus by reason only of his having given the consent required by section 58 to the inclusion therein of a statement purporting to be made by him as an expert.
(5) Every person who, becomes liable to make any payment by virtue of this section, may recover contribution, as in cases of contract, from any other person who, if sued separately, would have been liable to make the same payment, unless the former person was, and the latter person was not, guilty of fraudulent misrepresentation.
(6) For the purposes of this section-
(a) the expression "promoter" means a promoter who was a party to the preparation of the prospectus or of the portion thereof containing the untrue statement, but does not include any person by reason of his acting in a professional capacity for persons engaged in procuring the formation of the company; and
(b) the expression "expert" has the same meaning as in section 58.
63. Criminal liability for misstatements in prospectus
(1) Where a prospectus issued after the commencement of this Act includes any untrue statement, every person who authorised the issue of the prospectus shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to 1[fifty thousand rupees], or with both, unless he proves either that the statement was immaterial or that he had reasonable ground to believe, and did up to the time of the issue of the prospectus believe, that the statement was true.
(2) A person shall not be deemed for the purposes of this section to have authorised the issue of a prospectus by reason only of his having given--
(a) the consent required by section 58 to the inclusion therein of a statement purporting to be made by him as an expert, or
(b) the consent required by 2[***] sub-section (3) of section 60.
G V S Jagannadha Rao
(Expert) 21 November 2009
I presume your difficulty is with relation to some educational course. A prospectus is only a document which notifies the various courses offered by an educational institution, the eligibility to join teh course and selection procedure etc and may not contain all rules and regualtions governing the graning of degree or certificate of successful completion of the course. The Rules of the University prevails over any prospectus.Therefore even if the prospectus is silent on any aspect, the rule of the University prevails. Prospectus surely has evidentiary value. You may file it in court and mark it, subject to other rules that may prevail over prospectus.
G V S Jagannadha Rao
(Expert) 21 November 2009
Mr. Vihshal has covered the Company law aspect of a prospectus well.
Sachin Bhatia
(Expert) 21 November 2009
Prospectus duly proved is an important evidence to be taken in the context of the case.
mahendrakumar
(Querist) 21 November 2009
thanks a lot to all for quick response.
my query was with respect to an admission to the management quota of a professional college and subsequent withdrawal of admission at own request before the closing of admission. we were forced to pay rs.3 lakh as 4 years tuition fee for release of tc and certificate of my son.
nothing regarding this penalty on withdrawal of admission was mentioned in the prospectus of admission other than a simple reference of refund of fees as per govt policy.
management has told us that they had some agreement with govt of kerala with regards to these penalties to be imposed.
the so called agreement any with the govt is not a published document nor publicly available.
on contacting the concerned university,they expressed their helplessness in the issue saying that,university has no control or jurisdiction over the private self financing colleges over fees structure or refund of fees etc.
G V S Jagannadha Rao
(Expert) 21 November 2009
You may explore the possibility of filing a writ petition, against Kerala Govt Higher Education Dept where you can also add the private college as a party to claim refund of fees. You can challenge any agreement of the Governemnt which is opposed to public policy or unilateral.
Since the amount involved is huge it may be worthwhile to consult a good advocate in Trivandrum.
bhupender sharma
(Expert) 22 November 2009
u may file a R.T.I. application seeking all the information in this regard.thereafter u may by extracting those information file a writ petition before high court for declaring those clauses as ultra vires or the same be struck down being oppose to public policy.
mahendrakumar
(Querist) 23 November 2009
thanks again for quick respons.
i had already raised RTI with govt, University and aicte to know the details and their stand in this regard.
as per the legal opinion i had received so far,i intend to raise a consumer case at district forum initially under the clause of unfair trade practice under consumer protection act.
any suggestions from all in this regard would be highly appreciated.
