Meaning of Prospectus

A prospectus is defined under Section 2(70) as any document inviting offers from the public for the subscription or purchase of shares or debentures of a company. It is the primary disclosure document through which a company raises capital from the public.

Contents of a Prospectus (Section 26 + SEBI ICDR Regulations)

Under Section 26(1), every prospectus issued by a public company must contain the following:

Contents of a Prospectus

#	Content
1	Identity of the company: Name, address of registered office, CIN, dates of incorporation.
2	Directors, promoters, auditors, legal advisors: Names, addresses, designations, and descriptions.
3	Issue details: Dates of opening and closing of the issue, nature and number of securities offered, price.
4	Objects of the issue: Purpose for which funds are being raised (e.g., expansion, working capital, debt repayment).
5	Separate bank account declaration: Board's statement that funds shall be deposited in a separate scheduled bank account (Section 40).
6	Capital structure: Authorized, issued, subscribed, and paid-up capital; promoter's shareholding details.
7	Underwriting: Details of underwriting arrangements, if any.
8	Financial statements: Audited accounts for 3 preceding financial years.
9	Risk factors: Business risks, regulatory risks, and other material risks.
10	Management Discussion & Analysis (MD&A): Management's view on financial condition and results of operations.
11	Litigation details: Material pending litigations, disputes, or government investigations.
12	Minimum subscription: Statement that if minimum 90% of the issue is not subscribed, the offer will be withdrawn and all money refunded.
13	Consents: Written consents of experts, auditors, and other persons included in the prospectus (Section 26(5)).
14	Declaration: Signed declaration by directors that the prospectus complies with all provisions of the Act.

In addition, SEBI ICDR (Issue of Capital and Disclosure Requirements) Regulations 2018 prescribe detailed disclosures for listed companies, including a red herring prospectus (containing all disclosures except the price and quantum of shares) and a shelf prospectus (valid for 1 year).

Liabilities for Misstatements in Prospectus

A. Civil Liability — Section 35:

Every person who authorised the issue of a prospectus is liable to compensate every person who subscribed for securities on the faith of the prospectus for any loss or damage sustained by reason of any untrue or misleading statement.

Persons liable include:

• Every director of the company at the time of issue.
• Every person who has authorized himself to be named and is named in the prospectus as a director or proposed director.
• Every promoter of the company.
• Every person who has authorized the issue of the prospectus.
• Every expert who has given a consent for his opinion or report to appear in the prospectus.

Defenses available (Section 35(2)):

1. He had reasonable grounds to believe that the statement was true and continued to believe it up to the time of allotment.
2. The statement was a fair and reasonable reproduction of an official/public document.
3. He withdrew his consent before the prospectus was registered and reasonable public notice was given.
4. The statement was made by an expert on whose authority it was included, and the expert had given consent and did not withdraw it.

B. Criminal Liability — Section 34:

Where a prospectus includes any statement which is untrue or misleading in form or context or omits any material fact — and is issued with intent to defraud — every person who authorised the issue is guilty of fraud under Section 447.

Punishment under Section 447

Nature of Fraud	Imprisonment	Fine
Ordinary fraud	6 months to 10 years	Minimum equal to amount involved; up to 3 times amount involved
Fraud on public interest (involves ₹10 lakh or more)	3 to 10 years	Minimum equal to amount involved; may extend to 3 times

C. Section 36 — Inducement by Fraudulent Misrepresentation:

Any person who knowingly induces another person to subscribe for securities by making a fraudulent representation, or concealing a material fact, is also liable for fraud under Section 447.

Conclusion

A prospectus is the investor's primary source of information; accuracy and completeness are therefore paramount. The Companies Act, 2013 provides both civil and criminal remedies to protect investors against misstatements. Civil liability ensures compensation; criminal liability under Section 447 acts as a deterrent against fraudulent misrepresentation.