12.5.10 (Abridged Form of Prospectus)

Section 56(3) requires that no one shall issue any form of application for shares in or debentures of a company unless the same is accompanied by a memorandum (Known as 'Abridged Prospectus') containing such salient features of prospectus as may be prescribed. Thus, instead of appending full prospectus, an 'abridged prospectus' need only be appended to the application form.

In order to provide for greater disclosure of information to prospective investors so as to enable them to take an informed decision regarding investment in shares and debentures, Form 2-A has been prescribed as a format of abridged prospectus. It is further required that the abridged prospectus and the share application form should bear the same printed number and the two should be separated by a perforated line. Accordingly, the investor may detach the application form before submitting the same to the company or the designated bankers.

When ' abridged prospectus' not necessary. In the following circumstances, an 'abridged prospectus' containing the prescribed particulars as per Form 2A need not accompany the application forms:

            (i) In the case of a bona fide invitation to a person to enter into an underwriting agreement with respect to the shares or debentures [s.56 (3) (a)].

            (ii) When shares or debentures are not offered to the public [s.56 (3) (a)].
            (iii) Where offer is made only to existing members/debenture holders of the company by way of rights, whether with or without the right of renunciation[s.56(5) (a)].

            (iv) In the case of issue of shares or debentures which are in all respects Similar to those previously issued and dealt in and quoted on a recognised stock exchange [s.56(s) (b)].

Penalty: Non-compliance of the aforesaid provisions by any person shall attract punishment in terms of fine which may extend to Rs 5,000.

Besides, the omission from a prospectus of a matter required to be included by s.56 may give rise to an action for damage at the instance of a subscriber for share or debentures who has suffered loss thereby. It should be noted that the Act does not say that directors shall be liable, but this seems to be implied from s.56 (4).