The (Indian) Companies Act, 2013 ("Companies Act") requires a company to issue an abridged prospectus along with the application form for purchase of securities by public. The Securities and Exchange Board of India ("SEBI") had issued the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 ("Disclosure Regulations") which, amongst others, provide the requirements for disclosures to be made in relation to an abridged prospectus. Specifically, Regulation 58(1) read with the Schedule VIII of the Disclosure Regulations identify the disclosure related requirements for an abridged prospectus.
In light of the pattern of abridged prospectus practically issued by companies, SEBI was of the view that the abridged prospectus have become voluminous which therefore defeat the purpose of 'abridged' prospectus. In order to make the abridged prospectus less voluminous and more reader friendly, SEBI, by way of notification dated 27 October, 2015 issued the SEBI (Issue of Capital and Disclosure Requirements) (Seventh Amendment) Regulations, 2015 ("Amendment Regulations") to amend the disclosure requirements for an abridged prospectus (i.e. Regulation 58(1) read with Schedule VIII of the Disclosure Regulations). The Amendment Regulations require disclosure of 'information' which is material and appropriate to enable the investors to make informed decisions. Such information has to be disclosed in the format specified by SEBI. Accordingly, pursuant to the Amendment Regulations, SEBI issued a circular dated 30 October, 2015 providing the revised format of abridged prospectus to make the abridged prospectus ( a copy of which is to be filed with SEBI) less voluminous and to contain relevant information for the investors to make well informed investment decisions. This is applicable on issues opening for subscription since 1 December, 2015.
The revised format of the abridged prospectus includes, amongst others, the following: brief details related to the top 5 material outstanding litigations against the company and the amount involved; any disciplinary action taken by SEBI or stock exchanges against the promoters/group companies in the last 5 years (including any outstanding action); and details of outstanding criminal proceedings against promoters.
Apart from the disclosures, general instructions have been prescribed for the abridged prospectus regarding, amongst others, the format (such as font, font size, line spacing) and number of pages to not exceed 5 sheets (printed on both sides).
Further, investors have the option to obtain the full prospectus from the market intermediaries associated with the public issue or download from the websites of the stock exchanges, merchant bankers and SEBI.
Additionally, all the information in a prospectus must be true and correct. The Companies Act provides liability for mis-statements in prospectus. If a prospectus is issued which includes any statement which is untrue or misleading or where any inclusion or omission of any matter is likely to mislead, every person who authorizes the issue (unless such person can prove it was immaterial or he/she had reasonable grounds to believe that it was immaterial) will be liable for the offence of 'fraud' provided under the Companies Act. Further, if any loss is sustained as a consequence of misleading statement or omission, the company and every person who, amongst others, is a director at the time of issuance of prospectus; or authorised himself to be named director and is named director or agreed to become director either immediately or after an interval of time; or is a promoter; or authorised issuance of prospectus, will be liable to pay compensation (unless it is either proved that he/she withdrew consent before issuance of prospectus and it was issued without consent or it is proved that the prospectus was issued without his/her knowledge/consent and on becoming aware a reasonable public notice was issued that the issuance was without knowledge/consent). Accordingly, D&O insurance may cover such risks related to mis-statements in prospectus, the extent of which may vary from policy to policy.
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