Background                                                        

Section 26 of the Companies Act, 2013 prescribes mandatory requirements for contents, issuance, filing, and validity of prospectuses issued by public companies. A prospectus is a formal disclosure document inviting public subscription for securities and must comply with strict statutory and regulatory requirements.

Compliance Requirements for Prospectus

Dating and Signing (Section 26(1))

Every prospectus issued by or on behalf of a public company must be:

• • Dated – The date indicated shall be deemed the date of publication (Section 26(3) Explanation)
  • Signed by persons authorized under Section 26(4)

Information and Reports (Section 26(1) – Proviso)

The prospectus shall state such information and set out such reports on financial information as specified by:

• • Primary Authority: Securities and Exchange Board of India (SEBI) in consultation with Central Government
  • Interim Application: Until SEBI specifies requirements, SEBI regulations under the SEBI Act, 1992 regarding financial information shall apply

Mandatory Declarations and Statements

Compliance Declaration (Section 26(1)(c))

Every prospectus must contain:

1. Declaration of Compliance

• • Statement confirming compliance with provisions of the Companies Act, 2013

2. No Contravention Statement Declaration that nothing in the prospectus is contrary to:

• • Companies Act, 2013
  • Securities Contracts (Regulation) Act, 1956
  • Securities and Exchange Board of India Act, 1992
  • Rules and regulations made under these Acts

Exemptions from Section 26(1) Requirements

Non-Applicability (Section 26(2))

Section 26(1) does NOT apply to:

(a) Rights Issue to Existing Members/Debenture-holders

• • Prospectus/application form relating to shares or debentures issued to existing members or debenture-holders
  • Under Section 62(1)(a)(ii) (rights issue)
  • Whether or not the applicant has right to renounce in favor of another person

(b) Uniform Securities Already Listed

• • Prospectus/application form for shares or debentures that are (or will be) in all respects uniform with:
    • Securities previously issued, AND
    • Currently dealt in or quoted on a recognized stock exchange

Scope of Application (Section 26(3))

Subject to exemptions in Section 26(2), the requirements apply to prospectuses issued:

• • On or with reference to company formation, OR
  • Subsequently (after formation)

Filing Requirements with Registrar

Pre-Publication Filing (Section 26(4))

Timeline: On or before the date of publication

Filing Requirement: No prospectus shall be issued unless a copy has been delivered to the Registrar for filing, signed by:

• • Every person named as director or proposed director, OR
  • Their duly authorized attorney

Face of Prospectus Statement (Section 26(6))

Every prospectus must state on its face:

(a) Filing Confirmation

• • Statement that a copy has been delivered to Registrar for filing as per Section 26(4)

(b) Document Specification

• • Specification of documents required to be attached to the filed copy, OR
  • Reference to statements in prospectus specifying these documents

Expert Statements in Prospectus

Requirements for Expert Inclusion (Section 26(5))

A prospectus shall NOT include a statement purporting to be made by an expert unless:

1. Independence Criteria The expert must be a person who:

• • Is NOT engaged or interested in formation, promotion, or management of the company
  • Has NOT been engaged or interested in formation, promotion, or management of the company

2. Written Consent The expert must have:

• • Given written consent to issue of prospectus
  • NOT withdrawn such consent before delivery of prospectus copy to Registrar for filing

3. Consent Statement

• • A statement confirming expert’s consent must be included in the prospectus

Validity Period

90-Day Validity Rule (Section 26(8))

Critical Requirement: No prospectus shall be valid if issued more than 90 days after the date on which a copy is delivered to the Registrar under Section 26(4)

Variation in Terms of Contract or Objects in Prospectus to be approved in EGM (Section 27(1) & Rule 7 of The Companies (Prospectus and Allotment of Securities) Rules, 2014)

1. Company to pass a special resolution in EGM before undertaking Variation in Terms of Contract or Objects in Prospectus
2. The advertisement of the notice for getting the resolution passed for varying the terms of any contract referred to in the prospectus or altering the objects for which the prospectus was issued, shall be in Form PAS-1 and such advertisement shall be published simultaneously with dispatch of Postal Ballot Notices to Shareholders.
3. The notice shall also be placed on the web-site of the company, if any.

Penalties for Non-Compliance

Contravention of Section 26 (Section 26(9))

For the Company:

• Minimum Fine: ₹50,000
• Maximum Fine: ₹3,00,000

For Every Person Knowingly Party to Issue:

• Minimum Fine: ₹50,000
• Maximum Fine: ₹3,00,000

“Knowingly a party” includes:

• Directors
• Promoters
• Officers authorizing issuance
• Any person involved in contravention with knowledge