Chapter 3: Prospectus and Allotment of Securities - Test 2: answer key

Question 1 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Scenario. Pragati Capital Markets Ltd (PCML) is a merchant banking and issuing house. On 3 April 2026, Nirmaan Foods Ltd allotted 40 lakh equity shares to PCML at Rs. 95 per share, with the understanding that PCML would offer these shares for sale to the public. PCML paid the full consideration of Rs. 38 crore to Nirmaan Foods on the date of allotment. On 20 May 2026, PCML issued a document offering the shares to the public at Rs. 112 per share. The document stated the net amount received as consideration for the securities and the time and place at which the underlying allotment contract could be inspected. However, it did not state that the persons making the offer were named in the prospectus as directors of Nirmaan Foods. The document was signed by only one director of PCML. The company's legal adviser asserts that no deemed prospectus arises because the shares were allotted to PCML and Nirmaan Foods did not itself make any offer to the public. Separately, Nirmaan Foods made a rights issue to existing members with a right of renunciation in favour of others; the number of renouncees exceeded fifty. The company did not treat the rights offer document as a prospectus. The Board seeks advice on the applicability of Section 25, the consequences of the omissions in PCML's document, and the status of the rights issue document.

Is the document issued by PCML on 20 May 2026 a deemed prospectus under Section 25 of the Companies Act, 2013?

1. No, because Nirmaan Foods did not itself issue any document offering securities to the public.
2. Yes, because the allotment to PCML was made with a view to offering the securities to the public and the offer was made within six months of allotment. (correct answer)
3. No, because PCML paid the full consideration to Nirmaan Foods on the date of allotment.
4. Yes, but only if the offer had been made within thirty days of the date of allotment.

Answer: B — Yes, because the allotment to PCML was made with a view to offering the securities to the public and the offer was made within six months of allotment.

Explanation. Section 25(1) deems the document to be a prospectus where a company allots or agrees to allot securities with a view to those securities being offered for sale to the public. Section 25(2)(a) presumes that view where the offer is made within six months of allotment. The allotment was on 3 April 2026 and the offer on 20 May 2026, well within six months. Payment of full consideration only affects the presumption under Section 25(2)(b); it does not defeat the Section 25(1) deeming when the six-month condition is met.

Where it goes wrong. Treating payment of full consideration as an absolute bar to deemed prospectus status, or requiring Nirmaan Foods itself to make the offer.

Authority. Section 25(1) of the Companies Act, 2013; Section 25(2) of the Companies Act, 2013

Question 2 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

Which matter required by Section 25(3) is missing from PCML's document?

1. A statement of the net amount received or to be received as consideration for the securities.
2. The time and place at which the underlying contract for allotment may be inspected.
3. A statement that the persons making the offer were named in the prospectus as directors of the company. (correct answer)
4. A statement of the closing price of the securities on the recognised stock exchange.

Answer: C — A statement that the persons making the offer were named in the prospectus as directors of the company.

Explanation. Section 25(3) requires three additional matters in a deemed prospectus: the net amount received or to be received as consideration, the time and place for inspection of the underlying allotment contract, and a statement that the persons making the offer were named in the prospectus as directors of the company. The first two were stated; the third was omitted. The closing price is not a Section 25(3) requirement.

Where it goes wrong. Confusing the Section 25(3) disclosure with the Section 32(4) closing-price disclosure applicable to a red herring prospectus.

Authority. Section 25(3) of the Companies Act, 2013

Question 3 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

PCML's document was signed by only one director. Is this sufficient compliance with Section 25(4)?

1. Yes, because one director may sign if authorised by the Board of PCML.
2. Yes, because a deemed prospectus is not required to be signed at all.
3. No, because the document must be signed by every director of PCML.
4. No, because it is sufficient only if the document is signed by two directors on behalf of the company. (correct answer)

Answer: D — No, because it is sufficient only if the document is signed by two directors on behalf of the company.

Explanation. Section 25(4) provides that it is sufficient if the deemed prospectus is signed by two directors on behalf of the company. A single director's signature does not satisfy this requirement. The provision does not require every director to sign, nor does Board authorisation reduce the statutory requirement of two directors.

Where it goes wrong. Assuming Board authorisation or a single authorised director is sufficient, or confusing the two-director rule with the every-director rule under Section 26(4).

Authority. Section 25(4) of the Companies Act, 2013

Question 4 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Nirmaan Foods made a rights issue to existing members with renunciation rights in favour of more than fifty others. Is the rights offer document a deemed prospectus?

1. No, because a rights issue is made only to existing members and is not an offer to the public.
2. Yes, because the number of renouncees exceeded fifty, bringing the document within the deemed prospectus framework. (correct answer)
3. No, because renunciation rights are prohibited in a rights issue.
4. Yes, but only if the renouncees are not relatives of the existing members.

Answer: B — Yes, because the number of renouncees exceeded fifty, bringing the document within the deemed prospectus framework.

Explanation. As laid down in SEBI v Kunnamkulam Paper Mills Ltd, where a rights issue is made to existing members with a right of renunciation in favour of others and the number of such others exceeds fifty, the offer document becomes a deemed prospectus. The document must therefore comply with the prospectus requirements, including Section 26 and Section 25(3). The identity or relationship of the renouncees is irrelevant to this test.

Where it goes wrong. Believing that a rights issue can never be a deemed prospectus because it is addressed only to existing members.

Authority. Section 25(1) of the Companies Act, 2013; SEBI v Kunnamkulam Paper Mills Ltd

Question 5 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Scenario. Aarohan Infra Ltd, a listed company, filed a shelf prospectus with the Registrar on 15 April 2026, signed by two directors and accompanied by the prescribed fee. The prospectus indicated a validity period of one year. The first offer of securities under the shelf prospectus opened on 1 May 2026. The company made a second offer of securities under the same shelf prospectus in September 2026. Before the second offer, the company created a new charge on its factory in favour of a bank and its financial position deteriorated significantly. The company filed an information memorandum in Form PAS-2 with the Registrar on 25 August 2026, prior to the second offer which opened on 1 October 2026. The information memorandum disclosed the new charge but did not disclose the deterioration in financial position. The company had received applications with advance subscription payments in June 2026 for the second offer, before the change. After the information memorandum was filed, some applicants expressed a desire to withdraw. The company refunded their money after 20 days. No further prospectus was filed for the second offer. The company's company secretary says the shelf prospectus is valid until 15 April 2027, and that no refund was required as the applicants had applied voluntarily. The Board seeks advice on the validity period of the shelf prospectus, the adequacy of the information memorandum, and the refund obligation.

Until what date is Aarohan Infra Ltd's shelf prospectus valid?

1. 15 April 2027, being one year from the date of filing with the Registrar.
2. 1 May 2028, being two years from the date of opening of the first offer.
3. 1 October 2026, being the date of the second offer.
4. 30 April 2027, being one year from the date of opening of the first offer of securities. (correct answer)

Answer: D — 30 April 2027, being one year from the date of opening of the first offer of securities.

Explanation. Section 31(1) provides that the shelf prospectus must indicate a validity period not exceeding one year, and that this period commences from the date of opening of the first offer of securities under the prospectus. The first offer opened on 1 May 2026, so the shelf prospectus is valid until 30 April 2027. The filing date of 15 April 2026 is not the starting point.

Where it goes wrong. Computing the one-year validity from the date of filing with the Registrar instead of the date of opening of the first offer.

Authority. Section 31(1) of the Companies Act, 2013

Question 6 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

Was the information memorandum adequate in omitting the deterioration in Aarohan Infra Ltd's financial position?

1. Yes, because the information memorandum is required to disclose only new charges created.
2. No, because it must disclose material facts relating to new charges and changes in financial position between the previous and succeeding offers. (correct answer)
3. Yes, because the shelf prospectus already disclosed the financial position at the time of the first offer.
4. No, but only if the deterioration exceeds 25% of the company's net worth.

Answer: B — No, because it must disclose material facts relating to new charges and changes in financial position between the previous and succeeding offers.

Explanation. Section 31(2) requires the information memorandum to contain all material facts relating to new charges created, changes in the financial position of the company between the first or previous offer and the succeeding offer, and such other prescribed changes. Omitting the significant deterioration in financial position makes the information memorandum inadequate. There is no 25% net-worth threshold in the statute.

Where it goes wrong. Reading Section 31(2) as confined to new charges, or inventing a materiality threshold that the Act does not contain.

Authority. Section 31(2)(a) of the Companies Act, 2013; Section 31(2)(b) of the Companies Act, 2013

Question 7 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

Was Aarohan Infra Ltd obliged to refund the applicants who expressed a desire to withdraw, and within what time?

1. No, because the applicants had applied voluntarily and cannot withdraw after submitting their applications.
2. Yes, within 30 days of the information memorandum being filed with the Registrar.
3. Yes, within 15 days of the applicants expressing a desire to withdraw. (correct answer)
4. Yes, within 45 days of the opening of the second offer.

Answer: C — Yes, within 15 days of the applicants expressing a desire to withdraw.

Explanation. The proviso to Section 31(2) requires the company to intimate any change to applicants who had paid advance subscription before the change, and if they express a desire to withdraw, to refund all monies received as subscription within fifteen days. The refund made after 20 days is therefore delayed and non-compliant. The voluntary nature of the original application does not bar withdrawal after intimation of the change.

Where it goes wrong. Assuming that advance applicants cannot withdraw, or applying a 30-day refund window instead of the statutory 15 days.

Authority. Proviso to Section 31(2) of the Companies Act, 2013

Question 8 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

What is the combined legal effect of the shelf prospectus and the information memorandum for the second offer?

1. The information memorandum together with the shelf prospectus is deemed to be a prospectus for all purposes. (correct answer)
2. The shelf prospectus alone continues as the prospectus, and the information memorandum is merely supplementary.
3. The information memorandum becomes a fresh prospectus, and the shelf prospectus lapses upon its filing.
4. Both documents must be re-filed with SEBI before the second offer can open.

Answer: A — The information memorandum together with the shelf prospectus is deemed to be a prospectus for all purposes.

Explanation. Section 31(3) provides that where an information memorandum is filed, every time an offer of securities is made under Section 31(2), the memorandum together with the shelf prospectus is deemed to be a prospectus. The shelf prospectus does not lapse, nor is a fresh prospectus required; the two documents together constitute the prospectus for the subsequent offer.

Where it goes wrong. Treating the information memorandum as a standalone prospectus or as a mere supplement without deeming effect.

Authority. Section 31(3) of the Companies Act, 2013

Question 9 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

Scenario. Nakshatra Motors Ltd, a public company proposing an initial public offer of equity shares, decided to use the book building route. It filed a red herring prospectus with the Registrar on 10 August 2026, three days before the subscription list opened on 13 August 2026. The red herring prospectus did not contain the complete particulars of the quantum or price of the securities; it disclosed a price band of Rs. 450 to Rs. 520 per share. The subscription list closed on 17 August 2026, and the final prospectus was filed with the Registrar and SEBI on 25 August 2026, stating the total capital raised and the closing price of Rs. 495 per share. The company issued application forms to prospective investors. Some forms were issued in connection with a bona fide invitation to certain institutions to enter into underwriting agreements with respect to the shares; other forms related to shares not offered to the public. The company also made a rights offer exclusively to existing members. The company's compliance officer says the red herring prospectus is not subject to the same obligations as a prospectus, and that every application form must be accompanied by an abridged prospectus without exception. The Board seeks advice on the red herring prospectus obligations, the timing of its filing, and the abridged prospectus requirements.

Was Nakshatra Motors Ltd's red herring prospectus filed within the prescribed time?

1. No, because it must be filed at least seven days before the subscription list opens.
2. Yes, because it was filed at least three days prior to the opening of the subscription list. (correct answer)
3. No, because it must be filed on the same day the subscription list opens.
4. Yes, because a red herring prospectus may be filed at any time before the subscription list closes.

Answer: B — Yes, because it was filed at least three days prior to the opening of the subscription list.

Explanation. Section 32(2) requires a red herring prospectus to be filed with the Registrar at least three days prior to the opening of the subscription list and the offer. Filing on 10 August 2026 for a subscription list opening on 13 August 2026 satisfies this requirement exactly. There is no seven-day requirement for a red herring prospectus.

Where it goes wrong. Confusing the three-day red herring filing rule with longer periods applicable to other prospectus-related filings.

Authority. Section 32(2) of the Companies Act, 2013

Question 10 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Is the compliance officer correct that a red herring prospectus is not subject to the same obligations as a prospectus?

1. Yes, because a red herring prospectus is a preliminary document with no statutory obligations.
2. Yes, because the obligations arise only after the final prospectus is filed.
3. No, because a red herring prospectus carries the same obligations as a prospectus, and any variation from it must be highlighted as a variation in the prospectus. (correct answer)
4. No, but the only obligation is to disclose the price band.

Answer: C — No, because a red herring prospectus carries the same obligations as a prospectus, and any variation from it must be highlighted as a variation in the prospectus.

Explanation. Section 32(3) expressly provides that a red herring prospectus carries the same obligations as are applicable to a prospectus. Any variation between the red herring prospectus and the final prospectus must be highlighted as variations in the prospectus. The compliance officer's statement is therefore incorrect; the obligations are not deferred until the final prospectus is filed.

Where it goes wrong. Treating a red herring prospectus as a preliminary, obligation-free document because it lacks the final price and quantum.

Authority. Section 32(3) of the Companies Act, 2013

Question 11 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Which application forms are exempt from the requirement of being accompanied by an abridged prospectus?

1. Forms issued to retail investors only.
2. Forms issued to institutional investors only.
3. Forms issued in electronic mode.
4. Forms issued in connection with a bona fide underwriting agreement, shares not offered to the public, or an offer only to existing members. (correct answer)

Answer: D — Forms issued in connection with a bona fide underwriting agreement, shares not offered to the public, or an offer only to existing members.

Explanation. The proviso to Section 33(1) carves out three exceptions to the rule that every application form must be accompanied by an abridged prospectus: a bona fide invitation to enter into an underwriting agreement, shares or debentures not offered to the public, and an offer made only to existing members. The exemptions are transaction-based, not investor-category-based or mode-based.

Where it goes wrong. Assuming the exemption depends on the type of investor or the electronic form of the application rather than the nature of the transaction.

Authority. Proviso to Section 33(1) of the Companies Act, 2013

Question 12 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

An application form relating to shares offered to the public was issued without an accompanying abridged prospectus. What penalty is attracted under Section 33(3)?

1. Rs. 50,000 for each default. (correct answer)
2. Rs. 1,00,000 for each default.
3. Rs. 5,000 per day of continuing default.
4. Rs. 25,000 for each default.

Answer: A — Rs. 50,000 for each default.

Explanation. Section 33(3) provides that a company making default in complying with Section 33 is liable to a penalty of fifty thousand rupees for each default. The penalty is fixed per default, not per day and not a higher amount. The company cannot escape liability by arguing that the full prospectus was available on request.

Where it goes wrong. Confusing the fixed Rs. 50,000 per default under Section 33(3) with daily penalties or higher amounts under other provisions.

Authority. Section 33(3) of the Companies Act, 2013

Question 13 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Scenario. A company allotted securities to an issuing house on 1 January 2026. The issuing house offered the securities to the public on 15 July 2026. The company had received full consideration for the allotment on 1 January 2026. Which statement is correct regarding the presumption under Section 25(2)?

A company allotted securities to an issuing house on 1 January 2026. The issuing house offered the securities to the public on 15 July 2026. The company had received full consideration for the allotment on 1 January 2026. Which statement is correct regarding the presumption under Section 25(2)?

1. The document is conclusively a deemed prospectus because the offer was ultimately made to the public.
2. Neither presumption under Section 25(2) is attracted, but the document may still be a deemed prospectus if the requisite intention is established. (correct answer)
3. The document can never be a deemed prospectus because the offer was made after six months.
4. The document is a deemed prospectus only if full consideration had not been received.

Answer: B — Neither presumption under Section 25(2) is attracted, but the document may still be a deemed prospectus if the requisite intention is established.

Explanation. Section 25(2) raises a presumption where the offer is made within six months of allotment or where full consideration has not been received at the date of the offer. Here, the offer was made after six months and full consideration had been received, so neither presumption applies. However, the deeming under Section 25(1) can still operate if it is established that the allotment was made with a view to offering the securities to the public; the presumptions merely shift the burden of proof.

Where it goes wrong. Treating the absence of both Section 25(2) presumptions as conclusive proof that no deemed prospectus exists.

Authority. Section 25(1) of the Companies Act, 2013; Section 25(2) of the Companies Act, 2013

Question 14 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

Scenario. Under Rule 10 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, by when must the information memorandum in Form PAS-2 be filed with the Registrar?

Under Rule 10 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, by when must the information memorandum in Form PAS-2 be filed with the Registrar?

1. At least one month prior to the issue of a second or subsequent offer of securities under the shelf prospectus. (correct answer)
2. At least 15 days prior to the issue of a second or subsequent offer of securities.
3. At least three days prior to the opening of the subscription list.
4. At any time before the closing of the offer.

Answer: A — At least one month prior to the issue of a second or subsequent offer of securities under the shelf prospectus.

Explanation. Rule 10 requires the information memorandum in Form PAS-2 to be filed with the Registrar, along with the prescribed fee, within one month prior to the issue of a second or subsequent offer of securities under the shelf prospectus. The 15-day and three-day periods do not apply to the information memorandum; the three-day period belongs to the red herring prospectus under Section 32(2).

Where it goes wrong. Applying the red herring prospectus three-day filing period or the 15-day private placement period to the information memorandum.

Authority. Rule 10 of the Companies (Prospectus and Allotment of Securities) Rules, 2014; Section 31(2) of the Companies Act, 2013

Question 15 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Scenario. Under Section 31(2), which of the following must the information memorandum contain in respect of a second or subsequent offer under a shelf prospectus?

Under Section 31(2), which of the following must the information memorandum contain in respect of a second or subsequent offer under a shelf prospectus?

1. All material facts relating to new charges created, changes in financial position between the previous and succeeding offers, and such other prescribed changes. (correct answer)
2. Only the new charges created after the first offer of securities.
3. Only the changes in the financial position of the company.
4. Only the names of the directors who approved the creation of new charges.

Answer: A — All material facts relating to new charges created, changes in financial position between the previous and succeeding offers, and such other prescribed changes.

Explanation. Section 31(2) requires the information memorandum to contain all material facts relating to new charges created, changes in the financial position of the company between the first or previous offer and the succeeding offer, and such other changes as may be prescribed. Options (b), (c) and (d) each isolate one element and ignore the composite statutory requirement.

Where it goes wrong. Reading Section 31(2) as a single-item disclosure instead of a composite disclosure covering charges, financial position and prescribed changes.

Authority. Section 31(2)(a) of the Companies Act, 2013; Section 31(2)(b) of the Companies Act, 2013; Section 31(2)(c) of the Companies Act, 2013

Question 16 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Scenario. Upon the closing of an offer of securities under a red herring prospectus, what must the company file with the Registrar and SEBI?

Upon the closing of an offer of securities under a red herring prospectus, what must the company file with the Registrar and SEBI?

1. Only a copy of the red herring prospectus with the final price inserted.
2. A statement of the total capital raised and the closing price, without any other details.
3. A prospectus stating the total capital raised, the closing price of the securities, and any other details not included in the red herring prospectus. (correct answer)
4. Only the list of allottees and the basis of allotment.

Answer: C — A prospectus stating the total capital raised, the closing price of the securities, and any other details not included in the red herring prospectus.

Explanation. Section 32(4) requires that upon the closing of the offer, the prospectus stating the total capital raised, whether by way of debt or share capital, the closing price of the securities, and any other details not included in the red herring prospectus must be filed with the Registrar and SEBI. A mere annotated red herring prospectus or a limited statement of capital and price does not satisfy the provision.

Where it goes wrong. Assuming that filing the red herring prospectus with the final price inserted, or a bare statement of capital and price, is sufficient compliance.

Authority. Section 32(4) of the Companies Act, 2013

Question 17 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Scenario. A prospective investor requests a full prospectus from a company before the closing of the subscription list. Is the company obliged to provide it?

A prospective investor requests a full prospectus from a company before the closing of the subscription list. Is the company obliged to provide it?

1. No, because the abridged prospectus supplied with the application form is sufficient for all purposes.
2. Yes, but only if the investor has already applied for shares.
3. No, because the full prospectus is available only with the Registrar of Companies.
4. Yes, because a full prospectus must be made available to any person who requests it before the closing of the subscription list and the offer. (correct answer)

Answer: D — Yes, because a full prospectus must be made available to any person who requests it before the closing of the subscription list and the offer.

Explanation. Section 33(2) expressly requires the company to make the full prospectus available to any person who requests it before the closing of the subscription list and the offer. The abridged prospectus is a summary accompanying the application form; it does not displace the investor's statutory right to the full prospectus. The right is not conditional on having applied for shares.

Where it goes wrong. Believing that the abridged prospectus exhausts the company's disclosure obligation or that the full prospectus is available only from the Registrar.

Authority. Section 33(2) of the Companies Act, 2013

Question 18 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

Scenario. A company filed a shelf prospectus on 1 April 2026, and the first offer under it opened on 1 May 2026. The company made a second offer on 15 September 2026. Does the company need to file a fresh prospectus for the second offer?

A company filed a shelf prospectus on 1 April 2026, and the first offer under it opened on 1 May 2026. The company made a second offer on 15 September 2026. Does the company need to file a fresh prospectus for the second offer?

1. Yes, because each offer of securities requires a fresh prospectus.
2. Yes, because the second offer was made more than three months after the first offer.
3. No, because the shelf prospectus remains valid for one year from the date of opening of the first offer and no further prospectus is required for subsequent offers. (correct answer)
4. No, because a shelf prospectus is valid indefinitely until revoked by the company.

Answer: C — No, because the shelf prospectus remains valid for one year from the date of opening of the first offer and no further prospectus is required for subsequent offers.

Explanation. Section 31(1) provides that in respect of a second or subsequent offer during the validity of the shelf prospectus, no further prospectus is required. The validity runs for one year from the opening of the first offer, i.e., until 30 April 2027. The second offer on 15 September 2026 falls within this period, so a fresh prospectus is unnecessary; an information memorandum under Section 31(2) is what is required.

Where it goes wrong. Assuming every offer needs a fresh prospectus, or treating the shelf prospectus as valid indefinitely.

Authority. Section 31(1) of the Companies Act, 2013

Question 19 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · medium

Scenario. Which statement correctly describes a red herring prospectus?

Which statement correctly describes a red herring prospectus?

1. It contains the complete particulars of the quantum and price of the securities.
2. It is a prospectus issued only for a rights issue.
3. It is a prospectus filed after the subscription list closes.
4. It does not include complete particulars of the quantum or price of the securities. (correct answer)

Answer: D — It does not include complete particulars of the quantum or price of the securities.

Explanation. The Explanation to Section 32 defines a red herring prospectus as one that does not include complete particulars of the quantum or price of the securities. It is typically used in book building, where the price and number of securities are determined after the close of the issue. It is not confined to rights issues and is filed before the subscription list opens.

Where it goes wrong. Confusing a red herring prospectus with a complete prospectus or with a post-closing document.

Authority. Explanation to Section 32 of the Companies Act, 2013

Question 20 · 2 marks · Chapter 3: Prospectus and Allotment of Securities · hard

Scenario. An application form for shares was issued in connection with a bona fide invitation to a person to enter into an underwriting agreement. Must it be accompanied by an abridged prospectus?

An application form for shares was issued in connection with a bona fide invitation to a person to enter into an underwriting agreement. Must it be accompanied by an abridged prospectus?

1. No, because the requirement does not apply to application forms issued in connection with a bona fide invitation to enter into an underwriting agreement. (correct answer)
2. Yes, because every application form for shares must be accompanied by an abridged prospectus.
3. Yes, unless the underwriter is a qualified institutional buyer.
4. No, because underwriting agreements are outside the scope of the Companies Act, 2013.

Answer: A — No, because the requirement does not apply to application forms issued in connection with a bona fide invitation to enter into an underwriting agreement.

Explanation. The proviso to Section 33(1) expressly exempts application forms issued in connection with a bona fide invitation to a person to enter into an underwriting agreement from the requirement of being accompanied by an abridged prospectus. The exemption is transaction-specific and is not dependent on the underwriter's category. Underwriting agreements are very much within the Companies Act framework; the exemption is a targeted relaxation.

Where it goes wrong. Applying the general rule that every application form needs an abridged prospectus without checking the three statutory exceptions.

Authority. Proviso to Section 33(1) of the Companies Act, 2013