Tag: Financial Statements

Reduction of Share Capital is a significant restructuring activity undertaken by a company to either adjust its capital structure, return surplus capital to shareholders, or write off accumulated losses. Under the Companies Act, 2013, the process is strictly regulated to protect shareholders’ interests and ensure compliance with the law. The legal provisions regarding the reduction of share capital are primarily governed by Section 66 of the Companies Act, 2013, and associated rules.

Meaning and Purpose of Capital Reduction

The reduction of share capital refers to the process by which a company reduces its issued, subscribed, and paid-up share capital. This process is typically undertaken for various purposes:

• Adjusting the company’s capital structure due to losses.
• Returning surplus capital to shareholders that is no longer needed for the business.
• Canceling unissued shares or reducing the nominal value of shares.
• Writing off accumulated losses to present a healthier balance sheet.
• Discharging shareholders who do not participate fully in the company’s growth.

Reduction of capital can be carried out in various ways, such as:

• Canceling or extinguishing the liability of unpaid capital.
• Reducing the face value of shares.
• Buying back shares, and subsequently canceling them.
• Canceling any paid-up capital that is no longer needed.

Section 66 of the Companies Act, 2013

This section lays down the legal framework for reducing the share capital of a company. Here are the key provisions:

1. Special Resolution

• The reduction of share capital can only be initiated if a special resolution is passed by the shareholders in a general meeting. A special resolution requires at least 75% of the votes cast to be in favor of the resolution.
• The resolution must clearly specify the details of the reduction, the reason for it, and its effect on the company’s capital structure.

2. Approval of the National Company Law Tribunal (NCLT)

• After passing the special resolution, the company must seek the approval of the NCLT (National Company Law Tribunal).
• The company must file an application with the NCLT, including the special resolution and detailed justification for the capital reduction.
• The tribunal will carefully examine the application to ensure that the reduction is not prejudicial to the company’s creditors or shareholders.

3. Notice to Creditors and Objections

• Before approving the reduction, the NCLT will direct the company to notify its creditors. This is done to ensure that creditors’ interests are not adversely affected by the reduction.
• Creditors have the right to object to the reduction if they believe that it will impact their claims or financial position.
• If creditors object, the NCLT may ask the company to settle the objections, provide security for their debts, or pay off the debts before proceeding with the reduction.

4. Court’s Order and Registration

• Once the NCLT is satisfied with the company’s application and resolves any objections raised by creditors, it will pass an order approving the reduction of share capital.
• The NCLT may impose conditions while granting the approval to safeguard the interests of shareholders and creditors.
• After obtaining the NCLT’s approval, the company must file a certified copy of the tribunal’s order with the Registrar of Companies (ROC) within 30 days.
• The reduction of capital takes effect only after the order is registered with the ROC.

5. Publication of the Order

The company is required to publish the order approving the reduction of share capital in a newspaper, as directed by the NCLT. This ensures transparency and informs all stakeholders of the change in the company’s capital structure.

Forms of Capital Reduction

Reduction of share capital can take various forms under the Companies Act, 2013:

Capital reduction refers to the reorganization of a company’s share capital by decreasing its issued, subscribed, or paid-up capital with the approval of the Tribunal (NCLT) under the Companies Act. It is adopted when the existing capital structure becomes unsuitable due to losses, overcapitalization, or surplus funds.

The common forms of capital reduction are explained below:

1. Reduction of Liability on Uncalled Capital

In this form, the company cancels the unpaid portion of share capital that shareholders are liable to pay in the future.
For example, a ₹10 share with ₹6 paid-up may be converted into a ₹6 fully paid share. Shareholders are relieved from the obligation to pay the remaining ₹4.

This method is used when the company realizes that it does not require the remaining capital from shareholders. It reduces financial burden on members and improves investor confidence.

2. Cancellation of Paid-up Capital Not Represented by Assets

When a company suffers continuous losses, part of the paid-up share capital is no longer represented by real assets. In such cases, the company cancels that portion of capital.

Example: A ₹10 share fully paid may be reduced to ₹6 fully paid to eliminate accumulated losses.

This is the most common method of capital reduction and helps clean the balance sheet by writing off debit balance of Profit & Loss A/c, goodwill, and other fictitious assets.

3. Reduction by Returning Excess Capital to Shareholders

Sometimes a company has surplus funds which are not required for business operations. The company may return a portion of the paid-up share capital to shareholders.

Here, shareholders receive cash or other assets, and the nominal value of shares is reduced accordingly.

This method prevents over-capitalization and increases return on capital employed, thereby improving financial efficiency.

4. Reduction of Face Value of Shares

Under this form, the nominal value (face value) of shares is reduced.

Example:
Shares of ₹100 each are reduced to ₹50 each.

The number of shares remains the same, but the paid-up capital decreases. The amount reduced is used to write off losses or overvalued assets.

5. Consolidation and Subdivision (Reorganization of Shares)

Although technically a capital reorganization, it may accompany capital reduction.

• Consolidation: Small shares are combined into larger denomination shares (e.g., five ₹10 shares into one ₹50 share).

• Subdivision: One large share is split into smaller shares (₹100 share into ten ₹10 shares).

This helps in better marketability of shares and smoother trading.

6. Reduction by Compromise or Arrangement with Creditors

In some reconstruction schemes, creditors agree to accept a lower payment than the actual amount due. The sacrifice made by creditors forms part of the capital reduction process.

This usually occurs when the company is in financial distress and wants to avoid liquidation. Both shareholders and creditors share the loss to revive the company.

7. Reduction through Surrender of Shares

Shareholders voluntarily surrender a portion of their shares to the company. The surrendered shares are cancelled and the share capital is reduced.

This generally occurs during internal reconstruction, where members cooperate to improve the company’s financial position.

Restrictions and Prohibitions

The reduction of share capital is subject to certain restrictions. A company that is in default of repaying deposits or interest thereon cannot reduce its share capital unless it rectifies the default. Capital reduction must not result in the company holding shares in itself, as this would violate the provisions regarding the prohibition of owning treasury shares.

Impact of Capital Reduction

1. Cleaning of Balance Sheet

Capital reduction helps in eliminating fictitious and intangible assets such as preliminary expenses, underwriting commission, discount on issue of shares/debentures, and accumulated losses. These items are written off against the reduced capital.

As a result, the balance sheet reflects the true financial position of the company. It removes inflated figures of capital and presents realistic asset values, thereby increasing reliability of financial statements.

2. Adjustment of Accumulated Losses

Companies suffering heavy losses often carry a debit balance in the Profit and Loss Account. Through capital reduction, this loss is adjusted against share capital.

After adjustment, the company starts with a clean financial record, which is important for future profitability. It allows the company to declare dividends in the future once profits are earned because past losses no longer appear in the books.

3. Reduction in Share Capital

The most direct effect is the decrease in paid-up share capital. Either the face value of shares is reduced or the number of shares is cancelled.

This reduces the company’s capital base. Although total capital decreases, the capital becomes more realistic and proportionate to the company’s assets and earning capacity.

4. Effect on Shareholders

Shareholders may experience a reduction in the nominal value of shares or the number of shares they hold. Sometimes they may also receive repayment of excess capital.

Although their investment value may reduce on paper, shareholders benefit in the long run because the company becomes financially stable and capable of earning profits and paying dividends.

5. Effect on Market Value of Shares

After capital reduction, the company’s financial statements appear healthier. Investors gain confidence as the company no longer shows heavy losses.

Consequently, the market value of shares often improves. A smaller but stronger capital base generally increases earnings per share (EPS), which positively influences share prices.

6. Impact on Creditors

Creditors’ interests are protected by law during capital reduction. The Tribunal ensures that their claims are either paid or secured before approval.

Once capital reduction is completed, creditors feel more secure because the company’s financial structure becomes stable and the risk of insolvency decreases.

7. Improvement in Profitability Ratios

Reduction of capital decreases the denominator in profitability calculations such as Return on Capital Employed (ROCE) and Earnings Per Share (EPS).

With the same level of profits and lower capital, these ratios improve significantly. Better ratios attract investors and enhance the company’s financial reputation.

8. Prevention of Overcapitalization

Overcapitalization occurs when a company has more capital than required for its operations. Capital reduction eliminates surplus capital.

This ensures efficient utilization of funds and increases operating efficiency. The company can now operate with an optimum level of capital suited to its business activities.

Non-compliance and Penalties

If a company reduces its capital without following the legal provisions, it will be considered void and illegal. Any directors or officers involved in such a reduction may face penalties, including fines or imprisonment, as per the Act.

Section 110 of the Act mandates the transacting of certain business items by means of postal ballot. Postal Ballot means casting of vote by a shareholder by postal or electronic mode instead of voting personally by being present for transacting business in general meeting of the company.

As per Companies Act 2013, the provisions of postal ballot are applicable to all companies except the following companies which are not required to transact any business through postal ballot:

1. One Person Company
2. Other Companies having members up to 200.

If a resolution is assented to by the requisite majority of the shareholders by means of postal ballot, it shall be deemed to have been duly passed at a general meeting convened in that behalf.

For all equity listed companies, it is mandatory for companies to also provide an option of remote e-voting to its shareholders along with postal ballot. However, the same is not mandatory for unlisted companies.

Applicability

The system of voting is applicable for all public that consists of more than 200 members and private limited companies. One Person Company (OPC) or any other entity with membership strength of 200 or less cannot make use of this system.

Transaction of Business through Postal Ballot

Rule 22 of the Companies (Management and Administration) Rules, 2014 specifies the following items of business to be transacted by means of voting through postal ballot:

• Alteration of Object clause of Memorandum.
• Conversion of private company into a public company and vice versa.
• Change of location of the registered office outside the limits of any city, town or village.
• Change in Objects owing to which a company has gathered funds from the public through a prospectus, and the existence of any unutilized amount out of the money so raised.
• Issue of shares through differential voting rights.
• Variation of rights of shareholders, debenture holders or other security holders.
• Buy-back of a company’s shares.
• Sale of the whole or bulk of an undertaking of the company.
• Providing loans, guarantee or security in excess of the specified limit.

Postal Ballot Facilities for Absentee Voters

The Election Commission of India has made efforts to ensure that the electors those who are unable to come and vote in polling booth or absentee voters are facilitated with the process of a postal ballot paper. This facility ensures wider participation in the electoral process.

The absentee voters under clause (c) of section 60 of the Act, are as follows:

• Persons with Disabilities (PwD)
• Senior citizens of more than 80 years
• People who are employed under the essential services such as railways, state transport and aviation etc.

These provisions will include the process of identification of such voters, the manner of outreach, the processes of the collection as well as voting in the designated centres in each constituency.

Application

In case of an absentee voter, the application would be made in the form 12D along with the particulars as specified therein. The application to be duly verified by the nodal officer for the absentee voter, except the senior citizen or person with a disability, which would reach the returning officer within 5 working days from the date of election notification. In such case, the postal ballot paper will be returned to the centre provided for recording of the vote under the rule 27F, subject to any direction that would be issued by the Election Commission in this behalf.

These two categories of a senior citizen voters of more than 80 years of age and PwD electors will be marked in the electoral roll having a choice of voting either as an absentee voter or as a regular voter on the poll day. In the case, any of the electors belonging to these categories intends to vote early, then as per the amended Rule 27C of the Conduct of Election Rules, 1961, the applicant can make an application in a new Form 12D, that would reach the Returning Officer within 5 days from following the date of notification of election. After the receipt of such application, the voter will be issued with a postal ballot paper, which would be deposited in the specified centre after the recording of the vote.

Postal Ballot Paper

As per the election commission, the voting facility through the postal ballot is accessible only to those doing election duties, army personnel, disabled people and senior citizens above 80 years of age. The ballot is sent through the postal service to the employees and military officers who do not have an electronic facility. If the electors do not use it or do not receive it then it returns to the sender’s address.

Resolutions that Cannot be Passed through Postal Ballot

The following resolutions cannot be passed through postal ballot:

• Ordinary Business.
• Businesses where directors or auditors are entitled to be heard at any meeting.

Procedure for Postal Ballot

As we now understand the fundamental aspects of the postal ballot, let us examine its procedures.

Personnel to Scrutinize

The Board shall appoint a scrutinizer who is not being employed by the company, so as to ensure fairness and efficiency in the voting process.

Board Resolution

The company must pass the requisite Board resolution for postal ballot. Also, the Board must plan and fix the recommended date and time schedule for various activities, and finalize the schedule of events.

Issue of Notice

The company is required to send a notice of postal ballot to all the shareholders, along with a draft resolution that describes the reason for the event. The shareholders must respond to the notice conveying their assent or dissent on the postal ballot, within a period of 30 days from the date of dispatch of the notice. The notice should also be published on the website of the company if any.

Notices can be sent through the following means:

• Registered post or speed post
• Any electronic means
• Courier service

Advertising in Newspaper

An advertisement pertaining to the dispatch of the postal ballot should be published in an English and vernacular newspaper. The advertisement must specify the following:

• A statement concerning the transacting of business through postal ballot.
• The date of completion of dispatch of notices.
• The date of commencement of voting through postal ballot.
• The concluding date of voting through postal ballot.
• A statement declaring that postal ballots received after the end of the voting period will be invalid.
• A statement declaring that the members, who have not received postal ballot forms may apply to the company and obtain a duplicate postal ballot.
• The contact details of the concerned person, in case of any grievances with postal ballot voting.

Safe Custody of Postal Ballot

Postal ballot and other relevant papers returned by the shareholders should be safely maintained by the scrutinizer, until the Chairman signs minutes. Scrutinizer should maintain a register to record assent or dissent received along with other details.

Declaration of Result

The result of postal ballot along with the scrutinizer’s report pertaining to the details of the ballot should be deemed to be passed on the date of a general meeting.

Companies Act, 2013, brought significant changes to Corporate Governance practices in India, one of which was the mandatory requirement for certain companies to appoint a Women Director on their board. This move aimed at enhancing diversity in corporate decision-making, promoting gender equality, and ensuring that women play a vital role in the management of large and listed companies.

Appointment of a Women Director:

Under Section 149(1) of the Companies Act, 2013, along with Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014, specific classes of companies are mandated to appoint at least one woman director on their board. The companies required to have a woman director are:

• Listed Companies: Every listed company must have at least one woman director.
• Public Companies: A public company having a paid-up share capital of Rs. 100 crore or more, or a turnover of Rs. 300 crore or more, must appoint at least one woman director.

Securities and Exchange Board of India (SEBI), through its Listing Obligations and Disclosure Requirements (LODR) regulations, also mandates the appointment of a woman director in listed companies, thereby reinforcing this provision.

1. Timeline for Appointment

Newly incorporated companies that fall within the categories mentioned above must appoint a woman director within six months from the date of incorporation. If there is any vacancy in the position of the woman director, it should be filled within three months from the date of such vacancy or by the next board meeting, whichever is later.

Qualifications of a Women Director:

The Companies Act, 2013, does not prescribe any specific qualifications for a woman director. However, the general qualifications required for any director as per the Companies Act apply, which are:

• Eligibility under Section 164: The woman must not be disqualified from being appointed as a director. This includes not being an undischarged insolvent, having no conviction for a crime involving moral turpitude, and being mentally sound.
• Expertise and Experience: Ideally, the woman director should have relevant expertise, skills, or experience in areas that contribute to the company’s growth, such as finance, law, management, or industry-specific knowledge.
• Integrity: The individual must be a person of high integrity and ethical standards to contribute positively to the board’s functioning.

While no specific academic or professional qualifications are mandated for the role of a woman director, companies often prefer individuals with significant experience in governance, leadership roles, or corporate management.

Duties of a Women Director:

The duties of a woman director are largely similar to those of any other director on the company’s board. The Companies Act, 2013, outlines several key responsibilities for directors under Section 166. These duties are aimed at ensuring that directors act in the best interests of the company, its shareholders, and other stakeholders.

1. Fiduciary Duty

A woman director, like any other director, must act in good faith and in the best interest of the company. This involves:

• Acting in Good Faith: The woman director must exercise her powers honestly and sincerely, prioritizing the company’s success and welfare.
• Avoiding Conflicts of Interest: The woman director should avoid situations where her personal interests conflict with the company’s interests. She should not use her position to gain undue advantages for herself or her associates.

2. Duty of Care

The woman director is expected to take reasonable care, skill, and diligence in the execution of her duties. She must ensure that:

• Active Participation: She participates actively in the company’s board meetings and contributes to discussions on key decisions.
• Informed Decisions: She makes informed decisions by staying updated on the company’s financial position, regulatory environment, and market trends.
• Risk Management: She must consider the risks associated with business operations and contribute to implementing appropriate risk mitigation strategies.

3. Compliance with Laws

As a director, a woman director has a duty to ensure that the company complies with all applicable laws, including corporate laws, taxation laws, labor laws, and environmental regulations. Some specific compliance duties:

• Corporate Governance: Ensuring that the company follows the corporate governance norms prescribed under the Companies Act and SEBI’s regulations.
• Financial Reporting: Ensuring that accurate financial statements are prepared and filed with the Registrar of Companies (RoC), along with other necessary documents.
• Statutory Filings: Ensuring timely filing of all necessary reports and disclosures with regulatory authorities, such as SEBI or the Ministry of Corporate Affairs (MCA).

4. Protecting the Interests of Stakeholders

A woman director has a duty to act in the best interests of all stakeholders, including:

• Shareholders: She must ensure that shareholder interests are protected, and the company acts in a transparent and accountable manner.
• Employees: She should also safeguard the interests of employees and ensure that the company follows labor laws and ethical practices.
• Environment and Society: Under the principles of corporate social responsibility (CSR), the woman director may play a key role in steering the company’s initiatives towards environmental sustainability and social welfare.

5. Ensuring Transparency

The woman director is responsible for ensuring that the company’s decision-making processes are transparent. This includes ensuring the disclosure of all material information to shareholders and regulatory authorities. She should actively participate in the approval of company reports, financial statements, and policy disclosures.

6. Code of Conduct

If the company has adopted a specific code of conduct for directors, the woman director must abide by the same. SEBI’s LODR guidelines require companies to have a code of conduct that applies to directors, including the woman director, which sets out ethical standards, conflict-of-interest policies, and responsibilities.

7. Additional Role in Committees

Women directors may also be appointed to various board committees, such as:

• Audit Committee: Oversight of financial reporting and ensuring that financial statements present a true and fair view.

• Nomination and Remuneration Committee: Evaluating the remuneration of executives and key managerial personnel.
• Corporate Social Responsibility Committee: Involved in the planning and execution of CSR activities under Section 135 of the Companies Act.

Prospectus is a vital document that provides potential investors with essential information about a company and its offerings. The accuracy and completeness of the information contained in a prospectus are paramount, as investors rely on this information to make informed decisions. Misstatements in a prospectus can occur due to errors, omissions, or misleading information, and they can have serious legal and financial implications for the company and its promoters.

Types of Misstatements in Prospectus:

1. Factual Misstatements:

These involve incorrect or false information presented in the prospectus. For example, a company might misrepresent its financial performance by inflating revenue figures or underreporting liabilities. Such misstatements can lead investors to believe that the company is more profitable or financially stable than it actually is.

2. Omissions:

This type of misstatement occurs when the prospectus fails to disclose material information that could influence an investor’s decision. For instance, if a company has pending litigation or regulatory investigations but does not mention these in the prospectus, it can mislead investors about the company’s risk profile.

3. Misleading Statements:

These involve statements that, while factually correct, can mislead investors regarding the overall picture of the company. For example, highlighting a recent successful product launch without mentioning significant operational issues or competition can create a distorted view of the company’s future prospects.

4. Unverified Information:

Sometimes, companies may include projections or forecasts in their prospectus that are not backed by credible data. If these projections are overly optimistic or based on flawed assumptions, they can mislead investors regarding the potential for growth.

Legal Consequences of Misstatements:

Misstatements in a prospectus can lead to various legal consequences for the company and its directors, including:

1. Liability Under the Companies Act:

In India, the Companies Act, 2013, imposes strict liabilities on companies and their promoters for misstatements in a prospectus. Section 35 of the Act states that if a prospectus contains a misstatement, any person who authorized the issue of the prospectus, including directors, can be held liable for damages.

2. Civil Liability:

Affected investors may file civil suits against the company and its promoters for losses incurred due to reliance on the misleading information. They can seek to recover damages for financial losses suffered as a result of the misstatement.

3. Criminal Liability:

In more severe cases, misstatements may lead to criminal charges against the company’s directors or promoters. If it is found that the misstatements were made knowingly or with the intention to deceive investors, the responsible parties can face imprisonment or fines as per provisions under the Companies Act.

4. Regulatory Actions:

Regulatory authorities, such as the Securities and Exchange Board of India (SEBI), may take action against companies for violations related to misstatements in a prospectus. This can include penalties, sanctions, and restrictions on future capital-raising activities.

5. Loss of Reputation:

Misstatements can significantly harm a company’s reputation and credibility in the market. This loss of trust can lead to a decline in share prices, affecting existing shareholders and making it challenging for the company to raise funds in the future.

Consequences for Investors:

The consequences of misstatements in a prospectus primarily affect investors who rely on the information provided. Some of the impacts are:

1. Financial Losses:

Investors may incur substantial financial losses if they make investment decisions based on inaccurate or misleading information. If the company’s actual performance fails to meet the expectations set by the prospectus, investors could lose their entire investment.

2. Informed Decision-Making:

Misstatements can undermine the ability of investors to make informed decisions. When critical information is omitted or misrepresented, investors may not be able to assess the risks and rewards associated with the investment adequately.

3. Diminished Investor Confidence:

Repeated incidents of misstatements in prospectuses can lead to a general decline in investor confidence in the market. This erosion of trust can discourage investment in not just the company in question but also in the broader market.

Recourse Available to Affected Parties:

Investors who suffer losses due to misstatements in a prospectus have several options for recourse:

1. Legal Action:

Affected investors can file civil suits against the company and its promoters for damages. They must demonstrate that they relied on the misstatements in the prospectus when making their investment decisions.

2. Regulatory Complaints:

Investors can lodge complaints with regulatory authorities such as SEBI, which may investigate the matter and take action against the company or its promoters.

3. Class Action Suits:

In cases where a significant number of investors are affected, they may band together to file a class action lawsuit against the company. This collective approach can increase the chances of recovery and provide a stronger legal standing.

4. Mediation and Settlement:

In some cases, companies may opt for mediation or settlement discussions to resolve disputes with affected investors, especially if they acknowledge the misstatements.

It means a formal document that a Public Company issues to invite offers from public for subscribing its shares. It includes all the material information related to shares that a Company offers to the public. Furthermore, it usually help the investors to take investment decisions.

The company provides prospectus with capital raising intention. Prospectus helps the investors to make a well-informed decision because of the prospectus all the required information of the securities which are offered to the public for sale.

Whenever the company issues the prospectus, the company must file it with the regulator. The prospectus includes the details of the company’s business, financial statements.

• To notify the public of the issue.
• To put the company on record with regards to the terms of the issue and allotment process.
• To establish accountability on the part of the directors and promoters of the company.

Types of prospectus

According to Companies Act 2013, there are four types of prospectus.

Deemed Prospectus: Deemed prospectus has mentioned under Companies Act, 2013 Section 25 (1). When a company allows or agrees to allot any securities of the company, the document is considered as a deemed prospectus via which the offer is made to investors. Any document which offers the sale of securities to the public is deemed to be a prospectus by implication of law.

Shelf prospectus: Shelf prospectus is stated under section 31 of the Companies Act, 2013. Shelf prospectus is issued when a company or any public financial institution offers one or more securities to the public. A company shall provide a validity period of the prospectus, which should not be more than one year. The validity period starts with the commencement of the first offer. There is no need for a prospectus on further offers. The organization must provide an information memorandum when filing the shelf prospectus.

Red Herring Prospectus: Red herring prospectus does not contain all information about the prices of securities offered and the number of securities to be issued. According to the act, the firm should issue this prospectus to the registrar at least three before the opening of the offer and subscription list.

Abridged Prospectus: Abridged prospectus is a memorandum, containing all salient features of the prospectus as specified by SEBI. This type of prospectus includes all the information in brief, which gives a summary to the investor to make further decisions. A company cannot issue an application form for the purchase of securities unless an abridged prospectus accompanies such a form.

Registration of Prospectus

(1) No prospectus shall be issued by or on behalf of a company or in relation to an intended company unless, on or before the date of its publication, there has been delivered to the Registrar for registration a copy thereof signed by every person who is named therein as a director or proposed director of the company or by his agent authorized in writing, and having endorsed thereon or attached thereto:

(a) Any consent to the issue of the prospectus required by section 58 from any person as an expert; and

(b) In the case of a prospectus issued generally, also:

(i) a copy of every contract required by clause 16 of Schedule II to be specified in the prospectus, or, in the case of a contract not reduced into writing, a memorandum giving full particulars thereof ; and

(ii) Where the persons making any report required by Part II of that Schedule have made therein, or have, without giving the reasons, indicated therein, any such adjustments as are mentioned in clause 32 of that Schedule, a written statement signed by those persons setting out the adjustments and giving the reasons therefor.

(2) Every prospectus to which sub-section (1) applies shall, on the face of it,

(a) State that a copy has been delivered for registration as required by this section ; and

(b) Specify any documents required by this section to be endorsed on or attached to the copy so delivered, or refer to statements included in the prospectus which specify those documents.

(3) The Registrar shall not register a prospectus unless the requirements of sections 55, 56, 57 and 58 and sub-sections (1) and (2) of this section have been complied with and the prospectus is accompanied by the consent in writing of the person, if any, named therein as the auditor, legal adviser, attorney, solicitor, banker or broker of the company or intended company, to act in that capacity.

(4) No prospectus shall be issued more than ninety days after the date on which a copy thereof is delivered for registration, and if a prospectus is so issued, it shall be deemed to be a prospectus a copy of which has not been delivered under this section to the Registrar.

(5) If a prospectus is issued without a copy thereof being delivered under this section to the Registrar or without the copy so delivered having endorsed thereon or attached thereto the required consent or documents, the company, and every person who is knowingly a party to the issue of the prospectus, shall be punishable with fine which may extend to fifty thousand rupees.