We discussed about the offer documents in detail in the previous chapter. The offer documents refer to-

• the Prospectus

• the Abridged Prospectus, and

• the Letter of Offer

The offer document provides the investor, the only interface he can have, in respect of new Companies, or recently formed companies. It still forms the main source even in respect of established corporates with a known history of past performance and business reputation of their promoters.

For making his investment decision, the offer documents should convey the investor in the first place the objective facts about the project and about the background/history of the promoters. It should also disclose comprehensive information, i.e. all relevant and connected facts concerning the public issue and how the funds raised will be utilised along with a fair assessment of the risks involved.

SEBI as a regulatory body cherishes as its principal objective that "Investors are enabled to make informed choices and decisions and achieve fair deals in their financial dealings". With this end in view SEBI under Chapter VI of the SEBI (DIP) Guidelines 2000 has provided elaborate and comprehensive safeguards to the investor, by stipulating disclosure and publishing of every relevant information about the promoters, the project, the background of the promoters, an objective risk analysis of the project etc. In fact Chapter VI of the Regulation alone covers about 50 pages (hard copy printout) of the 230 pages of the whole Regulation comprising 17 chapters and 27 schedules. The objective behind this is that "the offer document shall contain all material information which shall be true and adequate so as to enable the investors to make informed decision on the investments in the issue"

Section -1: Contents of the Prospectus (Clause 6.1)

Content description of the Prospectus is conveyed in two Sections. The first Section deals with compulsory disclosures to be communicated to the Investor. This part is nearly common in respect of other offer documents also, i,e, abridged prospectus and Letter of Offer. The second Section has two parts and both deal with general Information, i.e. about the promoters, the project, the issuing company etc.

SEBI has approached the subject so minutely that it has provided directions to standaridise the format, color and design of the Prospectus to be issued by the Company inviting the public for subscribing to its Issues.

The offer document shall contain all material information which shall be true and adequate so as to enable the investors to make informed decision on the investments in the issue. The offer document shall also contain the information and statements specified in this chapter (Chapter VI of the Guidelines). The draft offer document and final offer document shall be approved by the Board of Directors of the issuer company and signed by all the Directors (including the Managing Director), Chief Executive Officer and Chief Financial Officer of the issuer company . They shall also certify that all the disclosures made in the offer document are true and correct.
(Clause 6.1)

Front Outer Cover Page (Clause 6.2.1)

1. The front cover page of the prospectus shall be white and no patterns or pictures shall be printed on this page.

2. The cover page paper shall be of adequate thickness (preferably minimum 100 gcm. quality).

The front outer cover page of the prospectus shall contain the following details only:

1. The word "Prospectus"

2. The name of the issuer company and address of the registered office of the company along with telephone fax number and E-mail address.

3. The nature, number, price and amount of the instruments offered.

4.  

   1. The 'Risks in relation to the first issue' (wherever applicable) shall be incorporated in a box format in case of a initial public issue:

      "This being the first issue of the company, there has been no formal market for the securities of the company. The issue price (has been determined and justified by the Lead Merchant Banker and the issuer company as stated under Justification of Premium paragraph - in case of premium issue) should not be taken to be indicative of the market price of the equity shares after the shares are listed. No assurance can be given regarding an active or sustained trading in the shares of the company nor regarding the price at which the equity shares will be traded after listing."

   2. In case of issue proposed to be listed on the Over the Counter Exchange of India and / or where market maker has been appointed, the concluding sentence of the above risk factor shall read as under:

      "No assurance can be given regarding the price at which the equity shares of the company will be traded after listing."

5. The following general risk shall be incorporated:

   "Investment in equity and equity related securities involve a degree of risk and investors should not invest any funds in this offer unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investment decision in this offering. For taking an investment decision, investors must rely on their own examination of the issuer and the offer including the risks involved. The securities have not been recommended or approved by Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or adequacy of this document."

   Specific attention of investors shall be invited to the summarised and detailed statement of Risk Factors by indicating their page number(s) in the 'General Risks'.

6. 'Issuer's Absolute Responsibility' clause shall be incorporated as under:

   "The issuer, having made all reasonable inquiries, accepts responsibility for and confirms that this offer document contains all information with regard to the issuer and the issue, which is material in the context of the issue, that the information contained in the offer document is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which make this document as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect."

7.  

   1. The name and address of only of the Lead Merchant Banker who files the offer document with Board along with its telephone, fax number and E.mail address shall appear on the front outer cover page.

   2. The names of the other Lead Merchant Bankers, Co-Managers, etc. may be mentioned on the back cover page.

   3. If more than one merchant banker are associated with the issue, the inter-se allocation of responsibility of each Merchant Banker as demarcated and submitted to the Board in terms of clause 5.3.2, shall be disclosed in the offer document

8. The name and address of the Registrar to the issue along with the telephone number and fax number.

9. Issue Opening Date

10. Credit Rating, if applicable

11. Name/s of stock exchanges where listing of the securities is proposed (and the details of in-principle approval for listing obtained from these stock exchanges.)

Front Inside Cover Page (Clause 6.2.2)

Index shall appear on the Front Inside Cover Page.

Inner Cover Pages (Clause 6.2.3)

The other risk factors shall be printed in clear readable font (preferably of minimum point 10 size) starting on the first inner cover page to be numbered page i (and, if need be, shall continue on subsequent pages ii, iii, etc. as distinct from the page number of the offer document proper which would run as 1, 2, 3, etc.) in addition to appearing in the Part I of the Prospectus.

1. The risk factors shall be classified as those which are specific to the project and internal to the issuer company and those which are external and beyond the control of the issuer company.

2. The Risk factor shall be determined on the basis of their materiality.

3. Materiality shall be decided taking the following factors into account

   1. Some events may not be material individually but may be found material collectively.

   2. Some events may have material impact qualitatively instead of quantitatively.

   3. Some events may not be material at present but may be having material impacts in future.

4. The Risk factors shall appear in the Offer Document in the following manner:

   1. Risks envisaged by Management

   2. Proposals, if any, to address the risks.

Back Cover Pages (Clause 6.2.4)

Back Inside Cover Page and Back Outside Cover Page shall be in white. Any 'notes' required to be given prominence shall appear immediately after the Risk Factors wherever they appear.

• Name and address of registered office of the issuer company. (Clause 6.3.1)

• Letter of intent / industrial license and declaration of the Central Govt./RBI about non-responsibility for financial soundness or correctness of statements.(Clause 6.3.2)

Disclaimer Clause (Clause 6.3.3)

prospectus shall contain the following disclaimer clause in bold capital letters:

"It is to be distinctly understood that submission of offer document to SEBI should not in any way be deemed or construed that the same has been cleared or approved by SEBI. SEBI does not take any responsibility either for the financial soundness of any scheme or the project for which the issue is proposed to be made or for the correctness of the statements made or opinions expressed in the offer document. Lead Merchant Banker, ______________ has certified that the disclosures made in the offer document are generally adequate and are in conformity with SEBI (Disclosures and Investor Protection) Guidelines in force for the time being. This requirement is to facilitate investors to take an informed decision for making investment in the proposed issue.

It should also be clearly understood that while the Issuer Company is primarily responsible for the correctness, adequacy and disclosure of all relevant information in the offer document, the Lead Merchant Banker is expected to exercise Due Diligence to ensure that the Company discharges its responsibility adequately in this behalf and towards this purpose, the Lead Merchant Banker _______________________ has furnished to SEBI a Due Diligence Certificate dated ________________ in accordance with SEBI (Merchant Bankers) Regulations 1992 which reads as follows :

1. We have examined various documents including those relating to litigation like commercial disputes, patent disputes, disputes with collaborators etc. and other materials in connection with the finalisation of the offer document pertaining to the said issue;

2. On the basis of such examination and the discussions with the Company, its Directors and other officers, other agencies, independent verification of the statements concerning the objects of the issue, projected profitability, price justification and the contents of the documents mentioned in the Annexure and other papers furnished by the company.

WE CONFIRM that :

1. the offer document forwarded to SEBI is in conformity with the documents, materials and paper relevant to the issue;

2. all the legal requirements connected with the said issue, as also the guidelines, instructions, etc. issued by SEBI, the Government and any other competent authority in this behalf have been duly complied with; and

3. the disclosures made in the offer document are true, fair and adequate to enable the investors to make a well informed decision as to the investment in the proposed issue.

4. We confirm that beside ourselves, all the intermediaries named in the prospectus are registered with SEBI and till date such registration is valid.

5. We have satisfied ourselves about the worth of the underwriters to fulfill their underwriting commitments.

   The filing of offer document does not, however, absolve the company from any liabilities under section 63 or 68 of the Companies Act, 1956 or from the requirement of obtaining such statutory or other clearances as may be required for the purpose of the proposed issue. SEBI, further reserves the right to take up, at any point of time, with the lead merchant banker(s) any irregularities or lapses in offer document."

Disclaimer Statement from the Issuer (Clause 6.3.4)

A statement to the effect that the issuer accepts no responsibility for statements made otherwise than in the prospectus or in the advertisement or any other material issued by or at the instance of the issuer and that anyone placing reliance on any other source of information would be doing so at his own risk should be incorporated.

Filing of Offer Document with the Board and RoC (Clause 6.3.5)

1. Under this head, the office of the Board where the offer document has been filed shall be mentioned.

2. The RoC where copy of the offer document, having attached thereto the Material Contracts and Documents referred to elsewhere in the offer document, has been filed shall also be mentioned.

Names of the Designated stock exchange and other exchanges where application has been made for listing of the present issue shall be mentioned.(Clause 6.3.6)

Provisions of sub-section (1) of section 68A of the Companies Act, relating to punishment for fictitious applications, shall be mentioned. (Clause 6.3.7)

Minimum Subscription Clause (Clause 6.3.8)

Following statements shall appear:

For Non-underwritten Public Issues (Clause 6.3.8.1)

" If the company does not receive the minimum subscription of 90% of the issued amount on the date of closure of the issue, or if the subscription level falls below 90% after the closure of issue on account of cheques having being returned unpaid or withdrawal of applications, the company shall forthwith refund the entire subscription amount received. If there is a delay beyond 8 days after the company becomes liable to pay the amount, the company shall pay interest as per Section 73 of the Companies Act 1956."

For Underwritten Public Issues (Clause 6.3.8.2)

"If the company does not receive the minimum subscription of 90% of the net offer to public including devolvement of Underwriters within 60 days from the date of closure of the issue, the company shall forthwith refund the entire subscription amount received. If there is a delay beyond 8 days after the company becomes liable to pay the amount, the company shall pay interest prescribed under Section 73 of the Companies Act 1956."

For Composite Issues (Clause 6.3.8.3)

1. The Lead Merchant Banker shall ensure that the requirement of "minimum subscription" is satisfied both jointly and severally, i.e., independently for both rights and public issues.

2. If the company does not receive the minimum subscription in either of the issues the company shall refund the entire subscription received.

Offer for Sale (Clause 6.3.8.4

The requirement of minimum subscription shall not be applicable to offer for sale. (Clause 6.3.8.4)

Public Issues by Infrastructure Companies (Clause 6.3.8.5)

The requirement of minimum subscription shall not be applicable to an eligible infrastructure company, provided disclosures regarding the alternate source of funding is made in the offer documents.

Declaration about the issue of allotment letters or refunds within a period of 10 weeks and interest in case of any delay in refund at the prescribed rate under section 73(2) / 73(2A) of the Companies Act, shall be mentioned. (Clause 6.3.9)

Issue Schedule (Clause 6.3.10)

1. Date of opening of the issue

2. Date of closing of the issue

3. Date of earliest closing of the issue

Intermediaries and Auditors (Clause 6.3.11)

1. Name and address of auditors and lead managers.

2. Name and address of registrars to the issue.

3. Name and address of trustee under debenture trust deed (in case of debenture issue)

Credit Rating (Clause 6.3.12)

1. The credit rating obtained from a credit rating agency for the proposed issue of debt security including convertible instruments.

2. If the rating has been obtained from more than one credit rating agencies, disclosures shall be made of all ratings including unaccepted rating.

3. All the credit ratings obtained during the previous three years before filing of the offer document for any of its listed debt-securities at the time of accessing the market through a rated debt-security shall be disclosed.

Underwriting of the issue (Clause 6.3.13

• Names and addresses of the underwriters and the amount underwritten by them

• Declaration by board of directors of the issuer company that the underwriters have sufficient resources to discharge their respective obligations.

Compliance Officer (Clause 6.3.14)

1. The name, address telephone number, fax and E-mail number and address of Compliance Officer.

2. The investor’s attention shall also be invited to contact the compliance officer in case of any pre-issue / post-issue related problems such as non-receipt of letters of allotment / share certificates / refund orders / cancelled stockinvests, etc.