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CS Professional · Strategic Management and Corporate Finance · Raising of Funds from Debt and Procedural Aspects

Ishaan Power Ltd circulated application forms for its public NCD issue without attaching an abridged prospectus. The forms were not issued in connection with an underwriting invitation, and the securities were offered to the public. Which consequence follows under Section 33 of the Companies Act, 2013?

The company is liable to a penalty of fifty thousand rupees for each default. Section 33 prohibits issuing application forms without an abridged prospectus, and the exceptions for underwriting invitations or securities not offered to the public do not apply to a public NCD issue.

  1. AThe company is liable to a penalty of fifty thousand rupees for each defaultCorrect
  2. BThe company is liable to a penalty of fifty thousand rupees in total, irrespective of the number of defaults
  3. CThe issue is automatically void and money must be refunded
  4. DNo penalty applies because the full prospectus is on the website

Explanation

Section 33(1) bars issuing an application form unless it is accompanied by an abridged prospectus. The provisos exempt only bona fide underwriting invitations and securities not offered to the public, neither of which applies. Under Section 33(3), default attracts a penalty of fifty thousand rupees for each default, not a lump sum.

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