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

Meghna Textiles Ltd, a public company, plans to raise money by issuing non-convertible debentures (NCDs) to the general public through a prospectus. Under the Companies Act, 2013, how is this mode of issue described?

Issuing NCDs to the general public through a prospectus is a public offer under Section 23(1)(a) of the Companies Act, 2013. Private placement, rights issues and bonus issues are separate routes, so they do not describe an invitation made to the public at large through a prospectus.

  1. APrivate placement under Part II of the Chapter
  2. BPublic offer under the provisions of Part I of the ChapterCorrect
  3. CRights issue to existing members
  4. DBonus issue out of free reserves

Explanation

Section 23(1)(a) provides that a public company may issue securities to the public through a prospectus, which is called a public offer. Private placement and rights or bonus issues are separate routes under clauses (b) and (c). An NCD issue to the general public by prospectus is therefore a public offer.

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