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CA Intermediate · Corporate and Other Laws · Companies Incorporated Outside India

Ostrava Mining s.r.o., a Czech company, has a place of business in Nagpur. It issues a document inviting the Indian public to subscribe for its securities, and the document was not drafted per the Chapter XXII prospectus provisions. Which statement represents the correct legal position?

The Chapter XXII prospectus provisions apply to an offer made in India, so the document must comply, and persons authorising the issue are liable for default. Foreign incorporation is not a defence. The company must follow the prescribed particulars, including the country of incorporation and where documents can be inspected.

  1. AThe provisions of Chapter XXII on prospectus apply, and the document must comply, with every person authorising the issue liable for defaultCorrect
  2. BThe prospectus rules of Chapter XXII do not apply because the company is incorporated outside India
  3. COnly the Czech directors are liable, and only under Czech law
  4. DThe document is valid if the company is registered in India under Part I

Explanation

Chapter XXII requires that a prospectus issued by or on behalf of a foreign company, or relating to its securities, be dated and contain particulars as specified, including matters on the country of incorporation and the places in India where the memorandum and articles can be inspected. Contravention exposes the company and each person who is knowingly a party to the issue to penalty. The Indian rules apply to offers made in India, so foreign incorporation is no defence. The registration under Part I is a different matter.

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