Public offer
Prospectus/RHP/shelf, SEBI disclosure, exchange permission, demat, minimum subscription and prospectus liability.
Chapter architecture
Four compliance systems inside one chapter
Chapter III combines route selection, investor disclosure, handling of issue money and post-allotment reporting. The route chosen determines the regulator, document, investor universe, timeline and liability standard.
Offer for sale
Selling shareholders use the company prospectus framework and bear prescribed issue costs.
Private placement
Identified persons, 200-person cap, PAS-4/PAS-5, bank trail, 60-day allotment and PAS-3 before use.
Direct listing
Section 23(3), 2024 Rules, current LEAP-1, FEMA, Scheme and IFSCA Listing Regulations.
Core control: Never start with the form. First classify the transaction and investor approach. A public solicitation cannot be converted into a compliant private placement merely by filing PAS-4 later.
Section, Rule, Form and company-class control
This page is integrated with the section index, Rules and MCA Forms repository, company-class matrix and transaction workflows. Current MCA/Gazette instruments and portal instruction kits control.
Full statutory register
Sections 23 to 42 - Bare Act and simple decode
The statutory blocks are extracted from the consolidated India Code text. Footnote history is removed from the reading block; the notified text governs.
Section 23
Public offer and private placement
Choose the legally permitted issue route.Simple decode: A public company may use public offer, private placement, rights issue or bonus issue. A private company may use rights/bonus or private placement. Public offers use a prospectus, with a red-herring or shelf prospectus only where that route is selected. Specified public companies may access permitted foreign exchanges under the direct-listing framework.
Practical example: A startup private company cannot call a broad investor campaign a private placement; it must identify offerees and comply with section 42.
Section 24
SEBI and Central Government jurisdiction
Identify the regulator administering the issue.Simple decode: SEBI administers issue, transfer and non-payment-of-dividend matters for listed companies and companies intending to list. Other prospectus, allotment and company-law matters remain with the Central Government, Tribunal or Registrar.
Practical example: An IPO disclosure matter falls under SEBI regulations, while filing PAS-3 remains a Registrar-facing Companies Act obligation.
Section 25
Offer-for-sale document deemed prospectus
Prevent indirect public offers from escaping prospectus law.Simple decode: Where securities are allotted with a view to public resale, the sale document becomes a deemed prospectus. A six-month resale or unpaid allotment consideration creates a statutory presumption unless rebutted.
Practical example: Promoters cannot first take shares privately and immediately market them to the public to avoid prospectus liability.
Section 26
Matters to be stated in prospectus
Require truthful, complete and regulator-aligned disclosure.Simple decode: A prospectus must carry the information and financial reports specified by SEBI, be dated, signed, filed with the Registrar, contain required consents and remain within its statutory validity. Misleading or omitted material facts create liability.
Practical example: A prospectus omitting a material regulatory investigation may expose the company, directors, promoters and experts.
Section 27
Variation in prospectus terms or objects
Protect investors when public-issue promises change.Simple decode: Terms of contracts or objects stated in a prospectus are changed only through special resolution with prescribed disclosure. Dissenting shareholders receive the applicable exit opportunity, and prospectus money cannot be used to buy or trade listed equity shares.
Practical example: A company cannot divert unused factory-expansion proceeds into listed-share trading by a simple Board decision.
Section 28
Offer of sale by members
Regulate shareholder-led public sale through the company.Simple decode: Members may offer securities through a company prospectus, but the company must approve and the selling members reimburse issue expenses. The offer is treated as the company prospectus for liability purposes.
Practical example: A promoter OFS in an IPO document remains subject to prospectus disclosure and liability rules.
Section 29
Dematerialised public offers and prescribed companies
Move securities issuance and transfer into depository form.Simple decode: Every public offer must be in dematerialised form. Prescribed unlisted public companies and non-small private companies must also follow Rules 9A and 9B, including promoter/KMP dematerialisation and PAS-6 reconciliation.
Practical example: A covered private company cannot issue a bonus share in physical form after its Rule 9B compliance date.
Section 30
Advertisement of prospectus
Keep advertisements consistent with the prospectus.Simple decode: A prospectus advertisement must state the objects, member liability, capital, memorandum signatories and subscribed shares and must not contradict or selectively distort the filed prospectus.
Practical example: An ad highlighting expected returns but omitting material prospectus risk factors can create liability.
Section 31
Shelf prospectus
Permit repeated offers under one prospectus.Simple decode: Eligible classes may issue a shelf prospectus for a period not exceeding one year. Before later offers, an information memorandum updates material facts, charges and financial changes.
Practical example: A debt issuer can use one shelf prospectus for several tranches but must file PAS-2 updates before subsequent offers.
Section 32
Red herring prospectus
Allow price or quantity details to be finalised later.Simple decode: A red herring prospectus is filed at least three days before subscription opens. After closing, the final prospectus states total capital raised, closing price and omitted particulars.
Practical example: A book-built IPO may launch with a price band through an RHP and file the final prospectus after price discovery.
Section 33
Application forms and abridged prospectus
Ensure applicants receive core disclosure.Simple decode: An application form must generally be accompanied by an abridged prospectus. Underwriting invitations and securities not offered to the public are exceptions. A full prospectus must be supplied on request before closing.
Practical example: A public issue cannot circulate a bare application form without the abridged disclosure document.
Section 34
Criminal liability for prospectus misstatement
Penalise fraudulent prospectus disclosure.Simple decode: A person authorising a prospectus containing an untrue or misleading statement or material omission is liable under section 447 unless the statutory immateriality or reasonable-belief defence applies.
Practical example: Knowingly hiding a major licence cancellation can be fraud, not a mere drafting error.
Section 35
Civil liability for prospectus misstatement
Compensate investors who suffer loss.Simple decode: The company, directors, promoters, authorisers and consenting experts may be liable to compensate subscribers who relied on misleading prospectus content. Defences include timely withdrawal, issue without consent and reasonable belief after due diligence.
Practical example: An auditor may defend a claim where the prospectus used a report without consent and the auditor publicly disclaimed it.
Section 36
Fraudulently inducing investment
Cover deceptive inducements beyond the prospectus itself.Simple decode: Knowingly or recklessly making false, deceptive or misleading statements, promises or forecasts—or concealing material facts—to induce investment or obtain credit facilities attracts section 447.
Practical example: A founder who fabricates binding customer contracts to obtain investors may be prosecuted even outside a formal prospectus.
Section 37
Action by affected persons
Enable investor action.Simple decode: Any affected person, group or association may bring proceedings for misleading statements or acts under sections 34, 35 or 36.
Practical example: A group of subscribers can jointly pursue compensation arising from the same misleading issue document.
Section 38
Personation for acquisition of securities
Punish applications or transfers made in another name.Simple decode: Fictitious-name applications, multiple-name applications and induced transfers under false identity attract section 447. Gains are disgorged and credited to IEPF.
Practical example: Submitting several IPO applications using borrowed identities is not merely a rejected application; it can be fraud.
Section 39
Allotment of securities
Control minimum subscription, refund and return of allotment.Simple decode: Public allotment requires the stated minimum subscription and application money. If conditions fail, money is refunded. Every allotment requires a prescribed return; PAS-3 timing differs for ordinary/public and private-placement allotments.
Practical example: A public issue that does not reach minimum subscription must refund application money rather than reduce the project silently.
Section 40
Stock-exchange permission and issue money
Protect public-issue money and listing expectations.Simple decode: Before a public offer, the company applies to recognised stock exchange(s). Application money remains in a separate scheduled-bank account and is used only for allotment adjustment or refund. Waiver clauses are void.
Practical example: If listing permission is refused, public-issue money cannot be diverted to working capital.
Section 41
Global Depository Receipts
Permit foreign depository issuance under prescribed conditions.Simple decode: A company may issue GDRs in a foreign jurisdiction after special resolution and compliance with the prescribed scheme, FEMA and securities requirements.
Practical example: An Indian company may access overseas investors through GDRs but must follow the approval, depository and foreign-exchange framework.
Section 42
Private placement
Create a closed, identified-person funding route.Simple decode: Private placement uses a prior identified-person list, shareholder approval under Rule 14 subject to its specified NCD exceptions, PAS-4, PAS-5, banking-channel subscription, a separate bank account, 60-day allotment, PAS-3 within 15 days of allotment and no public advertising. The 200-person annual limit applies separately to each kind of security, excluding QIBs and section 62(1)(b) ESOP offers.
Practical example: A social-media campaign inviting 500 investors cannot be cured by later labelling the issue “private placement”.
Current rule register
Prospectus Rules and direct-listing framework
The register marks omitted rules expressly and separates the 2024 direct-listing rules from the principal 2014 rulebook.
Rule 1
Short title and commencement
Simple decode: The rulebook supplies forms, procedures and thresholds for Chapter III.
Practical example: Always read the current amendment trail and MCA webform instructions.
Rule 2
Definitions
Simple decode: The Companies Act dictionary controls unless the context requires otherwise.
Practical example: “Fees” means the current Registration Offices and Fees Rules amount.
Rule 3
Omitted - prospectus information
Simple decode: Current prospectus disclosure for SEBI-regulated offers follows section 26 and applicable SEBI regulations.
Practical example: Do not reproduce the old five-year disclosure checklist as current Rule 3.
Rule 4
Omitted - auditor reports
Simple decode: Use current section 26 and SEBI disclosure requirements.
Practical example: Historical rule text remains useful context but is not operative.
Rule 5
Omitted - other matters and reports
Simple decode: Current public-offer disclosures are driven principally by SEBI regulations.
Practical example: Do not cite deleted Rule 5 as a current filing requirement.
Rule 6
Omitted - expert and ancillary matters
Simple decode: Expert consent and liability remain governed by the Act and current securities rules.
Practical example: An omitted rule does not eliminate section 26 consent or sections 34-35 liability.
Rule 7
Variation in contract terms or objects
Simple decode: Investors must receive a transparent comparison of the original promise and proposed diversion.
Practical example: A change from plant construction to debt repayment requires the Rule 7 notice and PAS-1 disclosure.
Rule 8
Offer of sale by members
Simple decode: The company may host the offer document, but selling members fund their share of issue costs.
Practical example: A promoter OFS must identify the promoter and cost arrangement.
Rule 9
Dematerialisation and historic share warrants
Simple decode: The rule closes legacy bearer-style warrant gaps and supports beneficial-owner traceability.
Practical example: A physical bearer warrant cannot continue circulating indefinitely outside depository records.
Rule 9A
Unlisted public company dematerialisation
Simple decode: The company and every key holder must be depository-ready before capital actions.
Practical example: A covered company cannot allot rights shares while promoter holdings remain physical.
Rule 9B
Private-company dematerialisation
Simple decode: Small-company status is tested by the statutory definition at the relevant financial year-end.
Practical example: A private company ceasing to be small on 31 March 2025 generally reaches its Rule 9B deadline 18 months later.
Rule 10
Information memorandum for shelf prospectus
Simple decode: PAS-2 refreshes a still-valid shelf prospectus.
Practical example: A new debt tranche cannot rely on stale information from the first offer.
Rule 11
Refund of application money
Simple decode: Issue money is investor money until a valid allotment.
Practical example: Refunding to a promoter or intermediary account is not compliant.
Rule 12
Return of allotment
Simple decode: PAS-3 records who received what security, at what price and for what consideration.
Practical example: An acquisition paid through shares needs the underlying contract and valuation evidence.
Rule 13
Payment of commission
Simple decode: Commission is controlled issue expenditure, not an unrestricted success fee.
Practical example: A 6% share underwriting commission is impermissible even if the Board approves it.
Rule 14
Private placement offer and application
Simple decode: Private placement is a controlled process, not an unlisted public offer.
Practical example: An offer to 150 preference investors and 150 debenture investors can be tested separately because the cap applies per kind of security.
DL-1
Direct Listing Rules - scope and route
Simple decode: Direct listing is a specialised cross-border/IFSC route, not an ordinary domestic IPO.
Practical example: An unlisted public company may issue new equity on a permitted IFSC exchange after satisfying the Scheme and listing regulations.
DL-2
Eligibility and ineligible issuers
Simple decode: Run a separate issuer-eligibility memorandum before preparing the listing document.
Practical example: A company with a subsisting public-deposit default should not assume foreign listing eligibility.
DL-3
Issue or offer for sale
Simple decode: The Companies Act route sits alongside FEMA and IFSCA requirements.
Practical example: A shareholder OFS must satisfy both corporate and exchange eligibility.
DL-4
Prospectus and LEAP-1
Simple decode: Use the current Gazette/MCA form version, not the original 2024 schedule.
Practical example: A filing based on the superseded LEAP-1 format can be rejected or require resubmission.
DL-5
Continuing compliance
Simple decode: Foreign listing does not remove Indian company-law status.
Practical example: Board, financial statement and beneficial-ownership obligations continue.
DL-6
SEBI-listed public companies
Simple decode: Domestic listing obligations continue unless specifically modified.
Practical example: An NSE-listed issuer cannot rely only on the unlisted-company pathway.
DL-7
Current-status control
Simple decode: Maintain a dated legal matrix across all four frameworks.
Practical example: Confirm the current exchange, investor and filing conditions on the launch date.
Decoded implementation
Route-selection checklist
Public issue
Public company + prospectus (RHP or shelf route only where used) + SEBI/exchange process + demat + minimum-subscription and PAS-3 controls.
Rights / bonus
Existing-holder route under Chapter IV; listed companies also apply SEBI rules. Not a substitute for a public invitation.
Private placement
Board-identified offerees + shareholder approval under Rule 14 (subject to specified NCD exceptions) + valuation/price basis + PAS-4/PAS-5 + banking channel + allotment/refund discipline.
OFS
Existing shareholders sell through a company prospectus; section 25 deemed-prospectus and section 28 cost/liability rules matter.
Shelf / RHP
Shelf enables tranches with PAS-2 updates; RHP supports book building before final price/quantity.
Direct IFSC listing
Eligible public company + permitted exchange + Scheme/FEMA/IFSCA + current LEAP-1 and Indian continuing compliance.
Forms and documents
Primary filing and offer-document matrix
| Form / document | Purpose | Legal link |
|---|---|---|
| PAS-1 | Newspaper advertisement for variation in objects or contract terms | Rule 7 / section 27 |
| PAS-2 | Information memorandum for subsequent shelf offers | Rule 10 / section 31 |
| PAS-3 | Return of allotment | Sections 39 and 42 / Rule 12 and Rule 14 |
| PAS-4 | Private placement offer-cum-application letter | Section 42 / Rule 14 |
| PAS-5 | Record of private placement offers | Rule 14 |
| PAS-6 | Half-yearly reconciliation of share capital audit | Rules 9A and 9B |
| PAS-7 | Information on pre-2014 share warrants | Rule 9 |
| PAS-8 | Public notice to share-warrant holders | Rule 9 |
| LEAP-1 | Prospectus for eligible direct listing in permitted jurisdiction | Direct Listing Rules 2024, as amended in 2025 |
| MGT-14 | Special resolution for variation/private placement and related approvals | Sections 27, 42 and 117 |
| Abridged prospectus | Core disclosure accompanying public-issue application form | Section 33 and SEBI requirements |
| RHP / Shelf / Prospectus | Public-offer documents filed under sections 26, 31 and 32 | Companies Act + SEBI regulations |
Portal caution: Use the current MCA webform, Gazette schedule and regulator instruction kit on filing date. A new form version does not itself change the parent section.
Exceptions and highlights
Non-negotiable points
- Rules 3 to 6 of the 2014 Rules were omitted from 7 May 2018; current prospectus disclosure is governed by section 26 and SEBI regulations.
- Public offer, rights issue, bonus issue and private placement are legally distinct routes; a failed private placement can become a deemed public offer.
- The private-placement 200-person cap applies separately to each kind of security and excludes QIBs and ESOP offers.
- No private-placement subscription may be accepted in cash, and funds cannot be used before allotment and PAS-3 filing.
- An annual prior special resolution can cover NCD private placements and, after the 2020 amendment, offers to QIBs.
- Rule 9B now brings non-small private companies into compulsory dematerialisation; Government companies are excluded.
- Public companies using a shelf prospectus must update investors through PAS-2 before later tranches.
- Prospectus liability extends to omissions and deceptive forecasts, not only statements that are literally false.
- Civil and criminal liability can extend to directors, promoters, authorisers and consenting experts, subject to statutory defences.
- Section 23(3) direct listing is operational only through the 2024 Rules, the Scheme, FEMA and IFSCA regulations.
- The 2025 LEAP-1 substitution changes the prescribed form, not the underlying section 23(3) authority.
- Current SEBI ICDR, debt-listing or other securities regulations must be checked on the offer date.
Finin2min summary
Issue-route decision flow
CA / CS / finance professional cases
Applied case studies
1. Private placement advertised on social media
A private company posts a link to PAS-4 and invites anyone to invest in compulsorily convertible preference shares.
Analysis: The offer is no longer confined to identified persons. Public advertising breaches section 42 and can trigger deemed-public-offer consequences.
2. 201st debenture offeree
A company privately offers NCDs to 201 non-QIB persons during one financial year.
Analysis: The statutory cap is breached for that kind of security. Splitting the offer into Board-approved tranches does not cure the aggregate annual count.
3. Separate caps for security types
A company offers preference shares to 180 persons and NCDs to another 180 persons.
Analysis: The 200-person limit is tested separately for each kind of security, while all other section 42 conditions still apply.
4. Use of private-placement money before PAS-3
Allotment is made within 60 days, but the company uses funds the next day and files PAS-3 after ten days.
Analysis: Section 42 prohibits use until both allotment and return-of-allotment filing are complete.
5. Covered private company issuing physical shares
A non-small private company reaches its Rule 9B deadline and proposes a physical rights issue while promoter shares remain physical.
Analysis: The issue is blocked until the company and relevant holders comply with dematerialisation requirements.
6. Material omission in prospectus
The prospectus accurately states revenue but omits a government order suspending the issuer’s main licence.
Analysis: A material omission can create criminal and civil prospectus liability even when disclosed numbers are accurate.
7. OFS within six months of allotment
A company allots shares to an intermediary that publicly resells them four months later.
Analysis: Section 25 presumes an allotment with a view to public sale, making the sale document a deemed prospectus unless rebutted.
8. Shelf prospectus without update
A debt issuer launches a second tranche eight months later without filing PAS-2 despite a major default after the first tranche.
Analysis: The information memorandum requirement is violated and investors receive stale disclosure.
9. Minimum subscription not reached
A public issue closes below the stated minimum subscription, but the issuer proposes a reduced allotment.
Analysis: Allotment cannot proceed contrary to section 39; application money must be refunded under the Act and Rule 11.
10. Refund to third-party account
Application money came from the subscriber’s bank account, but refund is sent to a group-company account at the subscriber’s request.
Analysis: Rule 11 requires refund to the originating bank account, supporting audit trail and anti-fraud controls.
11. Direct listing using old LEAP-1
An eligible unlisted public company prepares the original 2024 LEAP-1 after the 2025 substitution.
Analysis: The filing should use the current substituted form and current IFSCA/FEMA framework.
12. Expert report used without final consent
A valuation report is inserted into a prospectus after the expert withdraws consent.
Analysis: The filing should not proceed with the report. Expert consent and liability protections under sections 26 and 35 are central.
Exam and implementation traps
Common errors
- Counting offers rather than unique identified persons for the annual private-placement cap.
- Combining equity, preference and debenture counts when the cap is applied separately by kind—or splitting one kind into artificial tranches to evade it.
- Using private-placement money after allotment but before PAS-3 filing.
- Accepting cash or third-party subscription money without the subscriber bank trail.
- Circulating PAS-4 publicly or permitting renunciation.
- Using old Rules 3-6 as current prospectus law.
- Ignoring Rule 9B because the company is private, despite not qualifying as small.
- Issuing or transferring physical securities after the dematerialisation compliance date.
- Treating exchange permission as optional in a public offer.
- Assuming literal truth prevents liability where a material fact is omitted.
- Using an old LEAP-1 or ignoring FEMA/IFSCA overlays.
- Failing to refund minimum-subscription money to the originating bank account.
Finin2min Q&A
Frequently asked questions
1. Can a private company make a public offer?
No. It may issue by rights/bonus or private placement, subject to other applicable provisions.
2. What is the private-placement person limit?
Up to 200 persons in aggregate per financial year for each kind of security, excluding QIBs and ESOP offerees.
3. Can PAS-4 be renounced?
No. It is addressed to an identified person and carries no right of renunciation.
4. When must private-placement securities be allotted?
Within 60 days of receiving application money; otherwise refund within the next 15 days, after which 12% interest applies.
5. When can private-placement funds be used?
Only after allotment and filing PAS-3.
6. Does Rule 9B apply to every private company?
No. It excludes small companies and Government companies, with status and deadline tested under the rule.
7. Are old Rules 3-6 still current?
No. They were omitted in 2018; current public-offer disclosure follows section 26 and SEBI regulations.
8. What is a deemed prospectus?
An offer-for-sale document treated as the company prospectus when securities were allotted with a view to public resale.
9. Can one special resolution cover all private placements?
Generally each offer needs approval, but annual resolution relief applies to specified NCD and QIB offers.
10. Can an Indian public company list directly overseas?
Specified companies may list equity on permitted IFSC exchanges under section 23(3), the 2024 Rules, the Scheme, FEMA and IFSCA regulations.
Primary-source register
Sources used
India Code - Companies Act, 2013Primary or authoritative source.Open source ↗
India Code - Prospectus and Allotment Rules, 2014Primary or authoritative source.Open source ↗
India Code - 2018 amendment omitting Rules 3-6Primary or authoritative source.Open source ↗
India Code - substituted Rule 14, 2018Primary or authoritative source.Open source ↗
India Code - Rule 14 amendment, 2020Primary or authoritative source.Open source ↗
Official Gazette - Second Amendment Rules 2023 / Rule 9BPrimary or authoritative source.Open source ↗
IFSCA - Companies Listing of Equity Shares in Permissible Jurisdictions Rules 2024Primary or authoritative source.Open source ↗
Review date: 28 June 2026. Later MCA, SEBI, IFSCA or FEMA changes must be checked before a live transaction.
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- Companies Act & MCA
- Official starting point
- www.mca.gov.in