Deemed Prospectus / Prospectus by Implication (Section 25)
# Deemed Prospectus / Prospectus by Implication (Section 25)
## Core Concept
When a company avoids the prospectus formalities by allotting securities to an intermediary (issuing house), which then sells those securities to the public, the law treats the offer-for-sale document as a prospectus issued by the company.
Where a company allots or agrees to allot any securities with a view to those securities being offered for sale to the public, then any document by which the offer for sale to the public is made shall be deemed to be a prospectus issued by the company.
### (ii) Contents & Liability
All enactments and rules of law as to:
Contents of a prospectus, and
Liability in respect of mis-statements in, or omissions from, a prospectus,
...apply to the deemed prospectus.
### (iii) Two Tests — When Securities are Deemed Offered to Public
It shall be evidence that allotment was made with a view to offering for sale to the public if:
(a) An offer of the securities to the public was made within 6 months after allotment / agreement to allot; OR
(b) At the date when the offer was made, the whole consideration to be received by the company in respect of those securities had not been received.
### (iv) Special Treatment in Applying Section 26
Section 26 (matters to be stated in prospectus) applies as if:
(I) The prospectus must additionally state:
(a) Net amount of consideration received or to be received by the company in respect of the securities to which the offer relates; and
(b) The time and place at which the contract under which the securities have been or are to be allotted may be inspected.
(II) Persons making the offer are deemed to be named in the prospectus as directors of the company.
### (v) Signing the Deemed Prospectus
If the person making the offer is a company or firm, the document deemed to be prospectus must be signed:
By at least 2 directors of the offering company, OR
By not less than half of the partners of the offering firm.
## Memory Hook
"Issue to issuing house → Issuing house to public = Deemed Prospectus by the company. 6-month / consideration-not-received test triggers the deeming."
Worked example
### Example 1
Example 1 — 6-month test: ABC Ltd allots 10 lakh shares to XYZ Issuing House on 1 January. On 1 May (4 months later), XYZ offers those shares for sale to the public. Result: The offer document is a deemed prospectus of ABC Ltd, attracting all prospectus liabilities.
### Example 2
Example 2 — Consideration test: ABC Ltd allots shares to XYZ House without receiving full consideration. XYZ offers them to public on 1 January. Result: Even if the offer is more than 6 months after allotment, the 'consideration-not-received' test triggers deeming.
### Example 3
Example 3 — Signing requirements: A partnership firm (with 6 partners) makes the offer-for-sale. Required: The deemed prospectus must be signed by at least 3 partners (half of 6).
### Example 4
Example 4 — Mis-statement liability: XYZ House omits a material fact about ABC Ltd's pending litigation. Result: Both ABC Ltd (treated as issuer of the deemed prospectus) and the signing directors of XYZ are liable for the omission.
⚠️ Common exam mistakes
Confining 'deemed prospectus' to fraud — it operates even in genuine offer-for-sale arrangements, as a presumption.
Forgetting the two tests are alternative — either the 6-month proximity OR the unpaid-consideration test triggers deeming.
Missing the additional disclosures (net consideration and inspection of contract) required by Section 26 when applied through Section 25.
Allowing only one director to sign on behalf of the offering company — minimum is two.
Bare-Act text Section 25 · Companies Act, 2013 · click to expand
Section 25 — (1) Where a company allots or agrees to allot any securities of the company with a view to all or any of those securities being offered for sale to the public, any document by which the offer for sale to the public is made shall, for all purposes, be deemed to be a prospectus issued by the company; and all enactments and rules of law as to the contents of prospectus and as to liability in respect of mis-statements in and omissions from prospectus shall apply. (2) It shall be evidence that an allotment of, or an agreement to allot, securities was made with a view to the securities being offered for sale to the public if it is shown — (a) that an offer of the securities was made to the public within six months after the allotment or agreement to allot; or (b) that at the date when the offer was made, the whole consideration to be received by the company had not been so received. (3) Section 26 applies with additional disclosures of net consideration and place of inspection of the contract, and as if persons making the offer were named as directors. (4) The document shall be signed by at least two directors of the company / not less than half the partners of the firm making the offer.