Foreign Company Prospectus: Sections 387 to 390

A foreign company prospectus offered in India is governed by sections 387 to 390 of the Companies Act, 2013. Section 387 fixes what the document must say and bars waiver clauses, section 388 handles expert consent and allotment, section 389 requires registration with the Registrar before the prospectus circulates, and section 390 empowers the Central Government to make rules for Indian Depository Receipts.

What does a foreign company prospectus have to contain?

Section 387(1) opens on the person, not on the company: "No person shall issue, circulate or distribute in India any prospectus offering to subscribe for securities of a company incorporated or to be incorporated outside India". It applies whether the company has or has not established, or when formed will or will not establish, a place of business in India, so an entirely offshore issuer is inside it.

The prospectus must be dated and signed, and then clause (a) requires particulars of five matters:

1. the instrument constituting or defining the constitution of the company;
2. the enactments or provisions by or under which the incorporation of the company was effected;
3. an address in India where that instrument, those enactments or provisions, or copies of them, and a certified English translation where they are not in English, can be inspected;
4. the date on which and the country in which the company would be or was incorporated; and
5. whether the company has established a place of business in India and, if so, the address of its principal office in India.

Clause (b) then requires the prospectus to state the matters specified under section 26, which is the Indian-company prospectus content section.

A proviso limits the first three of those. Sub-clauses (i), (ii) and (iii) of clause (a) shall not apply in the case of a prospectus issued more than two years after the date at which the company is entitled to commence business.

What cannot be waived, and what about application forms?

Sub-section (2) voids two things: any condition requiring or binding an applicant for securities to waive compliance with a requirement imposed by virtue of sub-section (1), and any condition purporting to impute him with notice of any contract, documents or matter not specifically referred to in the prospectus. Constructive notice by contract is shut off.

Sub-section (3) attaches to the application form. No person shall issue to any person in India a form of application for securities of such a company unless the form is issued with a prospectus which complies with the Chapter and the issue does not contravene section 388. The proviso exempts a form issued in connection with a bona fide invitation to enter into an underwriting agreement.

Sub-section (4) carves out two cases. The section does not apply to the issue, to existing members or debenture holders, of a prospectus or application form relating to the company's securities, whether or not the applicant may renounce in favour of others. And, except so far as it requires a prospectus to be dated, it does not apply to a prospectus relating to securities which are or are to be in all respects uniform with securities previously issued and for the time being dealt in or quoted on a recognised stock exchange. Sub-section (5) preserves liability arising otherwise than under the section.

What do sections 388 and 389 add?

Section 388 deals with experts and allotment. No person shall issue, circulate or distribute such a prospectus in India if it includes a statement purporting to be made by an expert and that expert has not given, or has withdrawn before delivery of the prospectus for registration, written consent to the issue with the statement in the form and context in which it appears, or if the prospectus does not carry a statement that consent was given and not withdrawn. Nor may it be issued if the prospectus does not have the effect of binding all persons concerned by all the provisions of sections 33 and 40, so far as applicable, where an application is made in pursuance of it. Sub-section (2) deems a statement included in a prospectus if it is in any report or memorandum on the face of it, incorporated by reference, or issued with it.

Section 389 is the registration gate. Before any issue, circulation or distribution in India, a copy of the prospectus certified by the chairperson of the company and two other directors as having been approved by resolution of the managing body must be delivered to the Registrar for registration, and the prospectus must state on its face that a copy has been so delivered. Endorsed on or attached to that copy must be any consent required by section 388, and such documents as may be prescribed.

How Indian Depository Receipts fit

Section 390 does not itself regulate an offer. It is a rule-making power, and it is expressed notwithstanding anything contained in any other law for the time being in force. The Central Government may make rules for the offer of Indian Depository Receipts, the disclosures required in the prospectus or letter of offer, the manner in which they are dealt with in a depository mode and by custodians and underwriters, and the manner of their sale, transfer or transmission, by a company incorporated or to be incorporated outside India.

Section 391(1) then applies sections 34 to 36 to the issue of a prospectus by a foreign company under section 389 and to the issue of Indian Depository Receipts. Those are the criminal and civil mis-statement provisions and the fraudulent-inducement offence, so the liability regime that attaches to an Indian prospectus attaches here too. Section 391 and the penalty are covered on the foreign company penalty page.

Where this sits in the disclosure picture

• Foreign company under the Companies Act covers why sections 387 to 391 sit outside the section 379(1) list.
• Penalty for a foreign company default covers sections 391 and 392.
• What is a red herring prospectus covers the Indian prospectus variant that section 26 sits behind.
• Display of name by a foreign company covers section 382(c)(i), the other Chapter XXII limb that names a prospectus.
• Fraud under section 447 covers the offence that the mis-statement provisions feed into.

A foreign company prospectus is a registered document with a named certifying trio, which is what makes it a dated public record rather than a marketing paper. Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.