Section 2(70) of the Companies Act, 2013: What a Prospectus Really Means
If you’ve ever opened the Companies Act, 2013 hoping to “quickly check one section,” you already know how that usually ends—confusion, multiple tabs open, and more questions than answers.
One section that looks harmless but causes a surprising amount of trouble in real life is Section 2(70). I’ve seen founders, directors, and even experienced professionals misunderstand it—not because it’s complicated, but because its impact is underestimated.
This section defines one small word: prospectus.
But that one word can decide whether a company is compliant… or walking straight into penalties.
What Is Section 2(70) Actually About?
Section 2(70) doesn’t tell you what to do.
It tells you what something is.
Specifically, it:
- Explains what counts as a prospectus
- Expands the meaning beyond just IPO documents
- Makes it clear that intent doesn’t matter—effect does
In everyday language, Section 2(70):
defines a "prospectus" as any document, including a red herring prospectus, shelf prospectus, notice, circular, or advertisement, that invites the public to subscribe for or purchase securities of a body corporate. In contrast, Section 70 of the Act deals with the prohibition of buy-back of securities in certain circumstances, Prohibition for buy-back in certain circumstances. prospectus
Now let’s translate that into something usable.
“Any Document” – This Is Where People Slip Up
Most people assume a prospectus must be a formal, thick document printed during an IPO.
That assumption is wrong.
Section 2(70) deliberately uses the words “any document.”
That means:
- A PDF shared on WhatsApp
- An email sent to multiple people
- A website page
- A brochure
- Even a promotional post or advertisement
If the message invites people to invest, the format doesn’t protect you.
I’ve personally seen cases where companies said,
“It was just a marketing flyer.”
But legally, it functioned as a prospectus.
The Types of Prospectus Covered Under Section 2(70)
The law doesn’t leave this open-ended. It clearly lists what can be treated as a prospectus.
1. Red Herring Prospectus
Common in IPOs, where pricing or quantities aren’t final yet.
2. Shelf Prospectus
Used when securities are issued in phases over time.
3. Notice or Circular
This catches many people off guard.
Even a simple circular can qualify if it invites investment.
4. Advertisement
This is the most dangerous category.
If your advertisement:
- Talks about returns
- Encourages people to invest
- Is visible to the public
It may legally become a prospectus—even if you never called it one.
The Most Important Line: “Invites the Public”
This is the trigger point.
Section 2(70) is not concerned with your intention.
It only looks at what the communication does.
If it:
- Is open to anyone
- Is not restricted to identified persons
- Encourages buying or subscribing to securities
Then it can be treated as a prospectus.
This is why companies doing “private” fundraising still get into trouble—they accidentally make it public.
“Subscribe for or Purchase Securities” – Not Just Shares
The invitation doesn’t need to be limited to equity shares.
It includes:
- Shares
- Debentures
- Bonds
- Any other securities
If money is being invited in exchange for securities, Section 2(70) steps in.
Why This Definition Is So Important in Practice
Section 2(70) quietly controls many serious consequences.
Once something is treated as a prospectus:
- Disclosure rules apply
- Liability for misstatements arises
- Directors can be personally responsible
- Regulatory scrutiny increases
This is why I always say—definitions create obligations.
Prospectus vs Private Placement (A Costly Confusion)
Many founders say:
“But we were doing private placement, not public issue.”
That defence only works if:
- The invitation was limited
- The audience was identified
- The communication never reached the public
The moment it becomes open-ended or widely accessible, it can legally turn into a prospectus under Section 2(70).
Section 2(70) vs Section 70: Clear the Confusion Once and For All
Because the section numbers are close, people often mix them up.
Here’s the clean distinction:
Section 2(70)
- Defines what a prospectus is
- Helps interpret other provisions of the Act
Section 70
- Deals with Prohibition for buy-back in certain circumstances.
- Prevents companies from buying back their own securities when conditions are violated
One is a definition tool.
The other is a restriction rule.
They serve entirely different purposes.
Real-World Examples That Make This Click
Example 1: Startup Investment Ad
“Invest in our startup. Early investors get high returns.”
Public, open, investment-focused → likely a prospectus.
Example 2: Mass Email Campaign
Sent to hundreds of unknown recipients inviting funding.
Even an email can qualify.
Example 3: Website Landing Page
If it openly invites investment without restrictions, Section 2(70) may apply.
What Happens If You Ignore Section 2(70)?
Most violations are accidental, not malicious.
But consequences don’t care about intent.
Possible outcomes include:
- Invalid allotment of shares
- Penalties
- Refund obligations
- Director liability
All because a document crossed the line into “prospectus.”
Practical, Experience-Based Tips
Here’s what actually helps in the real world:
- Be extremely clear about who your communication is for
- Avoid investment language in public marketing
- Restrict access to private fundraising documents
- Always get documents reviewed before circulation
Small precautions save big legal headaches.
Why Directors Should Personally Pay Attention
Under company law, directors can be held liable for misstatements in a prospectus—including documents that become prospectuses under Section 2(70).
This is not theoretical risk. It’s personal responsibility.
One Last Myth to Drop
- “Only IPOs issue prospectus” ❌
- “Ads are safe” ❌
- “We didn’t mean it” ❌
In law, how something appears to the public matters more than what you meant.
Where Expert Help Actually Matters
If you ever feel lost navigating old tax provisions, educational deductions, or modern compliance rules, the team at CallMyCA.com is always ready to guide you with real clarity & human support.
Sometimes, one proper review is all it takes to avoid years of compliance trouble.
