The Securities and Exchange Board of India has clarified that disclosures in the IPO prospectus (on allotment of shares) has enforceability as in the case of a contract.
A prospectus is a document with legal validity and the company is legally bound to abide by the disclosures made therein as it forms the basis for raising money from the public, said SEBI.
SEBI, in an informal guidance on Rushil Décor’s query on whether shares, other than minimum promoters’ contribution of 20 per cent, can be released for transfer on the expiry of one year from the date of allotment clarified that it cannot be done.
SEBI said that in Rushil’s case, the company had specified in the prospectus that the entire pre-issue share capital of the company, other than minimum promoters’ contribution, shall be locked-in for a period of one year from the date of commencement of commercial production or date of allotment, whichever was later. This was akin to the lock-in clause applicable to minimum promoters’ contribution, said SEBI. SEBI regulations prescribe a three-year lock-in for minimum promoter contribution from the letter date of issue of allotment and date of commencement of commercial production. Promoter holding in excess of minimum contribution has a one-year lock-in and the entire pre-issue non-promoter holding in an IPO also has a one–year lock-in.