Every form of application for shares in or debentures of a company shall be accompanied by a memorandum containing salient features of prospectus. The memorandum containing salient features of prospectus shall contain all particulars as specified in Form No. 2A of the Companies (Central Governments) General Rules and Forms, 1956 [Section 56(3)]. The application form shall comply with the provisions of section 56. In short, application form cannot be issued unless it contains a memorandum containing salient features of prospectus and is in consonance with the provisions of section 56.

Any person who acts in contravention of provisions cited above shall be punishable with fine which may extend to fifty thousand rupees. The powers of prosecution under section 56 have been delegated to the officials of SEBI.

The Departments Circular Letter No. F.2/18/74/64, dt. 22-9-1964, states that instances have come to Governments notice where members of recognised Stock Exchanges, while issuing circular letters to their clients in respect of new issues, have forwarded forms of application without enclosing therewith copies of prospectuses as required under section 56(3). The requirements of section 56(3) are mandatory and any contravention of the provisions contained therein is punishable with fine which may extend to fifty thousand rupees. Government has very carefully considered the matter in all its aspects and is of the firm opinion that no laxity in strict compliance of the legal provisions should be permitted. With a view to avoiding prosecutions for such illegal practices being launched against the member-brokers of the Exchanges, the desirability of strictly adhering to the mandatory provisions of law as well as of conforming to the rules, bye-laws and regulations of the Exchange should be impressed upon them, states the ibid circular.