Overview of Prospectus
A prospectus is issued either by or on behalf of a public company on its formation or subsequently or on behalf of a person engaged in formation of a public company.
For the purpose of financial information following reports are issued along with prospectus:
1. Reports by auditors of the company regarding its assets and liabilities and profit and losses.
2. Reports regarding profit and losses for five preceding financial years including report of subsidiaries in such manner as may be prescribed.
3. Reports about the securities or transaction to which proceeds of securities are to be applied directly or indirectly.
Considering the reporting liabilities of auditor the Companies Act, 2013 has also taken appropriate steps for safeguarding the mechanism by including criminal and civil liabilities.
The section for criminal liabilities read as follows
“Where a prospectus, issued, circulated or distributed under this Chapter, includes any statement which is untrue or misleading in form or context in which it is included or where any inclusion or omission of any matter is likely to mislead, every person who authorizes the issue of such prospectus shall be liable under section 447.
Provided that nothing in this section shall apply to a person if he proves that such statement or omission was immaterial or that he had reasonable grounds to believe, and did up to the time of issue of the prospectus believe, that the statement was true or the inclusion or omission was necessary. “
Section 447 is stringent in its way. The section provides for the punishment for fraud.
This hereby implies that any misstatement in prospectus will lead to fraud and will attract section 447.
Section 447 states that without giving effect to any liability under any other law for the time being in force any person who is guilty of fraud shall be punishable with imprisonment for a term not less than six months but which may extend to 10 years and shall be liable to fine not less than the amount involved in fraud but may extend to 3 times the fraud amount.
However, if the fraud involves public interest the term of imprisonment shall not be less than 3 years.
The section for civil liabilities read as follows
“Notwithstanding anything contained in this section, where it is proved that a prospectus has been issued with intent to defraud the applicants for the securities of a company or any other person or for any fraudulent purpose, every person referred to in subsection (1) shall be personally responsible, without any limitation of liability, for all or any of the losses or damages that may have been incurred by any person who subscribed to the securities on the basis of such prospectus”
In accordance with the above section the civil liabilities will be imposed on director of the company, issuer of prospectus, promoter of the company, person who has authorized issue of prospectus, expert referred to in section 26.
Such above person shall personally liable without any limitation or extent and shall be liable to make good the damage or loss caused to the persons who has subscribed such securities on the basis of such prospectus.
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