Criminal liability for mis-statements in prospectus
Where any PROSPECTUS, includes any statement which is untrue or misleading 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:
NOTE: Nothing in this section applies 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.
Comment: punishment for fraudulently inducing persons to invest money
Any person who, either knowingly or recklessly makes any statement, promise or forecast which is false, deceptive or misleading, or deliberately conceals any material facts, to induce another person to enter into, or to offer to enter into,—
(a) any agreement for, or with a view to, acquiring, disposing of, subscribing for, or underwriting securities; or
(b) any agreement, the purpose or the pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities; or
(c) any agreement for, or with a view to, obtaining credit facilities from any bank or financial institution,
shall be liable for action under section 447
Civil liability for mis-statements in prospectus
Where a person has subscribed for securities of a company acting on any statement included, or the inclusion or omission of any matter, in the prospectus which is misleading and has sustained any loss or damage as a consequence thereof, the company and every person who—
(a) is a director of the company at the time of the issue of the prospectus;
(b) has authorised himself to be named and is named in the prospectus as a director of the company, or has agreed to become such director, either immediately or after an interval of time;
(c) is a promoter of the company;
(d) has authorised the issue of the prospectus; and
*(e) is an expert referred to in sub-section (5) of section 26,
shall, without prejudice to any punishment to which any person may be liable under section 36, be liable to pay compensation to every person who has sustained such loss or damage.
(3) 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 sub-section (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.
Comment: action by affected persons
A suit may be filed or any other action may be taken under section 34 or section 35 or section 36 by any person, group of persons or any association of persons affected by any misleading statement or the inclusion or omission of any matter in the prospectus.
DISCLAIMER: The article is based on the relevant provisions and as per the information existing at the time of the preparation. In no event i shall be liable for any direct and indirect result from this article. This is only a knowledge sharing initiative.
The author – CS deepak seth (associate partner helpinghands professionals llp) and can be reached at [email protected] or 9910248911.