Decoding Section 34 of Companies Act 2013 – Criminal Liability for Mis-Statements in Prospectus
Introduction:
Section 34 of the Companies Act 2013 deals with the liability for shifting financial statements or prospectus. It specifies that any person who is found to be responsible for any false statement or misstatement in the prospectus whether or not the prospectus is published shall be liable. The provision provides immunity to persons who have acted in good faith.
The sections further clarifies that any person who authorizes the issue of a prospectus which includes false statements or misstatements made recklessly or fraudulently shall be liable for punishment which shall extend to imprisonment for a term which may extend to five years and shall also be liable to fine which may extend to three times amount of the value of the securities issued by the company or the fraud committed, whichever is higher. In the event of any person making false statement fraudulently or recklessly, such person shall also be liable to a penalty extending up to one-half of the amount of the fraud committed.
Analysis of Section 34 Criminal Liability for Mis-Statements in Prospectus as Per Companies Act 2013
Section 34 of the Companies Act 2013 makes persons who are responsible for any false statements or misstatements in a prospectus issued by a company liable to punishment. The sections opines that any person who is responsible for the issue of a prospectus which contains false statements or misstatements recklessly shall be liable to punishment which may extend up to five years of imprisonment and a fine three times the value of the securities issued by the company or the fraud committed, whichever is higher.
Under Section 34, a person found guilty of making false statement in a prospectus will be liable for the prescribed punishment. The general principles for liability for false statement in prospectus as per Companies Act 2013 are given below:
1. Criminal Liability:
A person who authorizes the issue of a prospectus which includes any false statement or misstatement made recklessly or fraudulently shall be liable for criminal prosecution and punishment which may extend to five years of imprisonment and fine extending up to three times the amount of value of the securities issued by the company or the fraud committed, whichever is higher. The person found liable for making false statements may also be liable for a penalty extending up to one-half of the amount of fraud committed.
2. Strict Liability:
Under Section 34, there is a general principle of strict liability. That is, any person found to be responsible for misstatement or false statement in the prospectus, whether or not the prospectus is published, shall be liable. This principle has been held to be applicable to promoters, directors, promoters of a company, advisers who help in preparing the prospectus and persons who authorize the issue of prospectus.
3. Direct Liability:
Under Section 34, direct liability for misstatement or false statement lies on any person found to be responsible for the issue of a prospectus. The concept of direct liability implies that anyone found to be responsible for misstatement, false statement, or fraud in the prospectus is liable and shall be prosecuted irrespective of whether that person is a promoter, director, or other company personnel.
4. Civil Liability:
Under Section 35, persons who have caused false statement or fraud by any means in a prospectus shall be liable in civil action also. Such actions against persons can form the basis of claims for damages, rescission (cancellation of contract) or restitution.
Conclusion:
Section 34 of the Companies Act 2013 imposes criminal liability for false statement or misstatement in prospectus. Any person found to be responsible for any false statement or misstatement in the prospectus shall be liable for punishment. Section 34 places a burden upon any person authorizing the issue of prospectus to ensure that all relevant information about the company is included in the prospectus, and no false statement or fraud is made. It is important for companies to be thorough with the disclosure of all relevant information to avoid any prosecution under Section 34.
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