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Liabilities For Mis-Statement In Prospectus - Prospectus And Statement In Lieu Of Prospectus

   Posted On :  08.05.2018 08:36 am

The liability of a promoter or a director or any other person who has authorized the issue of misleading prospectus is two-fold ,viz.,

Liabilities For Mis-Statement In Prospectus


Civil Liability (Section 62):

 
 
The following persons shall be liable to pay compensation to every subscriber for loss or damage (1) director of the company at the time of the issue of the prospectus; (2) person who has authorized himself to be named and is named in the prospectus as a director, (3) every promoter of the company; and (4) who has authorized the issue of the prospectus.
 

Damages For Fraudulent Misrepresentation:

 
 
An allottee of shares may bring an action for deceit, i.e., fraudulent misrepresentation.

Compensation For Untrue Statement [Sec. 62]:

 
 
File a suit for compensation under Section 62. A claim can be made, whether the statements are fraudulent or innocent.
 

Remedies Against Experts:

 
 
The allottee of the shares is entitled to claim from the expert: (i) damages, (ii) compensation under Section 62.
 

Liability Under Section 56:

 
 
An omission from a prospectus of a matter required to be stated under Section 56(i.e., as per Sch. II) may give rise to an action for damages at the instance of a subscriber for shares, who has suffered loss.

Criminal Liability For Misstatement In Prospectus

(Section 63):
 
Every person authorizing its issue is punishable:

1. With imprisonment for a term up to two years, or
2. Fine up to Rs. 50.000, or
3. With both imprisonment and fine.

Liability Under Section 68:

 
Every person authorizing its issue. Shall be punishable with imprisonment for a term which may extend to 5 years or with fine which may extend to Rs. 1,00,000 or with both.

Golden Rule For Framing Of Prospectus :

 
 
The ‘Golden Rule’ for framing of a prospectus was laid down by Justice Kindersely in New Brunswick & Canada Rly. & Land Co. V. Muggeridge (1860).
 
Briefly, the rule is: Those who issue a prospectus hold out to the public great advantages which will accrue to the persons who will take shares in the proposed undertaking. Thus, the persons issuing the prospectus must not include in the prospectus all the relevant particulars specified in Parts I & II of Schedule II of the Act, which are required to be stated compulsorily but should also voluntarily disclose any other information within their knowledge which might in any way affect the decision of the prospective investor to invest in the company.
 

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