Q. Who are liable for mis-statement in prospectus? Explain the extent of civil and criminal liability for such mis-statement. [2019 - 20 marks]
Q. What is 'Prospectus'? Who are liable for a misstatement in a prospectus? [2017 - 20 marks]
Q. State the golden rules which must be observed while framing a prospectus. [2016 - 10 marks]
Prospectus under Companies Act 2013
Section 2(70) of the Companies Act 2013 defines prospectus‖ means any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of body corporate.
Golden Rule of Framing Prospectus
1.The prospectus must be an honest statement of the company’s profile; there must be no misleading, ambiguous or erroneous reference to the company in its prospectus.
2.Every important aspect of a contract of the company should be clarified.
3.The contents of the prospectus should conform to the provision of the Companies Act.
4.The restrictions on the appointment of directors must be kept in mind.
5.The conditions of civil liability as laid down must have strictly adhered to issue and registration of prospectus or legal requirement regarding the issue of the prospectus.
Liability on mis-statement in a Prospectus
Criminal Liability on mis-statement in a Prospectus
Section 34 of the Companies Act fixes criminal liability on mis-statement in a prospectus to every person who have authorised such wrong or untrue or misleading information on the prospectus.
Civil Liability on mis-statement in a Prospectus
Section 35 of the Act fixes the civil liability on wrong or untrue or misleading information on a prospectus to the directors, including acting directors and the promoters of the company at the time of publication of the prospectus
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