What is the liability of directors for admission or untrue statements in the prospectus of the company?

Ans. Liabilities or Consequences for admission or Fraudulent Mis-statement in Prospectus— Any omission from a prospectus of those matters which are required to be stated as per S.26 and Schedule II shall render the director or any other person responsible for the issue of prospectus, liable to fine not exceeding rupees five thousand. In addition to this, the director or the official concerned may also incur civil or criminal liability for non-disclosure.

However, in the event of omission to disclose the nature and extent, of a director’s or ‘promoter’s interest in the promotion of or property acquired or to be acquired by the company, no director or other person shall incur liability unless it is proved that he had knowledge of the matters not disclosed.

It must be stated that for mere omission, not being deliberate falsity, the subscriber for shares or debentures has no right to rescind the

allotment nor any other remedy against the company. He can, however, claim damages for loss suffered against the directors or other persons applied for shares or debentures on the faith of the prospectus and would not have done so if the prospectus had complied with the provisions of S.26.

Fraudulent Mis-statements- Any person who has been induced to invest money in a company relying on a fraudulent statement in the prospectus can sue the director or the person responsible for issuing if and claim damages, In order to prove a fraud the aggrieved investor has to prove that the false representation was made by the company.(a) knowingly, or (b) without belief in its truth, or (c) recklessly whether it be false or true. Thus, fraud may be committed by reckless and careless statement in the prospectus Without bothering about the truth or false of it.

A statement included in the prospectus shall be deemed to be untrue, if the statement is misleading in the form and content in which it is included. It also provides that where the omission from a Prospectus of any other matter is calculated to mislead, the prospectus shall be deemed, in respect of much omission, to be a prospectus in which an untrue.