CA Intermediate · Corporate and Other Laws · Prospectus and Allotment of Securities
Meridian Infra Ltd, a public company, makes a public offer. Rohan subscribed on the strength of a statement in the prospectus that the company held a government licence. The statement was untrue. Rohan suffered loss. Which of the following correctly states the liability position under the Companies Act, 2013 for misstatement in a prospectus?
Persons who authorised the issue of a prospectus containing an untrue statement are liable to compensate subscribers who suffered loss relying on it. They can escape only by proving a statutory defence, such as having reasonable grounds to believe the statement was true. The company alone is not the only liable party.
- AOnly the company is liable; directors can never be held liable
- BEvery person who authorised the issue of the prospectus is liable to compensate for loss, unless he proves the statement was believed true or other statutory defences applyCorrect
- CNo one is liable because Rohan could have verified the licence himself
- DLiability arises only if the prospectus was also registered as a statement in lieu of prospectus
Explanation
Under the Act, every person who authorised the issue of a prospectus containing an untrue statement is liable civilly to those who subscribed on the faith of it, and may also face criminal liability for fraud-related provisions. Such a person can escape only by proving defences such as a reasonable belief in truth. Option 1 wrongly excludes directors, and option 3 ignores that the investor's reliance is protected.
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