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CA Intermediate · Corporate and Other Laws · Prospectus and Allotment of Securities

Nirmal Infra Ltd issued a prospectus containing a statement that its order book was Rs 500 crore, though the directors knew it was only Rs 50 crore. Rohit subscribed to shares relying on this. Which of the following is the correct legal consequence under the Companies Act, 2013?

Persons who authorised the issue of a prospectus containing an untrue or misleading statement face criminal liability linked to fraud under section 447 and civil liability to compensate subscribers, subject to defences. Registration of the prospectus does not protect them, so Rohit can claim compensation in addition to other remedies.

  1. AEvery person who authorised the issue of the prospectus is liable for fraud under section 447 for the misstatement, subject to the statutory defences, and Rohit may also claim compensationCorrect
  2. BOnly the company is liable and no director can be held personally liable
  3. CRohit can only claim a refund of application money and nothing else
  4. DThe prospectus is void but no person is punishable if it was registered with the Registrar

Explanation

Where a prospectus includes a statement that is untrue or misleading, every person who authorised its issue is liable under section 34 (criminal liability, with reference to section 447) and section 35 (civil liability for compensation to those who subscribed). Registration does not cure a misstatement. Option B wrongly confines liability to the company, and option C ignores the compensation remedy. Option D ignores the express personal liability of authorising persons.

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