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CA Foundation · Business Laws · The Companies Act, 2013

Ravi Textiles Ltd issues a prospectus that contains an untrue statement. Neha subscribed to shares relying on it and suffered a loss. Which of the following is correct regarding liability under the Companies Act, 2013?

Every person who authorised the issue of a prospectus containing an untrue statement is liable to compensate subscribers who suffered loss, unless the person proves a statutory defence such as a reasonable belief in its truth. Liability is not limited to the company alone.

  1. AOnly the company is liable to pay compensation to Neha
  2. BEvery person who authorised the issue of the prospectus is liable to pay compensation to Neha, unless he proves a statutory defenceCorrect
  3. COnly the auditor is liable, as accounts are verified by him
  4. DNo one is liable as subscription is voluntary

Explanation

Every person who authorised the issue of a prospectus is liable to compensate those who subscribed relying on a misstatement, for loss sustained. Such persons may escape liability by proving a defence, for example that the statement was believed true on reasonable grounds. Thus liability is not confined to the company or auditor.

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