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

Sunrise Agro Ltd, an unlisted public company, issued a prospectus for its public offer. After the issue, an investor, Mr. Verma, who subscribed on the strength of the prospectus, found that it contained an untrue statement. Which of the following persons is, as a general rule, NOT liable to Mr. Verma for the loss under the civil liability provisions for misstatement in a prospectus, merely because of that role?

A fellow investor who merely applied for shares is not liable for a prospectus misstatement. Liability lies with directors at the time of issue, promoters and persons who authorised the prospectus, because they are responsible for its contents, whereas an applicant plays no part in issuing it.

  1. AA director of the company at the time the prospectus was issued
  2. BA promoter of the company named in the prospectus
  3. CA person who authorised the issue of the prospectus
  4. DAn investor who had applied for shares in the same issueCorrect

Explanation

Liability for misstatement in a prospectus falls on every person who is a director at the time of issue, the promoters, and persons who authorised the issue. Another applicant in the same issue has no role in issuing the prospectus and so carries no such liability. The other three options are exactly the persons the Act makes liable.

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