Section 35 of Companies Act, 2013 – Civil Liability for Mis-Statements in Prospectus

SECTION 35. CIVIL LIABILITY FOR MIS-STATEMENTS IN PROSPECTUS

[Effective from 12th September, 2013 except clause (e) of sub-section (1)] [Clause (e) of sub-section (1) is effective from 1st April, 2014]

(1) Where a person has subscribed for securities of a company acting on any statement included, or the inclusion or omission of any matter, in the prospectus which is misleading and has sustained any loss or damage as a consequence thereof, the company and every person who—

(a) is a director of the company at the time of the issue of the prospectus;

(b) has authorised himself to be named and is named in the prospectus as a director of the company, or has agreed to become such director, either immediately or after an interval of time;

(c) is a promoter of the company;

(d) has authorised the issue of the prospectus; and

(e) is an expert referred to in sub-section (5) of section 26,

shall, without prejudice to any punishment to which any person may be liable under section 36, be liable to pay compensation to every person who has sustained such loss or damage.

(2) No person shall be liable under sub-section (1), if he proves—

(a) that, having consented to become a director of the company, he withdrew his consent before the issue of the prospectus, and that it was issued without his authority or consent; or

(b) that the prospectus was issued without his knowledge or consent, and that on becoming aware of its issue, he forthwith gave a reasonable public notice that it was issued without his knowledge or consent.

[(c) that, as regards every misleading statement purported to be made by an expert or contained in what purports to be a copy of or an extract from a report or valuation of an expert, it was a correct and fair representation of the statement, or a correct copy of, or a correct and fair extract from, the report or valuation; and he had reasonable ground to believe and did up to the time of the issue of the prospectus believe, that the person making the statement was competent to make it and that the said person had given the consent required by sub-section (5) of section 26 to the issue of the prospectus and had not withdrawn that consent before [2] [filing of a copy of the prospectus with the Registrar] or, to the defendant’s knowledge, before allotment thereunder.] [1]

(3) Notwithstanding anything contained in this section, where it is proved that a prospectus has been issued with intent to defraud the applicants for the securities of a company or any other person or for any fraudulent purpose, every person referred to in sub-section (1) shall be personally responsible, without any limitation of liability, for all or any of the losses or damages that may have been incurred by any person who subscribed to the securities on the basis of such prospectus.

Note: This section corresponds to section 62 of the Companies Act, 1956 and seeks to provide civil liability for misstatements or misleading statements in the prospectus.

 

 

[1] Inserted by the Companies (Amendment) Act 2017 vide Notification No. File No. 1/1/2018-CL.I dated 9th February, 2018.

[2] Substituted the words “delivery of a copy of the prospectus for registration” by Companies (Amendment) Act, 2019 vide notification No. File No. 1/5/2019-CL-I dated 14th August, 2019.