Examine the liability of the promoters of a company for mis-statements made in the prospectus.
Find the question and answer of Company Law only on Legal Bites.
Question: Examine the liability of the promoters of a company for mis-statements made in the prospectus. [BJS 1980]Find the question and answer of Company Law only on Legal Bites. [Examine the liability of the promoters of a company for mis-statements made in the prospectus.]The promoters of a company play a critical role in its formation and in raising funds from the public through the issuance of a prospectus. A prospectus is a legal document that provides information about the company,...
Question: Examine the liability of the promoters of a company for mis-statements made in the prospectus. [BJS 1980]
Find the question and answer of Company Law only on Legal Bites. [Examine the liability of the promoters of a company for mis-statements made in the prospectus.]
The promoters of a company play a critical role in its formation and in raising funds from the public through the issuance of a prospectus. A prospectus is a legal document that provides information about the company, its operations, and the securities being offered to the public. It is a crucial document that must be accurate and not contain any material mis-statements or omissions.
If the prospectus contains mis-statements or omissions, the promoters may be held liable for the same. The liability of the promoters for mis-statements made in the prospectus is discussed below:
Civil Liability: Under the Indian Companies Act, 2013, any person who makes a statement in the prospectus that is untrue or misleading is liable to pay compensation to the investors who have suffered losses as a result of such mis-statements. The term 'any person' includes the promoters of the company who are responsible for preparing and signing the prospectus.
Criminal Liability: The Indian Companies Act, 2013 also provides for criminal liability for any person who makes a statement in the prospectus that is untrue or misleading. If the promoter knowingly or recklessly makes a false statement in the prospectus, he/she may be liable for imprisonment or a fine, or both.
Contractual Liability: The promoters of the company may also be held liable for breach of contract if the prospectus contains mis-statements or omissions. This is because the investors rely on the information provided in the prospectus when deciding to invest in the company. If the information provided is inaccurate or misleading, the investors may have a claim for breach of contract against the company and its promoters.
The liability of the promoters for mis-statements made in the prospectus can be both civil and criminal. The promoters are responsible for preparing and signing the prospectus, and they must ensure that it is accurate and not misleading. If the prospectus contains misstatements or omissions, the promoters may be held liable for any losses suffered by investors as a result. It is, therefore, important for promoters to exercise due diligence and ensure that the information provided in the prospectus is accurate and complete.
Mayank Shekhar
Mayank is an alumnus of the prestigious Faculty of Law, Delhi University. Under his leadership, Legal Bites has been researching and developing resources through blogging, educational resources, competitions, and seminars.
