Section 35: Civil liability for mis-statements in prospectus
This section is for holding companies and individuals liable for mis-statements in a prospectus that cause loss or damage to subscribers.
The section, clause by clause
What the section says
In plain terms
(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 company and certain individuals, including directors, promoters, and experts, are liable to pay compensation to anyone who has sustained loss or damage due to misleading statements in a prospectus.
(1)(a)is a director of the company at the time of the issue of the prospectus;
(1)(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;
(1)(c)is a promoter of the company;
(1)(d)has authorised the issue of the prospectus; and
(1)(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 person can avoid liability if they can prove they withdrew their consent to be a director before the prospectus was issued, or that it was issued without their knowledge or consent and they gave public notice of this, or that any misleading statement was a correct representation of an expert's statement and they had reasonable grounds to believe the expert was competent.
(2)(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
(2)(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.
(2)(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.]
(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.
If a prospectus is issued with intent to defraud, every person involved is personally responsible for any losses or damages incurred by subscribers, without any limitation of liability.
The right-hand column is written from the section text, not quoted from it, and it has no legal force. Where the two differ, the left-hand column is the law.
Amendment notes
- 1. Ins. by Act 1 of 2018, s. 9 (w.e.f. 9-2-2018).
- 2. Subs. by Act 22 of 2019, s. 8, for “delivery of a copy of the prospectus for registration” (w.e.f. 15-8-2019).
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Referred to by
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Reproduced from the official India Code print for reference. Check the current text on India Code before you rely on it, and read the section alongside its Rules. Nothing here is legal advice.