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    L16 Prospectus

    Uploaded by

    Sagar Murty
    This document discusses the civil and criminal liabilities that can arise from misstatements in a prospectus. (1) Civil liability allows an investor who was induced by a material misrepresentation in the prospectus to rescind the contract or claim damages from the company, as well as seek damages from directors, promoters, and experts. (2) Criminal liability includes punishment for fraud such as imprisonment for 6 months to 10 years and fines. Making a false statement or omitting a material fact in a document like a prospectus knowing it to be false or material can also result in fraud charges. Fraudulently inducing someone to invest through false or misleading statements is also considered fraud.

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    © All Rights Reserved
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    L16 Prospectus

    Uploaded by

    Sagar Murty
    166 views9 pages
    This document discusses the civil and criminal liabilities that can arise from misstatements in a prospectus. (1) Civil liability allows an investor who was induced by a material misrepresentation in the prospectus to rescind the contract or claim damages from the company, as well as seek damages from directors, promoters, and experts. (2) Criminal liability includes punishment for fraud such as imprisonment for 6 months to 10 years and fines. Making a false statement or omitting a material fact in a document like a prospectus knowing it to be false or material can also result in fraud charges. Fraudulently inducing someone to invest through false or misleading statements is also considered fraud.

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    18763_L16 Prospectus.ppt

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    This document discusses the civil and criminal liabilities that can arise from misstatements in a prospectus. (1) Civil liability allows an investor who was induced by a material misrepresentation in the prospectus to rescind the contract or claim damages from the company, as well as seek damages from directors, promoters, and experts. (2) Criminal liability includes punishment for fraud such as imprisonment for 6 months to 10 years and fines. Making a false statement or omitting a material fact in a document like a prospectus knowing it to be false or material can also result in fraud charges. Fraudulently inducing someone to invest through false or misleading statements is also considered fraud.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    166 views9 pages

    L16 Prospectus

    Uploaded by

    Sagar Murty
    This document discusses the civil and criminal liabilities that can arise from misstatements in a prospectus. (1) Civil liability allows an investor who was induced by a material misrepresentation in the prospectus to rescind the contract or claim damages from the company, as well as seek damages from directors, promoters, and experts. (2) Criminal liability includes punishment for fraud such as imprisonment for 6 months to 10 years and fines. Making a false statement or omitting a material fact in a document like a prospectus knowing it to be false or material can also result in fraud charges. Fraudulently inducing someone to invest through false or misleading statements is also considered fraud.

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    © All Rights Reserved
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    Mis Statement

    Misstatements in Prospectus/
    Consequences
    In case of misstatement of a material
    fact, there may arise :
    (I)Civil Liability
    (II)Criminal Liability

    (I) Civil Liability


    ( induced to subscribe for shares on faith of
    misleading prospectus)
    A. Remedies against the company
    1. Rescission of the contract
    Conditions for rescission :
    (i) statement must be a material misrepresentation of fact (differs from
    opinion) e.g wrong profits, directors
    (ii) statement must have induced the shareholder to take the shares)
    (iii) statement must be untrue (dividend declared)
    (iv) the deceived shareholder is an allottee and he must have relied on
    the statement in the prospectus
    (v) the omission of material fact must be misleading before rescission is
    granted (approval for racing land)
    (vi) proceedings must start as soon as the allottee comes to know.
    2. Damages for deceit

    B. Remedies against the Directors,


    Promoters, Experts
    The persons liable are :
    - directors
    - authorised as directors in prospectus
    - promoters
    - persons authorised to issue prospectus

    1. Liability for damages for misstatement in


    prospectus
    Defences of Directors, promoters, etc.
    a. Withdrawal of consent
    b. Absence of consent (public notice reqd.)
    c. Ignorance of untrue statement (public notice)
    d. Reasonable ground for belief (resignation of
    any director )
    e. Statement of expert
    Right of Contribution

    2. Liability for damages for non-compliance with


    sec.16 (matters to be reported)
    3. Liability under general law
    - deceived can drag all to the court for fraud
    - fraud is : statement should be made knowingly,
    without belief in its truth, recklessly

    (II) Criminal Liability


    ( prospectus containing untrue statement)

    A. Punishment for fraud (Sec 447)


    The persons who is guilty of fraud is punishable
    with:
    - imprisonment for a term which shall not be less
    than 6 months which may extend to 10 years
    - liable to which shall not be less than the amount
    involved in fraud and may extend to 3 times the
    amount involved in the fraud.
    - If fraud involves public interest, the term of
    imprisonment shall not be less than 5 years.

    (B) Punishment for false statement (Sec 448)


    If any return, report, certificate, financial statement,
    prospectus, statement or other document, any person
    makes a statement :
    - which is false in material particulars, knowing to be
    false or
    - which omits any material fact, knowing it to be
    material,
    he shall be liable under sec.447

    (C) Punishment for fraudulently inducing persons to invest


    money (Sec 36)
    Any person either knowingly or recklessly makes any statement,
    promise or forecast which is false, deceiving or misleading or
    deliberately conceals any material facts to induce another person
    to enter into or to offer to enter into:
    - any agreement with a view to acquire, dispose or subscribe for or
    underwriting securities; or
    - any agreement , the purpose of which is to secure a profit to any
    of the parties from the yield of securities or reference to fluctuation
    in value of securities; or
    - any agreement for obtaining credit facilities from any bank or
    financial institution
    he shall be liable under sec.447

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