Question

What are the consequences of the misstatement in the prospectus?

Answer 1

Section 35 of the Companies Act provides for civil liability for misstatement in prospectus. Under Section 36, those liable to pay compensation include the directors of the company at the time of the issue of the prospectus and the promoters, among others, to every person who has sustained loss or damage.

Answer 2

The consequences of the misstatement are imprisonment as well as a hefty fine.

• Misstatements in this official document are any inaccurate or deceptive statements.
• The inclusion or removal of information that is likely to mislead the public is referred to as a misrepresentation.
• Anyone who intentionally and fraudulently makes any false statements in the prospectus to persuade others to invest money in the firm faces consequences.
• These consequences are -

1. A maximum penalty of five years in jail,
2. A fine of Rs. 1,000,000, or
3. Both.

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