Q.What criminal liability does the Companies Act, 2013 impose for a mis-statement in a prospectus?

Beyond compensating the individual investor, the law also treats a deliberately or recklessly misleading prospectus as an offence in its own right.

While Section 35 addresses the investor's civil right to compensation, Section 34 of the Companies Act, 2013 treats a misleading prospectus as a matter for the criminal law as well, reflecting how seriously the Act views the deliberate or reckless deception of the investing public.

Section 34 provides that where a prospectus, at the time of its issue, includes any statement that is untrue or misleading in the form and context in which it is included, or where any inclusion or omission of any matter is likely to mislead, every person who authorised the issue of that prospectus is liable for action under Section 447 of the Act - the Act's overarching provision on fraud. Section 447 is a serious criminal provision: it prescribes imprisonment for a term that may extend from six months up to ten years, together with a fine that may extend to three times the amount involved in the fraud, and if the fraud in question involves the public interest, the minimum term of imprisonment itself is higher.

A person is not automatically guilty simply because their name appears among those who authorised the prospectus. The Act allows a defence where it is proved that the statement was immaterial - that is, it would not have influenced a reasonable investor's decision - or that the person had reasonable ground to believe, and did believe up to the time of the issue of the prospectus, that the statement was true. …

A common mistake is treating Section 34 and Section 35 as the same provision - Section 34 is criminal liability under the fraud provision (Section 447), while Section 35 is the civil c …