Criminal Liability

Every person who authorizes the issue of prospectus shall be punishable for untrue statements with imprisonment for a term which may extend to 2 years or with a fine which may extend to Rs 50,000 or with both.

Fraudulently inducing persons to invest money: Any person who either knowingly or recklessly makes any statement promises or forecasts which are false deceptive or misleading or by any dishonest concealment of materials facts, induces or attempts to induce another person to enter into:

1) Any agreement with a view to acquiring disposing of subscribing for or underwriting shares or debentures or
2) Any agreement the purpose of which is to secure a profit to any of the parties from the yield of shares or debentures or by reference to fluctuations in the value of shares or debentures; shall be punishable with imprisonment for a term which may extend to 5 years or with a fine which may extend to one lac rupees or with both.

Defenses against civil liability: Every person made liable to pay compensation for any loss or damages may escape such liability by proving that:

1) Withdrawal of consent before issue: Having consented to become a director of the company he withdrew his consent before the issue of the prospectus and that it was learned without his authority of consent:
2) Issued without knowledge: The prospectus was issued without his knowledge or consent and that on becoming aware of its issue. He forthwith gave reasonable public notice that it was issued without his knowledge or consent or
3) Withdrawal of consent after issue: After the issue of prospectus and before allotment there under, he, on becoming aware of any untrue statement therein withdrew his consent from the prospectus and gave reasonable public notice of the withdrawal and the reasons therefore or
4) Reasonable belief: As regards every untrue statement not purporting to be made on the authority of an expert or of a public official document or a statement he had reasonable ground to believe, and did upon the time of the allotment of the shares or debentures as the case may be, believe that the statement was true and
5) Statement by an expert: As regards every untrue statement purporting to be a statement by an expert or contained in what purports to be copy of an extract from a report or valuation of an expert the person charged can escape liability on proving that –

a) it was correct, and fair representation of the statement of or
b) a correct copy of, or a correct and fair extract from the report or valuations and
c) 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
d) that the persons (expert) had given the consent to the issue of prospectus and had not withdrawn that consent before delivery of the copy of the prospectus for registration or before allotment.

6) Statement by an official person or extract from a public official document: As regards every untrue statement made by an official person or contained in what purports to be copy of or extract from a public official document, it was a correct and fair representation of the statement or a correct copy of, or a correct an fair extract from the document.

Defenses against criminal liability: Any person made criminally liable can escape the same on proving that –

1) Statement was immaterial or
2) He had reasonable ground to believe and did up to the time of the issue of the prospectus believe that the statement was true.

Source: Business Law

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