Presented By:Harsh Gupta Harsh Sharma MBA-Gen-B 1st Year

Indian Companies Act 1956 - Identifies the people responsible for the Mis-Statement and their treatment under the law. Mis-StatementMis-Statement of any fact, figure or other information presented in the prospectus which directly or indirectly results in any kind of damage or loss for investor or any other person who has used the information published in the prospectus. Types of liabilities arising from Mis-Statement 1) Civil liability (Sec. 62 of Indian Companies Act 1956) 2) Criminal liability (Sec. 63 of Indian Companies Act 1956)

Criminal law Criminal law always involves the State or government in some way. Criminal law states which behaviour the State finds to be unacceptable in society and is forbidden at the risk of punishment. The purpose of criminal law is to maintain law and order in our society. The State either through the police or the Crown Prosecution Service always starts criminal cases. The penalties for criminal offences are fines and imprisonment.

Civil law Civil law is often referred to as private law as it involves disputes between individuals or individual companies with each other. Its purpose is to uphold the rights of the individual. The purpose of civil cases is to investigate the dispute and decide whether or not there has been a breach of these rights and then whether or not the defendant is liable to pay compensation. There is never a punishment. The State is never involved in civil cases, as they are always private clashes between individuals. The burden of proof defendant has to prove he is not liable. An example of this would be a conviction of a company for breach of health and safety legislation, followed by the injured employee suing the company for damages for personal injury.

Sec. 63 of Indian Companies Act 1956 deals with the treatment of Criminal liability for Mis-Statement in Prospectus. The provisions of the Sec. are as follows:
People who will be responsible for Mis-Statement (a) Every person who is a director of the company at the time of the issue of the prospectus (b) Every person who has authorised himself to be named and is named in the prospectus either as a director, or as having agreed to become a director, either immediately or after an interval of time (c) Every person who is a promoter of the company (d) Every person who has authorised the issue of the prospectus

(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 (b) That 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 (c) That, after the issue of the prospectus and before allotment there under, he on becoming aware of any untrue statement therein, withdrew his consent to the prospectus and gave reasonable public notice of the withdrawal and of the reason thereof.

(d) That (i) As regards every untrue statement he had reasonable ground to believe, and did up to the time of the allotment of the shares or debentures, as the case may be, believe, that the statement was true.
(ii) As regards every untrue statement he proves that 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.

(iii) As regards every untrue statement he proves that it was a 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 and fair extract from, the document

Sec. 63 of Indian Companies Act 1956 deals with the treatment of Criminal liability for Mis-Statement in Prospectus. The provisions of the Sec. are as follows:

(1) Where a prospectus issued after the commencement of this Act includes any untrue statement, every person who authorised the issue of the prospectus shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to fifty thousand rupees, or with both. (2) A person shall not be deemed for the purposes of this section to have authorised the issue of a prospectus by reason only of his having given (a) The consent required by section 58 to the inclusion therein of a statement purporting to be made by him as an expert, or (b) The consent required by sub-section (3) of section 60.

Relying on the prospectus if any person buys shares, the person may:

Rescind the contract-(only when there is misrepresentation relating to the material facts). The rescission has to be done within a reasonable time. Claim damages- it can be claimed from the directors, promoters or other persons who has authorized their name to be written during the issue of the prospectus.