Section 35 of the Companies Act, 2013
Section 35 of the Companies Act, 2013 deals with the civil liability for misstatements in the prospectus.
🔹 Section 35 – Civil liability for misstatements in the prospectus
This section provides protection to investors by making those responsible for issuing a false or misleading prospectus liable for compensation.
📘 Key Provisions:
Who is liable?
The following persons may be held liable if a person subscribes for any securities based on a prospectus that contains a false or misleading statement:
The company itself
Every person who is a director at the time of issue of the prospectus
Promoters of the company
Persons who have authorized the issue of the prospectus
Any person named in the prospectus as a proposed director
Nature of Liability:
These persons shall be liable to pay compensation to every person who:
Subscribed for any securities on the basis of such prospectus; and
Suffered loss or damage as a result of such untrue statement or omission.
Defenses Available:
A person shall not be held liable if they can prove:
The statement was immaterial;
They had reasonable grounds to believe, and did believe, that the statement was true;
The statement was made by a competent authority (like an expert) and they relied on it;
They withdrew their consent before issue of the prospectus and it was issued without their knowledge.
⚖️ Purpose:
To prevent companies from misleading investors and ensure accountability and transparency in public fundraising.
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