Define Prospectus and its Contents. Briefly mention the remedies for misrepresentation in the Prospectus. Or Define Prospectus. Write civil and criminal liabilities of directors for untrue statement in Prospectus.

Define Prospectus and its Contents. Define and  mention the remedies for misrepresentation in the Prospectus. Or Define Prospectus. Write down the civil and criminal liabilities of directors for untrue statement in Prospectus.

 A Prospectus is a solicitation to an officer to buys in for offers or debentures section 2(70) of the Companies Act define the term prospectus as follows:
The words Prospectus means statement or a document that is issued as a prospectus and includes notice, advertising or other document and invites the public for deposits or offers for inviting public for subscription of share.
The corresponding provision in the 2013 Act in section 2 (70). It is one of the three method by which a company may raise its share capital from the public. It leads to a contract. Hence it should be prepared with utmost good faith. The object of the legislation is to compel the company to provide the necessary information in a prospectus, to enable the wouls be investor to know the object and to know who are dealing with the affairs of the company. Further, the subscriber can decide whether to subscribe for the company’s share or debenture or not with the help of the information given in prospectus.

Every prospectus must provide the following information:

Name of the director and benefits they will get from their directorship.
Profit being made by the promoters.
To subscribed the company need capital.
The past financial record of the company.
The obligation of the company made under contract and for commission and preliminary expenses.
The details regarding the voting and rights of each class of the shares.

Characteristics of Prospectus

Prospectus to be in writing: A prospectus must be in writing. An oral invitation or advertisement in T.V. and film is not treated to be a prospectus.
Invitation for the subscription: The word ‘subscription’ means ‘taking’ or ‘agreeing to take’ share for cash.Prospectus invite the public to subscribe for share in or debenture of a company.
Public Issue: ‘Public’ means ‘the people’ the general body of mankind, of or belonging ‘Public include any class of the public or any community’.

Rules and Regulation of Prospectus
Every prospectus should be dated. (section55)
Every prospectus shall disclose the matter specified in Schedule II of the Act. (section56)
An expert who is not himself engaged or interested in the formation, promotion or management of the company should give his consent in writing. The fact should be stated in the prospectus. (section58)
A copy of promotion shall be registered with the register of companies. It must be done on or before the publication of prospectus. (section60)
Since the public is invited to take shares on the faith of the representation contained in the prospectus, everything must be stated strictly and no fact should be omitted with a view to include the public to take shares. Thus the directors, promoter, person authorized to issue prospectus and expert will be held responsible for any misrepresentation resulted in prospectus.
The following persons are liable for untrue statement made in the Prospectus.
At the time of issued of prospectus the person who is a director of the company.
Everyperson who has authorized himself to be named and renamed in the prospectus as a director.
Every person who has authorized himself to be named as future director..
The promoters of the company.
Every person who has authorized to issue prospectus.
Experts include an engineer, valuer an accountant, etc.
However, it is to be noted that an expert is liable in respect of an untrue statement reporting to be made by him as an expert.

Remedies for Misrepresentation: The following are the remedies for misrepresentation in a prospectus. Any aggrieved party is entitled to remedies against any untrue statement made in the prospectus.

The untrue statement may be classified as:-
Misrepresentation, and
Negligent stating.
In the case of fraud an action may lie against director of the company or action against the company. If the company is sued, then the contract to take share must be rescinded.  In the case of fraud or deceit, a suit may be filed for damages. A suit for recession lies in the case of misrepresentation and fraud. However, a suit for recession will not lies if the applicant acquiesces to the contact. The right to sue for recession will be lost if the company goes into liquidation.
In the case of fraud, every person who has induced to invest money in a company by fraudulent statement in a prospectus will be held responsible for full compensation for the loss sustained as a result of the fraud. The plaintiff must prove that there was a fraudulent misstatement.

            Proof of Fraud: Fraud is proved when it is shown that-
The false representation has been made knowingly. Or
The representation has been made without belief in its truth, or
A representation has been made recklessly, carelessly whether it is false or true.

Green Wood v. Leather shod Wheel Company
[(1900) 1 CH 421]
            The prospectus issued by Leather Shod Wheel Company stated an untrue statement. It was expressed that "Requests have just been gotten been gotten from the House of basic have been requested and are presently being used. “As a matter of fact, no single order had been obtained except for trial and by way of experiment.
It was held that above statement in prospectus amounted to untrue statement and held that the director were liable to make good to the investor.
Rescission for Misrepresentation: If an allotment of share was caused by misrepresentation, it can be avoided at the option of the allottee and he can claim the money he paid for them. In a contract lawfully rescinded an aggrieved party is entitled to compensation for any loss sustained through the non fulfillment of contract.

Essential Condition:-
There must be a false representation as a positive misstatement or a concealment of material facts in the prospectus.
The misrepresentation must be of facts and not of law.
The plaintiff should have induced and thereby acted basing upon the statement contained in the prospectus.
The prospectus should have issued by the company or someone with the authority of the company.

Civil and Criminal Liability 
Civil liability for misstatement:
Section 62 of the Companies Act 1956 states that a person liable to pay compensation to every person who subscribes for any share of debenture on the faith of the prospectus during this period if anything  happened or loss or damage acured he may have suffered due to any untrue statement made in the prospectus. These would include Director of the company, Promoter, or even the company. Thus, this section deals with the cases of misstatement of facts in a prospectus. It is immaterial of facts in a prospectus or not, it is enough that he authorizes it issues.
Person liable under section 62
 Each and every person who is a director of the company at the time of the issue of the prospectus,
Every person who has authorized himself to be named and his named in the prospectus as the director or agreed to become a director, either immediately or after an internal of time,
The promoter of the each and every person,
Who has authorized to issue of the prospectus.

Edgingtion v. Fitzmaurice
Facts: The director of a business gave a plan which contained a scope of debentures, so as to welcome membership. The director stated that the debenture were in order to enable to the business to complete alteration to the building of the company, to develop trade and to purchase vans and horses. However, it was later discovered that the real for issuing the debentures was for the director to pay off other liabilities. The plaintiff forwarded money for the debentures that had been offered having relied upon the statement contained in the prospectus. However he also was mistaken as he though the debenture was to provide him a charge on the company’s property. The company later become insolvent and the plaintiff claimed for the money he believed he was owned.

Issues:-The issue for the court was whether the statement that was made by the director of the company would qualify as a false misrepresentation In the event that this was built up by the court, it likewise must be viewed as whether the dependence of the offended party on the announcement would empower him to guarantee for the cash regardless of the way that the offended party had likewise mistakenly depended on the plan.

Held:-The court held that the misquote of the thinking behind issuing the debenture was a material misstatent of actuality and that the offended party had been impacted by his announcement. On this basis, the director were found liable for on action of deceit, despite the fact that the plaintiff had also been influenced by his own mistake regarding the debenture. Criminal Liability for Misrepresentation(section 34). Every person who is found to be guilty of fraud shall be punishable with imprisonment for a term which less than six months but which may extend to ten years and shall also liable to fine which shall not be less that the amount involved in the fraud, but which may extend to three times the amount involved in the fraud. However, no criminal liability would arise in the following cases.
1.     If the person proves that the 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.

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