A Ltd. made a public offer of its securities by issuing a prospectus, in which it was stated that the company has a track record of dividend payment without any interruption for the previous ten years. When the facts wer

Provisions of the Companies Act, 2013: As per Section 34 of the Companies Act, 2013 , where a prospectus, issued, circulated or distributed, includes any statement which is untrue or misleading in form or context in which it is included or where any inclusion or omission of any matter is likely to mislead, every person who authorizes the issue of such prospectus shall be liable under Section 447 of the Companies Act, 2013 (punishment for fraud). However, nothing above shall apply to a person if he proves that such statement or omission was immaterial or that he had reasonable grounds to believe, and did up to the time of issue of the prospectus believe, that the statement was true or the inclusion or omission was necessary. Application to the given case: In the instant case, A Ltd. has not disclosed in the prospectus the fact that the company has incurred significant losses for a period of two years immediately preceding the previous five years. This is a material omission. On the other hand, the statement that dividend was paid by the company for the previous ten years without any interruption could mislead the investor that the company has been profitable throughout. The fact that dividend was actually paid out of windfall capital profits (which was not assured in future years) for those two years was also suppressed. This constitutes a misleading statement. Conclusion: Therefore, the prospectus will be held to be false in material particulars. The Managing Director who issued the prospectus will be held guilty of fraud and shall be liable under Section 34 and Section 35 of the Companies Act, 2013 .