Misleading information in prospectus to cost directors up to Rs 25 lakh

NEW DELHI: Presenting false and misleading information in prospectus can cost promoters and directors dearly as the new Companies Bill seek to increase the fine for such offences by fifty times up to Rs 25 lakh.

"Any statement which is untrue or misleading in form or context...every person who authorises the issue of such prospectus shall be punishable with an imprisonment of a term which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to 25 lakh rupees," says the Companies Bill which was introduced in the Lok Sabha recently.

Under the existing Companies Act 1956, the fine for giving untrue statement in prospectus is imprisonment up to two years, fine which may extend up to Rs 50,000 or both.



"It is a deterrent. It will prevent companies from giving false information. And it is good because many people don't have inside information and they base there decision on the information provided in the prospectus," Diljeet Titus, senior partner with law firm Titus and Co said.

He added that with a fine of Rs 50,000, companies were finding it easy to get away with misleading statements.

"This is a step in the right direction. The increase in fine will act as a deterrent. This being a dynamic situation, regulators may also have a re look at the amount of fine," Secretary and CEO ICSI N K Jain said.

However, the bill says that a person can defend himself if he proves that such statement or omission is immaterial or he had reasonable grounds to believe that it was true or necessary.