A prospectus is a document which induces the public to invest

their money in the shares or debentures of the company. The public invest . the money in the company on the basis of the information disclosed in the nature of the company must be truly, honestly and accurately disclosed in the prospectus. It should neither contain any

omit to disclose any material fact. This is known as the golden rule as to the framing the prospectus

According to Section 65(J) of the Companies Act, 1956.

(i) a statement included in a prospectus shall be deemed to be untrue,

if the statement is untrue in the form and context in which it is included: and

(ii) where the omission from a prospectus of any matter is calculated

to mislead, the prospectus shall be deemed, in respect of such omission. to be a prospectus in which an untrue statement is included. The expression “included’ with reference to a prospectus. means included in the prospectus itself or contained in any report or Memorandum appearing on the face thereof or by reference incorporated therein or issued therewith. In order to call a prospectus misleading these must be misrepresentation of facts and not of law r expectation. For example, a prospectus contained that the company will issue the shares at half of their nominal value, whereas Sec. 79 prohibits a company to issue shares at a discount exceeding 10 per

cent. It is a misrepresentation of law and not of fact. The allotted of shares therefore has no remedy. One thing should also be looted that the statement should not be true only at the time of their inclusion in the prospectus. but milts continue to be so. till the

shares are allotted. [In Rajagopala Iyer Vs. The South Indian Rubber Works Ltd. (1942) A.I.R. Mad. 656].

Remedies for Mis-statements ami Omissions in a PrOSI)CctllS. The remedies available to a person who has subscribed for shares on the faith of a misleading prospectus, may broadly be grouped into two categories:

I. Remedies against the company.

II. Remedies against the directors, promoters and experts. We shall now examine the nature of these remedies in detail.