# Criminal Liability for Mis-statement in Prospectus (Section 34)

## Rule

Where a prospectus issued, circulated, or distributed includes any statement which is untrue or misleading, every person who has authorised the issue of such prospectus shall be held guilty of fraud.

> Penalty is governed by Section 447 (Punishment for Fraud).

## Penalty Structure under Section 447

Magnitude of Fraud	Fine	Imprisonment
Fraud < ₹10 lakhs OR < 1% of turnover (whichever is less)	Up to ₹50 lakhs OR	Up to 5 years
Fraud ≥ ₹10 lakhs OR ≥ 1% of turnover (whichever is less)	Min: Amount of fraud<br>Max: 3 × Amount of fraud AND	Min: 6 months<br>Max: 10 years
Involving Public Interest	Min: Amount of fraud<br>Max: 3 × Amount of fraud AND	Min: 3 years<br>Max: 10 years

## Note on "OR" vs "AND"

Lower threshold (small fraud): Fine OR imprisonment.
Higher threshold + public interest cases: Fine AND imprisonment (both mandatory).

## Defence Available

The accused shall NOT be liable if he proves that:

The statement or omission was immaterial; OR
He had reasonable grounds to believe (and did up to the time of issue believe) that the statement was true or the omission was necessary.

## Key Doctrines

Mens rea (guilty mind) is essential.
Governed by Criminal Procedure Code, 1973.
Offence is regarded as committed against the State (prosecution by State).

Worked example

### Example 1

Example: ABC Ltd. issued a prospectus claiming approval of a major government contract that was not yet granted. The fraud amounted to ₹50 lakhs (above the 10 lakh threshold). Discuss penalty.

Answer: Under Section 34 read with Section 447:

Fine: Min ₹50 lakhs, Max ₹1.5 crores (3 × amount of fraud).
Imprisonment: Min 6 months, Max 10 years.

Both fine AND imprisonment apply.

If public interest is involved, minimum imprisonment becomes 3 years.

⚠️ Common exam mistakes

Treating fine and imprisonment as alternatives in larger fraud cases — both are mandatory ('AND') above the ₹10 lakh threshold.
Forgetting the defence: reasonable belief that the statement was true at the time of issue.
Confusing the 'immaterial' defence — the accused must prove it was immaterial.
Missing that public interest cases attract a higher minimum imprisonment (3 years vs. 6 months).

Bare-Act text Section 34 · The Companies Act, 2013 · click to expand

Where a prospectus, issued, circulated or distributed under this Chapter, 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 authorises the issue of such prospectus shall be liable under section 447: Provided that nothing in this section 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.

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