Punishment for Fraudulently Inducing Investment [Section 36]
## Punishment for Fraudulently Inducing Persons to Invest Money [Section 36]
Section 36 attacks fraudulent inducement regardless of whether a prospectus is involved. A person is liable under Section 447 (fraud) if he makes a statement, promise or forecast which is misleading, or deliberately conceals material facts, to induce another person to enter an agreement to:
Acquire, dispose of, subscribe for or underwrite securities; OR
Secure profit (to himself or another) from the yield/fluctuation in value of securities; OR
Obtain credit facilities from a bank or financial institution.
> Unlike Sections 34/35, Section 36 is not limited to misleading prospectuses — it covers any fraudulent inducement to invest.
Worked example
### Example 1
Q. Mr. A, brother of a director of XYZ Pvt. Ltd., falsely tells the public that the company is building a luxury resort and asks them to invest, promising double returns in a year. In reality, there is no land or project. Is he liable under Section 36?
A. Yes. Mr. A made a misleading statement to induce others to acquire/subscribe to securities. Under Section 36, he is liable under Section 447 for fraud — even though he is not the company itself and there is no prospectus.
⚠️ Common exam mistakes
Restricting Section 36 to prospectuses — it covers fraudulent inducement by any means.
Forgetting that the conduct must be intended to induce someone into an agreement relating to securities or credit facilities.
Bare-Act text Section 36 · Companies Act, 2013 · click to expand
Any person who, either knowingly or recklessly makes any statement, promise or forecast which is false, deceptive or misleading, or deliberately conceals any material facts, to induce another person to enter into, or to offer to enter into, — (a) any agreement for acquiring, disposing of, subscribing for, or underwriting securities; or (b) any agreement, the purpose or the pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities; or (c) any agreement for, or with a view to, obtaining credit facilities from any bank or financial institution, shall be liable for action under section 447.