# Section 34 - Criminal Liability for Misstatements in Prospectus

## Scope

Section 34 imposes criminal liability on persons authorising the issue of a prospectus that contains an untrue or misleading statement, or that omits a material matter likely to mislead.

## When Does Liability Arise?

Where a prospectus issued, circulated or distributed under Chapter III includes any statement which is untrue or misleading in form or context, or where any inclusion / omission of any matter is likely to mislead.

## Punishment

Every person who authorises the issue of such prospectus shall be liable under Section 447 (Punishment for Fraud) - imprisonment from 6 months up to 10 years, and a fine which may extend up to 3 times the amount involved in fraud (minimum equal to the amount involved). Where the fraud involves public interest, minimum imprisonment is 3 years.

## Statutory Defences (Proviso)

A person shall not be liable under Section 34 if he proves that:

1. Such statement or omission was immaterial, OR

2. He had reasonable grounds to believe, and did up to the time of issue believe, that the statement was true or that the inclusion / omission was necessary.

## Burden of Proof

The burden lies on the accused person to prove the defence - not on the prosecution to disprove it.

## Distinguished from Civil Liability

Section 34 (criminal) punishes the person who authorised the prospectus, regardless of whether anyone subscribed or suffered loss. Section 35 (civil) requires that an investor subscribed on the faith of the prospectus and suffered loss as a consequence.

Worked example

### Example 1

Example 1 - Defence of immateriality

A prospectus mis-states the year a director joined the Board by one year. The investor's subscription decision could not have turned on this fact.

Treatment: The director can plead that the misstatement was immaterial. If proved, no Section 34 liability.

### Example 2

Example 2 - Reasonable belief

A director relied on audited financial statements for the figures in the prospectus and had no reason to doubt them, but the figures later turn out to be inflated due to management fraud he was unaware of.

Treatment: He may claim he had reasonable grounds to believe the figures were true up to issue - a valid defence under the proviso.

⚠️ Common exam mistakes

Confusing Section 34 (criminal) with Section 35 (civil) - Section 34 does not require proof of subscription or loss; the offence is committed upon issue.
Thinking that any small misstatement always invites liability - immaterial statements have the proviso defence.
Forgetting that the burden of proving the defence is on the accused.
Missing that punishment is under Section 447 (fraud) - a serious offence with up to 10 years' imprisonment.

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

Section 34: 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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