Misstatement in Prospectus

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^^^ AJIT ^^^ (Querist)
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29 November 2009 A company issued a prospectus containing misstatements on which action could be taken against the company. A person purchased shares of the company in good faith in the market relying on the said prospectus and filed a suit against the company for damages for the misstatements. Will he succeed?

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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30 November 2009 Damages for fraud:

The allottee can claim for damages of fraud from the co. Now, such damages can be claimed only after the allottee has rescinded the contract and ceased to remain the shareholder. Thus, if he still continues to be a shareholder of that same co. even after knowing the fact that the co. is acting fraudulently, then that person has no right to ask for any further damages.

Fraud occurs when any statement is made without belief in the truth or carelessly. It shall be necessary to establish that there is fraudulent misrepresentation in the prospectus. If the aggrieved person can prove it, he can claim for the all the loss which has been sustained by him as a result of such fraudulent acts or statement. The fraudulent statement must be related to facts which were material to the contract of purchasing shares and the aggrieved party must have actually relied on such facts and must have taken the shares on the basis of such statement only. Thus, the right to claim damages is exercised against the co. as wll as against the directors or promoters of the co.

^^^ AJIT ^^^

^^^ AJIT ^^^ (Querist)
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30 November 2009 Thank you Expert for your reply. Regards.

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