Section 35 of the Companies Act, 2013: Civil Liability for Misstatements in a Prospectus
Section 35 protects investors who subscribe for securities on the basis of a misleading prospectus and suffer loss or damage. It creates a statutory right to compensation against the company and specified persons connected with the prospectus, subject to the defences stated in the section.
Updated: September 16, 2026
Meaning and scope of Section 35
Section 35 of the Companies Act, 2013 deals with civil liability for misstatements in a prospectus. Broadly, where a person subscribes for securities after acting on a misleading statement, or on a misleading inclusion or omission of matter in the prospectus, and suffers loss or damage as a consequence, the persons identified by the section may be required to compensate that subscriber.
This civil remedy is separate from, and is expressly stated to be without prejudice to, punishment that may arise under Section 36. Affected persons may also refer to Section 37, which permits a suit or other action under Sections 34, 35 or 36.
Who can be liable under Section 35?
Subject to the statutory conditions and defences, liability may attach to the company and the following persons:
- a director of the company at the time the prospectus is issued;
- a person who authorised himself or herself to be named, and is named, in the prospectus as a director, or who agreed to become a director;
- a promoter of the company;
- a person who authorised the issue of the prospectus; and
- an expert referred to in Section 26(5).
When can compensation be claimed?
Section 35 links civil liability to investor loss. In practical terms, the statutory elements include subscription for securities, reliance on a misleading statement or misleading inclusion or omission in the prospectus, and loss or damage sustained as a consequence.
| Element | What Section 35 addresses |
|---|---|
| Subscription | The claimant must have subscribed for securities of the company. |
| Prospectus defect | A statement, inclusion or omission in the prospectus must be misleading. |
| Connection | The subscription must have been made acting on the misleading prospectus matter. |
| Loss or damage | The subscriber must have sustained loss or damage as a consequence. |
| Remedy | Compensation may be claimed from persons falling within Section 35(1), subject to Section 35(2). |
Statutory defences under Section 35(2)
A person otherwise within Section 35(1) is not liable if that person proves a defence provided by sub-section (2). These include withdrawal of consent to become a director before issue of the prospectus where it was issued without authority or consent; lack of knowledge or consent followed, on becoming aware of the issue, by reasonable public notice; and the prescribed defence relating to an expert statement, report or valuation.
Defence concerning expert material
For a misleading statement attributed to an expert, or material presented as a copy of or extract from an expert report or valuation, Section 35(2)(c) provides a defence where the statutory requirements are proved. These include correct and fair representation and reasonable grounds to believe in the expert's competence and required consent. This clause was inserted by the Companies (Amendment) Act, 2017 with effect from February 9, 2018. The wording concerning filing of a copy of the prospectus with the Registrar reflects the amendment effective August 15, 2019.
Fraudulent prospectus: unlimited personal responsibility
Section 35(3) contains a stronger rule where a prospectus is proved to have been issued with intent to defraud applicants for securities or another person, or for any fraudulent purpose. In such a case, every person referred to in Section 35(1) is personally responsible, without limitation of liability, for losses or damages incurred by a person who subscribed for securities on the basis of that prospectus.
Related Companies Act provisions
- Section 26 - matters to be stated in a prospectus.
- Section 34 - criminal liability for misstatements in a prospectus.
- Section 36 - punishment for fraudulently inducing persons to invest money.
- Section 37 - action by affected persons.
For public issues and current offer documents, the SEBI public issues filings portal is also a useful official resource.
Section 35 - Civil liability for misstatements in prospectus
Sub-section (1). Where a person has subscribed for securities of a company acting on any statement included, or the inclusion or omission of any matter, in the prospectus which is misleading and has sustained any loss or damage as a consequence thereof, the company and every person who:
- is a director of the company at the time of the issue of the prospectus;
- has authorised himself to be named and is named in the prospectus as a director of the company, or has agreed to become such director, either immediately or after an interval of time;
- is a promoter of the company;
- has authorised the issue of the prospectus; and
- is an expert referred to in sub-section (5) of Section 26,
shall, without prejudice to any punishment to which any person may be liable under Section 36, be liable to pay compensation to every person who has sustained such loss or damage.
Sub-section (2). No person shall be liable under sub-section (1), if he proves:
- that, having consented to become a director of the company, he withdrew his consent before the issue of the prospectus, and that it was issued without his authority or consent; or
- that the prospectus was issued without his knowledge or consent, and that on becoming aware of its issue, he forthwith gave a reasonable public notice that it was issued without his knowledge or consent; or
- as regards every misleading statement purported to be made by an expert, or contained in what purports to be a copy of or an extract from an expert report or valuation, the conditions specified in Section 35(2)(c), including correct and fair representation, reasonable belief in the expert's competence, and the expert's required consent, were satisfied.
Sub-section (3). Notwithstanding anything contained in this section, where it is proved that a prospectus has been issued with intent to defraud applicants for securities of a company or any other person, or for any fraudulent purpose, every person referred to in sub-section (1) shall be personally responsible, without any limitation of liability, for losses or damages incurred by a person who subscribed to the securities on the basis of such prospectus.