The golden rule of prospectus states that whatever information that a company provides to the

public should be true, fair and accurate. The rule was enunciated by Judge Kindersely in New
Brunswick & Canada Rly. The company can use prospectus for such purposes, the company
shall never give false claims. The person presenting the information in the prospectus on
behalf of the company must be honest enough to present facts only and no more or less
exaggeration. Everything must, therefore, be stated with strict and scrupulous accuracy. To
prevent this from happening, the Golden rule mandates that everything should be stated with
scrupulous accuracy.
A misstatement in the prospectus can give rise to 2 types of liabilities the Indian companies
act, 2013 are .Civil liability and criminal liability. Section 447 states that without giving
effect to any liability under any other law for the time being in force any person who is guilty
of fraud shall be punishable with imprisonment for a term not less than six months but which
may extend to 10 years and shall be liable to fine not less than the amount involved in fraud
but may extend to 3 times the fraud. As per sec 59, a person shall not be liable for
compensation due to misstatement in the prospectus if he proves his withdrawal of consent to
become the director before the issue of prospectus or public notice of the withdrawal after the
issue of prospectus but before allotment if he became aware that the prospectus was untrue or
that the prospectus was issued without his knowledge.