| 1) | Where shares are offered to the public for subscription in pursuance of a prospectus, every person- |
| b) | who becomes a director at any time between the issue of the prospectus and the holding of the first general meeting of the company at which directors are elected or appointed; |
| c) | who with his authority is named in the prospectus as a director or as having agreed to become a director either immediately or after an interval of time; |
| d) | who is a promoter of the company; or |
| e) | who has authorised the issue of the prospectus, |
shall be liable to pay compensation to all persons who have acquired any shares on the faith of the prospectus for the loss or damage they may have sustained by reason of any untrue statement therein, or in any report or memorandum appearing on the face thereof or issued therewith, or by reference incorporated therein.
| 2) | Where shares are offered to the public for sale in pursuance of a prospectus, every person- |
| a) | who has made the said offer; |
| b) | who under section 154(3) is deemed to have authorised the issue of such prospectus; or |
| c) | who is in relation to the company the shares of which are so offered, a person referred to in subsection (1) (a), (b), (c), (d) or (e), |
shall be liable to pay compensation to all persons who have acquired any shares on the faith of the prospectus for the loss or damage they may have sustained by reason of any untrue statement therein, or in any report or memorandum appearing on the face thereof or issued therewith, or by reference incorporated therein.
| 3) | The liability provided for in subsection (1) or (2) shall not attach to any person if it is proved- |
| a) | with respect to every such untrue statement not purporting to be made on the authority of an expert or of a public official document or statement, that he had reasonable ground to believe, and did up to the time of the allotment of the shares or the acceptance of the offer, as the case may be, believe that the statement was true; and |
| b) | with respect to every such untrue statement purporting to be a statement by or contained in what purports to be a copy of or extract from the report or valuation of an expert, that it fairly represented the statement or was a correct and fair copy of or extract from the report or valuation and that the defendant had reasonable ground to believe and did up to the time of the issue of the prospectus believe that the person making the statement was competent to make it, and that the said person had given the consent required by this Act to the issue of the prospectus or the making of the offer and had not withdrawn that consent before lodgment of a copy of the prospectus for registration or, to the defendant's knowledge, before allotment thereunder or before the acceptance of the offer; and |
| c) | With respect to every such untrue statement purporting to be a statement made by an official person or contained in what purports to be a copy of or extract from a public official document, that it was a correct and fair representation of the statement or copy of or extract from the document; |
or if it is proved-
| i) | 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 |
| ii) | that the prospectus was issued without his knowledge or consent and that on becoming aware of its issue, he forthwith gave reasonable public notice that it was issued without his knowledge or consent; or |
| iii) | that after the issue of the prospectus and before allotment or acceptance thereunder he, on becoming aware of any untrue statement therein, withdrew his consent thereto and gave reasonable public notice of the withdrawal and of the reason therefor. |
| 4) | Where the prospectus contains the name of a person as a director of the company, or as having agreed to become a director thereof, and he has not consented to become a director, or has withdrawn his consent before the issue of the prospectus and has not authorised or consented to the issue thereof, the directors of the company (except any without whose knowledge or consent the prospectus was issued) and any other person who issued it or authorised the issue thereof, shall be liable to indemnify the person named as aforesaid, against all damages, costs and expenses for which he may be liable by reason of his name having been so stated in the prospectus or in defending himself against any action or legal proceedings brought against him in respect thereof. |
| 5) | Every person who by reason of his being a director or having been named as a director, or having agreed to become a director, or of his having authorised the issue of the prospectus or of his having become a director between the issue of the prospectus and the holding of the first general meeting of the company at which directors are elected or appointed, has satisfied any liability to make payment under this section, may recover a contribution, as in cases of contract, from any other person, who, if sued separately, would have been liable to make the same payment, unless the person who has satisfied such liability was, and that other person was not, guilty of fraudulent misrepresentation. |
