Section 388 of CA 2013 : Section 388: Provisions As To Expert?S Consent And Allotment

Explanation using Example

Imagine a foreign technology company, "TechGlobal Corp.", planning to expand its investor base by issuing shares to the public in India. Before doing so, they prepare a prospectus—a formal document that outlines the details of the investment opportunity. The prospectus includes positive statements from a financial expert about the company's prospects.

However, just before the prospectus is to be circulated in India, the expert withdraws his consent to use his statement. Despite this, TechGlobal Corp. proceeds to distribute the prospectus without updating it to reflect the expert's withdrawal or obtaining a new consent.

Under Section 388 of the Companies Act, 2013, TechGlobal Corp.'s actions are unlawful. The prospectus cannot be issued or circulated in India because it includes an expert statement without the expert's consent. Additionally, if the prospectus fails to bind all parties by the provisions of sections 33 and 40 of the Act, where applicable, when an application is made based on the prospectus, it would again contravene the law.

In this scenario, TechGlobal Corp. would need to halt the distribution of the prospectus and either remove the expert's statement or obtain the expert's renewed consent. They would also need to ensure that the prospectus complies with the relevant provisions of the Companies Act, 2013, to legally offer securities in India.