1. Rescission of the Contract to hakc Shares. According to the Indian Contract Act, a contract induced by a mis-statement of any material fact, either innocent or fraudulent. is voidable at the option of the aggrieved party. The subscriber (i.e.. a person who takes shares by allotment directly from the company). therefore, is entitled to rescind his contract and return the shares and receive back his money. If necessary, he may apply to the court for a declaration of rescission of the contract.
To avail this right, the allotted must prove that. (0) the prospectus was issued by or on behalf of the company; or it was deemed to be a prospectus issued by the company by implicati011 us 64.
(h) there was a material misrepresentation off act. The misrepresentation of law or that of opinion does not entitle the allotted to avoid the tr’m<;action.
© The misrepresentation (whether innocent or fraudulent) must be material in the sense that it was one likely to influence the judgment of a reasonable man in deciding whether or not to take shares or debentures.
(d) Lastly, it must be proved that the subscriber has actually relied upon the str.tcment in question while applying for shares. Thus, where it is proved that the allottee did not read it or he knew that the statement was untrue or he made tlle investigation to verify the fact or purchased share’ in’ the open market he is not entitled to rescind the contract.
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