Section 37 of Companies Act 2013: When Investors Have the Right to Take Action

Raising money from the public is serious business.
It’s not just about glossy prospectuses and big promises.

People invest real savings.
And the law knows that.

That’s why Section 37 of the Companies Act, 2013 exists. It gives a clear legal right to affected persons — investors or groups — to take action when a company misleads them through false statements or hidden facts in a prospectus.

In simple terms, if someone loses money because the truth was twisted or quietly skipped, the law doesn’t expect them to stay silent.

What Section 37 Is Actually Meant to Do

Section 37 is not about technical compliance.
It’s about consequences.

This provision allows any person who has suffered because of a misleading prospectus to:

• approach the court

• claim damages

• stop further harm

• and hold the company and its decision-makers accountable

It works alongside Sections 34, 35, and 36, which deal with criminal liability, civil liability, and fraudulent inducement.

Section 37 is where theory turns into action.

Who Can Take Action Under Section 37?

The scope is wide. And intentionally so.

Action can be taken by:

• individual investors

• groups of investors

• associations

• companies or entities affected financially

You don’t need to be a large shareholder.
Loss is the trigger, not status.

If the prospectus influenced your decision and caused damage, Section 37 can apply.

What Triggers Legal Action?

Not every mistake leads to liability.
But these definitely do:

• false financial projections

• hidden risks

• omitted litigation details

• exaggerated business claims

• misleading half-truths

Even silence can be misleading if it hides material facts.

The prospectus — or even a deemed prospectus — must tell the full story. Anything less can open the door to legal action.

Why Section 37 Matters More Than It Seems

This section quietly changes power dynamics.

It tells companies:

“If you raise public money, you answer to the public.”

It protects investors who otherwise might feel helpless against large corporations. And it forces directors and promoters to think twice before approving aggressive disclosures.

Investor confidence depends on trust.
Section 37 helps enforce that trust.

What Companies Should Be Doing (But Often Don’t)

Many disputes under Section 37 start with shortcuts.

To stay safe, companies should:

• draft prospectuses carefully

• involve legal professionals early

• verify every financial and legal claim

• disclose risks honestly

• record board approvals properly

A prospectus is not marketing material.
It’s a legal document.

Treating it casually is expensive.

What an Affected Person Can Actually Do

Under Section 37, affected persons can:

• file civil suits for compensation

• seek injunctions to stop further issue or sale

• rely on Sections 34–36 to establish liability

• take collective action through associations

The law allows both individual and group action, which makes enforcement practical and not just theoretical.

What Happens If Companies Ignore This Section

Ignoring Section 37 is risky. Very risky.

Non-compliance can lead to:

• civil damages

• criminal proceedings

• regulatory scrutiny

• long-term reputational damage

• difficulty raising funds in the future

Once trust is lost in capital markets, it’s hard to recover.

Real-Life Situations Where Section 37 Comes Into Play

A company inflates revenue numbers in its prospectus.
Investors rely on it. Losses follow.
Action is filed.

A company hides pending litigation.
Investors later discover the truth.
Section 37 is invoked.

An investor group challenges misleading disclosures collectively.
The law allows it.

These are not rare situations. They happen more often than companies admit.

Best Practices That Actually Work

Companies that avoid trouble usually:

• conduct pre-issue legal audits

• document all disclosures clearly

• train directors on prospectus liability

• respond quickly to investor concerns

• avoid exaggeration, even when tempted

Honesty costs less than litigation. Always.

Final Thoughts

Section 37 of the Companies Act, 2013 exists to remind companies that capital markets run on truth, not optimism.

It gives affected persons the right to act, not just complain. And it ensures that misleading prospectuses don’t go unchecked.

For investors, it’s protection.
For companies, it’s a warning — and a guide.

If you need help with prospectus compliance, investor disputes, or legal action under Section 37, Callmyca.com provides professional support to navigate company law issues confidently and correctly.