From Nagarjuna's Treatise on the Great Perfection of Wisdom
(Dharmamitra Translation)

As for false speech, if there is a thought which is not pure, if one wishes to deceive another, if one hides the truth, and if one speaks forth words which differ from the truth, one generates the karma of the mouth. This constitutes "false speech." The offense of false speech arises from the sound of the words and mutual understanding. If there is no understanding, then although they are untrue words, there is no offense of false speech. As for this false speech, if one does know yet says that one does not know, if one does not know yet says that one does know, if one has seen yet says that one has not seen, has not seen yet says that one has seen, has heard yet says that one has not heard, or has not heard yet says that one has heard, this constitutes false speech. If one has not done this then this qualifies as not committing false speech.

The Disadvantages of False Speech

From Nagarjuna's Treatise on the Great Perfection of Wisdom
(Dharmamitra Translation)

Question: What are the disadvantages (lit. "punishments") associated with false speech.

Response: The person who commits false speech first deceives himself and later deceives others. He takes that which is real as false and that which is false as real. He turns false and real upside down and does not accept good dharmas. He is comparable to an inverted vase into which water cannot flow. The mind of a person who commits false speech is devoid of a sense of shame or a sense of blame. He blocks off the way of heaven and the door to nirvana. One contemplates and realizes the existence of these disadvantages and therefore does not engage in it. Additionally, one contemplates and realizes that the benefits of true speech are extremely vast. The benefits of true speech naturally come forth from oneself and are extremely easily gained. This is the power of all who have left the home life. Both householders and those who have left the home life possess the benefits of this sort of merit. It is the mark of a good person. Moreover, the mind of a person whose words are true is correct and straight. Because his mind is correct and straight it is easy for him to succeed in avoiding suffering. It is just as when pulling forth logs from a dense forest. The straight ones come forth easily.

Why People Engage in False Speech

From Nagarjuna's Treatise on the Great Perfection of Wisdom
(Dharmamitra Translation)

Question: If false speech entails disadvantages such as these, why do people engage in false speech?

Response: There are those who are foolish and deficient in wisdom who, when they encounter anguishing difficulties, tell lies seeking to escape them. They do not recognize the manner in which matters unfold. When they commit a transgression in this present life they do not realize that in a later life there will be an immense retribution resulting from that transgression.

Then again, there are people who, although they are aware of the fact that false speech entails a transgression, nonetheless engage in the telling of lies due to an abundance of greed, hatred or delusion.

Kokaalika's Slanderous Offense

From Nagarjuna's Treatise on the Great Perfection of Wisdom
(Dharmamitra Translation)

Additionally, there are people who, although they are not afflicted with greed or hatred, nonetheless falsely testify to another man's transgression because in their own minds they are of the opinion that this is truly the case. When they die they fall into the hells in the same manner as did Kokaalika, a disciple of Devadatta. He constantly sought to find fault with Shaariputra and Maudgalyaayana. At that time the two men had just come to the end of the summer retreat . They proceeded to travel about and journey to the various states. Having encountered a great rain storm, they arrived at the home of a potter where they spent the night in a building full of pots.

Before they arrived, unbeknownst to these two, a woman had already gone in and fallen asleep in a darkened part of the building. That night this woman had an orgasm in her dreams. In the early morning she went to get water with which to bathe. At this time Kokaalika happened to be walking by and took notice of her. Kokaalika possessed the ability to know about a person's sex life by observing the countenance. However, he couldn't deduce whether [sexual activity] had taken place in a dream state or while awake.

At this time Kokaalika told a disciple, "This woman had sex with someone last night." Then he asked the woman, "Where did you spend the night?"

She replied, "I spent the night in the pottery building."

Next, he asked, "Together with whom?"

She replied, "With two bhik.sus." At this time the two men came out from within the building. After Kokaalika had noticed them he examined their countenances and became convinced in his own mind that the two men were definitely not pure. He had formerly nurtured jealousy with respect to them. Since he had observed this situation he then spread it all about in all of the cities, villages and hamlets. Next, he went to the Jeta grove where he loudly proclaimed this evil news.

At this time Brahmaa, the king of the gods, had come desiring to have an audience with the Buddha. The Buddha had entered into a silent room where he was very still, immersed in samaadhi. All of the bhik.sus too had each closed their doors and entered into samaadhi. None of them could be roused. Then he thought to himself, "I originally came to see the Buddha. The Buddha has entered samaadhi." And so he was about to return when he had another thought, "It won't be long before the Buddha arises from absorption. I'll wait here a little while." He then went to the entrance to Kokaalika's room, knocked on the door and called out, "Kokaalika, Kokaalika. The minds of Shaariputra and Maudgalyaayana are pure and pliant. Don't slander them or you will spend the long night [of future lifetimes] undergoing suffering."

Kokaalika asked, "Who are you?"

He replied, "I am Brahmaa, the king of the gods."

He asked, "The Buddha has said that you have realized the way of the anaagaamin. Why then have you come back here?"

Brahmaa, the king of the gods, thought and then uttered a verse, saying:

If one wishes to measure an immeasurable dharma,
One shouldn't seize on appearances.
If one wishes thereby to measure an immeasurable dharma,
Such a boor is bound to capsize and drown.
After he had spoke this verse he went to where the Buddha was and set forth the matter in full. The Buddha said, "Good indeed. Good indeed. Proclaim this verse straightaway." At that time the World Honored One repeated the verse:

If one wishes to measure an immeasurable dharma,
One shouldn't seize on appearances.
If one wishes thereby to measure an immeasurable dharma,
Such a boor is bound to capsize and drown.
After Brahmaa, the king of the gods, had heard the Buddha proclaim this he suddenly disappeared and immediately returned to the heavens.

At that time Kokaalika went to where the Buddha was, prostrated in reverence before the Buddha, and then stood off to one side. The Buddha told Kokaalika, "The minds of Shaariputra and Maudgalyaayana are pure and pliant. Do not slander them or you will spend the long night [of future lifetimes] undergoing suffering."

Kokaalika addressed the Buddha, saying, "I don't dare disbelieve the words of the Buddha. However, I saw this clearly with my own eyes. I know definitely that these two men have actually committed impure acts."

The Buddha rebuked him three times in this way and Kokaalika for his part three times declined to accept it. He then got up from his place and left. He returned to his room. His entire body broke out in sores. At first they were the size of sesame seeds. Gradually they became as big as beans, as big as dates, as big as mangoes, and finally as big as melons. Then they all simultaneously broke open leaving him looking as if he had been burned by a great fire. He wailed and wept. Then, that night, he died and entered the great lotus blossom hells. A Brahma heaven god came and informed the Buddha, "Kokaalika has already died."

Another Brahma heaven god said, "He has fallen into the great lotus blossom hells." After that night had passed the Buddha ordered the Sangha to assemble and asked, "Do you all wish to hear about the length of life endured in the hell into which Kokaalika has fallen?"

The Bhik.sus replied, "We would be pleased to hear of it."

The Buddha said, "It is as if there were sixty bushels of sesame seeds and a man came along every hundred years and took away a single sesame seed. If this went on until all of the sesame seeds were gone the lifespan endured in the arbuda hells would still not have come to an end. Twenty arbuda hell lifespans equal the lifespan in the nirarbuda hells. Twenty nirarbuda hell lifespans equal the lifespan in the a.ta.ta hells. Twenty a.ta.ta hell lifespans equal the lifespan in the hahava hells. Twenty hahava hell lifespans equal the lifespan in the huhuva hells. Twenty huhuva hell lifespans equal the lifespan in the utpala hells. Twenty utpala hell lifespans equal the lifespan in the puîàarÆka hells. Twenty puîàarÆka hell lifespans equal the lifespan in the mahaapadma hells. Kokaalika has fallen into these mahaapadma hells. His tongue is drawn forth and nailed down with a hundred nails where it is plowed by five hundred plows." At that time the World Honored One set forth this verse, saying:

When the person is born here,
Hatchets are buried in one's mouth.
The basis for the body's being chopped
Comes forth from his evil words.

That which should be criticized, one nonetheless praises.
That which should be praised, one nonetheless criticizes.
The mouth assembles all manner of evil.
In the end one does not experience bliss.
The actions of the mind and mouth generate evil.
One falls into the nirarbuda hells.
For fully one hundred thousand lives
One endures all manner of intense suffering pain.
If one is born into the arbuda hells,
One endures fully thirty-six
And an additional five lives.
In them all one experiences all manner of anguished bitterness.
The mind depends upon erroneous views,
and speaks in a way that destroys the worthies and aryas.
This is like the bamboo which in putting forth fruit
Brings its own form to destruction.
In ways such as this the mind generates doubts and slanders. Once they manifest in definite form they constitute false speech. A person who courses in false speech doesn't believe or accept even the words of the Buddha. He undergoes punishment such as this. For these reasons one should not engage in false speech.

Raahula Learns the Disadvantages of False Speech

From Nagarjuna's Treatise on the Great Perfection of Wisdom
(Dharmamitra Translation)

Then again, a case in point is that of the Buddha's son Raahula who, being but a child in years, had not yet understood the importance of taking care with his words. When people would come and ask him, "Is the World Honored One here or not?" he would deceive them by saying, "He's not here." If in fact he was not present, when others would ask Raahula, "Is the World Honored One here or not?" he would deceive them by saying, "The Buddha is here."

Someone told the Buddha of this. The Buddha then told Raahula, "Get a wash basin, fill it with water and wash my feet for me." After his feet had been washed he instructed Raahula, "Cover this wash basin." Then, obeying the command, he immediately covered it." The Buddha then said, "Take water and pour it in." After it had been poured, he asked, "Did the water go in or not?"

He replied, "It did not go in."

The Buddha told Raahula, "The lies of a person who has no sense of shame or blame cover over his mind so that, in just the same manner, the Dharma of the Way does not enter into it."

The Ten Retributions Associated with False Speech

From Nagarjuna's Treatise on the Great Perfection of Wisdom
(Dharmamitra Translation)

As stated by the Buddha, false speech has ten retributions. What are the ten?

The first is that the breath always smells bad.
The second is that the good spirits depart far from him while the non-humans get their way with him.
The third is that although he may have instances in which he speaks the truth, people nonetheless do not believe or accept it.
The fourth is that he can never take part in discussions with those who are wise.
The fifth is that he is always slandered and his ugly and foul reputation is heard throughout the land.
The sixth is that he is not respected by others. Although he may issue instructions and orders, people do not accept or follow them.
The seventh is that he is always afflicted with much worry.
The eighth is that he plants the karmic causes and conditions for being slandered.
The ninth is that when his body deteriorates and his life comes to an end he will fall into the hells.
The tenth is that if he emerges and becomes a person, he is always slandered.
If one does not engage in actions as these this qualifies as not committing false speech. This is what is meant by the moral regulation regarding goodness associated with the mouth.