Statement 1 is correct: Kautilya's Arthashastra describes various circumstances under which an individual could become a slave — including birth, purchase, capture in war, or judicial punishment for certain crimes or debts. For instance, a person might be enslaved to work off a fine imposed by a court for a criminal offense or debt, a category of slave referred to as Dandapranita. This form of slavery was generally for a fixed period, and the person could regain their freedom after serving their sentence or repaying their debt.

Statement 2 is correct: The Arthashastra states that if a female slave bore her master a son, she would be legally free. This provision reflects an early recognition of limited rights and social mobility within the system of servitude.

Statement 3 is correct: If a female slave’s son was fathered by her master, the child was entitled to the legal status of the master’s son, i.e., recognized as a legitimate heir with rights to inheritance, though interpretations suggest this depended on acknowledgment by the father.

NOTE: UPSC official answer key says "Option B" is correct.