Adjudication, Prosecutions, Offences and Penalties – Resolution of Corporate Disputes, Non-Compliances & Remedies Important Questions

Question 1.
The current regulatory scenario demands the Company Secretary to be more vigilant and diligent specifically about the applicability of multiple laws and timely compliances. Briefly comment on the statement.
Answer:
The Company Secretary has a vital role to play in the event of invocation of any action under the Act. The current regulatory scenario demands the Company Secretary to be more vigilant and diligent, specifically about the applicability of multiple laws and timely compliances thereunder. Since he is a Key Managerial Person, he is jointly liable for any non-compliances under the applicable legislation.

The role of Company Secretary is:

To ensure timely compliances of the provisions of the Companies Act to avoid any action for default or failure.
To represent the Company before the ROC, RD or NCLT, in the event of any action for default or failure.
To develop a robust internal compliance system which generates the details of compliances undertaken and any compliance lapses in a timely manner.
To initiate the compounding procedure in the event of any non-compliance(s) coming to light and to avoid recurrence of such non-compliances in future.
To ensure timely and appropriate disclosure pertaining to penalties or compounding offences or action by any authorities.

Further, since the Practicing Company Secretaries are also covered under section 447 of the Companies Act, 2013, they should ensure that they are not certifying any returns or issuing any report which contains any false certification or information or omits any material information or facts, as such a failure to ensure proper verification of compliances may lead to the Practicing Company Secretary being liable to penalties under the above-referred provisions as well as disciplinary proceedings under the guidelines issued by ICSI.

Question 2.
X, a director of PQR Private Limited, is authorised by Board of directors to prepare and file returns, reports or other documents with the Registrar of Companies (ROC) on behalf of the Company. He files all the required documents with ROC, despite being aware of material discrepancies in them. Subsequently, it was found that the documents filed with ROC contained materially false details. Explain the penal provisions under the Companies Act, 2013 for this offence.
Answer:
Section 448 of the Companies Act, 2013 provides that, if any person makes a statement which is false in any material particulars, knowing it to be false or omits any material facts, knowing it to be material, such person shall be liable under section 447 of the Companies Act, 2013.

Further, as per Section 447, any person who is found to be guilty under this section shall be punishable with imprisonment for a term which shall not be less than 6 months but which may extend to 10 years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to 3 times the amount involved in the fraud. Provided that, where the fraud involves public interest, the term of imprisonment shall not be less than 3 years. Hence, X, director of PQR Private Limited § shall be punishable with imprisonment and fine as mentioned above.

Question 3.
Super Source Limited has filed Form AOC-4 with Registrar of Companies after 85 days of its Annual General Meeting along with additional fee. State whether the Company can be penalized again under section 403 of the Companies Act, 2013.
Answer:
Yes, the additional fee does not absolve the Company from the liability of penalty or any other action under the Act for such default or failure. One of the significant changes brought in by the Companies (Amendment) Act, 2017 is the amendment in section 403 of the Companies Act, 2013. Pursuant to the said amendment, the non-offence period of 270 days has been omitted from the Companies Act, 2013 and the filing of forms, returns or documents within the time prescribed under the relevant provision has been made mandatory.

Accordingly, the non-filing of forms, returns or documents within the time prescribed under relevant provision (e.g., Form AQC-4 within 30 days of date of AGM) is now considered as a default or failure and the payment of additional fees does not absolve the company from the liability of penalty or any other action under the Act for such default or failure.

Question 4.
G is the General Manager (HR) of XYZ Limited. He wrongfully withholds the flat of the Company and also lets it out on rent to someone. XYZ Limited has filed a complaint against G. What are the penalties for such a conduct under the Companies Act, 2013?
Answer:
The Company is entitled to take following actions against “G” in accordance with section 452 of the Companies Act, 2013. It provides that:
1. If any officer or employee of a company-
a. Wrongfully obtains possession of any property, including cash of the company or

b. having any such property including cash in his possession, wrongfully withholds it or knowingly applies it for the purposes other than those expressed or directed in the articles and authorised by this Act, he shall, on the complaint of the company or of any member or creditor or contributory thereof be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

2. The Court trying an offence under subsection (1) of Section 452 of the Companies Act, 2013 may also order such officer or employee to deliver up or refund, within a time to be fixed by it, any such proper¬ty or cash wrongfully obtained or wrongfully withheld or knowingly misapplied, the benefits that have been derived from such property or cash or in default, to undergo imprisonment for a term which may extend to two years.

Question 5.
Can Registrar of Companies order adjudication proceedings under Section 454 of Companies Act, 2013? In what cases can the Central Government appoint him as the Adjudicating Officer?
Answer:
The Registrar of Companies may note the non-compliance of the provisions of Companies Act as arrived at under section 206(4) of the Companies Act, 2013 either:

by himself on a scrutiny of documents filed with him and on his satisfaction or
based on any report on inspection or investigation, if any, under the relevant provisions of the Companies Act, 2013, or
on the qualifications of the statutory auditors in the Annual Report or by the secretarial auditors in their Secretarial Audit Report whereby he can ascertain and identify the nature of non-compliance or default.

In all these cases, he himself cannot initiate any adjudicating proceedings if he is the adjudicating officer even as he may be clothed with a power of adjudication. Therefore, if adjudicating powers are under his jurisdiction, any other officer who is independent of his office has to identify the exis¬tence of violation as otherwise the adjudicating officer, being the head of his office may be biased.

This is a grey area to be addressed by the Central Government as otherwise, the adjudicating officer will be sitting on a judgement of the findings of his own office. It is pertinent to note that it would, therefore, be only logical, prudent and wise for the concerned Regional Director not to appoint as the adjudicating officer pursuant section 454(2) of the Companies Act, 2013, the same jurisdictional Registrar of Companies whose office has identified the violation.

Question 6.
During the previous year, Alfa Limited could not conduct its Annual General Meeting (AGM) within the timelines as per the Companies Act, 2013 due to some internal and operational issues. In the current year also, the Company could not conduct its AGM within stipulated time, thereby committing the same default in the current year as well. What would be the penal provisions for such default?
Answer:
As per the provisions of Section 99 of the Act, if the Company has defaulted in holding a meeting in accordance with Section 96 or Section 97, then the Company and every officer would be liable to fine upto ₹ 1 Lakh and further fine upto ₹ 5000 for each day of continuing default.

As per Section 451 of the Companies Act, 2013, if a company or an officer of a company commits an offence punishable either with fine or with imprisonment and where the same offence is committed for the second or subsequent occasions within a period of three years, then, that company and every officer thereof who is in default shall be punishable with twice the amount of fine for such offence in addition to any imprisonment provided for that offence.

Hence, Alfa Limited would be liable to twice the fine as mentioned above, as it has committed the same default within a period of 3 years.

Question 7.
Infomatika Limited, a Public Limited Company was incorporated under the Companies Act, 1956 in the year 2010. During the financial year ended March 31, 2019, the Company made a contribution of ₹ 50 Lakhs to a local political party, which amounts to 9% of its average net profits during three immediately preceding financial years. Is the Company compliant with the provisions of the Companies Act, 2013, if not, what would be the penal provisions for such an act?
Answer:
As per Section 182 of the Companies Act, 2013, a company, other than a Government company and a company which has been in existence for less than three financial years, may contribute any amount directly or indirectly to any political party.

Further, such contribution shall be approved by a resolution authorising the making of such contribution is passed at a meeting of the Board of Directors.

Every company shall disclose in its profit and loss account the total amount contributed by it as contribution to political parties during the financial year to which the account relates. Such contribution shall not be made except by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account.

However, a company may make contribution through any instrument, issued pursuant to any scheme notified under any law for the time being in force, for contribution to the political parties. Section 182(4) states that company shall be punishable with fine which may extend to five times the amount so contributed and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months and with fine which may extend to five times the amount so contributed.

lnfomatika Limited has made a political contribution of ₹ 50 Lakhs to a local political party. To become a compliant company, lnfomatika Limited shall be in compliance with the provisions of section 182 of the Companies Act, 2013.

Question 8.
In the Annual General Meeting (AGM) of Jollydays Limited, the matter of reappointment of Mr. Jolly, the Executive Director (ED) came up for voting. During such discussion, allegations of fraud and financial irregularities were levelled against him by some members, which resulted in chaos in the meeting.

The situation was normal only after the Chairman promised to initiate an inquiry against Mr. Jolly. The resolution at AGM to reappoint Mr. Jolly as ED was not passed. The matter was published in the newspapers next day. Under the Companies Act, 2013, can a Court take cognizance of the matter and Suo moto initiate action against Mr. Jolly based on the media reports?
Answer:
Section 439 of the Companies Act, 2013 provides that:
Notwithstanding anything in the Code of Criminal Procedure, 1973, every offence under this Act except the offences referred to in sub-section (6) of section 212 shall be deemed to be non-cognizable within the meaning of the said Code.

No court shall take cognizance of any offence under this Act which is alleged to have been committed by any company or any officer thereof, except on the complaint in writing of the Registrar, a shareholder or a member of the company, or of a person authorised by the Central Government in that behalf.

Further, the court may take cognizance of offences relating to issue and transfer of securities and non-payment of dividends, on a complaint in writing, by a person authorised by the Securities and Exchange Board of India.

Thus, in the given situation, a Court shall not initiate any Suo moto action against Mr. Jolly without receiving any complaint in writing of the Registrar of Companies, a shareholder of the company or a members or of a person authorized by the Central Government in this behalf.

Question 9.
What do you understand by Compounding of offences under Companies Act, 2013?
Answer:
The Companies Act, 2013 does not define or for that matter, the erstwhile Companies Act, 1956, did not define the word compounding or the terms “compounding or composition of offences”. The dictionary meaning of the word compounding means “on prosecution. a prosecutor of an offence accepting anything of value, say a monetary fine, under an agreement not to prosecute the victim orto hamper the prosecution of an offence. To compound would simply mean “to come to a settlement or agreement. As per the Black’s Law Dictionary, to compound means “to settle a matter by a payment of money in lieu of any other liability.”

This definition represents the concept of compounding as a Settlement Mechanism, a settlement by paying the fine to the concerned compounding authority in lieu of facing the prosecution for the offence committed. However, on analysis of section 621 A of the erstwhile Companies Act, 1956.

or section 441 of the Companies Act, 2013, we can infer that compounding is nothing but admission of guilt by the person accused of violation of law. In the process of compounding, the person may either suomoto or on receipt of notice of default/initiation of prosecution, admits the commission of default and makes an application for compounding of the alleged offence.

The defaulters agree to pay the fine which may be ordered by the Central GovermnenL Compounding is essentially a compromise or arrangement between administrator of the enactment and person committing an offence. Compounding crime consists of payment of some consideration (termed as compounding fees) in return for an agreement not to prosecute one who has committed an offence.

Question 10.
Explain in brief Consitution of Special Courts under Prevention of Money Laundering Act, What offences are triable by special courts?
Answer:
Provisions regarding Special Courts are contained under Section 43 of the Prevention of Money-laundering Act, 2002.
The Central Government, in consultation with the Chief Justice of the High Court, shall, for trial of offence punishable under section 4, by notification, designate one or more Courts of Session as Special Court or Special Courts or such area or areas or for such case or class or group of cases as may be specified in the notification.

Explanation. In this sub-section, “High Court” means the High Court of the State in which a Sessions Court designated as Special Court was functioning immediately before such designation.

1.While trying an offence under this Act, a Special Court shall also try an offence, other than an offence referred to in sub-section (1), with which the accused may, under the Code of Criminal Procedure, 1973 (2 of 1974), be charged at the same trial.

Offences triable by Special Courts (Section 44):
1. Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),-
(a) an offence punishable under section 4 and any scheduled offence connected to the offence under that section shall be triable by the Special Court constituted for the area in which the offence has been committed:
Provided that the Special Court, trying a scheduled offence be¬fore the commencement of this Act, shall continue to try such scheduled offence; or;

(b) a Special Court may, upon a complaint made by an authority authorized in this behalf under this Act take cognizance of offence under section 3, without the accused being committed to it for trial;

(c) if the court which has taken cognizance of the scheduled offence is other than the Special Court which has taken cognizance of the complaint of the offence of money-laundering under subclause (b), it shall, on an application by the authority authorized to file a complaint under this Act, commit the case relating to the scheduled offence to the Special Court and the Special Court shall, on receipt of such case proceed to deal with it from the stage at which it is committed;

(d) a Special Court while trying the scheduled offence or the offence of money laundering shall hold trial in accordance with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) as it applies to a trial before a Court of Session.

2. Nothing contained in this section shall be deemed to affect the special powers of the High Court regarding bail under section 439 of the Code of Criminal Procedure, 1973 (2 of 1974) and the High Court may exercise such powers including the power under clause (b) of sub-section. (1) of that section as if the reference to “Magistrate” in that section includes also a reference to a “Special Court” designated under section 43.

Question 11.
Write a short note on Directorate of Enforcement.
Answer:
Provisions regarding Directorate of Enforcement are given under Section 36( 1) of The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
1. The Central Government shall establish a Directorate of Enforcement with a Director and such other officers or class of officers as it thinks fit, who shall be called officers of Enforcement, for the purposes of this Act.

2. Without prejudice to the provisions of sub-section (1), the Central Government may authorize the Director of Enforcement or an Additional Director of Enforcement or a Special Director of Enforcement or a Deputy Director of Enforcement to appoint officers of Enforcement below the rank of an Assistant Director of Enforcement.

3. Subject to such conditions and limitations as the Central Government may impose, an officer of Enforcement may exercise the powers and discharge the duties conferred or imposed on him under this Act.

Question 12.
What are provisions regarding revocation of detention border under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974?
Answer:
Revocation of detention orders is prescribed under Section 11 of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
1. Without prejudice to the provisions of section 21 of the General Clauses Act, 1897, a detention order may, at any time, be revoked or modified-
(a) notwithstanding .that the order has been made by an officer of a State Government, by that State Government or by the Central Government;
(b) notwithstanding that the order has been made by an officer of the Central Government or by a State Government, by the Central Government.

2. The revocation of a detention order shall not bar the making of another detention order under section 3 against the same person.

Question 13.
Explain in brief offences which are triable by Special Courts under Prevention of Money Laundering Act, 2002.
Answer:
Offences triable by Special Courts is provided in Section 44 of the Prevention of Money-laundering Act, 2002.
1. Notwithstanding anything contained in the Code of Criminal Procedure, 1973-
(a) an offence punishable under section 4 and any scheduled offence connected to the offence under that section shall be triable by the Special Court constituted for the area in which the offence has been committed:
Provided that the Special Court, trying a scheduled offence be-fore the commencement of this Act, shall continue to try such scheduled offence; or;

2. Nothing contained in this section shall be deemed to affect the special powers of the High Court regarding bail under section 439 of the Code of Criminal Procedure, 1973 and the High Court may exercise such powers including the power under clause (b) of sub-section (1) of that section as if the reference to “Magistrate” in that section includes also a reference to a “Special Court” designated under section 43.

Question 14.
Explain in brief the procedure and powers of Appellate Tribunal under Prevention of Money Laundering Act, 2002.
Answer:
Procedure and powers of Appellate Tribunal are covered under Section 35 of the Offence and penalties under Prevention of Money-laundering Act, 2002.
1. The Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice and, subject to the other provisions of this Act, the Appellate Tribunal shall have powers to regulate its own procedure.

2. The Appellate Tribunal shall have, for the purposes of discharging its functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit, in respect of the following matters, namely:-

summoning and enforcing the attendance of any person and examining him on oath;
requiring the discovery and production of documents;
receiving evidence on affidavits;
subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872, requisitioning any public record or document or copy of such record or document from any office;
issuing commissions for the examination of witnesses or documents;
reviewing its decisions;
dismissing a representation for default or deciding it ex parte,
setting aside any order of dismissal of any representation for default or any order passed by it ex parte; and
any other matter, which may be, prescribed by the Central Government.

3. An order made by the Appellate Tribunal under this Act shall be executable by the Appellate Tribunal as a decree of civil court and, for is purpose, the Appellate Tribunal shall have all the powers of a civil court.

4. Notwithstanding anything contained in sub-section (3), the Appellate Tribunal may transmit any order made by it to a civil court having local jurisdiction and such civil court shall execute the order as if it were a decree made by that court.

5. All proceedings before the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 of the Indian Penal Code and the Appellate Tribunal shall be deemed to be a civil court for the purposes of sections 345 and 346 of the Code of Criminal Procedure, 1973.

Question 15.
The Prevention of Money Laundering Act, 2002 empowers the Government with certain powers to prevent money laundering and terrorist financing. In the light of this statement, highlight provisions regarding Summons, Searches and Seizures under the said Act.
Answer:
Prevention of Money Laundering Act, 2002 was enacted to fight against the criminal offence of legalizing the income/profits from an illegal source. The Prevention of Money Laundering Act, 2002 enables the Government or the public authority to confiscate the property earned from the illegally gained proceeds.

Power of survey [Section 16(1)]
1. Notwithstanding anything contained in any other provisions of this Act, where an authority, on the basis of material in his possession, has reason to believe (the reasons for such belief to be recorded in writing) that an offence under section 3 has been committed, he may enter any place-
(i) within the limits of the area assigned to him; or

(ii) in respect of which he is authorized for the purposes of this section by such other authority, who is assigned the area within which such place is situated, at which any act constituting the commission of such offence is carried on, and may require any proprietor, employee or any other person who may at that time and place be attending in any manner to, or helping in, such act so as to,-

afford him the necessary facility to inspect such records as he may require and which may be available at such place;
afford him the necessary facility to check or verify the proceeds of crime or any transaction related to proceeds of crime which may be found therein; and
furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceedings under this Act.

Explanation-For the purposes of this sub-section, a place, where an act which constitutes the commission of the offence is carried on, shall also include any other place, whether any activity is carried on therein or not, in which the person carrying on such activity states that any of his records or any part of his property relating to such act are or is kept.

2. The authority referred to in sub-section (1) shall, after entering any place referred to in that sub-section immediately after completion of survey, forward a copy of the reasons so recorded along with material in his possession, referred to in that sub-section, to the Adjudicating Authority in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period as may be prescribed.

3. An authority acting under this section may-

placemarks of identification on the records inspected by him and make or cause to be made extracts or copies therefrom,
make an inventory of any property checked or verified by him, and
record the statement of any person present in the place which may be useful for, or relevant to, any proceeding under this Act.

Search and seizure [Section 17(1)]
Where the Director or any other officer not below the rank of Deputy Director authorized by him for the purposes of this section, on the basis of information in his possession, has reason to believe that any person-

has committed any act which constitutes money laundering, or
is in possession of any proceeds of crime involved in money laundering, or
is in possession of any records relating to money laundering, or
is in possession of any property related to crime, then, subject to the rules made in this behalf, he may authorize any officer subordinate to him to-

(a) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept;

(b) break open the lock of any door, box, locker, safe, almirah or other receptacles for exercising the powers conferred by clause (a) where the keys thereof are not available

(d) placemarks of identification on such record or property, if required or make or cause to be made extracts or copies therefrom

(e) make a note or an inventory of such record or property

(f) examine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this Act:

Provided that no search shall be conducted unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 157 of the Code of Criminal Procedure, 1973 or a complaint has been filed; by a person, authorized to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or in cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorized to investigate a scheduled offence to an officer, not below the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department or Unit, as the case may be, or any other officer who may be authorized by the Central Government, by notification, for this purpose.

(1A) Where it is not practicable to seize such record or property, the officer authorized under subsection (1), may make an order to freeze such property whereupon the property shall not be transferred or otherwise dealt with, except with the prior permission of the officer making such order, and a copy of such order shall be served on the person concerned:

Provided that if, at any time before its confiscation under sub-section (5) or sub-section (7) of section 8 or section 58B or sub-section (2A) of section 60, it becomes practical to seize a frozen property, the officer authorized under subsection (1) may seize such property.

2. The authority, who has been authorized under sub-section (1) shall, immediately after search and seizure or upon issuance of a freezing order, forward a copy of the reasons so recorded along with material in his possession, referred to in that sub-section, to the Adjudicating Authority in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period, as may be prescribed.

3. Where an authority, upon information obtained during survey under section 16, is satisfied that any evidence shall be or is likely to be concealed or tampered with, he may, for reasons to be recorded in writing, enter and search the building or place where such evidence is located and seize that evidence:
Provided that no authorisation referred to in sub-section (1) shall be required for search under this subsection.

4. The authority seizing any record or property under sub-section (1) or freezing any record or property under sub-section (1A) shall, within a period of thirty days from such seizure or freezing, as the case may be, file an application, requesting for retention of such record or property seized under sub-section (1) or for continuation of the order of freezing served under sub-section (1A), before the Adjudicating Authority.

Question 16.
What are the provisions regarding appointment of Adjudicating Authority under FEMA, 1999?
Answer:
Appointment of Adjudicating Authority (Section 16):
1. For the purpose of adjudication under section 13, the Central Government may, by an order published in the Official Gazette, appoint as many officers of the Central Government as it may think fit, as the Adjudicating Authorities for holding an inquiry in the manner prescribed after giving the person alleged to have committed contravention under section 13, against whom a complaint has been made under sub-section (3) (hereinafter in this section referred to as the said person) a reasonable opportunity of being heard for the purpose of imposing any penalty:

Provided that where the Adjudicating Authority is of opinion that the said person is likely to abscond or is likely to evade in any manner, the payment of penalty, if levied, it may direct the said person to furnish a bond or guarantee for such amount and subject to such conditions as it may deem fit.

2. The Central Government shall, while appointing the Adjudicating Authorities under sub-section (1), also specify in the order published in the Official Gazette, their respective jurisdictions.

3. No Adjudicating Authority shall hold an enquiry under sub-section (1) except upon a complaint in writing made by any officer authorized by a general or special order by the Central Government.

4. The said person may appear either in person or take the assistance of a legal practitioner or a chartered accountant of his choice for presenting his case before the Adjudicating Authority.

5. Every Adjudicating Authority shall have the same powers of a civil court which are conferred on the Appellate Tribunal under sub-section (2) of section 28 and all proceedings before it shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 of the Indian Penal Code.

6. Every Adjudicating Authority shall deal with the complaint under sub-section (2) as expeditiously as possible and endeavour shall be made to dispose of the complaint finally within one year from the date of receipt of the complaint:

Provided that where the complaint cannot be disposed of within the said period, the Adjudicating Authority shall record periodically the reasons in writing for not disposing of the complaint within the said period.

Question 17.
Broadly explain the procedure for enforcement of the orders of adjudicating authority under FEMA, 1999.
Answer:
Enforcement of the orders of Adjudicating Authority (Section 14)
1. Subject to the provisions of sub-section (2) of section 19, if any person fails to make full payment of the penalty imposed on him under section 13 within a period of ninety days from the date on which the notice for payment of such penalty is served on him, he shall be liable to civil imprisonment under this section.

2. No order for the arrest and detention in civil prison of a defaulter shall be made unless the Adjudicating Authority has issued and served a notice upon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause why he should not be committed to the civil prison, and unless the Adjudicating Authority, for reasons in writing, is satisfied that the defaulter, with the object or effect of obstructing the recovery of penalty, has after the issue of notice by the Adjudicating Authority, dishonestly transferred, concealed, or removed any part of his property, or

(b) that the defaulter has, or has had since the issuing of notice by the Adjudicating Authority, the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same.

3. Notwithstanding anything contained in sub-section (1), a warrant for the arrest of the defaulter may be issued by the Adjudicating Authority if the Adjudicating Authority is satisfied, by affidavit or otherwise, that with the object or effect of delaying the execution of the certificate the defaulter is likely to abscond or leave the local limits of the jurisdiction of the Adjudicating Authority.

4. Where appearance is not made pursuant to a notice issued and served under sub-section (1), the Adjudicating Authority may issue a warrant for the arrest of the defaulter.

5. A warrant of arrest issued by the Adjudicating Authority under sub-section (3) or sub-section (4) may also be executed by any other Adjudicating Authority within whose jurisdiction the defaulter may for the time being be found.

6. Every person arrested in pursuance of a warrant of arrest under this section shall be brought before the Adjudicating Authority issuing the warrant as soon as practicable and in any event within twenty-four hours of his arrest (exclusive of the time required for the journey): Provided that, if the defaulter pays the amount entered in the warrant of arrest as due and the costs of the arrest to the officer arresting him, such officer shall at once release him.

Explanation. – For the purposes of this sub-section, where the defaulter is a Hindu undivided family, the karta thereof shall be deemed to be the defaulter.

7. When a defaulter appears before the Adjudicating Authority pursuant to a notice to show cause or is brought before the Adjudicating Authority under this section, the Adjudicating Authority shall give the defaulter an opportunity showing cause why he should not be committed to the civil prison.

8. Pending the conclusion of the inquiry, the Adjudicating Authority may, in his discretion, order the defaulter to be detained in the custody of such officer as the Adjudicating Authority may think fit or release him on his furnishing the security to the satisfaction of the Adjudicating Authority for his appearance as and when required.

9. Upon the conclusion of the inquiry, the Adjudicating Authority may make an order for the detention of the defaulter in the civil prison and shall in that event cause him to be arrested if he is not already under arrest: Provided that in order to give a defaulter an opportunity of satisfying the arrears, the Adjudicating Authority may, before making the order of detention, leave the defaulter in the custody of the officer arresting him or of any other officer for a specified period not exceeding fifteen days, or release him on his furnishing security to the satisfaction of the Adjudicating Authority for his appearance at the expiration of the specified period if the arrears are not satisfied.

10. When the Adjudicating Authority does not make an order of detention under sub-section (9), he shall, if the defaulter is under arrest, direct his release.

11. Every person detained in the civil prison in execution of the certificate may be so detained,-

where the certificate is for a demand of an amount exceeding rupees one crore, up to three years, and
in any other case, up to six months:

Provided that he shall be released from such detention on the amount mentioned in the warrant for his detention being paid to the officer-in-charge of the civil prison.

12. A defaulter released from detention under this section shall not, merely by reason of his release, be discharged from his liability for the arrears, but he shall not be liable to be arrested under the certificate in execution of which he was detained in the civil prison.

13. A detention order may be executed at any place in India in the man¬ner provided for the execution of warrant of arrest under the Code of Criminal Procedure, 1973.

Question 18.
Briefly explain the powers of Appellate Tribunal and Special Director (Appeals) under FEMA, 1999. Are the provisions of Civil Procedure Code, 1908 applicable to proceedings before Appellate Tribunal and Special Director (Appeals)?
Answer:
Procedure and Powers of Appellate Tribunal and Special Director (Appeals) (Section 28):
1. The Appellate Tribunal and the Special Director (Appeals) shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice and, subject to the other provisions of this Act, the Appellate Tribunal and the Special Director (Appeals) shall have powers to regulate its own procedure.

2. The Appellate Tribunal and the Special Director (Appeals) shall have, for the purposes of discharging its functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely:-

summoning and enforcing the attendance of any person and examining him on oath;
requiring the discovery and production of documents;
receiving evidence on affidavits;
subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872 requisitioning any public record or document or copy of such record or document from any office;
issuing commissions for the examination of witnesses or documents;
reviewing its decisions;
dismissing a representation of default or deciding it exparte
setting aside any order of dismissal of any representation for default or any order passed by it ex parte, and
any other matter which may be prescribed by the Central Government.

3. An order made by the Appellate Tribunal or the Special Director (Appeals) under this Act shall be executable by the Appellate Tribunal or the Special Director (Appeals) as a decree of civil court and, for this purpose, the Appellate Tribunal and the Special Director (Appeals) shall have all the powers of a civil court.

4. Notwithstanding anything contained in sub-section (3), the Appellate Tribunal or the Special Director (Appeals) may transmit any order made by it to a civil court having local jurisdiction and such civil court shall execute the order as if it were a decree made by that court.

5. All proceedings before the Appellate Tribunal and the Special Director (Appeals) shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 of the Indian Penal Code and the Appellate Tribunal shall be deemed to be a civil court for the purposes of sections 345 and 346 of the Code of Criminal Procedure, 1973.

Question 19.
Discuss the penalties under Foreign Exchange Management Act, 1999.
Answer:
CONTRAVENTION AND PENALTIES, ADJUDICATION AND APPEAL UN¬DER FOREIGN EXCHANGE MANAGEMENT ACT, 1999 Penalties (Section 13)
1. If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorisation is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues.

(1A) If any person is found to have acquired any foreign exchange, foreign security or immovable property, situated outside India, of the aggre¬gate value exceeding the threshold prescribed under the proviso to sub-section (1) of section 37A, he shall be liable to a penalty up to three times the sum involved in such contravention and confiscation of the value equivalent, situated in India, the Foreign exchange, foreign security or immovable property.

(1B) If the Adjudicating Authority, in a proceeding under sub-section (1A) deems fits, he may, after recording the reasons in writing, recommend for the initiation of prosecution and if the Director of Enforcement is satisfied, he may, after recording the reasons in writing, may direct prosecution by filing a Criminal Complaint against the guilty person by an officer not below the rank of Assistant Director.

(1C) If any person is found to have acquired any foreign exchange, foreign security or immovable property, situated outside India, of the aggre¬gate value exceeding the threshold prescribed under the proviso to sub-section (1) of section 37A, he shall be, in addition to the penalty imposed under sub-section (1A), punishable with imprisonment for a term which may extend to five years and with fine.

(1D) No court shall take cognizance of an offence under subsection (1C) of section 13 except as on complaint in writing by an officer not below the rank of Assistant Director referred to in sub-section (IB).

2. Any Adjudicating Authority adjudging any contravention under subsection (1), may if he thinks fit in addition to any penalty which he may impose for such contravention direct that any currency, security or any other money or property in respect of which the contravention has taken place shall be confiscated to the Central Government and further direct that the foreign exchange holdings, if any, of the persons committing the contraventions or any part thereof, shall be brought back into India or shall be retained outside India in accordance with the directions made in this behalf.

Explanation-For the purposes of this sub-section, “property” in respect of which contravention has taken place, shall include-

deposits in a bank, where the said property is converted into such deposits;
Indian currency, where the said property is converted into that currency; and
any other property which has resulted out of the conversion of that property.

Question 20.
What is the maximum period of detention prescribed under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974?
Answer:
Section 10:
The maximum period for which any person may be detained in pursuance of any detention order to which the provisions of section 9 do not apply and which has been confirmed under clause (f) of section 8 shall be a period of one year from the date of detention or the specified period, whichever period expires later and the maximum period for which any person may be detained in pursuance of any detention order to which the provisions of section 9 apply and which has been confirmed under clause (f) of section 8 read with subsection (2) of section 9 shall be a period of two years from the date of detention or the specified period, whichever period expires later Provided that nothing contained in this section shall affect the power of the appropriate Government, in either case, to revoke or modify the detention order at any earlier time.

Explanation-In this section and in section 10A, “specified period” means the period during which the Proclamation of Emergency issued under clause (1) of Article 352 of the Constitution on the 3rd day of December 1971 and the Proclamation of Emergency issued under that clause on the 25th day of June 1975, are both in operation.

Question 21.
Under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974, grounds of detention are severable. Elaborate on the related provisions.
Answer:
Where a person has been detained in pursuance of an order of detention under sub-section (1) of section 3 which has been made on two or more grounds, such order of detention shall be deemed to have been made separately on each of such grounds and accordingly-
(a) such order shall not be deemed to be invalid or inoperative merely be-cause one or some of the grounds is or are –

vague,
non-existent,
not relevant,
not connected or not proximately connected with such person, or
invalid for any other reason whatsoever, and it is not, therefore, possible to hold that the Government or officer making such order would have been satisfied as provided in sub-section (1) of section 3 with reference to the remaining ground or grounds and made the order of detention;

(b) the Government or officer making the order of detention shall be deemed to have made the order of detention under the said sub-section (1) after being satisfied as provided in that sub-section with reference to the remaining ground or grounds.

Question 22.
Explain the special provisions for dealing with emergencies under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
Answer:
Special provisions for dealing with emergency (Section 1 2A):
1. Notwithstanding anything contained in this Act or any rules of natural justice, the provisions of this section shall have effect during the period of operation of the Proclamation of Emergency issued under clause (1) of Article 352 of the Constitution on the 3rd day of December 1971, or the Proclamation of Emergency issued under that clause on the 25th day of June 1975, or a period of twenty-four months from the 25th day of June 1975, whichever period is the shortest.

2. When making an order 6f detention under this Act against any person after the commencement of the Conservation of Foreign Exchange and Prevention of Smuggling Activities (Amendment) Act, 1975, the Central Government or the State Government or, as the case may be, the officer making the order of detention shall consider whether the detention of such person under this Act is necessary for dealing effectively with the emergency in respect of which the Proclamations referred to in sub-section (1) have been issued (hereafter in this section referred to as the emergency) and if on such consideration, the Central Government or the State Government or, as the case may be, the officer is satisfied that it is necessary to detain such person for effectively dealing with the emergency, that Government or officer may make a declaration to that effect and communicate a copy of the declaration to the person concerned:

Provided that where such declaration is made by an officer, it shall be reviewed by the appropriate Government within fifteen days from the date of making of the declaration and such declaration shall cease to have effect unless it is confirmed by that Government, after such review, within the said period of fifteen days.

3. The question whether the detention of any person in respect of whom a declaration has been made under sub-section (2) continues to be necessary for effectively dealing with the emergency shall be reconsidered by the appropriate Government within four months from the date of such declaration and thereafter at intervals not exceeding four months, and if, on such reconsideration, it appears to the appropriate Government that the detention of the person is no longer necessary for effectively dealing with the emergency, the Government may revoke the declaration.

4. In making any consideration, review or reconsideration under sub-section (2) or (3), the appropriate Government or officer may if such Government or officer considers it to be against the public interest to do otherwise, act on the basis of the information and materials in its or his possession without disclosing the facts or giving ah opportunity of making a representation to the person concerned.

5. It shall not be necessary to disclose to any person detained under a detention order to which the provisions of sub-section (2) apply, the grounds on which the order has been made during the period the declaration made in respect of such person under that sub-section is in force, and, accordingly, such period shall not be taken into account for the purposes of subsection (3) of section 3.

Question 23.
Explain the procedure of filing an appeal with Appellate Tribunal under FEMA, 1999.
Answer:
Appeal to Appellate Tribunal under FEMA (Section 19)
1. Save as provided in sub-section (2), the Central Government or any person aggrieved by an order made by an Adjudicating Authority, other than those referred to in sub-section (1) of section 17, or the Special Director (Appeals), may prefer an appeal to the Appellate Tribunal: Provided that any person appealing against the order of the Adjudi- eating Authority or the Special Director (Appeals) levying any penalty, shall while filing the appeal, deposit the amount of such penalty with such authority as may be notified by the Central Government:

Provided further that where in any particular case, the Appellate Tribunal is of the opinion that the deposit of such penalty would cause undue hardship to such person, the Appellate Tribunal may dispense with such deposit subject to such conditions as it may deem fit to impose so as to safeguard the realisation of penalty.

2. Every appeal under sub-section (1) shall be filed within a period of forty-five days from the date on which a copy of the order made by the Adjudicating Authority or the Special Director (Appeals) is received by the aggrieved person or by the Central Government and it shall be in such form, verified in such manner and be accompanied by such fee as may be prescribed:

Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period.

3. On receipt of an appeal under sub-section (1), the Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

4. The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the concerned Adjudicating Authority or the Special Director (Appeals), as the case may be.

5. The appeal filed before the Appellate Tribunal under sub-section (1) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within one hundred and eighty days from the date of receipt of the appeal Provided that where any appeal could not be disposed of within the said period of one hundred and eighty days, the Appellate Tribunal shall record its reasons in writing for not disposing of the appeal within the said period.

6. The Appellate Tribunal may, for the purpose of examining the legality, propriety or correctness of any order made by the Adjudicating Authority under section 16 in relation to any proceeding, on its own motion or otherwise, call for the records of such proceedings and make such order in the case as it thinks fit.

Question 24.
Discuss the procedure for appeal to Special Director under FEMA, 1999.
Answer:
The Central Government shall, by notification, appoint one or more Special Directors (Appeals) to hear appeals against the orders of the Adjudicating Authorities under this section and shall also specify in the said notification the matter and places in relation to which the Special Director (Appeals) may exercise jurisdiction.

Any person aggrieved by an order made by the Adjudicating Authority, being an Assistant Director of Enforcement or a Deputy Director of Enforcement, may prefer an appeal to the Special Director (Appeals).

The appeal shall be filed within forty-five days from the date on which the copy of the order made by the Adjudicating Authority is received by the aggrieved person and it shall be in such form, verified in such manner and be accompanied by such fee as may be prescribed.

The Special Director (Appeals) may entertain an appeal after the expiry of the said period of forty-five days if he is satisfied that there was sufficient cause for not filing it within that period.

On receipt of an appeal, the Special Director (Appeals) may after giving the parties to the appeal an opportunity of being heard, pass such order thereon as he thinks fit confirming, modifying or setting aside the order appealed against.

The Special Director (Appeals) shall send a copy of every order made by him to the parties to appeal and to the concerned Adjudicating Authority. The Special Director (Appeals) shall have the same powers of a civil court which are conferred on the Appellate Tribunal.

Question 25.
What are the provisions regarding decriminalization of offences through Companies (Amendment) Act, 2019?
Answer:
Offences triable by Special Courts (Section 44):
1. Notwithstanding anything contained in the Code of Criminal Procedure, 1973,
(a) an offence punishable under section 4 and any scheduled offence connected to the offence under that section shall be triable by the Special Court constituted for the area in which the offence has been committed:
Provided that the Special Court, trying a scheduled offence before the commencement of this Act, shall continue to try such
scheduled offence; or

(d) a Special Court while trying the scheduled offence or the offence of money-laundering shall hold trial in accordance with the provisions of the Code of Criminal Procedure, 1973 as it applies to a trial before a Court of Session.

Question 26.
Broadly explain the procedure for enforcement of the orders of adjudicating authority under FEMA, 1999.
Answer:
Enforcement of the orders of Adjudicating Authority (Section 14)
1. Subject to the previsions of sub-section (2) of section 19, if any person fails to make full payment of the penalty imposed on him under section 13 within a period of ninety days from the date on which the notice for payment of such penalty is served on him, he shall be liable to civil imprisonment under this section.

2. No order for the arrest and detention in civil prison of a defaulter shall be madc unless the Adjudicating Authority has issued and served a notice upon the defaulter calling upon him to appear before him on the date specified in the notice and to show cause why he should not be committed to the civil prison, and unless the Adjudicating Authority, for reasons in writing, is satisfied-

(a) that the defaulter, with the object or effect of obstructing the recovery of penalty, has after the issue of notice by the Adjudicating Authority, dishonestly transferred, concealed, or removed any part of his property, or
(b) that the defaulter has or has had since the issuing of notice by the Adjudicating Authority, the means to pay the arrears or some substantial part thereof and refuses or neglects or has refused or neglected to pay the same.

4. Where appearance is not made pursuant to a notice issued and served under sub-section (1), the Adjudicating Authority may issue a warrant for the arrest of the defaulter.

Provided that, if the defaulter pays the amount entered in the warrant of arrest as due and the costs of the arrest to the officer arresting him, such officer shall at once release him.
Explanation.-For the purposes of this sub-section, where the defaulter is a Hindu undivided family, the karta thereof shall be deemed to be the defaulter.

7. When a defaulter appears before the Adjudicating Authority pursu¬ant to a notice to show cause or is brought before the Adjudicating Authority under this section, the Adjudicating Authority shall give the defaulter an opportunity showing cause why he should not be committed to the civil prison.

Provided that in order to give a defaulter an opportunity of satisfying the arrears, the Adjudicating Authority may, before making the order of detention, leave the defaulter in the custody of the officer arresting him or of any other officer for a specified period not exceeding fifteen days, or release him on his furnishing security to the satisfaction of the Adjudicating Authority for his appearance at the expiration of the specified period if the arrears are not satisfied.

10. When the Adjudicating Authority does not make an order of detention under sub-section (9), he shall, if the defaulter is under arrest, direct his release.

11. Every person detained in the civil prison in execution of the certificate may be so detained

where the certificate is for a demand of an amount exceeding rupees one crore, up to three years, and
in any other case, up to six months:

Provided that he shall be released from such detention on the amount mentioned in the warrant for his detention being paid to the officer-in-charge of the civil prison.

13. A detention order may be executed at any place in India in the man¬ner provided for the execution of warrant of arrest under the Code of Criminal Procedure, 1973.

Question 27.
Discuss the provision relating to Advisory Board under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
Answer:
Advisory Boards for the purposes of article 22(4)(A) and 22(7)(c) of the Constitution,-
(a) the Central Government and each State Government shall, whenever necessary, constitute one or more Advisory Boards each of which shall consist of a Chairman and two other persons possessing the qualifications specified in sub-clause (a) of clause (4) of article 22 of the Constitution

(b) save as otherwise provided in section 9, the appropriate Government shall, within five weeks from the date of detention of a person under a detention order make a reference in respect thereof to the Advisory Board constituted under clause (a) to enable the Advisory Board to make the report under sub-clause (a) of clause (4) of article 22 of the Constitution

(c) the Advisory Board to which a reference is made under clause (b) shall after considering the reference and the materials placed before it and after calling for such further information as it may deem necessary from the appropriate Government or from any person called for the purpose through the appropriate Government or from the person concerned, and if, in any particular case, it considers it essential so to do or if the person concerned desires to be heard in person, after hearing him in person, prepare its report specifying in a separate paragraph thereof its opinion as to whether or not there is sufficient cause for the detention of the person concerned and submit the same within eleven weeks from the date of detention of the person concerned

(d) when there is a difference of opinion among the members forming the Advisory Board, the opinion of the majority of such members shall be deemed to be the opinion of the Board;

(e) a person against whom an order of detention has been made under this Act shall not be entitled to appear by any legal practitioner in any matter connected with the reference to the Advisory Board, and the proceedings of the Advisory Board and its report, excepting that part of the report in which the opinion of the Advisory Board is specified, shall be confidential;

(f) in every case where the Advisory Board has reported that there is in its opinion sufficient cause for the detention of a person, the appro¬priate Government may confirm the detention order and continue the detention of the person concerned for such period as it thinks fit and in every case where the Advisory Board has reported that there is in its opinion no sufficient cause for the detention of the person concerned, the appropriate Government shall revoke the detention order and cause the person to be released forthwith.

Cases in which and circumstances under which persons may be detained for periods longer than three months without obtaining the opinion of Advisory Board (Section 9)
1. Notwithstanding anything contained in this Act, any person (including a foreigner) in respect of whom an order of detention is made under this Act at any time before the 31st day of July 1999, maybe detained without obtaining, in accordance with the provisions of sub-clause (a) of clause (4) of Article 22 of the Constitution, the opinion of an Advisory Board for a period longer than three months but not exceeding six months from the date of his detention, where the order of detention has been made against such person with a view to preventing him from smuggling goods or abetting the smuggling of goods or engaging in transporting or concealing or keeping smuggled goods and the Central Government or any officer of the Central Government, not below the rank of an Additional Secretary to that Government, specially empowered for the purposes of this section by that Government, is satisfied that such person-
(a) smuggles or is likely to smuggle goods into, out of or through any area highly vulnerable to smuggling; or

(b) abets or is likely to abet the smuggling of goods into, out of or through any area highly vulnerable to smuggling; or

(c) engages or is likely to engage in transporting or concealing or keeping smuggled goods in any area highly vulnerable to smuggling, and makes a declaration to that effect within five weeks of the detention of such person.

Explanation – In this sub-section, “area highly vulnerable to smuggling” means-

The Indian customs waters contiguous to the States of Goa, Gujarat, Karnataka, Kerala, Maharashtra and Tamil Nadu and the Union territories of Daman and Diu and Pondicherry;
The inland area fifty kilometres in width from the coast of India falling within the territories of the States of Goa, Gujarat, Karnataka, Kerala, Maharashtra and Tamil Nadu and the Union territories of Daman and Diu and Pondicherry;
the inland area fifty kilometres in width from the India-Pakistan border in the States of Gujarat, Jammu and Kashmir, Punjab and Rajasthan;
the customs airport of Delhi; and
such further or other Indian customs waters, or inland area not exceeding one hundred kilometres in width from any other coast or border of India, or such other customs station, as the Central Government may, having regard to the vulnerability of such waters, area or customs station, as the case may be, to smuggling, by notification in the Official Gazette, specify in this behalf.

Question 28.
Explain the role of Company Secretary in event of invocation of any regulatory action under Companies Act, 2013.
Answer:
The Company Secretary has a vital role to play in the event of invocation any action under the Act. The current regulatory scenario demands the Company Secretary be more vigilant and diligent specifically about the applicability of multiple laws and timely compliances thereunder.

The role which a Company Secretary can play is briefly discussed below:

To ensure timely compliances of the provisions of the Act to avoid any action for default or failure;
To represent the Company before the ROC, RD or NCLT, in the event of any action for default or failure;
To develop a robust internal compliance system which generates the details of compliances undertaken and any compliance lapses in a timely manner;
To initiate the compounding procedure in the event of any non-compliance(s) comes to light and to avoid recurrence of such non-compliances in future;
To ensure timely and appropriate disclosure pertaining to penalties or compounding offences or action by any authorities.

Further, since the Practicing Company Secretaries are also covered under section 447 of the Act, they should ensure that they are not certifying any returns or issuing any report which contains any false certification or information or omits any material information or facts.

Question 29.
Distinguish between Section 441 and Section 454 of Companies Act, 2013.
Answer:

Section 441	Section 454
A compounding order u/s 441 is not appealable	Adjudication order u/s 454 is appealable
The compounding order is delivered generally based on a consensus arrived at by both parties	Adjudicating officer’s order will be arbitrary and not based on consensus.
Powers of compounding are exercised by different authorities like Regional Director and NCLT	Power of adjudication vests only with Regional Director
Similar offences can be compounded only once in three years.	No such provision for adjudication of penalty
There are no specific rules which have been made by the Government where offences for compounding falls under the jurisdiction of the Regional Director or the authorized officer under section 441(1)(b).	The Government has framed the Companies (Adjudication of Penalties) Rules, 2014, which governs the procedure to be adopted by the adjudicating officer and is very elaborate.
Compounding of any offence under section 441 either by the NCLT or the Regional Director or by the authorized officer is prohibited if the investigation against such company has been initiated or is pending under the Act.	Adjudication proceedings can be initiated and continued while investigation is in progress.
The compounding authority need not give any opportunity to the defaulting parties of being heard since the section does not provide for any such opportunity to be given to the defaulting parties, though natural justice demands such an opportunity.	Hearing is mandatory in case of adjudication.

Question 30.
Under what circumstances can adjudication be ordered u/s 454? Or, what triggers an action u/s 454? Is it on the findings of the MCA that an offence has occurred following an inspection u/s 206 or on scrutiny of the Balance Sheet or from the statutory auditors’ report or from the % secretarial audit report?
Answer:
(a) There must have been a default or non-compliance of the provisions of the Companies Act, 2013.

(b) The default has to be ascertained and the nature of non-compliance must be identified by the concerned office of the RoC or emanate from inspection/investigation or from the statutory auditor’s report or the secretarial audit report.

(c) Fine is not the same as penalty. Penalty is a broader term which includes fine. Before initiating adjudication proceedings u/s 454, it has to be ascertained if the penal provisions in the section alleged to have been violated for which these proceedings are sought to be initiated are in the nature of fine or penalty.

In general usage, a layman uses these two words synonymously. In fact, in the Companies Act, 2013, there are many sections which talk of “fine” and many other sections talk of “penalty”.

Those sections which have stipulated “fines” will necessarily be outside the purview of section 454 since section 454(3) clearly authorizes the adjudicating officer with a power to impose only penalty and it is implied that he has to take cognizance of the penalty stipulated under the section which has been violated. In whichever fines have been stipulated, the defaulting parties can take recourse to seeking compounding of the offence whether a show cause notice is issued or not.

Question 31.
Who orders adjudication proceedings u/s 454? Is the RoC himself empowered to order? In which case can the Central Government appoint him as the adjudicating officer?
Answer:
Either the RoC himself on a scrutiny of documents filed with him and on his satisfaction has to come to a conclusion that there has been non-compliance of the provisions of the Act as arrived at under section 206(4) or has to come to a conclusion of such non-compliances based on any report on inspection or investigation, if any, under the relevant provisions of the Companies Act, 2013, or on the qualifications of the statutory auditors in the Annual Report or by the secretarial auditors in their Secretarial Audit Report whereby he can ascertain and identify the nature of non-compliance or default.

In all these cases, he himself cannot initiate any adjudicating proceedings if he is the adjudicating officer even as he may be clothed with a power of adjudication. Therefore, if adjudicating powers are under his jurisdiction, any other officer who is independent of his office has to identify the existence of violation as otherwise the adjudicating officer, being the head of his office may be biased.

Question 32.
When there is a provision for compounding u/s 441 how does section 454 come into play? Does S.454 override S.441 since it is a later section? Or do both sections play parallelly? Which section prevails over which?
Answer:
Both these sections operate independent of each other and hence the question of one section overriding the other does not arise. They operate concurrently, simultaneously but not parallelly.

The Regional Director cannot set the compounding process in motion u/s 441 and simultaneously the RoC cannot order adjudication u/s 454. Section 441 deals with compounding and Section 454 deals with adjudication. Both are not same. The adjudicating officer has no power to compound. The Regional Director has the sole power to compound. He has power to authorize another officer u/s 441 (1)(b) and not under section 454.

The adjudicating officer has no right to decide on merits and demerits of default. Under section 454 he can only adjudicate on the quantum of penalty. In fact, he can only revise the fee upwards not downwards as can be seen from the parameters set under Rule 3(9) of the Companies (Adjudication of Penalties) Rules, 2014.
On the other hand, the Regional Director or the NCLT can afford to give lot of concessions on the quantum of penalty depending on the facts of the case. The power to compound vested with the Regional Director or the NCLT is more subjective.

Question 33.
When a suomoto application for compounding is made, how does S.454 come into play?
Answer:
The debatable question that arises here is whether the Regional Director or the NCLT take cognizance of adjudication proceedings u/s 454(2) when a suomoto application made by the defaulter for composition involving an offence, the nature of which the defaulter himself has identified, is pending with him/NCLT for disposal and stop the adjudication proceedings? Therefore, it appears that prima facie section 454 will not come into play.

The RoC who has forwarded the compounding application to either of them with his report has to seek directions from the RD/NCLT in such a case. The Regional Director/NCLT may agree for adjudication after giving justifiable reasons for his choice for adjudication overriding the compounding application in a speaking manner.

But this decision can be challenged before the same RD under section 454(5) by the applicants to a suomoto compounding application if the RoC, being the adjudicating officer exercises his power u/s 454, on the grounds that the defaulting party itself has identified the non-compliance and none else and therefore, the offence will obviously come outside the purview of section 454.

Question 34.
Write a short note on SAT Litigation Division.
Answer:
1. SAT Litigation Division of Securities and Exchange Board of India (SEBI) would be responsible for handling appeals against orders of SEBI or its Adjudicating Officers.

2. While undertaking defence representation in contentious matters involving complex issues of law, the Division would liaise with Senior Advocates, law firms, solicitors firms and represent the interest of SEBI at Securities Appellate Tribunal (SAT).

3. The Division would also be an interface between SEBI and SAT while collaborating with other departments of SEBI. It would also assist SEBI in filing affidavits/written submissions, as and when needed while attending hearings.

Question 35.
What are the functions of Prosecution Division under SEBI Act?
Answer:
The Enforcement Department is responsible for handling Appeals against SEBI orders filed before the Hon’ble Securities Appellate Tribunal (SAT), Appeals filed against the SAT order in the Hon’ble Supreme Court, Criminal Complaints filed by SEBI in appropriate Courts and Settlement Proceedings.

The Department Comprises of three divisions, namely:

SAT Litigation Division
Prosecution Division
Settlement Division

The Prosecution Division shall handle work related to filing prosecution proceedings through the courts and follow up to obtain conviction. The Division will also frame procedures for cooperation with public prosecutors, other agencies and for making referrals to prosecutors and other government agencies.

Question 36.
Write a short note on Settlement Division under SEBI Act.
Answer:
Settlement Division handles the Settlement Applications filed by the Applicant for the Settlement of the Specified Proceedings that have been initiated or may be initiated by SEBI. The Settlement Applications are pro¬cessed as per SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 [Settlement Regulations] and if settlement is arrived at, the Settlement Orders are passed.

The Settlement Division is responsible for handling Registration of Settle¬ment Application, Calculation of Settlement amount as per the Settlement Regulations, organizing Internal Committee Meeting between the Applicants and Internal Committee Members for formulating the settlement amount/ terms, Organizing High Powered Advisory Committee (HPAC) Meeting, placing the recommendation of HPAC before the Panel of Whole Time Members for approval.

Question 37.
Briefly explain power of the Central Government to grant immunity under SEBI Act, 1992?
Answer:
Section 23-0
1. The Central Government may, on recommendation by the Securities and Exchange Board of India, if the Central Government is satisfied, that any person, who is alleged to have violated any of the provisions of this Act or the rules or the regulations made thereunder, has made a full and true disclosure in respect of alleged violation, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act, or the rules or the regulations made thereunder or also from the imposition of any penalty under this Act with respect to the alleged violation:

Provided that no such immunity shall be granted by the Central Government in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of application for grant of such immunity: Provided further that the recommendation of the Securities and Exchange Board of India under this subsection shall not be binding upon the Central Government.

2. An immunity granted to a person under sub-section (1) may, at any time, be withdrawn by the Central Government, if it is satisfied that such person had, in the course of the proceedings, not complied with the condition on which the immunity was granted or had given false evidence, and thereupon such person may be tried for the offence with respect to which the immunity was granted or for any other offence of which he appears to have been guilty in connection with the contravention and shall also become liable to the imposition of any penalty under this Act to which such person would have been liable, had not such immunity been granted.

Question 38.
What are powers of the appropriate Government in relation to absconding persons under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974?
Answer:
1. If the appropriate Government has reason to believe that a person in respect of whom a detention order has been made has absconded or is concealing himself so that the order cannot be executed, that Government may-

a. make a report in writing of the fact to a Metropolitan Magistrate or a Magistrate of the first class having jurisdiction in the place where the said person ordinarily resides; and thereupon the provisions of sections 82, 83, 84 and 85 of the Code of Criminal Procedure, 1973, shall apply in respect of the said person and his property as if the order directing that he be detained were a warrant issued by the Magistrate

b. by order notified in the Official Gazette direct the said person to appear before such officer, at such place and within such period as may be specified in the order; and if the said person fails to comply with such direction, he shall, unless he proves that it was not possible for him to comply therewith and that he had, within the period specified in the order, informed the officer mentioned in the order of the reason which rendered compliance therewith impossible and of his whereabouts, be punishable with imprisonment for a term which may extend to one year or with fine or with both.

2. Notwithstanding anything contained in the Code of Criminal Procedure, 1973, every offence under clause (b) of sub-section (1) shall be cognizable.

Adjudication, Prosecutions, Offences and Penalties – Resolution of Corporate Disputes, Non-Compliances & Remedies Important Questions

Adjudication, Prosecutions, Offences and Penalties – Resolution of Corporate Disputes, Non-Compliances & Remedies Important Questions

Resolution of Corporate Disputes Non-Compliances & Remedies Notes