Reliefs and Remedies – Resolution of Corporate Disputes, Non-Compliances & Remedies Important Questions
Question 1.
P is the Managing Director of AMR Limited who committed a fraud against the Company. A judicial proceeding has been initiated against P for fraud committed by him. Now P wants to settle the case through mediation or conciliation. Can P’s case be referred to mediation or conciliation?
Answer:
The crime of fraud comes under non-compoundable offence and these types of crime shall not be referred to mediation or conciliation for settlement. Hence the crime committed by P, cannot be referred to mediation and conciliation.
As per rule 30 of Companies (Mediation and Conciliation), Rule 2016, following matters shall not be referred to mediation or conciliation, namely:-
- the matters relating to proceedings in respect of inspection or investigation under Chapter XIV of the Companies Act, 2013; or the matters which relate to defaults or offences for which applications for compounding have been made by one or more parties.
- Cases involving serious and specific allegations of fraud, fabrication of documents forgery, impersonation, coercion etc.
- Cases involving prosecution for criminal and non-compoundable offences.
- Cases which involve public interest or interest of numerous persons who are not parties before the Central Government or the Tribunal or the Appellate Tribunal as the case may be.
Question 2.
“A Company and its officers will not be eligible for compounding again for similar offence”. Elucidate.
Answer:
If any offence committed by Company or the officers was compounded under section 441 of the Companies Act, 2013, and an offence similar to what was compounded earlier is committed again by a company or its officers within a period of three years from the date on which the earlier offence was compounded, then the provisions of section 441 of the Companies Act, 2013 will not be applicable and the company and the officers concerned will not be eligible for compounding again. In other words, similar offences can be compounded only once in three years.
Section 451 of the Companies Act, 2013 provides that 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.
Question 3.
“National Company Law Tribunal (NCLT) can rectify mistakes in its own orders on suo motu basis.” Comment with reference to the Companies Act, 2013 and Judicial Pronouncements.
Answer:
As per section 420(2) of the Companies Act, 2013, the National Company Law.
Tribunal may at any time within two years from the date of the order, with a view to rectifying any mistake apparent from the record:
(i) Amend any order passed by it, and
(ii) Shall make such amendment, if the mistake is brought to its notice by the parties. Provided that no such amendment shall be made in respect of any order against which an appeal has been preferred. Further, pursuant to Rule 11 of National Company Law Tribunal Rules, 2016, Tribunal has inherent power to make such order as may be necessary for meeting the end of justice or to prevent abuse of the process of the tribunal, accordingly, the Tribunal can rectify the order passed by its own.
In Sree Ayyanar Spinning & Weaving Mills Ltd. v. Commissioner of Income Tax, 2008 (301 ITR 434), it was held that under first part of the provision, the tribunal is empowered to suo motu rectify any mistakes apparent on record any time within two years from the date of its original order. Under the second part, either the taxpayer or the department may file an application highlighting the mistake apparent on record.
In light of the provision, the Apex Court held that the appellate tribunal took time beyond the stipulated period even though the application was filed well within the period.
Thus, in the mentioned event the applicant has filed the application within the stipulated period of two years from the date of original order, it is binding for the appellate tribunal to decide the matter on the basis of merits and not on the ground of limitation.
Thus, Section 420(2) read with Rules 11, 154 and 155 of National Compa¬ny Law Tribunal Rules, 2016 substantiate that the Tribunal has power to rectify a mistake apparent from the record on its own motion or on an application by a party under the Act.
Question 4.
Mrs. Meera was the Managing Director of ME India Private Limited. During her tenure, she sold few properties of the Company and cleared all the registered mortgages. She also diverted Company’s funds of ₹ 50 Lakhs to her bank account and diverted another ₹ 10 Lakhs to pay off and discharge the Housing Loan on her daughter’s property. Later, winding up proceedings were initiated against the Company.
Can the Liquidator of the Company commence proceedings against Mrs. Meera and her daughter in these circumstances ?.
Answer:
Section 336 of the Companies Act, 2013 also covers the offences which were committed by the officers of the company when the company was not under winding up. In case where the company is subsequently ordered to be wound up, the offences committed by the officers of the company while the company was a going concern, will still be dealt under section 336, though such offence could be dealt with under other relevant sections had it remain a going concern. Action covered under Section 336(l)(d) are those which were committed within the twelve months immediately before the commencement of the winding-up or at any time thereafter.
Further, Section 329 of the Companies Act, 2013 provides that any transfer of property of any kind by a company other than the transfer made in the ordinary course of business or the transfer is made in good faith and for a value consideration made within a period of one year prior to the presen¬tation of the petition for winding up shall be void against the liquidator.
The facts provided are similar to the facts of Fodare Pty Ltd. v. Shearn [2011] case. Shearn was the sole director of the Company during the relevant period and by sale of a property of the Company, she cleared all registered mortgages and diverted funds to the tune of A$ 383,000 to her bank account and diverted another A$ 251,000 to pay up and discharge a mortgage over a her daughter’s property.
The company was wound up. Liquidator commenced proceedings seeking a declaration that Shearn was in breach of fiduciary duties and her daughter was charged on the ground that she falls within the ambit of a constructive trustee as she was aware that she is receiving funds out of proceeds arising from sale of company’s property.
It was held that Shearn was liable to the Company for equitable compensation of both the amounts and statutory compensation together with interest and costs. Further, the Supreme Court held that her daughter was also liable to the company for equitable compensation of A$ 251,000 plus interest. The Court found that the daughter might be aware that her mother who was a former bankrupt did not have money and the property that was sold belonged to the company.
The Court said the liability of the mother and the daughter for equitable compensation of A$ 251,000 plus interest would rim concurrently such that both of them will be jointly and severally liable.
Hence it can be concluded that Mrs. Meera and her daughter would be jointly and severally liable for diversion of Company’s funds and the Liquidator of the company can commence proceeding against Mrs. Meera and her daughter after following due procedures provided in the Act.
Question 5.
XYZ Software Technologies Limited of Bengaluru was engaged in business of software exports. During the past years, it had exported services to its Parent entity in United States of America (USA), but failed to realize and repatriate the foreign exchange due on its exports to India, within the stipulated time. The Adjudicating Authority imposed a penalty under the provisions of Foreign Exchange Management Act, 1999. Being aggrieved by this penalty, the Company seeks your advice to file an appeal. Advise the Company.
Answer:
Sections 17 and 19 of Foreign Exchange Management Act, 1999 provide for appeals against orders of Adjudicating Authority. If the Adjudicating Authority is Assistant Director of Enforcement or Deputy Director of Enforcement, appeal will he to Special Director (Appeals).
Further appeal shall he with Appellate Tribunal for Foreign Exchange. However, if the Adjudicating Authority is senior to the Assistant Director of Enforcement or Deputy Director of Enforcement, then the appeal shah directly be made to the Appellate Tribunal.
Appeal to Special Director (Appeals): Appeal against order of Assistant Director of Enforcement or Deputy Director of Enforcement can be filed with Special Director (Appeals) under Section 17 of the said act within 45 days from the date on which the copy of the order made by the Adjudica¬tion Authority is received by the aggrieved person.
Appeal to Appellate Tribunal: Appeal against the order of Adjudicating Authority being senior to Assistant Director of Enforcement or Deputy Director of Enforcement or against the order of Special Director (Appeals) can be made to the Appellate Tribunal for Foreign Exchange under Section 19 of Foreign Exchange Management Act, 199)) within 45 days from the date on which the copy of the order made by such Adjudicating Authority or Special Director (Appeals) is received by the aggrieved person.
It may be noted that the Tribunal is the final fact-finding authority and no appeal lies against the facts determined by the Tribunal. Hence, XYZ Software Technologies may file an appeal based on the Adjudicating Authority.
Question 6.
PQ Limited was a Company listed on XYZ Stock Exchange. The Company was making continuous losses and was not performing well. There were also reports of alleged financial irregularities in media. Also, many complaints were received by Securities Board of India (SEBI), regarding its listed securities. Subsequently, SEBI passed an Order to delist the securities of the Company from the said stock exchange. As a Company Secretary, advise PQ Limited for further course of action.
Answer:
As per Section 15T of the SEBI Act, 1992, any person aggrieved by an order of the Board or by an order made by an adjudicating officer may prefer an appeal to a Securities Appellate Tribunal (‘SAT’) having jurisdic¬tion in the matter.
The appeal shall be filed within a period of 45 days from the date on which a copy of the order made by the SEBI or the Adjudicating Officer, as the case may be, is received by him.
The Tribunal shall give an opportunity of being heard to the respondent and may pass the order confirming, modifying or setting aside the decision of SEBI. SAT shall also send a copy of its order to every party to appeal and to the concerned adjudicating officer. Further, the matter filed before SAT is dealt with as expeditiously as possible and is endeavoured to be disposed of within 6 months from the date of receipt of the appeal.
Thus, PQ Limited should consider filing an appeal to Securities Appellate Tribunal (SAT). Alternatively, the company may go for delisting of the secu¬rities in accordance with the SEBI (Delisting of Securities) Regulations, 2009.
Question 7.
A Practicing Company Secretary wants to establish his practice in the field of Mediation and Conciliation. He wants to know whether he would not be eligible to be appointed as a Mediator or Conciliator as per Rule 5 of Companies (Mediation and Conciliation) Rules, 2016. Advise him.
Answer:
As per Rule 4 of Companies (Mediation and Conciliation) Rules, 2016, a Company Secretary with at least fifteen years of continuous practice is qualified for being empanelled as mediator or conciliator.
However, as per Rule 5 of Companies (Mediation and Conciliation) Rules, 2016, a person shall be disqualified for being empanelled as mediator or conciliator, if he-
- is an undischarged insolvent or has applied to be adjudicated as an insolvent and his application is pending;
- has been convicted for an offence which, in the opinion of the Central Government, involves moral turpitude;
- has been removed or dismissed from the service of the Government or the Corporation owned or controlled by the Government;
- has been punished in any disciplinary proceeding, by the appropriate disciplinary authority; or
- has, in the opinion of the Central Government, have such financial or other interest in the subject matter of dispute or is related to any of the parties, as it is likely to affect the discharge of his professional obligations as a mediator or conciliator.
Question 8.
S is a newly qualified Company Secretary. He wants to know whether there is any dress code approved by the Council of ICSI as professional dress code, for Company Secretaries to appear before judicial /quasi-judicial bodies and Tribunal? Advise S.
Answer:
The professional dress prescribed under the code of conduct for the professional is required to be worn by the authorised representative while, appearing before the authorities.
The Council of ICSI has approved the following Guidelines for Professional Dress Code for Company Secretaries to appear before judicial/ quasijudicial bodies and tribunals:
1. For Male Members:
- Navy Blue Suit (Coat & Trouser), with CS logo, Insignia or Navy Blue Blazer over a sober coloured Trouser
- Neck Tie (ICSI)
- White full sleeve Shirt
- Formal Black Leather Shoes (Shined).
2. For Female Members:
- Navy Blue corporate suit (Coat & Trouser), could be with a necktie Insignia or
- Saree/any other dress of sober colour with Navy Blue Blazer with CS logo
- A sober footwear like Shoes/Bellies/Wedges, etc. (shined)
The Members in employment have also been prescribed the same dress code.
Question 9.
ABC Technologies Limited was incorporated under the Companies Act, 2013 as a closely held Public Company. The paid-up capital of Company is ₹ 15 Crore. The Company suomotu filed a petition for compounding of violation under Section 203 of the Companies Act, 2013 read with Rule 8 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. The Company pleaded that it had tried, but was unable to find and appoint a full-time Company Secretary as required under the Act. What would be the consequences for Company, its Directors and KMP in this case?
Answer:
As per Section 203(5) of the Companies Act, 2013, if a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every director and key managerial personnel of the company who is in default shall be punishable with fine which may extend to fifty thousand rupees and where the contravention is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.
The NCLT may levy maximum fine as:
| Particulars | Violation under Section 203 | Fine for continuing of contravention |
| Penalty on Company | Rupees five lakh | Rupees one thousand per day of delay |
| Penalty on Director and KMP | Rupees fifty thousand | Rupees one thousand per day of delay |
Hence, ABC Technologies Limited, its directors & KMP are subjected to penal provisions of Companies Act, 2013 as mentioned above.
Question 10.
PQR Express Limited is aggrieved by an order of National Company Law Appellate Tribunal (NCLAT). As a Company Secretary, advise the Company as to where an appeal can be filed against the order of NCLAT and also comment on limitation period of appeal against the order.
Answer:
As per section 423 of the Companies Act, 2013, any person aggrieved by any order of the Appellate Tribunal may file an appeal to the Supreme Court within sixty days from the date of receipt of the order of the Appellate Tribunal to him on any question of law arising out of such order.
The Supreme Court may if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.
In the given case, PQR Express Limited can file an appeal to Supreme Court of India against order of National Company Law Appellate Tribunal (NCLAT) within 60 days from the date of receipt of order of the Appellate Tribunal.
Question 11.
ABC Exports Limited aggrieved by an order of Adjudication Authority under Foreign Exchange Management Act, 1999, wants to file an appeal against the order in Civil Court. As a Company Secretary, advise ABC Exports Limited whether the civil court has jurisdiction to entertain such a suit? If not, suggest an alternate remedy
Answer:
Civil court cannot entertain such suits as civil court has no jurisdiction. As per section 34 of Foreign Exchange Management Act, 1999, no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which an Adjudicating Authority or the Appellate Tribunal or the Special Director (Appeals) is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.
In the given case, ABC Exports Limited can appeal to:
1. Appeal to Special Director (Appeals):
As per section 17(1) of Foreign Exchange Management Act,1999, 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.
As per section 17(2) of Foreign Exchange Management Act, 1999, 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).
2. Appeal to Appellate Tribunal (Section 19):
As per section 19(1) of Foreign Exchange Management Act, 1999, 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 section 17(1), or the Special Director (Appeals), may prefer an appeal to the Appellate Tribunal.
Question 12.
Sundry creditors of MNO Trading Limited filed a complaint with the Registrar of Companies (ROC), Delhi & Haryana alleging that the management of the company is Indulging In destruction and falsification of the accounting records of the company. The complainants request the ROC to take Immediate steps to seize the books of account & records of the company so that the management may not be allowed to tamper with the books of account & records. The complaint was received at 11 A.M. on 10th January 2019 and the ROC entered the premises at 11.30 A.M., for a search without obtaining an order from the Special Court. Comment on the action of ROC vis-a-vis his powers under the Companies Act, 2013.
Answer:
Section 209 of the Companies Act, 2013 provides that whereupon information in his possession or otherwise, the Registrar (ROC) or inspector has reasonable ground to believe that the books and papers of
i. a company, or
ii. relating to the key managerial personnel, or
iii. any director, or
iv. auditor, or
v. company secretary in practice if the company has not appointed a company secretary, are likely to be destroyed, mutilated, altered, falsified or secreted, he may, after obtaining an order from the Special Court for the seizure of such books and papers,
- enter, with such assistance as may be required, and search, the place or places where such books or papers are kept; and
- seize such books and papers as he considers necessary after allowing the company to take copies of or extracts from, such books or papers at its cost.
According to the above provisions, ROC may enter and search the place where such books or papers are kept and seize them only after obtaining an order from the Special Court.
Since in the given question, ROC entered the premises for the search and seizure of books of the company without obtaining an order from the Special Court, he is not authorized to seize the books of the MNO Trading Limited.
Question 13.
Enumerate the Compounding Authorities under Companies Act, 2013. Write the procedure for compounding in brief.
Answer:
In terms of Section 441 of the Companies Act, 2013, there are two compounding authorities:
- Regional Director: The Regional Director (R D) appointed by the Central Government as a Regional Director for the purposes of the Companies Act, 2013, and
- National Company Law Tribunal (NCLT)
Procedure for Compounding of offence:
- Call for a board meeting to decide on compounding as per the Companies Act, 2013.
Arrive at the amount of the fine involved as per the relevant section(s). - Hold the Board Meeting and pass resolution(s) to compound and provide for preparation and providing necessary authorization for compounding.
- Every application for the compounding of an offence shall be made to the Registrar who shall forward the same, together with his comments thereon, to the Tribunal or the Regional Director or any officer authorised by the Central Government, as the case may be.
- The filing with Registrar of Companies (ROC) is done in the e-form GNL-1 prescribed for this purpose. Also deliver sufficient number of hard copies of the compounding application to ROC for him to forward it to RD/Tribunal based on the quantum of fee involved.
- There will be a personal hearing before the Regional Director or Tribunal which will decide the amount to be paid for compounding.
- Get the order passed by the RD/Tribunal and pay the amount stipulated within the time fixed.
- File Order of RD/NCLT with ROC in form INC-28 and ROC will take note of the Same.
Question 14.
Discuss confidentiality, disclosure and inadmissibility of Information under Mediation and Conciliation Rules, 2016.
Answer:
Rule 21 of the Mediation and Conciliation Rules, 2016 states the confidentiality, disclosure and inadmissibility of Information.
Disclosure of substance Information to the party by the Mediator or Conciliator is subject to maintenance of confidentiality.
1. When a mediator or conciliator receives factual information concerning the dispute from any party, he shall disclose the substance of that information to the other party, so that the other party may have an opportunity to present such explanation as it may consider appropriate: When a party gives information to the mediator or conciliator subject to a specific condition that the information may be kept confidential, the mediator or conciliator shall not disclose that information to the other party.
2. The receipt or perusal, or preparation of records, reports or other documents by the mediator or conciliator, while serving in that capacity shall be confidential and the mediator or conciliator shall not be compelled to divulge information regarding those documents nor as to what transpired during the mediation or conciliation before the Central Government or the Tribunal or the Appellate Tribunal or as the case may be, or any other authority or any person or group of persons.
3. The parties shall maintain confidentiality in respect of events that transpired during the mediation and conciliation and shall not rely on or introduce the said information in other proceedings as to-
- views expressed by a party in the course of the mediation or conciliation proceedings;
- documents obtained during the mediation or conciliation which were expressly required to be treated as confidential or other notes, drafts or information given by the parties or the mediator or conciliator;
- proposals made or views expressed by the mediator or conciliator;
- admission made by a party in the course of mediation or conciliation proceedings.
4. There shall be no audio or video recording of the mediation or conciliation proceedings.
5. No statement of parties or the witnesses shall be recorded by the mediator or conciliator.
Question 15.
What is a Settlement agreement as per Companies Act, 2013 and the Companies (Mediation and Conciliation) Rules?
Answer:
Rule 25 of the Companies (Mediation and Conciliation) Rules, 2016 provide for Settlement agreement
1. Written Signed Agreement between the parties resolving some or all issues – duly signed by the parties and counsel if anywhere an agreement is reached between the parties in regard to all the issues or some of the issues in the proceeding, the same shall be reduced to writing and signed by the parties and if any counsel has represented the parties, the conciliator or mediator may also obtain the signature of such counsel on the settlement agreement.
2. Submission of the Settlement agreement to the mediator or conciliator, Mediator or conciliator to forward the same along with covering letter to the Central Government or Tribunal or Appellate Tribunal The agreement of the parties so signed shall be submitted to the mediator or conciliator who shall, with a covering letter signed by him, forward the same to the Central Government or the Tribunal or the Appellate Tribunal, as the case may be.
3. Failure of settlement agreement between parties the mediator or con¬ciliator, to report the same to the Central Government or Tribunal or Appellate Tribunal, Where no agreement is reached at between the parties, before the time limit specified in rule 19, or where the mediator or conciliator is of the view that no settlement is possible, he shall report the same to the Central Government or the Tribunal or the Appellate Tribunal, as the case may be, in writing.
Question 16.
What are Settlement Orders under Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018?
Answer:
Settlement of proceedings before the Adjudicating Officer and the Board (Regulation 23)
1. Disposal of proceeding by the Adjudicating Officer based on the approved settlement terms The Adjudicating Officer shall by an appropriate order dispose of the proceeding pending before him on the basis of the approved settlement terms.
Explanation.-In case of concurrent proceedings, a comprehensive order may be passed by the Panel of Whole-Time Members and thereafter the concerned Adjudicating Officer may pass an order, disposing of the relevant proceedings before him, in view of the settlement.
2. Disposal of proceeding by the Panel of the Whole Time Members except to the Regulation 23(1) The Panel of the Whole-Time Members shall by an appropriate order dispose of proceedings initiated or proposed to be initiated other than the proceedings referred to in sub-regulation (1) of Regulation 23.
3. Settlement order to include details The settlement order passed under these regulations shall contain the details of the alleged default(s), relevant provisions of the securities laws, brief facts and circumstances relevant to the alleged default, the admissions made by the applicant if any and the settlement terms.
Question 17.
Explain Professional Dress for a Company Secretary.
Answer:
The professional dress prescribed under the code of conduct for the professional is required to be worn by the authorized representative while appearing before the authorities.
The Council of ICSI has approved the following Guidelines for Professional Dress Code for Company Secretaries to appear before judicial/ quasi-judicial bodies and tribunals like NCLT- NCLAT, SAT, etc.:
1. For Male Members:
- Navy Blue Suit (Coat & Trouser), with CS logo, Insignia OR Navy Blue Blazer over a sober coloured Trouser
- Neck-Tie (ICSI)
- White full sleeve Shirt
- Formal Black Leather Shoes (Shined).
2. For Female Members:
- Navy Blue corporate suit (Coat & Trouser), could be with a neck-tie/insignia OR
- Saree/any other dress of sober colour with Navy Blue Blazer with CS logo
- A sober footwear like Shoes/Bellies/Wedges, etc. (shined).
Question 18.
SpecIfy which offences cannot be compounded under Companies Act 2013?
Answer:
Offences cannot be compounded under the Companies Act, 2013 are as follows:
Offence punishable with imprisonment only or imprisonment and fine – Not Compoundable Any offence punishable under this Act (whether committed by a company or any officer thereof) being an offence punishable with imprisonment only or imprisonment and also with fine cannot be compounded.
Compoundable offence in case the Investigation against company is pending or has been initiated Any offence otherwise compoundable cannot also be compounded if the investigation against such company has been initiated or is pending under this Act.
Offence committed within a period of three years from the date on which a similar offence committed
An offence committed by a company or its officer within a period of three years from the date on which a similar offence committed by it or him was compounded under this section, cannot be compounded. if the offence is not similar, this restriction to compound will not apply. Second or subsequent offence committed after the expiry of a period of three years eligible to be compounded.
Question 19.
State the qualifications and disqualifications of Empanelment as per the Companies Mediation and Conciliation Rules, 2016.
Answer:
Rule 4 and Rule 5 of the Companies Mediation and Conciliation Rules, 2016 provide for the qualifications and disqualifications of Empanelment Qualifications for Empanelment (Rule 4)
A person shall not be qualified for being empanelled as mediator or conciliator unless he:
- has been a Judge of the Supreme Court of India; or
- has been a Judge of a High Court; or
- has been a District and Sessions Judge; or
- has been a Member or Registrar of a Tribunal constituted at the National level under any law for the time being in force; or
- has been an officer in the Indian Corporate Law Service or Indian Legal Service with fifteen years’ experience; or
- is a qualified legal practitioner for not less than ten years; or
- is or has been a professional for at least fifteen years of continuous practise as Chartered Accountant or Cost Accountant or Company Secretary; or
- has been a Member or President of any State Consumer Forum; or
- is an expert in mediation or conciliation who has successfully undergone training in mediation or conciliation.
Disqualifications for Empanelment (Rule 5)
A person shall be disqualified for being empanelled as mediator or conciliator if he:
- is an undischarged insolvent or has applied to be adjudicated as an insolvent and his application is pending;
- has been convicted for an offence which, in the opinion of the Central Government, involves moral turpitude;
- has been removed or dismissed from the service of the Government or the Corporation owned or controlled by the Government;
- has been punished in any disciplinary proceeding, by the appropriate disciplinary authority; or
- has, in the opinion of the Central Government, such financial or other interest in the subject matter of dispute or is related to any of the parties, as is likely to affect prejudicially the discharge by him of his functions as a mediator or conciliator.
Question 20.
State the Role of Mediator or Conciliator as per the Companies Mediation and Conciliation Rules, 2016.
Answer:
Rule 17 of the Companies Mediation and Conciliation Rules, 2016 provide for the Role of Mediator or Conciliator
The mediator or conciliator shall attempt to:
- facilitate voluntary resolution of the dispute by the parties,
- communicate the view of each party to the other,
- assist them in identifying issues,
- reducing misunderstandings,
- clarifying priorities,
- exploring areas of compromise and generating options in an attempt to resolve the dispute,
- emphasising that it is the responsibility of the parties to take decision which affect them and he shall not impose any terms of settlement on the parties,
- On consent of both the parties, the mediator or conciliator may impose such terms and conditions on the parties for early settlement of the dispute as he may deem fit.
Question 21.
Write a note on Ethics to be followed by Mediator or Conciliator as per the Companies Mediation and Conciliation Rules 2016.
Answer:
Rule 28 of the Companies Mediation and Conciliation Rules, 2016 provide for the Ethics to be followed by Mediator or Conciliator The mediator or conciliator shall-
- follow and observe the rules strictly and with due diligence;
- not carry on any activity or conduct which shall reasonably be con¬sidered as conduct unbecoming of a mediator or conciliator;
- uphold the integrity and fairness of the mediation or conciliation process;
- ensure that the parties involved in the mediation or conciliation are fairly informed and have an adequate understanding of the procedural aspects of the process;
- satisfy himself or herself that he or she is qualified to undertake and complete the assignment in a professional manner;
- disclose any interest or relationship likely to affect impartiality or which might seek an appearance of partiality or bias;
- avoid, while communicating with the parties, any impropriety or appearance of impropriety;
- be faithful to the relationship of trust and confidentiality imposed in the office of mediator or conciliator;
- conduct all proceedings related to the resolutions of a dispute, in accordance with the relevant applicable law;
- recognise that the mediation or conciliation is based on principles of self-determination by the parties and that the mediation or conciliation process relies upon the ability of parties to reach a voluntary, undisclosed agreement; and
- maintain the reasonable expectations of the parties as to confidentiality and refrain from promises or guarantees of results.
If any party finds that conduct of mediator or conciliator violates the ethics laid down in this rule, the party may immediately bring it to the notice of the Regional Director.
Question 22.
State the factors to be considered to arrive at the settlement terms as per the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018
Answer:
Regulation 10 of the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 provide for the factors to be considered to arrive at the settlement terms
While arriving at the settlement terms, the factors indicated in Schedule-II may be considered, including but not limited, to the following:
- conduct of the applicant during the specified proceeding, investigation, inspection or audit;
- the role played by the applicant in case the alleged default is committed by a group of persons;
- nature, gravity and impact of alleged defaults;
- whether any other proceeding against the applicant for non-compliance of securities laws is pending or concluded;
- the extent of harm and/or loss to the investors’ and/or gains made by the applicant;
- processes that have been introduced since the alleged default to minimize future defaults or lapses;
- compliance schedule proposed by the applicant;
- economic benefits accruing to any person from the non-compliance or delayed compliance;
- conditions which are necessary to deter future non-compliance by the same or another person;
- satisfaction of claim of investors regarding payment of money due to them or delivery of securities to them;
- any other enforcement action that has been taken against the applicant for the same violation; and
- any other factors necessary in the facts and circumstances of the case.
Question 23.
Explain the Procedure of settlement before the Internal Committee as per the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018
Answer:
Procedure of settlement before the Internal Committee (Regulation 13) as per the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 is stated below:
1. Application referred to Internal Committee for examination and determination of the settlement terms:
Save as otherwise provided in these regulations, an application shall be referred to an Internal Committee to examine whether the pro¬ceedings may be settled and if so to determine the settlement terms in accordance with these regulations.
2. Internal Committee to call for information and/or personal appear¬ance and or permit the submission of revised settlement terms within a period of ten working days from the date of the Internal Committee meeting
The Internal Committee may:
- call for relevant information, documents, etc., pertaining to the alleged default(s) in possession of the applicant or obtainable by the applicant;
- call for the personal appearance of the applicant before it: Provided that a duly authorized representative of the applicant may represent on behalf of the applicant,
- permit the applicant to submit revised settlement terms within a period not exceeding ten working days from the date of the Internal Committee meeting Provided that the revised settlement terms received after ten working days, but within twenty working days may be considered subject to an increase of ten per cent over the recommended settlement amount.
3. The proposed settlement terms, if any, shall be placed before the High-Powered Advisory Committee.
Question 24.
Explain the procedure of Appeal to Appellate Tribunal as per the Foreign Exchange and Management Act, 1999.
Answer:
Appeal to Appellate Tribunal – Section 18 of FEMA
1. Central Government to notify an Appellate Tribunal regarding Foreign Exchange for appeals against orders of Adjudicating Authorities and Special Director (Appeals):
The Central Government shall, by notification, establish an Appellate Tribunal to be known as the Appellate Tribunal for Foreign Exchange to hear appeals against the orders of the Adjudicating Authorities and the Special Director (Appeals) under this Act.
2. Appeal to Appellate Tribunal – Section 19 of FEMA
Appeal to Appellate Tribunal by Central Government or any person subject to section 17(1) or the Special Director (Appeals)of the FEMA
Central Government or any person aggrieved by an order made by an Adjudicating Authority other than those referred to sub-section (1) of section 17, or the Special Director (Appeals), may prefer an appeal to the Appellate Tribunal.
3. Deposit of penalty as notified by the Central Government, if any. Waiver of penalty at the option of the Appellate Tribunal
Any person appealing against the order of the Adjudicating 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. 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.
4. Appeal to be filed within a period of forty-five days from the date of issue of order by the Adjudicating Authority or the Special Director (Appeals) Every appeal shall be fildd 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 Centred Government and it shall be in such form verified in such manner and be accompanied by such fee as may be prescribed. 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.
5. Opportunity of being heard – confirming, modifying or setting aside order appealed against On receipt of an appeal, 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.
6. Copy of order sent to the parties and Adjudicating Authority and/or Special Director (Appeals) 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.
7. Disposal of appeal by the Appellate Tribunal within one hundred and eighty days from the date of the appeal filed. Failure to dispose the appeal within specified time, Appellate Tribunal to record reasons in writing for the same.
The appeal filed before the Appellate Tribunal 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. That where any appeal could not be disposed off within the said period of one hundred and eighty days, the Appellate Tribunal shall record its reasons in writing for not disposing off the appeal within the said period.
Question 25.
Write a brief note on Summary settlement procedure as per the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018
Answer:
Regulation 16 of the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 provides for summary settlement procedure
1. Board to issue notice of summary settlement in the prescribed format for filing a settlement application with respect to the specified proceedings to be initiated for necessary defaults.
Notwithstanding anything contained in Chapter VI, before initiating any specified proceeding, the Board may issue a notice of summary settlement in the format as specified in Part A of Schedule HI, calling upon the noticee to file a settlement application under Chapter II and submit the settlement amount and/or furnish an undertaking in respect of other non-monetary terms or comply with other non-monetary terms, as may be specified in the summary settlement notice in respect of the specified proceeding(s) to be initiated for the following defaults,-
- Delayed disclosures, including filing of returns, report, document, etc.
- Non-disclosure in relation to companies exclusively listed on regional stock exchanges which have exited
- Disclosures not made in the specified formats
- Delayed compliance of any of the requirements of law or directions issued by the Board
- Such other defaults as may be determined by the Board.
Provided that, the specified proceeding(s)shall not be settled under this Chapter if in the opinion of the Board, the applicant has failed to make a full and true disclosure of facts or failed to co-operate in the required manner.
2. Power of the Board to modify the enforcement action against the notice. No right to the notice to seek settlement or avoid any enforcement action.
Notwithstanding anything contained in the notice of settlement, the Board shall have the power to modify the enforcement action to be brought against the notice and the notice of settlement shall not confer any right upon the notice to seek settlement or avoid any enforcement action.
3. Notice may within thirty days from the date of receipt of the notice of settlement file a settlement application along with specified fees and documentation, remit the amount, comply or undertake to comply with non-monetary terms and seek rectification of the calculation of the settlement amount. Power of Board to grant an extension of fifteen days and record in writing the reasons for granting the said extension.
The notice may, within thirty calendar days from the date of receipt of the notice of settlement:
- file a settlement application in the Form specified in Part-A of Schedule-I along with non-refundable application fee as specified in Part-B and the undertakings and waivers as specified in Part-C of Schedule-I;
- remit the settlement amount as specified in the notice of settlement
- comply or undertake to comply with other non-monetary terms as specified in the notice of settlement, as the case may be; and
- seek rectification of the calculation of the settlement amount, as communicated in the notice of settlement, at the time of filing the settlement application and in all such cases, the decision of the Board shall be final and remittance shall be done within thirty calendar days from the date of receipt of the decision of the Board:
Provided that, the Board may for reasons to be recorded, grant extension of time not exceeding a further period of fifteen calendar days for filing the settlement application, remittance of the settlement amount and/or furnishing an undertaking in respect of any of the non-monetary terms or compliance with any of the non-monetary terms specified in the notice of settlement.
4. Board shall pass an order of settlement on satisfactory remittance of ‘ settlement amount and undertaking furnished in the settlement notice.
Upon being satisfied with the remittance of settlement amount and undertaking furnished in respect of the non-monetary terms or com¬pliance with non-monetary terms, if any as detailed in the settlement notice, the Board shall pass an order of settlement under regulation 23.
Regulation 17 states that notwithstanding anything contained in these regulations, where a notice does not file a settlement application under this Chapter or remit the settlement amount and/or comply with other non-monetary terms to the satisfaction of the Board or withdraws the settlement application at any time prior to the communication of the decision of the Board, the specified proceedings may be initiated, and such a notice shall only be permitted to file a settlement application in respect of the proceedings pending before the Court or Tribunal, after conclusion of proceedings before the Adjudicating Officer or the Board, as the case may be.
Question 26.
What are the power of enforcement directorate to compound contraventions under FEMA Act 1999.
Answer:
If any Person contravenes provisions of Section 3(a) of Foreign Exchange Management Act, 1999.
- in case where the sum involved in such contravention is five lakhs rupees dr below, by the Deputy Director of the Directorate of Enforcement;
- in case where the sum involved in such contravention is more than rupees five lakhs but less than rupees ten lakhs, by the Additional Director of the Directorate of Enforcement;
- in case where the sum involved in the contravention is rupees ten lakhs or more but less than fifty lakhs rupees by the Special Director of the Directorate of Enforcement;
- in case where the sum involved in the contravention is rupees fifty lakhs or more but less than one crore rupees by Special Director with Deputy Legal Adviser of the Directorate of Enforcement;
- in case the sum involved in such contravention is one crore rupees or more, by the Director of Enforcement with Special Director of the Enforcement Directorate. Provided further that no contravention shall be compounded unless the amount involved in such contravention is quantifiable.
Question 27.
Write differences between Mediation and Conciliation.
Answer:
Mediation is a structured process. The Mediator assists the disputants to reach a negotiable settlement. The Process results in signed agreement which decides the future behaviour of the parties. The decision of the mediator is called “settlement”.
Mediation is a process by which the parties to a dispute have closed-door discussions on a contentious issue in the presence of neutral mediator(s). Mediation is a voluntary process and is undertaken only if all the parties agree.
The mediator is specifically trained, helps the parties move from their positions, towards assessing where their interests are. Then, s/he helps the parties determine how the matter can be settled, examining various options. Meditation need not be confined to the issues raised in the case but can go beyond to other matters the parties want resolved. They can also agree to disagree on some issues while resolving the rest.
Mediation is a time-bound, private and confidential process. The information shared must be kept confidential by all parties, including the mediator. This facilitates a free and frank discussion on matters in dispute. Equally important, the discussions cannot be brought up before the court if the disputes are not resolved through mediation.
Conciliator brings the disputants to agreement through negotiation. The Conciliator is appointed only after the dispute has arisen. The decision of the Conciliator is called “award”.
The conciliation process is similar to mediation. But the conciliator suggests terms for settlement on evaluation of the issues discussed by the parties. In mediation, the mediator does not suggest the manner of settlement to the parties. Any settlement arrived at using either process is voluntary. No settlement can be imposed by the mediator or conciliator.
Question 28.
What is Settlement Notice as per Regulation 18 of the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018?
Answer:
Regulation 18 of the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 provides for Settlement Notice.
1. Settlement Notice specified in Part B of Schedule III:
A notice of settlement in the format as specified in Part B of Schedule III, indicating the substance of the probable charges and enforcement actions, may, except in cases covered under Chapter VII, be issued by the Board prior to the issuance of the notice to show cause so as to afford the notice an opportunity to file a settlement application under Chapter II, within fifteen calendar days from the date of receipt of the settlement notice.
2. Right of the Board to modify the nature of enforcement action against the notice Notwithstanding anything contained in the settlement notice, the Board shall have the right to modify the nature of the enforcement action to be initiated against the notice and the charges stated in the notice shall not confer any right to seek settlement on the said basis or avoid any enforcement action due to modified charges.
3. Failure to file settlement application Where a notice does not file the settlement application under this Chapter or withdraws the settlement application at any time prior to the communication of the decision of the Panel of Whole Time Members under regulation 15, the specified proceedings may be initiated and such a notice shall only be permitted to file a settlement application in respect of the proceedings pending before a court or tribunal, after conclusion of the proceedings before the Adjudicating Officer or the Board, as the case may be.
Question 29.
Write Note on compounding of offences.
Answer:
Write note on “compounding – a necessity”
Companies are expected to comply with the law(s) governing them and/or applicable to them.
In this context, the compliance of Companies Act, 2013, Foreign Exchange Management Act, 1999 and SEBI/Securities laws assume significance.
When there is a non-compliance or contravention, it is said that an Offence is committed vis-a-vis the said compliance/regulatory requirement.
It is known that when an offence is committed, the accused is liable to be prosecuted as per the law in respect of which the said offence has been committed.
While it is true that good corporate governance demands a corporate citizen to comply with all the legal provisions, it may so happen for various reasons that there could be a lapse on compliance especially considering the number of compliances required.
But nevertheless, an offence is committed for which the law provides for a penalty/punishment.
Based on the Rajinder Sachar Committee and in general, it was observed that there is great need of leniency in the administration of the Corporate Law(s) particularly its penalty provisions.
Large number of defaults occurring are technical in nature and also because they arise out of ignorance of the lengthy and bewildering complexity of the provisions of the Law(s).
Therefore, the concept of compounding of offences was incorporated as a measure to avoid the long-drawn process of prosecution, which would save both cost and time in exchange of payment of a penalty to the aggrieved.
Compounding is not defined in Companies Act or FEMA or SEBI laws. Black’s Law Dictionary, states to “Compound” means “to settle a matter by a money payment, in lieu of other liability.” As per this definition.
Compounding is akin to a Settlement Mechanism, a settlement by paying the penalty in lieu of facing the prosecution for the offence committed.
Compounding provisions as per corporate laws, states that compounding is an admission of guilt either voluntarily or on receipt of notice of default or initiation of prosecution. The defaulters agree to pay penalty which may be ordered by the Compounding authority to be paid.
Thus, it can be said that Compounding is essentially a compromise or arrangement between administrator of the enactment and person committing an offence. Compounding crime consists of receipt of some consideration (termed as compounding fees) in return for an agreement not to prosecute one who has committed an offence.
Normally in law and particularly in criminal law, the power to compound the offence is at the discretion of the victim.
The perpetrator of offence cannot demand for compounding of the offence. But in corporate law, compounding is at the discretion of the offender/offending company.
When compounding is done, the prosecution is converted into fine i.e. condonation of prosecution by imposing penalty.
It enables the offender company and the director/officer-in-default to avail peace and honourable discharge and avoids cumbersome trial.
Question 30.
Discuss the grounds on which the application for settlement under SEBI (Settlement) Regulations, 2018 can be rejected
Answer:
- The grounds on which the application for settlement under SEBI (Settlement) Regulations, 2018 can be rejected are underprovided under Regulation 6
- Where the applicant refuses to receive or respond to the communications sent by the Board;
- Where the applicant does not submit or delays the submission of information, document, etc., as called for by the Board;
- Where the applicant who is required to appear, does not appear before the Internal Committee on more than one occasion;
- Where the applicant violates in any manner the undertaking and waivers as provided in Part-C of the Schedule I;
- Where the applicant does not remit the settlement amount within the period specified in clause (a) of sub-regulation (2) of regulation 15 and/ or does not abide by the undertaking and waivers. (2) The rejection under sub-regulation (1) shall be communicated to the applicant:
Provided that the applicant shall continue to be bound by the waivers given in respect of limitation or lathes in respect of the initiation or continuation or restoration of any legal proceeding and the waivers given under sub-paras (d), (e), (f) and (g) of para 12 of the undertaking and waivers as provided in Part-C of the Schedule I.
Question 31.
What is a Consent Order under SEBI Act?
Answer:
Consent Order means an order settling administrative or civil proceedings between the regulator and a person (Party) who may prima facie be found to have violated securities laws. It may settle all issues or reserve an issue or claim, but it must precisely state what issues or claims are being reserved.
A Consent Order may or may not include a determination that a violation has occurred. Consent orders cannot be construed as waiver of statutory powers by the Board. The Board always has the right to proceed for appropriate action if it cannot achieve its objectives through a consent order.
US Securities and Exchange Commission settles a substantial number (over 90%) of administrative/civil cases by consent orders.
Consent orders may provide flexibility of wider array of enforcement actions which will achieve the twin goals of an appropriate sanction and deterrence without resorting to a long drawn litigation before SEBI/Tribunal/ Courts.
Passing of consent orders will also reduce regulatory costs and would save time and efforts taken in pursuing enforcement actions. This effort could more effectively be used for pursuing cases which require the full process of enforcement action and for policy work.
Therefore, it has been decided that all appropriate administrative or civil actions e.g. proceedings under sections 11, 11B, 11D, 12(3) and 15-1 of SEBI Act and equivalent proceedings under the SCRA and the Depositories Act, 1996 and other civil matters pending before Securities Appellate Tribunal (SAT)/courts may be settled between SEBI and a person (party) who may prima facie be found to have violated the securities laws or against whom administrative or civil action has been commenced for such violation. Compounding of offence may cover appropriate prosecution cases filed by SEBI before the criminal courts.
Question 32.
Explain confidentiality as per Regulation 22 of the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018
Answer:
Regulation 22 of the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 provides for Confidentiality.
The following shall be treated as confidential,
- the identity of the applicant seeking confidentiality; and
- the information, documents and evidence furnished by the applicant
Provided that, the identity of the applicant or such information or documents or evidence may not be treated as confidential if,-
- the disclosure is required by law;
- the applicant has agreed to such disclosure in writing; or
- there has been a public disclosure by the applicant.
