Category: CS Professional

Resolution Plan – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

Question 1.
“Section 29A was introduced in the Insolvency and Bankruptcy Code, 2016 to prevent certain persons from applying as resolution applicant.” Comment
Answer:

• The Insolvency and Bankruptcy Code, 2016 was created to benefit the Financial and Operational Creditors, through the insolvency resolution process.
• However, it was observed that existing promoters of the Corporate Debtor were directly or indirectly acquiring stake in their own assets through the resolution plan, at a big discount.
• Hence, through the resolution process, the existing promoters were regaining control over their assets (directly or indirectly) after a huge hair-cut (discount) from lenders. In other words, re-purchase the same assets at a much lower cost and getting a back-door entry into their company.
• To plug this loophole, the IBC was amended through the ordinance of the President of India.
• The amendment inserted section 29A, which provides for persons ineligible to be a Resolution Applicant. The newly added section 29A declares certain persons ineligible to be a resolution applicant and prohibits such persons from submitting a resolution plan.

As per Section 29A, following persons are not eligible to submit a resolution plan:
(a) applicant is an undischarged insolvent,
(b) wilful defaulters (as defined by RBI and Banking Regulation Act, 1949),
(c) persons whose accounts are classified as NPA for one year or more and are unable to settle their overdue amount (incl. interest), at the time of submission of the resolution plan,
(d) persons convicted for any offence punishable with imprisonment for two years or more,
(e) persons disqualified to act as director under the Companies Act, 2013,
(f) persons prohibited by SEBI, from trading in securities or accessing the securities market,
(g) persons connected with promoters, management, guarantors of such corporate debtor and any other related party (holding, subsidiary, associate, JV etc.),
(h) persons who have executed any guarantee for the existing corporate debtor,
(i) persons disqualified by any law of other country, for the conditions mentioned in (a) to (h),
(j) persons connected with or related party to the above mentioned in (a) to (i).

Question 2.
“The Resolution Professional is responsible for inviting resolution plans from eligible resolution applicants.” Comment
Answer:

• A resolution plan means a plan proposed by any person for insolvency resolution of the corporate debtor as a going concern.
• A resolution applicant means a person, who individually or jointly with any other person, submits a resolution plan to the resolution professional.
• The Resolution Professional shall invite prospective resolution applicants, after approval from the Committee of Creditors. The resolution applicants shall be invited on the basis of the complexity and scale of operations of the business of the Corporate Debtor and such other conditions as may be specified by the IBBI.
• The Resolution Professional shall prepare an information memorandum which contains all relevant information required by the Resolution Applicant to make the resolution plan for the Corporate Debtor. Such information includes information relating to the financial position of the corporate debtor, all information related to disputes by or against the corporate debtor as well as any other matter pertaining to the corporate debtor as may be specified.
• The resolution professional provides to the resolution applicant access to all relevant information in physical and electronic form.
• Expression of Interest (Eol) is a document describing requirements or specifications, seeking information from potential investors/bidders. The bidders shall to meet such requirements.
• EOIs are invited from potential investors or consortium that meet the specified eligibility criteria in terms of financial & technical capabilities to submit resolution plans for the Corporate Debtor.
• The Eol is issued by the Resolution Professional on behalf of the Committee of Creditors in the form of a public advertisement. Invitation prescribes the last date for receipt of Eol.
• Subsequently, the Committee of Creditors shall discuss and finalize the best resolution plan that shall lead to a favourable outcome for all the stakeholders of the Corporate Debtor.
• The detailed invitation shall specify the criteria for prospective resolution applicants, state the ineligibility norms under section 29A of the IBC, 2016.
• A prospective resolution applicant, who meets the requirement criteria may submit the Eol within the time specified in the invitation.
• An expression of interest shall be unconditional and be accompanied by an undertaking by the prospective resolution applicant that it meets all the criteria and not disqualified u/s 29A.
• Resolution Professional shall conduct due diligence while short-listing potential resolution applicants, based on the declarations submitted by them and ask for additional information.
• The Resolution Professional shall submit each resolution plan to the Committee of Creditors, who shall approve a resolution plan by a vote of not less than 66% majority, after considering feasibility and viability of the resolution plan.

Corporate Restructuring, Insolvency, Liquidation & Winding-Up Notes

Acquisition of Company – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

Question 1.
Draft a checklist for a transferee company in the process of Takeover.
OR
Question 2.
M/s Brite Instruments Pvt. Limited is acquiring M/s Sunshine Pvt. Limited. You are the Company Secretary of M/s Brite Instruments Pvt. Limited. Help your management (Board of Directors) to prepare a checklist in this regard.
Answer:
Check-list for a transferee company in the takeover process is given as under:
1. An official offer of Transferee Company to acquire shares of Transferor Company should be received from the Transferee Company.

2. The offer shall be approved by the Board of Directors at a duly convened and held meeting.

3. Offer received from the Transferee Company along with other documents particulars etc. should have been circulated to the members of the Transferor Company (Form CAA-14).

4. Filing with the Registrar of Companies before issuing to the members of the company.

5. The scheme for transfer of shares of the company to Transferee Company shall be approved by the shareholders of not less than 9/10th in value of the shares within stipulated period of 4 months.

6. Comply with any orders of the Tribunal, if dissenting shareholder(s) approach the Tribunal against the proposed transfer and if the Tribunal had passed any order contrary to the proposed transfer.

7. Send the offer of Transferee Company to the dissenting shareholders, along with value of the shares sought to be transferred.

8. The consideration received for the shares has been deposited in a sep¬arate bank account to be held in trust for the dissenting shareholders.

9. Documents involved in this process: Offer of a scheme, Minutes of Board meeting, notice of general meeting, Form CAA 14, Minutes of general meeting with approval 90% majority, any Tribunal order, Register of Members, notice to dissenting shareholders, instruments of transfer of shares, Bank Pass Book, Annual Report etc.

Question 3.
What are the kinds of Takeovers practised in the business world?
Answer:
A high level of competitive pressure and an increasing need for growth have forced companies across industries and countries to choose the inorganic growth path.

Takeover implies acquisition of control and management of an existing company, through the purchase or exchange of shares.

Takeovers may be classified into three kinds –

1. Friendly Takeover – Friendly takeover is with the consent of the Target Company. In friendly takeover, there is an agreement between the management of two companies through negotiations and the takeover is approved by majority or all shareholders of Target company. It is also called Negotiated Takeover. E.g. Reliance Industries and Net Meds.
2. Bail Out Takeover – Takeover of a financially sick company by a profit-earning company to bail out the sick company is known as bailout takeover. Merits of bail-out takeover include better price, Govt, support, lesser competition, better capacity utilization. Bail-out takeover takes place with the approval of Banks, Financial Institutions and NCLT confirmation.
3. Hostile Takeover – When an acquirer company does not offer the target company any proposal to acquire its undertaking, but silently and independently puts efforts to gain control against the wishes of existing management. E.g. L&T and Mindtree

Question 4.
Explain the major amendments introduced in SEBI (Substantial Acquisition of Shares Takeovers) Regulations, 2011 notified on September 21, 2011.
Answer:
In India, the earliest statute regulating takeovers was the SEBI Regulations, 1994 which was replaced by improved version Le., SEBI Regulations, 1997 (Bhagwati Committee).

Later, to align takeover laws with international practices, SEBI Regulations, 1997 were replaced with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

In 2009, SEBI constituted a Takeover Regulation Advisory Committee (TRAC) under the Chairmanship of Mr. C Achyutan to review the Takeover Regulations of 1997. The committee submitted its report in 2010 and the

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 were notified on September 21, 2011.

The major amendments were –

• Increase in trigger limit for open offer from 15% to 25%
• Increase in statutory open offer size from 20% of share capital to 26% of total share capital of the target company
• Changes in the exemptions from open offer:
• Introduction of the concept of Volume Weighted Average Market Price.
• The new regulations provided that an acquirer could make creeping acquisition of 5% annually (in an FY) to reach 75% stake.
• Recommendation of independent directors on the open offer shall be published in those newspapers, where Detailed Public Statement was given.

Question 5.
ABC Ltd. intends to delist its shares from Delhi Stock Exchange for which the company has made required public announcements. Sherwin Ltd., a substantial shareholder in the said Company, made a counteroffer. Apprise the Board with a short note regarding the outcome.
Answer:
Where an Acquirer makes a public announcement of an open offer for acquiring shares of a Target Company, he may delist the company.

However, the acquirer shall have declared upfront his intention to so delist at the time of making the detailed public statement.

For the purpose of delisting, compliance of SEBI (Delisting of Equity Shares) Regulations, 2009 is needed. However, if the delisting offer fails, the same shall be disclosed within two working days through a detailed public statement.

Where there is a competing offer, the acquirer is not entitled to delist the company. Hence, in the given case, a competing offer by Surewin Ltd. will not allow ABC Ltd. to delist the company.

Further, the acquirer (ABC Ltd.) shall not be liable to pay interest to the shareholders on account of delay due to a competing offer. But it is required to make a public announcement in newspapers within 2 working days.

Question 6.
Threshold limits triggering public announcement for acquiring shares in listed public Companies are not applicable in case of a listed company undergoing Corporate Insolvency Resolution Process (CIRP) in terms of Insolvency and Bankruptcy Code, 2016 – explain indicating the threshold limits that can be ignored in case of CIRP?
Answer:
The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 provides certain trigger events where the Acquirer is required to make an Open Offer to the shareholders of the Target Company to provide them exit opportunities.

As per Regulation 3 of the SEBI (SAST) Regulations, 2011, an acquirer, along with PAC, if any, who intends to acquire shares or voting rights which along with his existing shareholding would entitle him to exercise 25% or more voting rights, can acquire such additional shares only after making a Public Announcement to acquire minimum 26% shares of the Target Company from the shareholders through an Open Offer In case, if an Acquirer and ‘PAC’, are already holding above 25% shares, any further acquisition above 5% in a financial year also requires public announcement.

However, as per Regulation 10 of the SEBI (SAST) Regulations, 2011, an acquirer is exempt from the applicability of making Open Offer to the shareholders of the Target Company.

As per Regulation 10, any acquisition pursuant to a Resolution Plan approved u/s 31 of the Insolvency and Bankruptcy Code, 2016 is exempted, from the abovementioned compliances.

Question 7.
Ramesh, who is promoter of Green Ltd. holds 20% of paid-up share capital of the company. The shares of the company are listed on National Stock Exchange. Ramesh intends to pledge his shares for obtaining loan.
State the requirements for disclosure of pledged shares under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
Answer:
Any instance of acquisition/takeover of a listed company is regulated by the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

The SEBI Regulations provide certain trigger events where the Acquirer is required to make an Open Offer to the shareholders of Target Company to provide them exit opportunity.

Further, where a certain trigger is initiate, the SEBI Regulations place certain obligations on the Acquirer, the Target Company and the Manager to the Offer.

Regulation 31 of the SEBI (SAST) Regulations, 2011 contains provisions relating to disclosure of pledged shares. Since the company is a listed company, hence provisions of Regulation 31 of SEBI (SAST) Regulations, 2011 would apply.

In the given case, the promoter Mr. Ramesh shall disclose details of shares pledged with the bank within 7 working days of such pledge to the Target Company (Green Ltd.) at its registered office and to the National Stock Exchange where the shares of the target company are listed.

Further, upon invocation or release or satisfaction of such pledge, Mr. Ramesh shall inform the Target company (Green Ltd.) at its registered office and the National Stock Exchange, where the shares of the company are listed, within 7 working days of the occurrence of such an event.

Question 8.
Going global is rapidly becoming the Indian company’s mantra of choice. What are the benefits and challenges involved in cross border takeover? Name some recent cross border takeovers.
Answer:

• A high level of competitive pressure and an increasing need for growth have forced companies across industries and countries to choose the inorganic growth path.
• Takeover implies acquisition of control and management of an existing company, through the purchase or exchange of shares.
• Global takeovers are driven by market consolidation, expansion or corporate diversification motives. Also, financial, accounting and tax-related matters inspire such takeovers.
• Expansion and diversification are the primary reasons for cross-border deals since domestic markets do not provide the desired growth opportunities.
• Such companies have improved profitability through better cost management. Another main reason for cross border takeovers is to attain monopoly position.
• Thus, going global is rapidly becoming Indian company’s mantra of choice. Indian companies are looking for ways to reduce costs, innovate speedily and increase their international presence. One of the best ways for this is cross border takeovers.

Following are the various benefits and challenges of cross border takeover –

Some of the recent cross border takeovers are:

• Walmart – Flipkart
• Bayer – Monsanto
• Hindalco – Aleris Corporation
• Rosneft Oil Company – Essar Oil
• General Electric – Alstom.

Question 9.
An open offer made under SEBI (SAST) Regulations, 2011 cannot be withdrawn except under certain circumstances.
Answer:
Any instance of acquisition/takeover of a listed company is regulated by the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

The SEBI Regulations provide certain trigger events where the Acquirer is required to make an Open Offer to the shareholders of Target Company to provide them exit opportunity.

Generally, once an open offer is made by an Acquirer, it cannot be withdrawn. However, as per Regulation 23 of the SEBI (SAST), 2011, an open offer may be withdrawn in the following circumstances:

• Acquirer, being a natural person, has died;
• Statutory approvals required for the open offer or for effecting the acquisitions attracting the obligation to make an open offer have been refused;
• Any condition stipulated in the SPA attracting the obligation to make the open offer is not met for reasons outside the reasonable control of the acquirer;
• Such circumstances which in the opinion of SEBI merit withdrawal of offer.

Question 10.
A conditional offer and a competing offer are one and the same under SEBI (SAST) Regulations, 2011.
Answer:
Any instance of acquisition/takeover of a listed company is regulated by the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. The concept of Conditional Offer and Competition Offer are different, as explained below:
Conditional offer (Regulation 19)
An acquirer may make an open offer conditional as to the minimum level of acceptance. Here, the open offer contains a condition that if the desired level of acceptance of the open offer is not received, the acquirer shall not acquire any shares under the open offer.

Also, the share purchase agreement that attracted the obligation to make the open offer shall stand rescinded. Where a conditional offer is made, the acquirer and PAC shall not acquire, during the offer period, any shares in Target Company.

Further, 10096 consideration payable in respect of minimum level of acceptance or 5096 of the consideration payable under the open offer, whichever is higher, shall be deposited in cash in the escrow account.

Competing Offer (Regulation 20)
When a public announcement for acquiring shares of a target company in an open offer is made, any person, other than the acquirer may make a competing offer.

Such person making the competing offer shall make a public announcement, of an open offer within 15 working days of the date of the detailed public statement made by the acquirer.

Upon the public announcement of a competing offer, the original acquirer may revise the terms of his open offer, provided the revised terms are more favourable to the shareholders of the target company.

The new acquirer(s) making the competing offers can make upward revisions of the offer price at any time up to 1 working day prior to the commencement of the tendering period.

Question 11.
Briefly explain four major types of anti-takeover amendments.
Answer:
Takeover implies acquisition of control and management of an existing company, through the purchase or exchange of shares.

A hostile takeover bid is a tender offer made directly to a target company’s shareholders, without any previous proposal to the target company’s management. Thus, it is similar to a corporate attack for acquiring the target company.

A Target Company may use various defence strategies to avoid a hostile takeover bid, Le. protect itself from the corporate attack.

One such takeover defence strategy is ‘Shark Repellents’ or Anti-take¬over Amendments. There are anti-takeover amendments in the company’s Articles of Association. Such amendments are known are ‘shark repellents.’ The rules, bye-laws, regulations, Articles of Association etc. are amended to make shareholders’ approval difficult and hence any takeover bid becomes less attractive.

Types of Anti-Takeover Amendments are –

• Supermajority – the Articles are amended such that 9096 majority voting power required for all transactions involving change of control. This reduces flexibility in management actions.
• Fair Price Amendments – the offer price to be approved shall be the highest price paid by the bidder during a specified period. It is a mode of getting a better deal for the shareholders.
• Classified Board – it provides for a staggered or classified Board of Directors to delay the effective transfer or control in takeover, e.g. increase tenure of retirement by rotation of Directors, in Articles of Association.
• Preferred Stock – In this case, the Board of Directors is authorized to create a new class of securities with special voting rights. This security, typically preferred stock, may be issue to a friendly party. Hence, it is a defence device against hostile takeover bids.

Question 12.
Identify the factors which make a company a desirable candidate for a takeover from the acquirer’s point of view.
Answer:
Takeover implies acquisition of control and management of an existing company, through the purchase or exchange of shares. Generally, takeovers take place where shares are acquired from the shareholders of a company at a specified price to gain control of that company.

It shall be noted that not every profitable company is a prospective Target Company, ie. there are certain factors that make a company attractive for takeover bid.

It is possible to identify some characteristics that make a company a desirable candidate for a takeover from the acquirer’s point of view.

Following factors make a company vulnerable –

1. Low stock price with relation to their potential earning power;
2. Highly liquid balance sheet with large amounts cash and significantly unused debt capacity,
3. Good cash flow in relation to current stock prices;
4. Subsidiaries and properties which could be sold off without dis¬turbing cash flows; and
5. Having valuable IPRs, but not utilized to full capacity due to various reasons,
6. Relatively small stockholdings under the control of an existing management.
7. Poor financials (continuous losses), despite growing industry and economy
8. Disputes in the promoter group/management personnel etc.

Question 13.
Progression Ltd. is a listed Company with a paid-up capital of ₹ 200 crores divided into 20 crore shares of ₹ 10 each. R, S, T and U are the promoters of the said company holding 2 crores, 5.40 crore, 0.80 crore and 2.20 crore shares respectively.
The following situations occurred at different times:
Situation 1: T transfers 0.30 crore shares each to R & U
Situation 2: S transfers 0.22 crore shares to T
Situation 3: R transfers 0.20 crore shares each to T and U
As a Company Secretary, you need to advise on the required compliances, if any, under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 for the above three situations respectively.
Answer:
Takeover implies acquisition of control and management of an existing company, through the purchase or exchange of shares.

The SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 provide certain trigger events where an Acquirer is required to make a public announcement and an open offer to the shareholders of Target Company.

However, SEBI (SAST) Regulations, 2011 also provide certain exemptions from making the open offer to the shareholders of the Target Company. The following acquisitions, pursuant to transfer of shares amongst qualifying persons are exempted from making the open offer –
immediate relatives;

• persons named as promoters in the shareholding pattern (for not less than 3 years);
• holding company, subsidiary company,
• other subsidiaries of such holding company,
• persons holding not less than 5096 of equity shares of such holding, subsidiaries,
• PAC for not less than three years prior to the proposed acquisition etc.

In the given case R, S, T and U are promoters, holding 5196 shares of the company (10.20 crore shares out of total 20 crore shares). They are considered as a part of promoters group and PAC as per the definition in SEBI (SAST) Regulations, 2011.

As per Regulation 29 of the SEBI Regulations, any person together with PAC crosses 596 of shares or voting rights needs to disclose to the Target Company and concerned Stock Exchanges within 2 working days in the prescribed format

As per given case R, S, T & U are holding 1096,2796,496 and 1196 shares respectively. In all the three situations, disclosures in the prescribed formats need to be made to the company and concerned stock exchanges.

However, since the transfer of shares is between qualifying persons, they are exempt from making mandatory open offer to the shareholders of the Target company. Merely, disclosure shall be given as per the SEBI (SAST) Regulations, 2011.

Question 14.
“Scheme of Reconstruction pursuant to order of competent authority does not trigger open offer under SEBI (SAST) Regulations.” Explain the regulation with reference to any event occurred since promulgation of said regulation in 2011.
Answer:
Takeover implies acquisition of control and management of an existing company, through the purchase or exchange of shares.

The SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 provide certain trigger events where an Acquirer is required to make a public announcement and an open offer to the shareholders of Target Company.

However, SEBI (SAST) Regulations, 2011 also provide certain exemp¬tions from making the open offer to the shareholders of the Target Company.

As per Regulation 10 of SEBI (SAST) Regulations, 2011 any acquisition pursuant to a scheme of arrangement involving the Target company as Transferor company or as Transferee company, or reconstruction, amalgamation, merger, approved by the Tribunal or any other competent authority, open offer obligation is not triggered, even though threshold limits are crossed.

As per Regulation 10 of the SEBI (SAST) Regulations, 2011 the Ac¬quirer shall file a report, if any exemption from Regulations availed, in a prescribed form within 4 working days from the acquisition date with the concerned stock exchange.

In the case of Spice-Jet, Mr. Ajay Singh re-acquired Spice-Jet Ltd. from T. Kalanidhi Maran and KAL Airways Pvt. Ltd. where, Mr. Singh’s stake increased from 1.85% to 60.31%. However, Mr. Singh did not go through the open offer process, since the deal was part of a negotiated deal and approved by the Ministry of Civil Aviation as a competent authority.

Question 15.
What Is a Voluntary Offer in acquiring shares in another company? State the restrictions in terms of SEBI (SAST) Regulations, 2011.
OR
Question 16.
What Is a “Voluntary Offer” as per Regulation 6 of Takeover Code 2011?
Answer:
Voluntary Open Offer means Open Offer given by the acquirer voluntarily without triggering the mandatory Open Offer obligations as per the SEBI (SAST) Regulations, 2011.

The purpose of giving Voluntary Open Offer is to consolidate the shareholding of the Acquirer.
Regulation 6 of SEBI (SAST) Regulations, 2011 deals with the concept of Voluntary Open offers.

The conditions and restrictions for voluntary open offer are given below:
Acquirer (along with PACs) should be holding at least 25% or more shares in the Target Company prior to making Voluntary Open Offer.

After completion of the Open Offer, the shareholding of the Acquirer (including PAC) shall not exceed the maximum permissible non-public shareholding, i.e. 75% The Acquirer or PACs have not acquired any shares of the Target Company in the preceding 52 weeks without attracting the Open Offer obligation.

The Acquirer becomes ineligible to acquire further shares for a period of six months after the completion of Open Offer except by way of another voluntary open offer or acquisitions by making a competing offer.
The Voluntary Open Offer shall be made for the acquisition of atleast 10% of the voting rights in the Target Company.

Question 17.
What are the obligations of the Committee of the Independent Directors of a target company in connection with providing reasonable recommendations on the open offer made by the acquirer?
Answer:
In India, takeover of listed companies is regulated by The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. The SEBI Takeover Code provides certain trigger events where the Acquirer is required to make an Open Offer to the shareholders of the Target Company to provide them exit opportunity.

As per Regulation 3 of the SEBI (SAST) Regulations, 2011, where an Acquirer (with PAC), crosses the threshold limits prescribed the Take over Regulations, it makes Public Announcement for the purpose of Open Offer to the shareholders of the Target Company.

As per Regulation 26 of the SEBI (SAST) Regulations, 2011, where an Acquirer makes a public announcement, the Target Company shall comply with certain obligations. The Board of Directors of the Tar¬get Company shall ensure that the business of the target company is conducted in the ordinary course consistent with past practices.

A committee of independent directors shall be constituted by the Board of the Target Company to provide fair recommendations on the open offer being made by the Acquirer and the Target company shall publish such recommendations. The committee of independent directors will be entitled to obtain external professional advice at the cost of the target company.

The committee shall provide its rational recommendation on the open offer to the shareholders of the Target company. Prior to commencement of the tendering period, such recommendation shall be published in the same newspapers where the public announcement was published.

Simultaneously, copies shall be sent to SEBI and stock exchanges where the shares of the Target company are listed and the stock exchanges shall distribute such information to public.

The committee shall ensure that the copy containing such recommendations is also sent to the manager for open offers and where there are competing offers, to the managers to the open offer for every competing offer.

Question 18.
In case of Takeover, what are the cases in which the amount is released from Escrow Account?
Answer:
As per SEBI (SAST) Regulations, 2011, at least 2 days before the date of DPS, the Acquirer shall open an ‘escrow account’ for the purpose of open offer for acquiring shares.

The escrow account serves as security for performance of his obligations under these regulations. The escrow account is opened in a scheduled bank.

The escrow account may be in the form of cash deposit or a bank guarantee issued in favour of manager to the open or deposit of frequently traded equity shares of the Acquirer Company.

As per Regulation 17 of SEBI (SAST) Regulations, 2011, the amount lying in escrow account can be released in the following cases only:

1. In case of withdrawal of offer, the entire amount can be released only after certification by the managers to the open offer.
2. The amount deposited in special escrow account is transferred to special bank account opened with the Bankers to an issue; however, the amount so transferred shall not exceed 9096 of the cash deposited in the escrow account.
3. The balance 1096 in the escrow account is to be released to the acquirer on expiry of 30 days from the completion of all obligations under the open offer.
4. However, where the acquirer fails to comply with the requirements of SEBI Takeover Code, the merchant banker has right to forfeit the escrow account and distribute the proceeds in the following ways –

(a) One third (1/3) of the amount to target company;
(b) One third (1/3) of the escrow account to the Investor Protection and Education Fund
(c) One third (1/3) distributed to the shareholders who tendered their shares in the offer.

Question 19.
Poison pill defence is a strategy against hostile takeover.
Answer:
A Hostile Takeover Bid is a tender offer made directly to a target company’s shareholders, without any previous proposal to the target company’s management.

Thus, it is similar to a corporate attack for acquiring the target company. The most common defence strategy is the adjustment in assets or ownership structure (issue new securities etc.)

Poison Pill Defence is a tactic used by companies to prevent/discourage hostile takeovers. Poison pill strategy is used by Target Company to make itself look unattractive or less desirable to the Acquirer. Poison pills are certain types of securities, which provide its holders special rights. Such ‘poison pills’ are created only after occurrence of triggering event.

Types of poison pills –
(a) Flip-in – In this case, the existing shareholders (other than Acquirer) are eligible to purchase additional shares at a lower price. This helps existing members to earn profits through open offer.

Further, such additional shares dilute the holding of Acquirer and makes the hostile takeover more difficult and expensive.

(b) Flip-over – In this case, the existing shareholders (other than Acquirer) are eligible to buy shares in Acquiring Company at a lower price, after the deal.

Question 20.
In the event of forfeiture of the amount lying in the escrow account, the acquirer shall be paid one-third of the amount forfeited in terms of regulation 17(10) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
Answer:
As per SEBI (SAST) Regulations, 2011, an Acquirer shall open an escrow account’ for the purpose of open offer for acquiring shares. The escrow account serves as security for performance of his obligations under these regulations. The escrow account is opened in a scheduled bank.

The escrow account may be in the form of cash deposit or a bank guarantee issued in favour of manager to the open or deposit of frequently traded equity shares of the Acquirer Company.

However, where the acquirer fails to comply with the requirements of SEBI Takeover Code, the merchant banker has right to forfeit the escrow account and distribute the proceeds in the following ways –

• One third (1/3) of the amount to target company
• One third (1 /3) of the escrow account to the Investor Protection and Education Fund
• One third (1/3) distributed to the shareholders who tendered their shares in the offer.

Question 21.
An offer in which the acquirer has stipulated a minimum level of acceptance is known as a ‘conditional offer’.
Answer:
As per Regulation 19 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, an acquirer may make an open offer conditional as to the minimum level of acceptance.

Here, the open offer contains a condition that if the desired level of acceptance of the open offer is not received, the acquirer shall not acquire any shares under the open offer.

Also, the share purchase agreement that attracted the obligation to make the open offer shall stand rescinded. Where a conditional offer is made, the acquirer and PAC shall not acquire, during the offer period, any shares in Target Company.

Further, 10096 consideration payable in respect of minimum level of acceptance or 5096 of the consideration payable under the open offer, whichever is higher, shall be deposited in cash in the escrow account.

Question 22.
Explain the term ‘persons acting in concert (PACs) with reference to SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
Answer:
As per the SEBI (SAST) Regulations, 2011, where an Acquirer (with PAC), crosses the threshold limits prescribed the Takeover Regulations it makes Public Announcement for the purpose of Open Offer to the shareholders of the Target Company.

Persons Acting in Concert (PAC) are persons who, with a common objective or purpose of acquisition of shares or voting rights in, or exercising control over a target company, pursuant to an agreement or understanding, formal or informal, directly or indirectly co-operate for acquisition of shares or voting rights in, or exercise of control over target company.

The persons falling within following categories shall be deemed to be PAC with other persons within the same category unless the contrary is proved:

• a company, its holding co., subsidiary co., any company under same management or control
• a company, its directors, and any person entrusted with the management of the company;
• directors of companies referred to in items (a) and (b) above and associates of such directors; •
• promoters and members of the promoter group:
• immediate relatives
• a mutual fund, its sponsor, trustees, trustee company, and asset management company
• a collective investment scheme, its collective investment management company, trustees
• a venture capital fund and its sponsor, trustees, trustee and asset management company
• a foreign institutional investor and its sub-accounts
• a merchant banker and its client, who is an acquirer
• a portfolio manager and its client, who is an acquirer
• banks, financial advisors, stockbrokers of acquirer, or of any company which is a holding
• company or subsidiary of acquirer, and if acquirer is an individual, then immediate relative
• an investment company or fund and any person who has an interest in such investment company, fund as a shareholder or unit holder having not less than 10% of the paid-up capital of the Investment Company.

The main elements of the ‘PAC’ definition are as follows:

• one or more persons must possess a common objective or purpose;
• that common objective or purpose must be the substantial acquisition of shares or voting rights or gaining control over a listed company;
• the persons must, directly or indirectly, co-operate with each other by acquiring or agreeing to acquire shares or voting rights or control in the listed company; and
• the co-operation must be pursuant to a formal or informal agreement or understanding.

Question 23.
What does the term ‘crown jewel’ stand for, as a defence strategy in respect of a takeover bid?
Answer:
2(c)
Takeover implies acquisition of control and management of an existing company, through the purchase or exchange of shares.
A hostile takeover bid is a tender offer made directly to a target company’s shareholders, without any previous proposal to the target company’s management. Thus, it is similar to a corporate attack for acquiring the target company.

A Target Company may use various defence strategies to avoid a hostile takeover bid, ie. protect itself from the corporate attack. One such defence technique is ‘Crown Jewel.’

‘Crown Jewel’ defence is a strategy in which the target company sells off its most attractive assets to a friendly third party or spin off the valuable assets in a separate entity.

Consequently, the acquirer is less attracted to the company assets. Other effects include dilution of holdings of the acquirer, making the takeover uneconomical to third parties, and adverse influence of current share prices.

Generally, a target company sell its ‘Crown Jewels’ to another friendly company and later on, when and if the acquiring company withdraws its offer, buy back the assets. In the short run, such step may be self-destructive and unwise in the Target company’s interest.

Question 24.
‘General exemptions’ under regulation 10 and ‘Exemption by board under refutation 11 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 are one and the same. Comment
Answer:
As per the SEBI (SAST) Regulations, 2011, where an Acquirer (with PAC), crosses the threshold limits prescribed the Takeover Regulations, it makes Public Announcement for the purpose of Open Offer to the shareholders of the Target Company.

However, Regulations 10 and 11 provide certain exemptions to an Acquirer from the applicability of making Open Offer to the shareholders of the Target Company. Such exemptions are either automatic exemptions or SEBI approved exemptions, and these are different.

Automatic Exemptions under Regulation 10:
(a) acquisition pursuant to transfer of shares amongst qualifying persons, being –

• immediate relatives;
• persons named as promoters in the shareholding pattern (for not less than 3 years);
• holding company, subsidiary company, other subsidiaries of such holding company,
• persons holding not less than 50% of equity shares of such holding, subsidiaries,
• PAC for not less than three years prior to the proposed acquisition
• Shareholders of Target Company who have been identified as PAC, as per LODR.

(b) acquisition in the ordinary course of business by –

• a registered underwriter, as per an underwriting agreement
• a registered stockbroker, on behalf of his client in exercise of lien over the shares
• any person acquiring shares as per a scheme of safety-net
• a registered merchant banker, acting as stabilizing agent
• by a registered market-maker of a stock exchange
• a Scheduled Commercial Bank, acting as an escrow agent
• an invocation of pledge by a Scheduled Commercial Bank as a Pledgee.

(c) acquisition pursuant to a scheme of arrangement involving the target company as a transferor company or as a transferee company, or amalgamation, merger, demerger, as per Tribunal order or any other competent authority.

(d) acquisition pursuant to a resolution plan under Insolvency and Bankruptcy Code (IBC), 2016;

(e) acquisition pursuant to the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI)

(f) acquisition pursuant to provisions of SEBI (Delisting of Equity Shares) Regulations, 2009;
(g) acquisition by way of transmission, succession or inheritance;
(h) acquisition of shares, pursuant to a scheme of Strategic Debt Restructuring Scheme;
(i) an increase in voting rights in a target company pursuant to buyback or forfeiture of shares;
(j) acquisition of shares by any shareholder of a target company, as per rights issue.

SEBI Exemptions under Regulation 11:
If prior written application (with fees ₹ 500,000) is made by an Acquirer, giving details of proposed acquisition and grounds on which, the exemption is sought along with duly sworn affidavit, SEBI may grant exemption to the acquirer from the Open Offer obligations subject to the compliance with such conditions as it deems fits. The BOD shall have an open and transparent plan for acquisition of shares or voting rights over the Target Company and due approval of shareholders should be obtained.

Question 25.
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 have provided multiple ways of discharging the consideration. Comment :
Answer:
As per the SEBI (SAST) Regulations, 2011, where an Acquirer (with PAC), crosses the threshold limits prescribed the Takeover Regulations,

it makes Public Announcements for the purpose of Open Offer to the shareholders of the Target Company.
The acquirer shall complete payment of consideration to the shareholders who have accepted the offer, within a period of 10 working days from the expiry of the tendering period.

As per Regulation 9 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, payment of consideration may be in the form of –

• cash, or
• issue/exchange/transfer of shares, or
• issue/exchange/transfer of secured debt instruments (duly rated by regd. CRA), or
• issue/exchange/transfer of convertible debt instruments, or
• a combination of all the above, as the case maybe

The payment of cash consideration shall be made through the escrow account opened prior to the open offer. Any unclaimed balances in the escrow account shall be transferred to the IEPF at the end of 7 years. –
Equity shares issued shall be listed and shall be frequently traded.

Question 26.
Upon public announcement by an Acquirer, the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 places certain obligations on the Target Company. Comment :
Answer:
As per the SEBI (SAST) Regulations, 2011, where an Acquirer (with PAC), crosses the threshold limits prescribed the Takeover Regulations, it makes Public Announcement for the purpose of Open Offer to the shareholders of the Target Company.

When a public announcement of an open offer for acquiring shares of a target company is made, the Board of Directors of the target company shall ensure that the business of the target company is conducted in the ordinary course consistent with past practice;

1. During offer period, (unless shareholders’ special resolution) the Board of target company or its subsidiaries shall not:

• alienate any material assets whether by way of sale, lease, or otherwise or enter into any agreement therefore outside the ordinary course of business;
• effect any material borrowings outside the ordinary course of business;
• issue or allot any authorized but unissued securities entitling the holder to voting rights.
• implement any buy-back or effect any other change to capital structure of target company.

2. Target Company is prohibited from fixing any record date for any corporate action on or after third working day prior to commencement of tendering period and until the expiry of the tendering period.

3. All shareholders to be given equitable treatment, and no promoter be paid any extra price.

4. Target company shall furnish to the acquirer (within 2 working days from identified date), a list of shareholders as per the register of members of the target company containing names, addresses, shareholding and folio number; but the acquirer shall reimburse reasonable costs payable by the target company to external agencies in order to furnish such information.

5. The Board of Directors of Target Company shall facilitate the acquirer in verification of shares tendered in acceptance of the open offer.

6. On receiving DPS, the Board of Target Company shall constitute a Committee of Independent Directors to provide recommendations (with reasons) on the open offer. The Committee may seek external professional advice.
The Committee shall provide written recommendations on the open offer to the shareholders of the Target Company Also, the recommendations shall be published in newspapers, and sent to stock exchange(s), Board and the Manager.

7. The Board of Directors of the target company shall make available to acquirers making competing offers, any information and co-operation provided to an acquirer who has made a competing offer.

8. If a director of the Acquirer Company has pledged any shares with any bank, he shall disclose the same to the Target Company (within 7 days) and to the stock exchange (where shares are listed). On satisfaction/alteration of the pledge, the same shall be updated by such director.

Corporate Restructuring Insolvency Liquidation & Winding-Up Notes

Corporate Disputes – Resolution of Corporate Disputes, Non-Compliances & Remedies Important Questions

Question 1.
A group of shareholders of ABC Developers Limited consisting of 24 members decided to file a petition before the Tribunal for relief against oppression and mismanagement by the Board of Directors. The company has a total of 250 members and the group of 24 members holds one-tenth of the total paid-up share capital accounting for one-fifteenth of the issued share capital. The main grievance of the group is that due to mismanagement by the Board of directors, the company is incurring losses and the company has not declared any dividends even when profits were available in the past years for declaration of dividends.

In the light of the provisions of the Companies Act, 2013, advise the group of shareholders regarding the chances of success for:
(i) getting the petition admitted,
(ii) obtaining relief from the Tribunal.
Answer:
(i) Members of a Company can apply for relief against oppression and mismanagement under section 244 of the Companies Act, 2013. Section 244(1) provides that the following members of a company shall have the right to apply under section 241:
(a) In the case of company having a share capital, not less than 100 members of the Company or not less than 1 /10th of the total number of its members whichever is less, or any member or members holding not less than 1 /10th of the issued share capital of the company: Provided that the applicant(s) have paid all calls and other dues on the shares.

(b) In the case of company not having share capital, not less than 1 /5th of the total number of its members.
In the present case 24 members have decided to apply who hold 1/15 of issued capital of the company. The company has 250 members so at least 1/10 Le. 25 are required to make an application.

They do not number to 100 or constitute 1/10 of the total number of members or hold 1/10 of the issued capital. Therefore they do not have right to approach the Tribunal for relief.

However, as per Section 244, an application can be made to the Tribunal to waive the above requirements (a) and (b) and the Tribunal may waive all or any of the requirements so as to enable the members to apply under section 241.

(ii) In Lalita Rajya Lakshmi v. Indian Motor Co. A.I.R. 1962 the petitioner alleged that dividends were being declared at too low a figure and income was less due to excessive expenditure. It was held that there was no oppression.

In light of above declaring less dividend or incurring losses does not amount to oppression. And the members may not be able to get relief from the Tribunal.

Question 2.
“The minority shareholders are empowered under the Companies Act, 2013 to bring action with a view to prevent the majority from oppression and mismanagement”. Justify the statement with rights available to minority shareholders under the Act.
Answer:
The various rights which are available to the minority shareholders under the Companies Act, 2013 to bring action with a view to prevent.

oppression and mismanagement are as under:
1. Oppression and Mismanagement: The minority shareholders can file an application with the National Company Law Tribunal (NCLT) under the provisions of the Companies Act, 2013. Sections 241, 242 and 244 of the Companies Act, 2013 under prescribes the remedies that minority shareholders can resort to in cases of oppression and mismanagement.

2. Class Action Suit: A class-action suit usually means a legal suit wherein a group of members can file an application to NCLT if they are of the view that the affairs of the company are being conducted in a manner that is prejudicial to the interests of the company or members or depositors. Sections 245 and 246 of the Companies Act, 2013, lays down the remedies and procedure for filing the Class Action Suit.

Class Action Suit allows the members to claim damages from not only the company and its directors but also from the auditor, an expert, an advisor or a consultant.

3. Right to appoint Small Shareholders’ Directors: The small shareholders or minority shareholders of a listed company have a right to appoint a shareholder of their choice on the board and such shareholder may be called as a ‘Small Shareholders’ Director’ under section 151 of the Companies Act, 2013.

Question 3.
Write a short note on Cyrus Mistry Case.
Answer:
1. Tata Group is an Indian multinational conglomerate founded in 1868 by Jamsetji Tata, the company gained international recognition after purchasing several global companies. One of India’s largest conglomerates, Tata Group is owned by Tata Sons. The group operates in more than 100 countries across six continents.

2. Tata Sons is the principal investment holding company and promoter of Tata companies. Approximately 66% of the equity share capital of Tata Sons is held by philanthropic trusts, which supports education, health, livelihood generation, art, culture etc. The next major chunk of approx 18% is controlled by Shapoorji Pallonji Group, whose heir apparent is Cyrus Mistry.

3. Mr. Cyrus Mistry was appointed as the chairman of Tata Sons in the year December 2012 who was the sixth chairman of Tata Sons.

Cyrus Mistry’s Ouster:
1. In the Board meeting of Tata Sons Limited held on 24th October 2016, Mr. Cyrus Mistry, was replaced from the post of Executive Chairman with immediate effect on ground of growing trust deficit and repeated departures from the culture and ethos of the Tata Group and Mr.Ratan Tata was appointed as the interim Chairman of Tata Sons and a committee was formed to hunt for a new chairman in four months.

2. On 25Uh1 October 2016, Tata Sons filed caveats in Supreme Court, Bombay High Court and National Company Law Tribunal to prevent ousted Tata Sons Chairman Cyrus Mistry from getting an ex-parte order against his sacking. They don’t want any court to pass any ex-parte orders without hearing their side of the story.

Legal Battle:
1. In December 2016, two Mistry family backed investment Finns -‘Cyrus Investments Private Limited’ and ‘Sterling Investment Corporation Private Limited’, the minority group of shareholders! ‘Shapoorji Paflonji Group’ (‘SP Group’ for short) holding 1837% of equity share capital ‘hereinafter referred to as Petitioner’ filed a suit in National Company Law Tribunal (NCLT) Mumbai bench under Sections 24 1-242 of the Companies Act, 2013 alleging prejudicial and oppressional acts of the majority shareholders. They also challenged Cyrus Mistry’s removal.

2. In reply to this suit, Tata Sons alleged that Mistry family backed investment firms don’t have the necessary qualification to file a suit against them. As the petitioners do not hold at least 10% of the “issued share capital” of Tata Sons or representing at least one-tenth of the total number of members, as required by the Companies Act, 2013. According to Tata Sons, though the petitioners hold 18.37% of equity share capital of the company, their holding fell to approximately 2.17% when both equity and preference shares were taken into account.

With regard to the power of a tribunal to waive off such requirements if applied for by a petitioner, Tata Sons has contended that since the petitioners had not sought such a waiver during the filing of the petition, such a request should not be accommodated at a later stage.

3. In the application filed by Mistry family firms stated that the Tata Sons’ understanding of the legal provision is not correct. They hold 18.37% of equity shares in the Company and if preference shareholding is considered none of the groups would have the requisite 10% issued and paid-up share capital and would lead to an absurdity as none of them would be able to maintain an application.

Further, it asked the tribunal to waive off the 10% minimum shareholding norm requirement stating that there are enough ‘facts, circumstances and, sufficient reasons’ which warrants the tribunal to exercise its powers so that the petition can be heard on its merits. If not done so “the grave issues raised in the petition would go entirely un-investigated”. Provision of the Companies Act, 2013:

4. The National Company Law Tribunal (NCLT), Mumbai Bench, initially dismissed the petition under Sections 241-242 of the Companies Act, 2013 being non-maintainable, citing that no cause of action was established in any of the allegations raised by the Petitioners, they didn’t meet the criteria of 10% ownership in a company for the filing of a case of alleged oppression of minority shareholders under the Companies Act, 2013 and also dismissed the petition for waiver.

5. Petitioner moved The National Company Law Appellate Tribunal (NCL-AT), challenging NCLT order which rejected their petitions over maintainability. They also challenged rejection of their waiver plea.

6. NCLAT by its order dated 21st September 2017 allowed the plea by the petitioners seeking waiver in filing case of oppression and mismanagement against Tata Sons taking into consideration the exceptional circumstances and directed the Mumbai bench of the NCLT to proceed in the matter.

7. On December 18, 2019, the NCL-AT gave its judgment in favour of Mistry camp and set aside the order of NCLT. The NCLAT reinstated Mr. Mistry as the Executive Chairperson for Tata Sons for his remaining term and declared that the appointment of Nataraj and Chandrasekaran as executive chairman of Tata Sons was illegal, but suspended its implementation for four weeks in order to provide time for Tatas to appeal.

The NCLAT order had also set aside Tata Sons’ decision to convert itself into a private company. The NCLAT enquired the Registrar of Companies (RoC) to explain the rationale behind allowing Tata Sons to convert into a private company and also sought details of the process for the permission.

8. In January 2020, Tata Sons appealed to the Supreme Court against National Company Law Appellate Tribunal (NCL-AT) decision to re-instate Mr. Cyrus Mistry as its Chairman as this decision is a blow to corporate democracy and rights of the Board of Directors.

9. Supreme Court on 10th January 2020 stayed NCL-AT order reinstating Mr. Cyrus Mistry as the executive chairman of Tata Sons and restoring his directorships in the holding company, with a preliminary observation that the first impression of the order was “not good” and that the tribunal ‘could not have given consequential relief that had not been sought in the first place.

10. On 24th January 2020 the Supreme Court put stay on the NCL-AT order of dismissing the Registrar of Companies (RoC). plea seeking modification of its verdict in the Tata-Cyrus Mistry matter.

Question 4.
Mrs. P who holds 500 equity shares of Zeta Limited made an application through instrument of transfer to the Company for transfer of 300 equity shares in favour of Mrs. H. Zeta Limited refused to register the transfer of shares in favour of Mrs. H, stating that she has been declared as a wilful defaulter by the banks. What are the rights available to Mrs. H, under the Companies Act, 2013 for such refusal?
Answer:
As per section 58(4) of the Companies Act, 2013, a public company must register the transfer of securities within 30 days of date of delivery to the company of instrument of transfer or intimation of transmission.
If the public company without sufficient cause refuses to register the transfer of securities within the said period of 30 days the transferee may, within a period of 60 days of such refusal, or where no intimation has been received from the company, within 90 days of the delivery of the instrument of transfer or intimation of transmission, file an appeal to the Tribunal.

As per Section 58(5), the Tribunal, while dealing with such an appeal, may, after hearing the parties, either dismiss the appeal or by order –
(a) direct that the transferor transmission shall be registered by the company and the company shall comply with such order within a period of 10 days of the receipt of the order; or
(b) direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved.
Thus Mrs. H can file an appeal with the Tribunal as mentioned above.

Question 5.
Write a short note on Transfer and Transmission of securities.
Answer:
Section 56(1) states that a company shall not register a transfer of securities of the company, or the interest of a member in the company – in the case of a company having no share capital, other than the transfer between persons both of whose names are entered as holders of beneficial interest in the records of a depository, unless a proper instrument of transfer in such form as may be prescribed, duly stamped, dated and executed by –
or on behalf of the transferor and the transferee and specifying the name, address and occupation, if any, of the transferee has been delivered to the company by the transferor or the transferee within a period of sixty :
days from the date of execution, along with the certificate relating to the securities, or if no such certificate is in existence, along with the letter of allotment of securities:

When the transfer instrument has been lost or presented late:
Provided that where the instrument of transfer has been lost or the instrument of transfer has not been delivered within the prescribed period, the company may register the transfer on such terms as to indemnity as the Board may think fit. ‘

Exception to section 56(1):
Section 56(2) states that nothing in sub-section (1) shall prejudice the power of the company to register, on receipt of an intimation of transmission of any right to securities by operation of law from any person to whom such right has been transmitted.

Transfer in case of partly paid shares:
Section 56(3) states that where an application is made by the transferor alone and relates to partly paid shares, the transfer shall not be registered unless the company gives the notice of the application, in such manner as may be prescribed, to the transferee and the transferee gives no objection to the transfer within two weeks from the receipt of notice.

Time limit for delivery of certificates:
Section 56(4) states that every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred or transmitted –
within a period of two months from the date of incorporation, in the case of subscribers to the memorandum;
within a period of two months from the date of allotment, in the case of any allotment of any of its shares;
within a period of one month from the date of receipt by the company of the instrument of transfer under sub-section
(1) or, as the case may be, of the intimation of transmission under sub-section
(2), in the case of a transfer or transmission of securities;
within a period of six months from the date of allotment in the case of any allotment of debenture:

Provided that where the securities are dealt with in a depository, the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities.

Transfer of shares of deceased person:
Section 56(5) states that the transfer of any security or other interest of a deceased person in a company made by his legal representative shall, even if the legal representative is not a holder thereof, be valid as if he had been the holder at the time of the execution of the instrument of transfer.

Transmission in case of nomination:
Section 72 provides that when a shareholder nominates any person, then in case of the death of the shareholder company needs to transfer only to the nominee duly notified. In this case company has no further responsibility. In case of claim or any dispute in this regard the decision of the courts shall be final and binding.

Punishment for Default:
Section 56(6) states that Where any default is made in complying with the provisions of sub-sections (1) to (5), the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.

In case of transfer of dematerialized shares in a listed company, the company has no role to play. The depository participants would ensure the transfer is effected in accordance with law. In case a depository participant, with intention to defraud a person, transfers the shares illegally it shall be punishable under Section 447. This penalty is in addition to any other liability that may be attracted under Depositories Act, 1996.

Question 6.
Write a short note on Refusal of Registration and Appeal against Refusal under section 58.
Answer:
Transfer/transmission of shares in case of private company Section 58(1) provides thai transfer or transmission of securities or interest of a member in respect of a private limited company is to be effected strictly as per its articles of association. In case the same is refused the company, the company within thirty days to send the notice of refusal along with the reason for the same. This refusal notice is to be sent to the person (transferor or transferee) who has lodged the transfer/transmission documents with the company.

Transfer/transmission of shares in case of public companies:
Section 58(2) provides that securities or other interests shall be freely transferable in a public company. But in case of any contract or arrangement between two or more persons with respect of transfer of securities the same shall be enforceable as a contract.

Appeal to Tribunal by Transferee in case of private companies:
Section 58(3) provides that the transferee (not the transferor) may appeal to tribunal within 30 days of refusal notice by the company and in case company does respond in any manner than within 60 days of delivery of instrument of Transfer or intimation given to the company in case of transmission.

Appeal to Tribunal by Transferee in case of public companies:
Section 58(4) provides that in case of public companies, which refuses to register transfer without sufficient cause within a period of thirty days from the date on which the instrument of transfer or the intimation of transmission, as the case may be is delivered to the company, the transferee may within a period of sixty days of such refusal or where no intimation has been received from the company, within ninety days of the delivery of the instrument of transfer or intimation of transmission, appeal to the Tribunal.

As per ruling given by Calcutta High Court in Peerless General Finance and Investments Limited y. Poddar Projects Limited (2008 81 SCL 51 Cal), the above mentioned time limits can be extended if sufficient reasons can be attributed for the delay.

Tribunal to pass order after hearing both parties:
The tribunal after hearing the parties may pass appropriate order [section 58(5)]. In case it orders for registration of securities and order for rectification of register, in addition, it may also order for damages. Once transfer/ transmission is ordered the concerned company has to implement the order within 10 days of the receipt of the order.

Non-compliance of order of Tribunal:
In case orders of Tribunal are not complied with, the concerned person shall be liable for imprisonment of minimum one year which may extend to three years in addition to minimum fine of Rupees 1,00,000 which may go up to Rupees 5,00,000. Violation of subsection (5) is not compoundable.

Question 7.
Write a short note on Rectification of Register of Members under section 59.
Answer:
The person aggrieved, or any member of the company, or the company may appeal in such form as may be prescribed, to the Tribunal, for rectification of the register, if:
If the name of any person is, without sufficient cause, entered in the register of members of a company, or
after having been entered in the register, is, without sufficient cause, omitted therefrom, or
if a default is made, or
unnecessary delay takes place in entering in the register, the fact of any person having become or ceased to be a member.

If foreign members or debenture holders residing outside India, want to file case under this section then they may appeal to a competent court outside India, specified by the Central Government by notification.

The meaning of sufficient cause has not been given in the Act. However, there are several case laws which have elaborated the same.

Some extracts of such case laws have been given below:
1. Benarsi Das Saraf v. Dalmia Dadri Cement Ltd. AIR 1959:
“The word ‘sufficient means, ‘adequate’, ‘enough’, ‘as much as may be necessary to answer the purpose intended. It embraces no more than, that which provides a plentitude which, when done, suffices to accomplish the purpose intended in the light of existing circumstances and when viewed from reasonable standard of practical and cautious men.” ’

2. Indian Chemical Products Ltd. v. State of Orissa AIR 1967 SC 253:
“The power under article 11 to refuse registration of the transfer is a discretionary power. The directors must exercise this power reasonably and in good faith. The Court can control their discretion if they act capriciously or in bad faith….”.

3. Smt. Mallina Bharathi Rao v. Gowthami Solvent Oils Ltd. [2001] 31 ‘ SCL 60:
“Whether since company had not only authorised a director to sign transfer instrument on behalf of petitioner but effected transfer without share certificates, entire process of transfer was in violation of mandatory provisions of section 108 and as such omission of petitioner’s name from Register of Members was without sufficient cause – Held, yes – Whether transfer of shares being in contravention of mandatory )
provisions of Section 108 and consequent omission of petitioner’s name being without sufficient cause, company should restore her name on Register of Members in respect of her shares and rectify register accordingly – Held, yes”

4. In Asha Purandare v. Integrated Controls (P.) Ltd. [2002] 39 SCL 970 1 (CLB – MUM.)
“Whether minor typographical omission can be said to be sufficient cause for refusal by company to register transfer of shares in name of petitioners – Held, no” 7

5. Gulshan Mahindru v. Reliance Industries Ltd. [2014] 47 taxmann. com 186 (CLB – Mumbai)
“Reason attributed by a company for refusal of transmission of shares and rectification of register of members that company had already transferred duplicate shares to its registered owners and shares had been dematerialized, cannot be said to be a sufficient and cogent reason as contemplated .under Section 111A.”

Question 8.
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?
What are the provisions of punishment for wrongful withholding of the property of the company under the Companies Act, 2013?
Answer:
1. As per section 452 of the Companies Act, 2013:
If any officer or employee of a company:

• Wrongfully obtains the possession of any property of the company including cash, or
• Wrongfully withholds any property already in his possession or knowingly applies it for any unauthorised use, then the company or any member or creditor or contributory can file a complaint under this section. The offence is punishable with a fine which shall not he less than ₹ 1 lakh but which may extend to ₹ 5 lakh.

2. The Court trying an offence under section 452 may also order such officer or employee to deliver up any such property wrongfully obtained. It may also order to refund any cash wrongfully obtained or the benefits derived from such property or cash. The court allows such time as it deems fit to comply with this. In case of default, imprisonment for a term which may extend to two years will be ordered.

3. In the present case G who is an employee of the company has wrongfully withheld the property and also derived benefits from it in the form of rent. The company can file complaint against G under section 452 and penalties for the same are given above.

Resolution of Corporate Disputes Non-Compliances & Remedies Notes

Insurance Law and Practice Notes for CS Professional ICSI Study Material Important Questions

CS Professional Insurance Law and Practice Questions and Answers

• Concept of Insurance
• Regulatory Framework of Insurance Business in India
• Life Insurance – Practices
• Life Insurance – Underwriting
• Applications of Life Insurance
• Life Insurance – Finance
• Health Insurance
• General Insurance – Practices and Procedures
• Fire and Consequential Loss Insurance
• Marine Insurance
• Agricultural Insurance
• Motor Insurance
• Liability Insurance
• Aviation Insurance
• Risk Management
• Corporate Governance for Insurance Companies
• CS Professional Insurance Law and Practice Notes Important Terms

Legislative Framework of Corporate Governance in India – Governance, Risk Management, Compliances and Ethics Important Questions

Question 1.
In Indian context, there is no single apex regulatory body which can be said to be the regulator of corporate but there exists a coordination mechanism among various functional regulators. Explain by providing examples.
OR
“Indian legislative framework supports transparency and disclosure by corporate” explain.
Answer:
In India there are different regulators for different areas. There is no single apex regulatory body which can be said to be the regulator of corporate. Following are the regulatory authorities which function in coordination with each other:

• Companies Act and Rules : Ministry of Corporate Affairs (MCA)
• Capital Market and Stock Exchange : Securities and Exchange Board of India (SEBI)
• Insurance : Insurance Regulatory and Development Authority (IRDA)
• Foreign Business : Foreign Investment Promotion Board (FIPB)
• Imports and Exports : Foreign Exchange Management Act (FEMA)
• Foreign investment : Reserve Bank of India
• Intermediaries, Banking Companies and Insurance Business : Financial Intelligence Unit (FIU)
• Communication : Tele-com Regulatory Authority of India (TRAI)
• Professions : (Profes-sional Institutes like ICSI, ICAI, ICAI (CMA) etc.)

Common law system in India

Companies Act, 2013:
Entities are incorporated as companies in terms of the Companies Act, 2013 and governed by the Companies Act, 2013 (as amended from time to time). The Companies Act is administered by the Ministry of Corporate Affairs.

Securities and Exchange Board of India (SEBI):
The Securities and Exchange Board of India (SEBI) is the prime regulatory authority which regulates all aspects of securities market enforces the Securities Contracts (Regulation) Act including the stock exchanges. Companies that are listed on the stock exchanges are required to comply with SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015.

Applicability of SEBI (LODR) Regulations, 2015: SEBI is the prime regulatory authority which regulates all aspects of securities market and listed entities. In order to ensure good corporate governance SEBI had issued detailed Corporate Governance Norms in form of Clause 49 of Listing Agreement which has since been repealed and notified as a separate regulation being the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Question 2.
India has been flooded with various Ponzi schemes that take advantage of suspicious investors looking for alternate banking options. Lacking access to formal banks, low income Indians often rely on informal banking. These informal banks invariably consist or money lenders who charge interest at inflated rates and are soon replaced by more sophisticated methods of cunning people through disguised Ponzi schemes.

Fund raising is done through legal activities such as collective investment schemes, non-convertible debentures and preference shares, as well as illegally through hoax financial instruments such as fictitious ventures in construction and tourism. The rapid spread of Ponzi schemes, especially in North India has various causes, not the least of which, include the lack of awareness about banking norms, steadily falling interest rates, lack of legal action against such activities and the security of political patronage.

The Ponzi scheme run by Saradha Group, collected money from investors by issuing redeemable bonds and secured debentures and promising in-credulously high profits from reasonable investments. Local agents were hired throughout the State of West Bengal and given huge cash payouts from investor deposits to expand quickly, eventually forming a conglom¬erate of more than 200 companies.

SEBI first detected something suspicious in the group’s activities in 2009. It challenged Saradha because the company had not complied with the provisions of Indian Companies Act, which requires any company raising money from more than 50 investors to have a formal prospectus; and categorical permission from SEBI, the market regulator. The Saradha Group sought to evade prosecution by expanding the number of companies, thus creating a convoluted web of interconnected players. This created innumerable complications for SEBI, which laboured to investigate Sarad- ha in spite of them.

In 2012, Saradha decided to switch it up by resorting to different fund raising activities, such as collective investment schemes (CIS) that were disguised as tourism packages, real estate projects, and the like. Many investors were duped into investing in what they thought was a chit fund. This too, was an attempt to get SEBI off its back, as chit funds fall under the jurisdiction of the State Government, not SEBI. However, SEBI managed to identify that group was not, in fact, raising capital through a chit fund scheme and ordered Saradha to immediately stop its activities until cleared by SEBI. SEBI had previously warned the State Government of West Bengal about Saradha Group’s hoax chit fund activities in 2011 but to no avail. Both, the Government as well as Saradha, generally ignored SEBI until the company finally went bust in 2013.

After the scandal broke, an inquiry commission investigated the group, j and a relief fund of approximately US $90 million was created to protect I low-income investors. In 2014, the Supreme Court transferred all investi- [ gations in the Saradha case to the Central Bureau of Investigation (CBI) amid allegations of political interference in the state-ordered investigation.

In the light of the above, you are required to answer the following questions Explain Ponzi scheme run by Saradha Group. Why chit funds or Ponzi schemes still persists in India inspite of many scams? Comment.
Answer:
Facts of Ponzi scheme of Saradha Group : The Ponzi scheme run by Saradha Group collected money from investors by issuing redeemable bonds and secured debentures and promising high returns from reasonable investments. Local agents were hired throughout the state of West Bengal and given huge cash payouts from investor deposits to expand quickly, eventually forming a conglomerate of more than 200 companies.

Potential investors : Ponzi schemes are when investors are promised huge returns which are unrealistic and at very low risk. The Ponzi schemes generally targets low income individuals luring them by high returns in short span of time. Rural poor have very few options available to invest and often end up falling prey to dubious investment schemes.

Reasons for survival of such schemes : A combination of widespread corruption, low financial literacy, greed of investors demanding high returns and a weak banking sector in rural areas results in the survival of Ponzi schemes in India. There is also an urgent need for regulatory system that quickly spots any scheme seeking to raise money from large numbers of people by promising exceptional returns, and treats it as prima facie suspect and fit for quick investigation and regulatory action.

Provisions to curb Ponzi schemes : SEBI challenged Saradha Group for not complying with the provisions of the Companies Act but the group escaped prosecution by expanding the number of companies creating a web of interconnected players. In April 2013, the scheme collapsed completely causing a loss of approximately US $5 billion and bankrupting many of its low-income investors.

Question 3.
Discuss Indian legislations and provisions to curb Ponzi schemes.
Answer:
Following are the laws applicable to schemes like Ponzi schemes:
Chit Funds Act, 1982 : Chit funds in India are governed by the Chit Funds Act, 1982 and other State laws. Under the Act, the Central Government can choose to notify the Act in different states on different dates. States are responsible for notifying rules and have the power to exempt certain chit funds from the provisions of the Act.

SEBI (Collective Investment Schemes) Regulations, 1999 : It provides details of compulsory registration, business activities and obligations, trustees and their obligations, collective investment scheme, general obligations, inspection and audit, etc., of Collective Investment Management Company.

SEBI Act made it mandatory for money pooling schemes collecting in excess of X 100 crore to register with SEBI unless already registered with another regulatory agency and also prescribes penalties where such schemes operate without SEBI registration.

The expanded definition of “collective investment scheme “now enables SEBI to curb, control and prevent such schemes.

Protection of Interests of Depositors (In Financial Establishments) Act, 2018 : Other than the above, most of the States in India have enacted Protec-tion of Interest of Depositors in Financial Establishments Act. Many States have also started State level co-ordination for exchange of information on fraudulent fund raising.

Question 4.
Discuss the rights of shareholder under SEBI (Listing Obligations and Disclosure Requirement (LODR)) Regulations, 2015.
Answer:
Following are the rights of shareholder under SEBI Listing Obligations and Disclosure Requirement (LODR) Regulations, 2015:

Question 4(A).
Dr. Ganguly Committee recommended some Corporate Governance norms which are applicable only to private sector bank. What were these recommendations?
Answer:
Dr. Ganguly Committee’s recommendations on corporate governance applicable only to private sector bank are as under:
(I) Eligibility criteria and ‘fit and proper’ norms for nomination of directors:

a. The Board of Directors of the banks while nominating/co-opting directors should be guided by certain broad ‘fit and proper’ norms for directors, viz. formal qualification, experience, track record, integrity etc.

b. The following criteria, which are considered for the boards of public sector banks, may also be followed for nominating independent/non-executive directors on private sector banks:

• The candidate should normally be a graduate (which can be relaxed while selecting directors for the categories of farmers, depositors, artisans, etc.)
• He/she should be between 35 and 65 years of age.
• He/she should not be a Member of Parliament/Member of Legislative Assembly/Member of Legislative Council.

(II) Commonality of directors of banks and Non-Banking Finance Com-panies (NBFC): In case, a director on the board of an NBFC is to be considered for appointment as director on the board of the bank, the following conditions must be followed:

• He/she is not the owner of the NBFC, [i.e., share holdings (single or jointly with relatives, associates, etc.) should not exceed 50%].
• He/she is not related to the promoter of the NBFC.
• He/she is not a full-time employee in the NBFC.
• The concerned NBFC is not a borrower of the bank.

(III) Composition of the Board: The composition of the Board should be commensurate with the business needs of the banks and should be blend of professionals having skills such as, marketing, technology and systems, risk management, strategic planning, treasury operations, credit recovery etc.

Question 5.
Now the days, protection of the Investors’ wealth is big challenge before the Government. In insurance sector, under IRDA’s Regulation, a various committees are mandatorily required to be constituted by the Companies. Highlight the name of the committees and describe the role of with Profit Committee.
OR
Write short note on the following; With Profits Committee.
Answer:
IRDA advises all insurers that it is mandatory to establish Committees for Audit, Investment, Risk Management, Policyholder Protection, Nomination and Remuneration, Corporate Social Responsibility (only for insurers earning profits).

Following are the names of the committees:

• Audit Committee (mandatory)
• Investment Committee (mandatory)
• Risk Management Committee (mandatory)
• Policyholder Protection Committee (mandatory)
• Nomination and Remuneration Committee (mandatory)
• Corporate Social Responsibility Committee (‘CSR Committee’) (man-datory)
• With Profits Committee:

With Profits Committee:
The Authority has issued IRDA (Non-Linked Insurance Products) Regulations, 2013, which lay down the framework about the With Profit Fund Management and Asset sharing, among other things. In terms of these Regulations, every Insurer transacting life insurance business shall constitute a With Profits Committee comprising of an Independent Director, the CEO, The Appointed Actuary and an independent Actuary. The Committee shall meet as often as is required to transact the business and carry out the functions of determining the following:

• The share of assets attributable to the policyholders.
• The investment income attributable to the participating fund of policyholders.
• The expenses allocated to the policyholders.

The report of the With Profits Committee in respect of the above matters should be attached to the Actuarial Report and Abstract furnished by the insurers to the Authority.

Question 6.
Write short note on the following; whistle blower policy.
Answer:
Following are the key points on Whistle blower:
‘Whistle blower ‘is one who exposes wrongdoing, fraud, corruption or mismanagement in an organization. A whistle blower is a person who publicly complains/discloses the concealed misconduct on the part of an organization or body of people, usually from within that same organisation.

Who can be a Whistle blower: Whistle blower may be an employee, former employee, vendor, customer or other stakeholder. Whistle blowers are important stakeholders as they can work as a tool for authorities to get information of deviant behavior or practices in organizations.

Protection of Whistle blower: Whistle blower needs protection against retaliation/misbehavior by superiors. At the corporate level, the companies can provide protection to whistle blowers by establishing a well documented Whistle Blower Policy “and ensuring its effectiveness practically. Just making a documented policy is not sufficient to develop confidence among the employees; examples should be set by taking action against the wrongdoing reported.

Whistle blower Policy: “Whistle blower” policy is a mechanism for employees to raise concerns internally about possible irregularities, governance weaknesses, financial reporting issues or other such matters. These could include employee reporting in confidence directly to the Chairman of the Board or of a Committee of the Board or to the Statutory Auditor.

The Policy illustratively covers the following aspects:

• Awareness of the employees that such channels are available, how to use them and how their report will be handled.
• Handling of the reports received confidentially, for independent assessment, investigation and where necessary for taking appropriate follow-up actions.
• A robust anti-retaliation policy to protect employees who make reports in good faith.
• Briefing of the board of directors.

Question 7.
Discuss briefly the Department of Public Enterprises Guidelines on Corporate Social Responsibility and Sustainability for Central Public Sector Enterprises.
Answer:
1. DPE has issued New Guidelines on Corporate Social Responsibility and Sustainability for Central Public Sector Enterprises with effect from 1st April 2013. Following one its key points:

2. The guidelines issued are in consonance with the National Voluntary Guidelines for Social, Environmental & Economic Responsibilities of Business issued by the Ministry of Corporate Affairs in July 2011.

3. In the revised guidelines the thrust of CSR and Sustainability is clearly on capacity building, empowerment of communities, inclusive socio-economic growth, environment protection, promotion of green and energy efficient technologies, development of backward regions, and upliftment of the marginalized and under-privileged sections of the society.

4. It is mandatory for CPSEs to take up at least one major project for development of a backward district.

5. CPSEs are expected to formulate their policies with a balanced emphasis on all aspects of CSR and Sustainability – equally with regard to their internal operations, activities and processes, as well as in their response to externalities.

6. Public Sector enterprises are required to have a CSR and Sustainability policy approved by their respective Boards of Directors.

7. Each CPSE shall have a Board level committee headed by the Chairman and/or Managing Director, or an Independent Director to oversee the implementation of the CSR and Sustainability policies of the Company.

8. The public sector enterprise shall have to disclose reasons for not being able to spend the entire budget on CSR and Sustainability activities as planned for that year, and shall make every endeavor to spend the unutilised budget of any year within the next two financial years.

9. In case the CPSEs are unable to spend the unutilised budget within the next two financial years, the unspent amount would be transferred to a ‘Sustainability Fund’ to be used for CSR and Sustainability activities.

Question 8.
“The controlled mis-governance is a type of fraud that is perpetrated by the personal running the company in such situations. The management deceptively leads all the stakeholder to believe that the company is being run superbly successfully while in reality it is led to bankruptcy.’’ With reference to the statement examine the issues and challenges in corporate governance citing relevant case(s) of corptfrate scams.
Answer:
Controlled mis-governance is a type of fraud that is perpetrated by the person/s,) running the company. In such a situation the management deceives all the stakeholders into believing that they run a superbly successful business but in reality it is heading toward bankruptcy. It then becomes impossible for us to believe that the governance of firm could have duped all its stakeholders.

It is about corporate governance and fraudulent auditing practices allegedly in connivance with auditors and chartered accountants. The company misrepresented its accounts both to its board, stock exchanges, regulators, investors and all other stakeholders.

It is a fraud, which misled the market and other stakeholders by lying about the company’s financial health. Even basic facts such as revenues, operating profits, interest liabilities and cash balances were grossly inflated to show the company in good health.

The Satyam case mis-governance highlighted the lack of independent directors interest in the Board processes, they did not play their role in efficient manner and the consequence proceeded. The mere meeting of criteria of independence does not ensure that an independent director is acting independently. They should play a vigilant role by attending the meetings, studying and analyzing the agenda papers, ask the right question at the right time, insist that dissent if any is recorded and have separate sessions of independent directors and act with integrity.

On the other hand the auditors in this case have tried to distance themselves from the fraud perpetrated by the management by issuing a statement that – “The representations made by the chairman and other management to the auditors during the audit now appear to be fake and therefore, are no longer reliable”.

Some issues and challenges that need scrutiny in cases of mis-governance are as follows:
(i) Role of independent directors : The independent directors are guardians of the interest of all shareholders and stakeholders specially in the areas of potential conflict. Independent Directors bring a valuable outside perspective to the deliberations.

(ii) Tenure of independent directors : As per Regulation 25(2) of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the maximum tenure of independent directors shall be in accordance with the Companies Act, 2013 and rules made thereunder, in this regard, from time to time.

(iii) Role of Independent directors in audit committee : Independent directors play a crucial role in Audit Committee. The audit committee is responsible to ensure the integrity of financial reporting. Therefore, each independent director who is a member of audit committee should be able to read and understand financial statements.

(iv) Flow of information to the board : Companies should ensure that timely, relevant and complete information is made available to independent directors so that they are able to make informed decisions.

(v) Recording of dissent : It is important that where an independent director is not in agree-ment with the decision of the majority, he should insist that his dissent be recorded.

(vi) Role of auditor : Auditors are a reassurance to all who have a financial interest in companies, quite apart from their value to board of directors. The role of the auditors is not just to go by the numbers presented in the account and sign bogus accounts rather. They need to verify the facts presented by the company.

Question 9.
What is the Code for Stewardship for the insurers?
Answer:
The IRDAI has implemented a code for stewardship for the insurers. The code is in the form of a set of principles, which the insurers would need to adopt. The principles may be uniformly adopted for institutional § investors, like Mutual Funds, Pension Funds, Foreign Portfolio Investors § (FPIs), Alternative Investment Funds (AIFs), etc. The code broadly requires g the insurers to have a policy as regards their conduct at general meetings of the investee companies and the disclosures relating thereto. The code was made applicable from FY 2017-18.

Stewardship Principles provided in the Code:

• Principle 1 : Insurers should formulate a policy on the discharge of their stewardship responsibilities and publicly disclose it.
• Principle 2 : Insurers should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.
• Principle 3 : Insurers should monitor their investee companies.
• Principle 4 : Insurers should have a clear policy on intervention in their investee companies.
• Principle 5 : Insurers should have a clear policy for collaboration with other institutional investors, where required, to preserve the interests of the policyholders (ultimate investors), which should be disclosed.
• Principle 6 : Insurers should have a clear policy on voting and disclosure of voting activity.

Question 10.
List out the recommendations by the Ganguly Committee on the following; Responsibilities of the Board of Directors.
Answer:
Following are the Recommendations which may be implemented by all banks:
Responsibilities of the Board of Directors:

a. A strong corporate board should fulfil the following four major roles viz

• overseeing the risk profile of the bank
• monitoring the integrity of its business and control mechanisms
• ensuring the expert management
• maximising the interests of its stakeholders.

b. The Board of Directors should ensure that responsibilities of di-rectors are well defined and every director should be familiarised on the functioning of the bank before his induction, covering the following essential areas:

• Delegation of powers to various authorities by the Board
• Strategic plan of the institution
• Organisational structure
• Financial and other controls and systems
• Economic features of the market and competitive environment

Role and responsibility of independent and non-executive directors:

a. The independent/non-executive directors have a prominent role in inducting and sustaining a proactive governance framework in banks.

b. In order to familiarise the independent/non-executive directors with the environment of the bank, banks may circulate among the new directors a brief note on the profile of the bank, the sub-committees of the Board, their role, details on delegation of powers, the profiles of the top executives etc.

c. It would be desirable for the banks to take an undertaking from each independent and non-executive director to the effect that he/she has gone through the guidelines defining the role and responsibilities and enter into covenant to discharge his/her responsibilities to the best of their abilities, individually and collectively.

Question 11.
Explain any five principles of corporate governance by Basel Committee.
Answer:
Basel Committee on Banking Supervision (BCBS) released Guidelines on Corporate Governance for banks which were released in July 2015. The principles of corporate governance of these guidelines are as under:

Principle 1:
Board’s overall responsibilities – The board has overall responsibility for the bank, including approving and overseeing the implementation of the bank’s strategic objectives, governance framework and corporate culture. The board is also responsible for providing

Principle 2:
Board qualifications and composition – Board members should be and remain qualified, individually and collectively, for their positions. They should understand their oversight and corporate governance role and be able to exercise sound, objective judgment about the affairs of the bank.

Principle 3:
Board’s own structure and practices – The board should define appropriate governance structures arid practices for its own work, and put in place the means for such practices to be followed and periodically reviewed for ongoing effectiveness.

Principle 4:
Senior management – Under the direction and oversight of the board, senior management should carry out and manage the bank’s activities in a manner consistent with the business strategy, risk appetite, remuneration and other policies approved by the board.

Principle 5:
Governance of group structures – In a group structure, the board of the parent company has the overall responsibility for the group and for ensuring the establishment and operation of a clear governance framework appropriate to the structure, business and risks of the group and its entities. The board and senior management should know and understand the bank group’s operational structure and the risks that it poses.

(Note: This list is inclusive and not exhaustive)

Question 12.
What is the criteria to be considered ‘Fit and Proper’ for being elected as Directors on the Boards of State Bank of India and Nationalised Banks? What are its disqualifications.
Answer:
The Reserve Bank of India on August 2, 2019 has notified and specified the authority, manner, procedure and criteria for determining the ‘fit and proper’ status of a person to be eligible to be elected as a director on the Board of Public Sector Banks, and issued the Directions hereinafter specified. These Directions are called the:

“Reserve Bank of India (‘Fit and Proper’ Criteria for Elected Directors on the Boards of PSBs) Directions, 2019″

The Committee shall determine the ‘fit and proper’ status of the proposed candidates based on the broad criteria mentioned hereunder:
1. Age: The candidate’s age should be between 35 to 67 years as on the cut-off date fixed for submission of nominations for election.

2. Educational qualification: The candidate should at least be a graduate.

3. Experience and field of expertise: The candidate shall have special knowledge or practical experience in respect of matters enumerat¬ed in Section 19A(a) of the SBI Act. Section 9(3A)(a) of the Banking Companies (Acquisition and Transfer of Undertakings) Act and RBI Circular DBR dated November 24, 2016.

4. Tenure: An elected director shall hold office for three years and shall be eligible for re-election: Provided that no such director shall hold office for a period exceeding six years, whether served continuously or intermittently.

5. Professional Restrictions:
a. The candidate should neither have any business connection (in-cluding legal services, advisory services etc.) with the concerned bank nor should be engaged in activities which might result in a conflict of business interests with that bank.

b. The candidate should not be having any professional relationship with a bank or any NOFHC holding any other bank.

6. Track record and integrity: The candidate should not be under adverse notice of any regulatory or supervisory authority/agency, or law enforcement agency and should not be a defaulter of any lending institution.

Following are the disqualifications:
a. The candidate should not be a member of the Board of any bank or the Reserve Bank or a Financial Institution (FI) or an Insurance Company or a NOFHC holding any other bank.

b. A person connected with hire purchase, financing, money lending, investment, leasing and other para banking activities shall not be considered for appointment as elected director on the board of a PSB.

c. No person may be elected/re-elected on the Board of a bank if he/ she has served as director in the past on the board of any bank/FI/ RBI/Insurance Company under any category for six years.

d. The candidate should not be engaging in the business of stock broking.

e. The candidate should not be holding the position of a Member of Parliament or State Legislature or Municipal Corporation or Municipality or other local bodies.

f. The candidate should not be acting as a partner of a Chartered Accountant firm which is currently engaged as a Statutory Central Auditor of any nationalised bank or State Bank of India.

g. The candidate should not be acting as a partner of a Chartered ” Accountant firm which is currently engaged as Statutory Branch Auditor or Concurrent Auditor of the bank in which nomination for election is filed.

Question 13.
“All insurers shall comply with all the principles given in the guidelines and submit an Annual Certificate of Compliance approved by the Board to the IRDAI as per Annexure B referred in the guidelines, duly certified by CEO and Compliance Officer on or before 30th June every year”. In the light of the above statement discuss the principles.
Answer:
Following are the principles to be complied by the insurers:

1. Insurers should formulate a policy on the discharge of their steward – ship responsibilities and publicly disclose it.
2. Insurers should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.
3. Insurers should monitor their investee companies.
4. Insurers should have a clear policy on intervention in their investee companies.
5. Insurers should have a clear policy for collaboration with other in-stitutional investors, where required, to preserve the interests of the policyholders (ultimate investors), which should be disclosed.
6. Insurers should have a clear policy on voting and disclosure of voting activity.
7. Insurers should report periodically on their stewardship activities.

Governance Risk Management Compliances and Ethics Notes

Misrepresentation & Malpractices – Civil and Criminal Trial Procedure – Resolution of Corporate Disputes, Non-Compliances & Remedies Important Questions

Question 1.
Mr. Nfaryanan was the Managing Director of ABC India Limited and his wife Mrs. Kaika was also a director of the Company. Proceedings were initiated by Registrar of Companies (ROC) against the Company and its directors. Mr. Narayanan died while the proceedings were pending. Subsequently, Mrs. Kaika was impleaded as an accused in the proceedings after his death. She filed an application in High Court under section 204 of Criminal Procedure Code, 1973, praying for discharge on the ground that notice had not been served upon her by the ROC. Would High Court grant relief to Mrs. Kaika on this ground? Answer with reference to Judicial Pronouncement(s).
Answer:
The Madras High Court in case of K. Seethalakshmi v. Registrar of Companies and another rejected the plea of the petitioner that the ROC has not issued any notice to her. The Managing Director had died when the proceedings were pending. The petitioner, who was also a director and the wife of the deceased Managing Director was impleaded as an accused in the proceedings. As the petitioner was impleaded as an accused, she filed an application under section 204 of Criminal Procedure Code, 1973, praying for her discharge. She claimed she could not be impleaded as an accused because of the below grounds:

• Notice had not been served upon her but on her deceased husband.
• When there were other directors, the Registrar had picked out the petitioner to proceed against.

The High Court refusing to discharge the petitioner by dismissing the petition held that:

• The petitioner was a director of the Company, when her husband the Managing Director, died during the pendency of proceedings. Hence, for non-compliance with the provisions of Sections 159 and 220, the director was also liable to be proceeded against and punished under the law. It was the duty of the petitioner as the surviving director, to comply with the provisions of the Companies Act.
• The Registrar had impleaded the petitioner, as an accused on the death of her husband, not merely because she was the wife of the deceased managing director but because she was a director of the said company and liable to comply with the mandatory requirements or the Act.

Hence, in the background of aforementioned case law, it can be concluded that the High Court would not award any relief to Mrs. Kaika.

Question 2.
Explain the various types of Criminal Courts under the Criminal Procedure Code, 1973 and their powers in brief Discuss the powers of Criminal Courts.
Answer:
According to Section 6 of The Code of Criminal Procedure, 1973, besides the High Courts and the Courts constituted under any law, other than CrPC, there shall be, in every State, the following classes of Criminal Courts, namely:-

• Courts of Session;
• Judicial Magistrates of the first class and, in metropolitan area, Metropolitan Magistrates;
• Judicial Magistrates of the second class; and
• Executive Magistrates.

Courts of Magistrates are the basic Courts for conducting trial of criminal offences. In metropolitan cities such as Mumbai, Kolkata and Chennai, respectively the capitals of the States of Maharashtra, West Bengal and Tamil Nadu, have special category of Magistrates called Presidency Magistrates/ Chief Metropolitan Magistrates. As per sections 28 and 29 of Criminal Procedure Code, 1973, following are the criminal court and their powers:

Question 3.
Mr. A sold goods to Mr. B amounting to ? 1 crore. Mr. B was delinquent in payment, after repeated follow-ups, he issued a cheque for the said amount to Mr. A. The cheque was not honoured and Mr. A filed a cheque bouncing case against Mr. B. The Court issued summons to Mr. B. Later, Mr. A wanted to withdraw the case. Will the Magistrate permit Mr. A to withdraw the case at this stage?
Answer:
Section 257 of the Criminal Procedure Code, 1973 (CrPC) lays down the circumstances under which a complaint may be withdrawn with the consent of the Court in a summons case. It permits a complainant at any time before a final order is passed in any case, to withdraw with the permission of the Magistrate, his complaint against the accused, or if there be more than one accused, against all or any of them provided he satisfies the Magistrate that there are sufficient grounds for permitting him to withdraw his complaint and the Magistrate may permit him to withdraw the same, and shall thereupon acquit the accused against whom complaint is so withdrawn.

On a bare reading of this section, it can be manifested that a complainant has no legal or vested right to withdraw a complaint as and when he wishes. Withdrawal of the complaint under section 257 of CrPC is permissible only if the Magistrate is satisfied that there are sufficient grounds for permitting such withdrawal. This clearly implies that the Magistrate must apply his judicial mind to the reasons, which compel the complainant to withdraw the complaint, before granting permission. Thus, the Magistrate may permit Mr. A to withdraw the case if he is satisfied that there are sufficient grounds for such withdrawal.

Question 4.
Mr. Mon had employed Ramu as a domestic help for quite some time. Ramu had intention of robbing the house, so he planned the robbery on a day when most of the family members were out. Ramu was caught off guard, when Ms. Mona, mother of Mr. Mon, caught him committing the crime and tried to alert the police. Unfortunately in the scuffle, Ramu ended up killing Ms. Mona and ran away with the valuables. Investigation was Initiated and Ram was caught by the PoUce. Mr. Mon contended that there are two separate crimes, one of murder and other of burglary and Ramu should be penalized for them separately. Can offence committed by Ramu be clubbed in a single trial under Criminal Procedure Code, 1898?
Answer:
Section 220(1) of Criminal Procedure Code, 1898 provides for single trial for more than one offence. If, in one series of acts so connected together as to form the same transaction, more offences than one are committed by the same person, he may be charged with, and tried at one trial, for every offence. The above section could be used when different offences committed by a single person or same persons and the trial could be a combined and held as a single trial.

The Calcutta High Court in Madan Gaped Dey and another v. State and Anor. held that if several offences are committed in the course of the same transaction, section 235 of Criminal Procedure Code, 1898 would authorize their joinder for the purpose of a single trial.

If a continuous thread runs through the acts complained of, charges arising out of those acts would be liable to be joined together under this section. Continuity of action, therefore, seems to be a very important test in the matter. Yes, the offences committed by Ramu can be clubbed in single trial.

Question 5.
“Companies Act, 2013 is mixture of both civil law as well as criminal law.” Comment briefly.
Answer:
The Companies Act, 2013 is mixture of both civil as well as criminal provisions with majority being criminal. The civil and criminal provisions under the Companies Act, 2013 can be identified by observing the language used by Act for consequences or non-compliances/contravention of its provisions. The words “liable to penalties” denote civil nature of non-compliances whereas the words “punishable with fine and/or imprisonment and/or both” denote criminal nature of non-compliance.

The Act has clearly laid down the mechanism and the forum for speedy and smooth administration of judicial activities under the Act. The power of adjudication of civil non-compliances (defaults liable for penalties) is being vested with the ROC and the power of adjudication of criminal non-compliances (offences punishable with fine/imprisonment) is being vested with the special courts with sub-delegation of power of compounding of offences to Regional Director and NCLT. Thus, the statement given in the question that “Companies Act, 2013 is mixture of both civil law well as criminal law” is correct.

Question 6.
“Person once convicted or acquitted not to be tried for same offence again”. Comment on the statement in the light of decided case law(s).
Answer:
Scction 300 of Code of Criminal Procedure, 1973 (CrPC) protects a person from being prosecuted for the same offence again. Section 300 of CrPC cannot be definitely interpreted to mean that if a person steals a property and gets convicted of the offence of theft, he should not be prosecuted for the same offence if it arises out of another theft. Section 300 of CrPC is unique in the sense that it requires either a conviction or acquittal as a pre-requisite for the protection to be available.

In the case of Kerala High Court in Bharat Plywood and Timber Products Private Limited and Anr. v. Registrar of Companies and Another. [2002] 108 Comp Cas 601 (Ker.) held that “Section 300 of the CrPC provides that so long as an order of acquitted or conviction handed down by a court of competent jurisdiction stands in respect of a person charged with committing an offence, that person cannot again be tried on the same facts for the offence for which he was earlier tried or for any other offence arising therefrom.

Section 300 of CrPC becomes applicable when a court of competent jurisdiction had already tried the accused and that he is either acquitted or convicted. It is also necessary to note that for the first part of sub-section (1) of Section 300 to apply, the prior prosecution and subsequent prosecution should be for the same offence.

Question 7.
X, a Police Officer comes to know from reliable sources that four persons are staying in a house and are planning to kidnap and murder Mohan. He also has information that they possess automatic weapons. The Police Officer apprehends that they will commit the crime at any moment. He directly goes to that house and without any warrant or order from the Metropolitan Magistrate, arrests all the four persons along with weapons in their possession. Is the arrest of all the four persons valid?
Answer:
Section 2(c) of the Criminal Procedure Code, 1973 defines cognizable offences. Cognizable offence means a case in which, a police officer may arrest without warrant, as per the First Schedule of the Criminal Procedure Code, 1973 or under any other law for the time being in force. Cognizable offences are usually offences which are serious in nature like, Murder, Rape, Dowry, Kidnapping etc. In the given case, all four persons are planning to kidnap and murder Mohan, which is in nature of cognizable offence, hence arrest of all four persons is valid according to section 2(c of the Criminal Procedure Code, 1973.

As per section 156 of Criminal Procedure Code, 1973, a police officer may, without an order of the Magistrate, investigate any cognizable case. Thus on the basis of the first information report and other materials placed before the Police, if there is a suspicion that a cognizable offence has been committed, the Police Officer may arrest without any warrant.

Question 8.
Briefly discuss the powers of National Company Law Tribunal specified under section 424 of the Companies Act, 2013.
Answer:
1. The Tribunal and the Appellate Tribunal shall not, while disposing of any proceeding before it or, as the case may be, an appeal before it, be bound by the procedure laid down in 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 or of the Insolvency and Bankruptcy Code, 2016 and of any rules made thereunder, the Tribunal and the Appellate Tribunal shall have power to regulate their own procedure.

2. The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging their functions under this Act “or under the Insolvency and Bankruptcy Code, 2016”, 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 a copy of such record or document from any office;
• issuing commissions for the examination of witnesses or documents;
• 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.

3. Any order made by the Tribunal or the Appellate Tribunal may be enforced by that Tribunal in the same manner as if it were a decree made by a court in a suit pending therein, and it shall be lawful for the Tribunal or the Appellate Tribunal to send for execution of its orders to the court within the local limits of whose jurisdiction,-

• in the case of an order against a company, the registered office of the company is situated; or
• in the case of an order against any other person, the person concerned voluntarily resides or carries on business or personally works for gain.

4. All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of sections 193 and 228, and for the purposes of section 196 of the Indian Penal Code, and the Tribunal and the Appellate Tribunal shall be deemed to be civil court for the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973.

Question 9.
Differentiate Criminal Proceedings vis-a-vis Civil Proceedings
Answer:
A civil proceeding is concerned with a civil right, whether with reference to common law or a law created by any statute. A civil proceeding is distinguished from a criminal proceeding by the fact that if the criminal proceeding is taken to a logical conclusion and if the accused is found guilty, there may be imposition of a sentence of fine or imprisonment or both including a capital punishment if the statute so provides.

In civil proceeding, there may be an award of compensation and damages. A criminal proceeding includes all proceedings which are capable of being instituted under ordinary criminal law of land and is not confined to proceedings under CrPC.

Prosecution of an offence under the Companies Act, 2013 or for that matter those under the Foreign Exchange Management Act, 1999 or the Securities and Exchange Board of India Act, 1992 or the Securities Contracts (Regulation) Act, 1956 and other statutes are criminal proceedings and the complaints filed are criminal cases and, subject to provisions of such statutes, CrPC will apply to regulate the trial of offences under such laws. In M.S. Sheriff v. The State of Madras and Ors. AIR 1954 SC 397, the following propositions were laid down:

“We are informed at the hearing that the two further sets of proceedings arising out of the same facts are now pending against the appellants. One is two civil suits for damages for wrongful confinement. The other is two criminal prosecutions under section 344, Indian Penal Code for wrongful confinement, one against each Sub-Inspector.

It was said that the simultaneous prosecution of these matters will embarrass the accused. But after the hearing of the appeal, we received information that the two criminal prosecutions have been closed with liberty to file fresh complaints when the papers are ready, as the High Court records were not available on the application of the accused.

As these prosecutions are not pending at the moment, the objection regarding them does not arise but we can see that the simultaneous prosecution of the present criminal proceedings out of which this appeal arises and the civil suits will embarrass the accused. We have therefore to determine which should be stayed”.

“As between the civil and the criminal proceedings we are of the opinion that the criminal matters should be given precedence. There is some difference of opinion in the High Courts of India on this point. No hard and fast rule can be ‘ laid down but we do not consider that the possibility of conflicting decisions in the civil and criminal courts is a relevant consideration. The law envisages.

such an eventuality when it expressly refrains from making the decision of one court binding on the other, or even relevant, except for certain limited purposes, such as sentence or damages. The only relevant consideration here is the likelihood of embarrassment”.

In Para 18, on the question of staying a proceeding on the ground there is another proceeding:
“Another factor which weighs with us is that a civil suit often drags on for years and it is undesirable that a criminal prosecution should wait till everybody concerned has forgotten all about the crime. The public interests demand that criminal justice should be swift and sure; that the guilty should be punished while the events are still fresh in the public mind and that the innocent should be absolved as early as is consistent with a fair and impartial trial. Another reason is that it is undesirable to let things slide till memories have grown too dim to trust.

This, however, is not a hard and fast rule. Special considerations obtaining in any particular case might made some other course more expedient and just. For example, the civil case or the other criminal proceeding may be so near its end as to make it inexpedient to stay it in order to give precedence to a prosecution ordered under Section 476. But in this case we are of the view that the civil suits should be stayed till the criminal proceedings have finished”.

Question 10.
Discuss the Summons Case and Warrant Case
Answer:
As per section 2(w) of CrPC, ‘summons case means a case relating to an offence, and not being a warrant case. This implies that summons cases are cases relating to offences provided they are not warranted cases.
As per section 2(x) of CrPC, ‘Warrant-case’ means a case relating to an offence punishable with death, imprisonment for a term exceeding two years. In other words, if the minimum punishment prescribed by any substantive law for an offence is an imprisonment for a term exceeding two years, the offence will be dealt with as a warrant case. The basis of the classification is the seriousness of the offence to which the case relates. A warrant case relates to a serious offence while a summons case relates to a comparatively less serious offence.

It is for the same reason that the trial procedure prescribed for a warrant case is very elaborate when compared to that prescribed for a summons case.

As per CrPC in a summons case a summons is to be issued to the accused in the first instance and in a warrant case a warrant of arrest is normally to be issued for the arrest of the accused. CrPC gives discretion to the Judicial Officer to depart from this general rule if the circumstances so demand in a particular case.

Question 11.
Discuss the Powers of the Appellate Court under CrPC.
Answer:
Section 386 of the CrPC declares the powers of an Appellate Court. It will come into play only in a case where the appeal has not been dismissed summarily under section 384 through the power to dismiss an appeal summarily is by itself a power of the Appellate Court.

With respect to the powers of the Appellate Court, section 386 of CrPC states that the Appellate Court may dismiss the appeal if it considers that there is no sufficient ground for interfering with the order under appeal.

Before doing so, the Appellate Court must peruse the records, hear the appellant or his pleader, if he appears, and also the Public Prosecutor, if he appears, and in case of an appeal under Section 377 or Section 378, the Appellate Court must hear the accused too.

If the Appellate Court has not dismissed the appeal as aforesaid, it may –
a. in an appeal from an order of acquittal, reverse such order and direct that further inquiry be made, or that the accused be retried or committed for trial, as the case may be, or find him guilty and pass sentence on him according to the law.

b. in an appeal from a conviction, reverse the finding and the sentence and acquit or discharge the accused, or order him to be retried by a Court of competent jurisdiction subordinate to such Appellate Court or committed for trial, or alter the finding, maintaining the sentence, or with or without altering the finding, alter the nature or the extent, or the nature and extent, of the sentence, but not so as to enhance the same;

c. in an appeal for enhancement of sentence, reverse the finding and sentence and acquit or discharge the accused or order him to be retried by a Court competent to try the offence, or alter the finding maintaining the sentence, or with or without altering the finding, alter the nature or the extent, or the nature and extent, of the sentence, so as to enhance or reduce the same;

d. in an appeal from any other order, alter or reverse such order;

e. make any amendment or any consequential or incidental order that may be justified or proper:
Provided that the sentence shall not be enhanced unless the accused has been given an opportunity of showing cause against such enhancement:
Provided further that the Appellate Court shall not inflict greater punishment than the court passing the order or sentence under appeal for the offence, which in its opinion the accused has committed.

Section 386(&) of CrPC is important. It gives ample powers to the Appellate Court in relation to an appeal arising from an order of conviction and the Appellate Court may even acquit the person convicted of an offence by the trial court.

Section 389 of CrPC contains another important provision.
Section 3 86( 1) of CrPC states that pending any appeal by a convicted person, the Appellate Court may, for reasons to be recorded by it in writing, order that the execution of the sentence or order appealed against be suspended and, also, if he is in confinement, that he be released on bail, or on his own bond. The words “execution of sentence or order appealed against may be suspended” are very important and in order that the sentence or order is capable of being suspended, it should be an executable order.

A proviso under sub-section (1) states that the Appellate Court shall, before releasing on bail or on his own bond a convicted person who is convicted of an offence punishable with death or imprisonment for life or imprisonment for a term of not less than ten years, shall give opportunity to the Public Prosecutor for showing cause in writing against such release. In the case of offences covered under section 447 involving the element of fraud or similar fraudulent elements, a person may be sentenced to imprisonment for a term of 10 years too.

In case of offences covered under section 443 of the Companies Act, 2013, as stated in section 443 company prosecutors have all the powers and privileges conferred by the Code on Public Prosecutors appointed under Section 24 of the Code and accordingly opportunity must be given to the company prosecutors as stated in this proviso. A further proviso states that in cases where a convicted person is released on bail it shall be open to the Public Prosecutor to file an application for the cancellation of the bail.

Section 386(2) states that the power conferred by this section on an Appellate Court may also be exercised by the High Court in case of an appeal by convicted person to a Court subordinate thereto.
Section 386(3) of CrPC states that if the convicted person satisfies the Court by which he is convicted that he intends to present an appeal, the Court shall,

• where such person, being on bail, is sentenced to imprisonment for a term not exceeding three years, or
• where the offence for which such person has been convicted is bailable, and he is on bail, order that the convicted person be released on bail unless there are special reasons for refusing the bail.

The Court shall give sufficient time to present the appeal and obtain the orders of the Appellate Court under sub-section (1), and the sentence of imprisonment shall be deemed to be suspended as long as he is released on bail.

Section 386(4) of CrPC declares that when the appellant is ultimately sentenced to imprisonment for a term or to imprisonment for life, the time during which he is so released shall be excluded in computing the term for which he is sentenced.

Question 12.
Differentiate between summons case and warrants case. Whether procedure adopted in a trial changes as per the nature of the case? Elucidate.
Answer:
Summons Case and Warrant Case:
As per Section 2(x) of CrPC, ‘summons case means a case relating to an offence, and not being a warrant case. In other words, this means that summons cases are cases which do not satisfy requirements of warrants case:-
As per Section 2(x) of CrPC, ‘Warrant-case’ means a case relating to an offence punishable

• with death, or
• imprisonment for a term exceeding two years

In other words if minimum punishment prescribed by any substantive law for an offence is an imprisonment for a term exceeding two years, the offence will be dealt with as a warrant case.

Those cases which are punishable with imprisonment for two years or less are summons cases, the rest are all warrant cases.

The basis of the classification is the seriousness of the offence to which the case relates. A warrant case relates to a serious offence while a summons case relates to a comparatively less serious offence. The procedure for warrant case is usually more elaborate than the procedure for summons case.

Question 13.
Write short note on Conviction of an accused under Code of Criminal Procedure, 1973.
Answer:

• The trial procedure is over when judgment is pronounced. Such judgment may either be an acquittal or conviction.
• As per Section 255(1), if the Magistrate finds the accused not guilty after considering the evidence for prosecution and defence, he shall record an order of acquittal.
• When the prosecutor has sought the assistance of the court for securing the attendance of the witnesses, the court cannot refuse to take steps for securing attendance of such witnesses and pass an order of acquittal on the ground that the case fails for want of evidence.
• But if the prosecution did not take proper steps to produce the wit-nesses or ask the court to give them time to do the same, or to issue fresh summons, the court was not bound to fix another date.
• Under such circumstances, the Magistrate can record an order of acquittal under Section 255 of CrPC, if there is no evidence to hold the accused guilty.
• No charge may be framed in a summons case, but the details of offence will be contained in complaint or summons.
• As per Section 255(3), where the Magistrate is convinced that the accused appears to have committed the said offence, the Magistrate may convict the accused of such offence. Such conviction may be based either on facts admitted or proved.
• As such a person accused of a particular offence triable as a summons case can be convicted of a totally different and unconnected offence. But the Magistrate should form an opinion that the accused would not be prejudiced thereby.

Question 14.
Trial Procedure before a Session Court – Detailed Note
Answer:
As the Judge of a Special court is going to be of the rank of the Sessions Judge or the Additional Sessions Judge, the Special Court has to follow this procedure except as regards matters that are contained under the Companies Act, 2013 (the substantive law relating to offences triable by the Special Court established or designated under Section 435 of the Companies Act, 2013), as if it were a trial before a Court of Sessions.

(a) The provisions regarding the stage prior to framing of charge are contained in Sections 225,226 and 227 whereas Section 228 provides for the framing of charge against the accused person.

(b) If after the charge is framed the accused pleads guilty, Section 229 provides that the Judge shall record the plea and may, in his discretion, convict him thereon. However, if he does not enter a plea of guilty, Sections 230 and 231 and provide for leading of prosecution evidence.

(c) The Judge shall record an order of acquittal if, on the completion of the prosecution evidence and examination of accused, the Judge is of the opinion that there is no evidence that the accused committed the offence with which he is charged.

(d) If the Judge does not record an acquittal under Section 232, the accused would have to be called upon to enter on his defence as required by Section 233. Section 235 requires the Judge to give his judgment for the case after the evidence-in-defence is completed and the arguments heard as required by Section 234.

(e) If the accused is convicted, Section 235(2) requires that the Judge shall hear the accused on the question of sentence and then pass sentence on him according to law. However, the judge has the option of proceeding as per Section 360 which pertains to setting off the convicted person on probation for good conduct.

(f) Section 353 of CrPC requires the Judgment to be pronounced in the open court. Even if the accused is in custody, he should be brought to the court when the judgment is pronounced.

(g) Section 354 specifically requires the Court to state in the Judgment the offences for which the accused has been convicted and sentenced or of which he has been acquitted. As per Section 354 of CrPC, the Judgment:

• shall be written in the language of the Court;
• shall contain the points for determination, the decision thereon and the reasons for the decision;
• in case of conviction, shall specify the offence (if any) of which the accused is convicted along with the relevant section of the Indian Penal Code, 1860 or other law under which, the accused is convicted
• the punishment to which he is sentenced; and
• If it be a judgment of acquittal, shall state the offence of which the accused is acquitted along with direction that he be set at liberty.

(h) Section 354(2) states that when the conviction is under the Indian Penal Code, 1860, and it is doubtful under which of two sections, or under which of two parts of the same section, of that Code the offence falls, the Court shall distinctly express the same, and pass judgment in the alternative section.
(i) As per Section 354(3), when the conviction is

• for imprisonment for life or imprisonment for term of years, the s judgment shall state the reasons for the sentence awarded, and,
• for an offence punishable with death, the judgment shall state the special reasons for such sentence

(j) Section 354(5) stipulates that when any person is sentenced to death, the sentence shall direct that he be hanged by the neck till he is dead.

(k) Section 355 contains provisions regarding the manner in which a Metropolitan Magistrate will make the Judgment. Judgment should state the below points in all cases in which an appeal lies from the final order either under Section 373 or under Section 374(3):

• the serial number of the case;
• the date of the commission of the offence;
• the name of the complainant (if any);
• the name of the accused person, and his parentage and residence;
• The offence complained of or proved;
• The plea of the accused and his examination (if any);
• The final order;
• The date of such order.

(l) Section 356 of CrPC prescribes the requirement regarding making an order for notifying address of previously convicted offender.

(m) Section 357 of CrPC is about the power of the Court to order payment of compensation. Such order could require a part of the fine to be awarded with regard to-

• paying the expenses incurred in the prosecution;
• payment to any person for compensation of any loss or injury caused by the offence;
• when any person is convicted of any offence for having caused the death of another person or of having abetted the commission of such an offence, in paying compensation to the persons who, under the Fatal Accidents Act, 1855 are entitled to recover damages from the person sentenced for the loss resulting to them from such death;’
• when any person is convicted of any offence which includes theft, criminal misappropriation, criminal breach of trust, or cheating, or of having dishonestly received or retained, or of having voluntarily assisted in disposing of, stolen property knowing or having reason to believe the same to be stolen – in compensating any bona fide purchaser of such property for the loss of the same if such property is restored to the possession of the person entitled thereto.

(n) Section 357(2) of CrPC provides that if the fine is imposed in a case, which is subject to appeal, then no such payment shall be made

• before the period allowed for presenting the appeal has elapsed, or
• before the decision of the appeal, if such appeal has been presented

(o) Section 357(3) states that when a Court imposes a sentence of which fine does not form a part, the Court may, while passing the judgment, order the accused person to pay, by way of compensation such amount as may be specified in the order to the person who has suffered any loss or injury by reason of the act for which the accused person has been so sentenced.

(p) Section 357(4) of CrPC contains an important declaration that the type of order referred to in this Section may also be made by an Appellate Court or by the High Court or Court of Session while exercising its powers of revision.

(q) Section 359 provides for an order in regard to the payment of costs in non-cognizable cases.

Question 15.
Specify the procedure of appeals under CrPC in case of conviction of the accused.
Answer:
1. Right to appeal is not a natural or inherent right but a nght created by law. Section 372 of CrPC clearly states that there is no question of preferring any appeal against any order unless the statute specifically provides. Section 373 applies to appeals from orders requiring security or refusal to accept or reject security for keeping peace or good behaviour.

2. Section 374 enables appeals by a person who has been convicted of an offence.
Sections 375 and 376 contain, the restrictions relating to appeals.
Section 374 of CrPC says as follows:
(a) Any person convicted on a trial held by a High Court exercising its criminal jurisdiction may appeal to the Supreme Court. [SectIon 374(1)1
(b) Any person may appeal to the High Court if he is convicted on a trial

• held by a Sessions judge or an Additional Sessions Judge or
• held by any other Court in which a sentence of imprisonment for more than seven years has been passed;

3. Section 375 of CrPC states that there shall be no appeal when the conviction in a case is pursuant to the accused pleading guilty.

4. Section 376 further states that there shall be no appeal against any order of sentence of a High Court if the punishment awarded is a sentence of imprisonment for a term not exceeding 6 months or of a fine exceeding Rs. 1000. In the case of an offence in which a sentence of imprisonment for a term not exceeding 3 months or of fine not exceeding Rs. 200, or of both, no appeal can be preferred.

5. An appeal would however lie in the following situations:

• that the person convicted has been ordered to furnish security to keep the peace; or
• that a direction for imprisonment in default of payment of fine is included in the sentence; or
• That more than one sentence of fine is passed in the case if the total amount of fine imposed does not exceed the amount hereinbefore specified in respect of the case.

There tire several offences under the Companies Act, 2013 that are punishable with imprisonment which may extend to 6 months. Further, there are offences in which punishment by way of fine cannot be less than the prescribed minimum amount.

Question 16.
Is appeal possible under CrPC in case of acquittal of the accused?
If yes, discuss the procedure regarding the same.
Answer:
1. SectIon 378(1) states that
(a) The District Magistrate may direct the Public Prosecutor to present an appeal to the Court of the Session from an order of
acquittal passed by a Magistrate in respect of a cognizable and non-bailable offence;

(b) The State Government may direct the Public Prosecutor to present an appeal to the High Court from an original or appellate order of an acquittal passed by any Court other than a High Court

• not being an order under clause (a) or
• an order of acquittal passed by the Court Session in revision.

2. Section 378(2) of CrPC states that if such an order of acquittal is passed in any case in which the offence has been investigated by the Delhi Special Police or by any other agency empowered to make investigation into an offence under any Central Act other than this Code, the Central Government may, subject to the provisions of sub-section (3), also direct the Public Prosecutor to present an appeal:

• To the Court of Session, from an order of acquittal passed by a Magistrate in respect of a cognizable and non-bailable offence;
• To the High Court from an original or appellate order of an acquittal passed by any Court other than High Court not being an order under clause (a) or an order of acquittal passed by the Court of Session revision.

3. Without obtaining the leave of the High Court, the appeals under subsections (1) and (2) of Section 378 are not possible.

Resolution of Corporate Disputes Non-Compliances & Remedies Notes

Recommended Reading On: Java Program to Print Pell Number Series 0 1 2 5 12 29 70 …N

Signing and Certification – Secretarial Audit Compliance Management and Due Diligence Important Questions

Question 1.
Pioneer Fisheries Ltd. has borrowed an amount of INR 50 crore from a financial institution. The annual general meeting of the Company was held on 1st September, 2015. Examining the provisions of Companies Act, 2013, state as to who will sign and certify the annual return while filing the same with the Registrar of Companies after the Annual General Meeting.
Answer:
1. As per section 92 of the Act, every company shall prepare a return in E-form MGT 7 containing the required particulars as they stood on the close of the financial year and signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice.

2. The annual return, filed by a listed company or, by a company having paid-up capital of ten crore rupees or more or turnover of fifty crore rupees or more, shall be certified by a company secretary in practice (Form No. MGT 8), stating that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of this Act.

3. Here, it may be noted that borrowed amount is not any criteria for deciding about the authority/eligibility of the person to sign and certify the annual return.

Thus, in the absence of information about whether the company falls under the listing or paid up share capital or Turnover category discussed above, it would be difficult to decide whether its annual return shall be signed and certified by a practising company secretary or not.

Question 2.
Fabulous Ltd. is in the process of finalisation of its annual return. It is a listed company with paid-up capital of INR 1 crore. The company seeks your advice on the following:
(1) Who will sign the return on behalf of the Company?
(2) What are the requirements of certification of annual return by a Practising Company Secretary?
Answer:
(1) As per section 92 of the Companies Act, 2013, every company shall prepare its annual return containing the required particulars as they stood on the close of the financial year and shall be signed by a director and the Company Secretary, or where there is no Company Secretary, by a company secretary in practice. Whereas in case of One Person Company and small company, the annual return shall be signed by the Company Secretary, or where there is no Company Secretary, by the director of the company.

(2) Every listed company, or a company with paid up share capital of 10 crore or more or a company with turnover of ₹ 50 crore or more, shall be required to get a certificate by the Practicing Company Secretary (PCS) stating the facts that the requirements of the Companies Act, 2013 and rules thereto have been complied with and Annual Return discloses the facts correctly and adequately.

Question 3.
XYZ Ltd. has not filed Annual return for the financial year 2017-18. Write a note on the consequences of non-filing of Annual Return by the company in relation to a Director of the company, as per provisions laid under the Companies Act, 2013.
Answer:
Consequences on the Director of XYZ Ltd. for Non-filing of Annual Return:
As per section 92 of the Companies Act, 2013, XYZ Ltd. is required to file a copy of annual return with the Registrar, within sixty days from the date on which the annual general meeting of the company was held for the financial year 2017-18.

If the company has not filed its Annual Return from the date by which it should have been filed with fee and additional fees, every officer including director of the company, who is in default shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day during which such failure continues subject to a maximum of two lakh rupees. [Section 92(5) of Companies Act, 2013]

If the company has not filed its financial statement or Annual Return for continuous period of three financial years, then every person who is or has been director of that company shall not be eligible for reappointment as Director of that company or appointed in any other company for a period of five years from the date on which the said company fails to do so[Section 164(2) of Companies Act, 2013].

Question 4.
Who will pre-certify the following e-forms? Explain the compliance for certification of following e-forms by Practicing Professional.
(a) GNL-1
(b) DPT-3
(c) MGT-14
(d) AOC 4
(e) DIR 3 & DIR 3-KYC.
Answer:

Question 5.
You have been engaged as a Practicing Company Secretary by XYZ Limited, an unlisted company having a turnover of INR 75 crore for certification of annual return of the company for the year 2018-19. The annual return is signed by the Chief Executive Officer of the Company. State the provisions of the Companies Act, 2013 and the Rules made thereunder as to signing and certification of annual return. Is it mandatory to file the annual return if the annual general meeting is not held in a particular year?
Answer:
1. As per section 92 of the Act, every company shall prepare a return in E-form MGT 7 containing the required particulars as they stood on the close of the financial year and signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice.

2. The annual return, filed by a listed company or, by a company having paid-up capital of ten crore rupees or more or turnover of fifty crore rupees or more, shall be certified by a company secretary in practice (Form No. MGT 8), stating that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of this Act.

3. Here, it may be noted that borrowed amount is not any criteria for deciding about the authority/eligibility of the person to sign and certify the annual return.

Thus, in the absence of information about whether the company falls under the listing or paid up share capital or Turnover category discussed above, it would be difficult to decide whether its annual return shall be signed and certified by a practising company secretary or not.

Question 6.
Write Short Note on: “Authentication of Documents”.
Answer:
1. As per the Rule 8(1), (2) & (5) of Companies (Registration Office and fee) Rules, 2014 provides that all electronic forms are required to be authenticated by authorised signatories using digital signatures. The e-forms are required to be authenticated on behalf of the company by the Managing Director or Director or Company Secretary or other key managerial personnel. In case of any change in directors or company secretary, the form relating to appointment of such directors or company secretary is required to be filed by continuing director or secretary of the company.

2. As per Rule 8(6) of Companies (Registration Office and fee) Rules, 2014, scanned image of documents must be of the original signed documents relevant to the e-forms and the scanned document image shall not be left blank without bearing actual signature of authorised person.

3. As per rule 8(7) of Companies (Registration Office and fee) Rules, 2014, the person signing the form and the professional certifying the form are responsible to ensure that all the required attachments relevant to the form have been attached completely and legibly to the forms or applications or returns filed as per the Act and the rules.

Question 7.
What are the points to be kept in mind with regard to pre-certification?
Answer:
Following points to be kept in mind with regard to pre-certification:
1. Exercising due care, diligence and skill, while performing the duty of pre-certification.

2. Sound application of mind in verifying the averments made in the respective forms after due consideration of the provisions of the Act read with the relevant rules.

3. A Company Secretary in practice should thoroughly read the requirements of the provisions of the Act, the Rules made there under and familiarize himself with the actual practices that are followed in this regard before undertaking the work of pre-certification of forms.

4. Ensure that letter of engagement/Board Resolution authorizing the professional for the particular assignment by the company is obtained.

5. Maintain a physical/scanned copy of all documents verified (subject to confidentiality requirement).
Obtain the signature(s) of the authorised signatories on the e-forms in presence of the professional.
Ensure that all relevant documents and attachments in the form are legible & visible.

Question 8.
List out do’s and don’ts while filling and filing of e-forms.
Answer:
Do’s while filling and filing of e-forms:
1. Ensure that latest version of the e-forms has been downloaded from the MCA Website.

2. DIN is mandatory for e-filing of documents. Therefore, the professional should ensure that the details related to DIN of the Directors has been updated on the MCA Portal.

3. Digital Signature is mandatory and same shall be registered on the MCA Portal before it first use.

4. Check Master Data of the company before filing any documents.

5. Before filling of e-forms, the professional should go through the instruction kit of the respective e-form provided by the MCA on MCA-21 portal.

6. The attachments to the e-forms should be complete and all pages of the attachment should be page numbers and shall be attached in order.

7. Option for revision/cancellation of e-forms is not available on MCA Portal once it is taken on Record.

8. Keep track of the various events of the clients company and en-courage companies to keep the updated filing to avoid regulatory actions.

9. Use various inbuilt utilities like “PREFILL” and complete the form by clicking on “CHECK’’ and “PRE-SCRUTINY” options.

10. Check the date of resolution and minute book, which authorizes the Director/Secretary before filling the date of resolution in the form.

Don’ts while filling and filing of e-forms:
1. Don’t wait for the last days or the due date of the filing of e-forms.

2. Don’t fill up the forms in hurry, ensure that the all the entries in the forms are correct and as per the supporting documents to be attached.

3. Don’t forget to pay the filing fees before the expiry date of the challan as non-payment of fees liable for cancellation of transaction.

Question 9.
What are common errors in e-filing?
Answer:
Following are common errors in e-filing:

• Digital signature is not registered/expired.
• Payment of challan not done before the expiry date.
• Duplicate Payments has been made.
• Excess size of the form.
• Approval status of e-forms in not verified.
• Status of resubmission of e-forms
• Use of outdated version of e-form.
• Incorrect particulars in the e-form.
• Using older versions of Adobe and Java.

Question 10.
Write short note on: “Preparation before Certification”.
Answer:
Following points needed to be ensured before undertaking the work relating to Pre-certification and should thoroughly read the requirements of the provisions of the Companies Act, 2013 and Rules made there under and familiarize himself with the actual practices the following:

• Ensure that Letter of Engagement/Board Resolution authorizing the professional for the assignment by the company to be obtained.
• Maintain a physical/scanned copy of all documents verified (subject to confidentiality requirement).
• Ensure that all relevant documents and attachments are legible & visible.
• Verification of the documents from the original records of the company.
• Correctness of the records and the material departure from the facts.
• The form to be digitally signed by the Director or person authorized by the company.

Question 11.
Write short note on: “Register of Certification”.
Answer:
1. For the purpose of maintaining quality of attestation/certification services provided by Company Secretaries in Practice, every Practicing Company Secretary should maintain a register regarding attestation/ certification services provided by him.

2. The Practicing Company Secretary should maintain the register for the all attestation/certification services, which includes:

• Signing of Annual Return (MGT-7).
• Certification of Annual Return (MGT-8).
• Issue of Secretarial Audit Report (MR-3).
• Certification of E-forms of MCA under Companies Act, 2013 & LLP Act, 2008.
• Internal Audit of Depository Participants/portfolio Manager/ Stock Broker.
• Annual Compliance auditor under SEBI (Research Analyst) Regulations, 2014.
• Issue of certificate of Securities Transfers in compliance with the Listing Agreement with Stock Exchanges.
• Conduct of Internal Audit of Operations of the Depository Participants.
• Corporate Governance Certification under SEBI (LODR) Regulations, 2015.
• Register of various reports issued.

Question 12.
What services are included in Peer Review by Company Secretaries in Practice?
Answer:
The peer review includes the following services by the company secretaries in practice:

• Certification/Signing of Annual Return pursuant to section 92 of the Companies Act, 2013.
• Issuance of Secretarial Audit Report in terms of section 204 of the Companies Act, 2013.
• Issuance of Certificate of Securities Transfers in Compliance with the – LODR with Stock Exchanges.
• Conduct of Internal Audit of Operations of the Depository Participants.
• Compliance Certification under SEBI LODR.
• Attestation services of Form AOC 4, MGT 7, DIR 12, SH 7 and PAS 3 filed with the ROC.
• Such other services as decided by the Council of ICSI under the scope of peer review from time to time.

Thus, every Company Secretaries in Practice/Firm should maintain adequate records and documents evidencing that pre-certification/attestation have done with due care and diligence.

Question 13.
What documents to be obtained/verified before certification of Annual Return by Company Secretary in Practice?
Answer:
Documents to be Obtained/Verified before Certification of Annual Return by Company Secretary in Practice:
1. Memorandum and Articles of Association.

2. Forms & receipts filed with the Registrar of Companies.

3. Statutory Registers:

• Record of Private Placement under PAS-5 (Section 42)
• Register of Members (Section 88)
• Shareholders -MGT-1
• Debenture holders-MGT-2
• Register of Directors & their Shareholding (Section 170)
• Register of Key Managerial Personnel (Section 170)
• Register of Related Party Contracts under MBP -4 (Section 188)
• Register of Loan and Investment under SH-12 (Section 186)
• Register of Deposit (Sections 73 and 76 read with rule 14)
• Register of Charge under CHG-10 (Section 85)
• Register of Securities
• Register of Employee Stock Option under SH-6 (Section 62)
• Register of Buyback under SH-10 (Section 68)
• Register of Sweat Equity shares under SH-3 (Section 62)

4. Minutes of the Meetings:

• Board Meeting.
• General Meeting.
• Committee Meeting.
• Creditors Meeting
• Debenture holders.
• Postal ballot minutes.

5. Notices and agenda papers for convening meetings of the Board and Committees thereof.

6. Attendance Registers of all meetings.

7. Copy of Latest Financial Statements along with the Boards Report and Auditors Reports.

8. Copy of Notice of Annual General Meeting/Extraordinary General meetings / Postal Ballots / Court convened meetings / Creditors meetings and debenture holders meeting.

9. Board Resolution for any type of corporate actions taken by the Company.

10. Corporate Action Forms filed by the Company with Depositories.

11. Shareholding pattern and its break up.

12. List of Promoters.

13. Indebtedness Certificate signed by Company Secretary/ CFO/Statutory Auditors of the Company.

14. Other Statutory Registers and Records.

Question 14.
Whether non-filing of Annual Return is a Compoundable offence?
Answer:
1. Offence in respect of default in filing Annual Return is compoundable (section 441), in accordance with the procedure laid down in the Code of Criminal Procedure, 1973 for compounding of offences.

2. If any company fails to file its annual return under section 92 (4), before the expiry of the period specified therein, such company and its every officer who is in default shall be liable to a penalty of Ten thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day during which such-failure continues, subject to a maximum of two lakh rupees in case of company and fifty thousand in case of an officer who is in default.

Question 15.
Write short Note on: “Filing of Annual Return in absence of Annual General Meeting’’.
Answer:
1. As per section 92(4) of Companies Act, 2013: Where no Annual General Meeting is held in a particular year, the Annual Return has to be filed within 60 days from the last day on which the meeting should have been held together with the statement specifying the reasons for not holding the annual general meeting, with such fees or additional fees as may be prescribed, within the time as specified, under section 403.

2. As per section 403 if the Annual return under section 92 is not filed within the due date the same can be filed on payment of additional fee as may be prescribed, which shall not be less than one hundred rupees per day and different amounts may be prescribed for different classes of companies.

3. However, where there is default on two or more occasions in submitting, filing, registering or recording of the document, fact or information, it may, without prejudice to any other legal action or liability under this Act, be submitted, filed, registered or recorded, as the case may be, on payment of a higher additional fee, as may be prescribed.

4. Management cannot escape from the responsibility of filing the return, if the Annual General Meeting is not held. Similarly the responsibility cannot be abandoned even if the company is in operative.

5. The obligation on the part of management to file the returns and can be relinquished only when the company is wound-up or its name struck- off from the Register maintained by the Registrar of Companies.

Question 16.
What are the professional misconduct in relation to members of the Institute in service?
Answer:
A member of the Institute (other than a member in practice) shall be deemed to be guilty of professional misconduct, if he, being an employee of any company, firm or person:

• Pays or allows or agrees to pay, directly or indirectly, to any person any share in the emoluments of the employment undertaken by him.
• Accepts or agrees to accept any part of fees, profits or gains from a lawyer, a Company Secretary or broker engaged by such company, firm or person or agent or customer of such company, firm or person by way of commission or gratification.

Question 17.
What are the professional misconduct in relation to members of the Institute generally under first schedule of Company Secretaries Act, 1980?
Answer:
A member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct, if he:
1. Not being a Fellow of the Institute, acts as a Fellow of the Institute.

2. Does not supply the information called for, or does not comply with the requirements asked for, by the Institute, Council or any of its Committees, Director (Discipline), Board of Discipline, Disciplinary Committee, Quality Review Board or the Appellate Authority.

3. While inviting professional work from another Company Secretary or while responding to tenders or enquiries or while advertising through a write up, or anything as provided for in items (6) and (7) of Part I of this Schedule, gives information knowing it to be false.

Question 18.
What are the consequences of non-filing of Annual Return for the Director of Company?
Answer:
1. As per section 92 of Companies Act, 2013, in case the company has not filed its Annual Return from the date by which it should have been filed with fee and additional fees, every officer who is in default shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of two lakh rupees in case of company and fifty thousand in case of an officer who is in default.

2. As per section 164(2) of Companies Act, 2013, in case the company has not filed its financial statement or Annual Return for continuous period of three financial years, then every person who is or has been director of that company shall not be eligible for re-appointment as Director of that company or appointed in any other company for a period of five years from the date on which the said company fails to do so.

3. As per section 448 of Companies Act, 2013, if in Annual Return any Director or any Person makes a statement:
(a) which is false in any material particulars, knowing it to be false; or

(b) which omits any material fact, knowing it to be material, any person who is found to be guilty of fraud involving an amount of atleast ten lakh rupees or 1% of turnover of the company, whichever is lower 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 three times the amount involved in the fraud.

Under section 245 of Companies Act, 2013, class of shareholders or depositors may file an application with the Tribunal alleging that the management or conduct of the affairs of any company are being conducted in a manner prejudicial to the interest of the company, its members or depositors. Such class action may include suite against the company, its directors, officers, experts or any other person for wrongful or fraudulent act. The order passed by the Tribunal shall be binding on the Company, its directors and officers.

Question 19.
Write Short Note on: “Consequences of non-filing of Annual Return on Company”.
Answer:
1. If the company has not filed its Annual Return by which it should have been filed with fee and additional fees, the company shall be punishable with fine which shall not be less than ten thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of two lakh rupees in case of company and fifty thousand in case of an officer who is in default.

2. As per section 271 of Companies Act, 2013, if the Company has defaulted in filing Annual Returns for the immediately preceding five financial years, the Company may be wound up by the Tribunal.

• As per section 455(1) of Companies Act, 2013, if the Company has not filed its Annual Return for last two financial years, it will be termed as “inactive company”.
• As per section 455(4) of Companies Act, 2013, if the Company has not filed its Annual Return for two financial years consecutively, the Registrar shall issue notice to the Company and enter its name in the Register of Dormant Companies.
• Provisions and procedure for compounding of offences, which are punishable under Companies Act, 2013 are stipulated under section 441.
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Secretarial Audit Compliance Management and Due Diligence ICSI Study Material