CS Professional Resolution of Corporate Disputes Non Compliances & Remedies Question Paper

Question 1(a)
A listed Company was awarded three contracts of drilling rigs. The value of contracts are substantial to the revenue of the company. As per the normal procedure for bidding there was a time gap between the dates of declaration of the announcement as top bidder and the announcement of the award. This information is considered as Trice Sensitive’ until the stock exchanges were informed, but the company thought that it will inform only after declaration of official award of the contract. However, the officials of the Company were “Restricted” from dealing in the shares of the company immediately after announcement as top bidder.

In the meantime, the Managing Director of the company before submission of this information to the stock exchanges put this information on Facebook timeline and his friends on Facebook made likes and some even bought shares.

As a Company Secretary elaborate based on a decided case, whether the posting of this on the Facebook timeline.
i. Made the other friends a ‘connected person’.
ii. Whether this meant an access to ‘Unpublished Price Sensitive Information’. (5 Marks)
Answer:
→ The term “unpublished price sensitive information” (UPSI) has been defined in regulation 2(1 )(n) of SEBI (Prohibition of Insider Trading) Regulations, 2015 as under:

→ “unpublished price sensitive information” means any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities and shall, ordinarily including but not restricted to, information relating to the following: –

financial results;
dividends;
change in capital structure;
mergers, de-mergers, acquisitions, delistings, disposals and expansion of business and such other transactions;
changes in key managerial personnel; and
material events in accordance with the listing agreement.

→ As per Regulation 2(1 )(d)(i) of SEBI (Prohibition of Insider Trading) Regulations, 2015 any person who is or has during the six months prior to the concerned act been associated with a company, directly or indirectly, in any capacity including by reason of frequent communication with its officers that allows such person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access as connected person.

→ The perusal of the provision shows that the association of the person can be direct or indirect and the association can be in any capacity which can include frequent communication with its officers by virtue of which such associated person can be reasonably expected to have access to unpublished price sensitive information. The provision, inter alia, provides for the yardstick for insiders by stipulating that insider can be by way of their association in any capacity or it can be by way of frequent communication with its officers which can also be in their social capacity as evident in this case.

→ As per section 2(59) of the Companies Act, 2013 “officer” includes any director, manager or key managerial personnel or any person in accordance J with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act. Therefore the Managing Director is an officer of the company.

→ The facts of the case are similar to the case of Deep Industries Ltd. before the Securities and Exchange Board of India (SEBI) in the matter of insider trading.

→ In the present case Managing Director has shared the Unpublished price Sensitive Information on Facebook. Using this information the friends of the Managing Director are reasonably expected to have access to the Unpublished Price Sensitive Information at the relevant period. Also they have purchased shares using this information. Therefore, as per the provisions of Regulations 2(1 )(d)(i) and 2(1 )(g) of the SEBI (PIT) Regulations, 2015, the friends of the Managing Director are “connected persons” and consequently will be treated as insiders with respect to the company. And thus they will have access t6 ‘Unpublished Price Sensitive Information’.

(b) An unlisted public company has Authorised share Capital of ₹ 10,00,000 equity voting shares of ₹ 10 each of same class. The subscribed and fully paid up Share Capital of the Company is 8,00,000 share of ₹ 10 each. To comply with statutory provisions on dematerialisation of shares, the company applied for allotment ISIN with a depository for the entire authorised share capital instead of application for paid up share capital.
i. Examine the validity of the process adopted by the Company quoting relevant provisions.
ii What is the penalty, if any, prescribed for violation of process in such cases under Securities Contracts (Regulation) Act, 1956. (5 Marks)
Answer:
→ Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form. ISIN (International Securities Identification Number) is a unique 12 digit alphanumeric identification number allotted for a security (e.g.- INE383C01018). Equity fully paid up, equity-partly paid up, equity with differential voting/dividend rights issued by the same company will have different ISINs.

→ Every unlisted public/private company shall facilitate dematerialisation of all its existing securities by making necessary application to a depository as defined in section 2(1 )(a) of the Depositories Act, 1996 and shall secure International Security Identification Number (ISIN) for each type of security and shall inform all its existing security holders about such facility. Every company who want to dematerialise their shares have to get International Securities Identification Number (ISIN) and then shareholders are able to dematerialise their shares with any DP after opening a Demat Account.

→ ISIN is obtained for the subscribed capital for which certificates are issued to the investor. In the present case the company has dematerialised equity shares of Rs 10,00,000 whereas only shares of Rs. 8,00,000 have been issued and subscribed. It has resulted into dematerialising securities more than the issued securities of the company. As section 23F of the Securities Contracts (Regulation) Act, 1956, if any issuer dematerialises securities more than the issued securities of a company or delivers in the stock exchanges the securities which are not listed in the recognized stock exchange or delivers securities where no trading permission has been given by the recognized stock exchange, he shall be liable to a penalty which shall not be less than five lakh rupees but which may extend to twenty-five crore rupees.

(c) An Assistant Commissioner of Goods and Services Tax (GST) based on the returns filed by a taxable person is of the opinion that the taxable person has suppressed some transaction relating to goods/services and also claimed input tax credit in excess of his entitlement under the Goods and Services Act. Therefore, he authorised another officer in writing to inspect the place of business of that taxable person. The taxable person has not allowed the authorised officer to enter his place of business, as he claimed that it is not tenable order u/s 67(1) of the CGST Act.

Do you agree with the argument of the taxable person, can the authorised officer inspect place of business. Quote relevant provisions of justify your answer. (5 Marks)
Answer:
According to section 67(1) of the CGST Act, where the proper officer, not below the rank of Joint Commissioner, has reasons to believe that

(a) a taxable person

has suppressed any transaction relating to supply of goods or services or both or the stock of goods in hand; or
has claimed input tax credit in excess of his entitlement under this Act; or
has indulged in contravention of any of the provisions of this Act or the rules made thereunder to evade tax under this Act; or

(b) any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place

is keeping goods which have escaped payment of tax or has kept his accounts; or
goods in such a manner as is likely to cause evasion of tax payable under this Act,

he may authorize in writing any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place.

As per the above mentioned provision officer ordering the inspection should not be below the rank of Joint Commissioner. In the present case the Inspection order was passed by Assistant Commissioner to authorise another officer to conduct the inspection. As per section 67 (1) of the CGST Act, such order cannot be passed by the Assistant Commissioner. Stand taken by the taxable person is correct as the order for inspection should be passed by an officer not below the rank of Joint Commissioner.

(d) Competition Commission of India is proposing to initiate suo moto inquiry against a Company, which is controlling more than fifty per cent of market share in the industry. List out the factors to be considered in determining the dominant position of an enterprise. (5 Marks)
Answer:
According to section 19(4), the Commission shall, while inquiring whether an enterprise enjoys a dominant position or not under section 4, have due regard to all or any of the following factors, namely:

market share of the enterprise;
size and resources of the enterprise;
size and importance of the competitors;
economic power of the enterprise including commercial advantages over competitors;
vertical integration of the enterprises or sale or service network of such enterprises;
dependence of consumers on the enterprise;
monopoly or dominant position whether acquired as a result of any statute or by virtue of being a Government
company or a public sector undertaking or otherwise;
entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers;
countervailing buying power;
market structure and size of market;
social obligations and social costs;
relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant position having or likely to have an appreciable adverse effect on competition;
any other factor which the Commission may consider relevant for the inquiry.

Attempt all parts of either Q. No. 2 or Q. No. 2A

Question 2. (OR)
(a) A Bank lent money to borrowers against security of gold ornaments. The Gold ornaments were valued by a Gold Appraiser. The Bank lent 60% of the certified value of the gold. An employee of the Bank who is a man of integrity realised that the Gold Appraiser had colluded with the Loan Manager and the security provided was not ‘gold ornaments’ but ‘gold plated ornament’. Advise the employee on his course of action?. (4 Marks)
Answer:

In the present case the employee of the bank has detected a fraud being carried by the Loan manager and Gold Appraiser. In such a case the employee may report this fraud to appropriate authority. In Indian banking system Reserve Bank of India requires the banks to devise effective whistle blower mechanism.
In terms of the RBI whistle blower policy or individual policy of various Banks, it has been prescribed that the complainants can lodge their reports with prior designated officials in the Bank regarding corruption, misuse of office or criminal actions of his superior officer or employer Bank and failure to adherence to RBI guidelines. These designated officers of the Bank are usually at a very high position in the bank.
But the whistle blower has to mention his name and address on the written or mailed complaint otherwise as per the policy the anonymous or pseudonymous complaints are not to be entertained by the designated officer. It has been left to the designated officer to keep the identity of the whistle blower concealed
Thus in the present case the employee can send his compliant about the fraud being carried out to the designated officer of his bank either in writing or on mail disclosing the facts about the fraud and also mentioning his name and address.

(b) A Shareholder of a Company brought an action for damages against the Company and its Directors on the ground that they have been negligent in selling a property owned by the company for ₹ 75 crore whereas its real value was ₹ 100 crore. Is this suit maintainable? (4 Marks)
Answer:
In Pavlides v. Jensen (1956) a minority shareholder brought an action for damages against three directors and against the company itself on the ground that they have been negligent in selling a mine owned by the company for ₹ 82,000, whereas its real value was about ₹ 10,00,000. It was held that the action was not maintainable. The judge observed, “It was open to the company, on the resolution of a majority of the shareholders to sell the mine at a price decided by the company in that manner, and it was open to the company by a vote of majority to decide that if the directors by their negligence or error of judgment has sold the company’s mine at an undervalue, proceedings should not be taken against the directors”.

The facts of case given are similar to the case which is mentioned above. The minority shareholder cannot bring action against the company and its Directors if the said property was sold by passing a resolution by majority of the shareholders as it is up to the company to decide the price of the property to be sold. And hence the action cannot be brought against the company and its Directors merely on the ground that the price charged is less than the market value of the property.

(c) The Company Secretary of a Company was allotted quarters during the tenure of his employment. He has retired on 31st March, 2019. As per the terms of his employment, he is required to vacate his quarters within one month of his ceasing to be in employment. Le. by 30th April, 2019. He seeks one year to vacate the premises on the ground of his children’s education. The Company wants him to vacate as it has allot it to the new Company Secretary. What would be your advice to the Company under the given circumstances? (4 Marks)
Answer:
→ As per section 452 of the Companies Act 2013, if any officer or employee of a company:
(a) wrongfully obtains possession of any property, including cash of the company; or

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

→ The Court trying an offence under sub-section (1) may also order such officer or employee to deliver up or refund, within a time to be fixed by it, any such property or cash wrongfully obtained or wrongfully withheld or knowingly misapplied, the benefits that have been derived from such property or cash or in default, to undergo imprisonment for a term which may extend to two years.

→ As per the provisions of the Companies Act, 2013 it is not allowed to keep the possession of the property beyond the terms of the contract between the company and the employee. In the present case as per the terms of his employment, the Company Secretary is required to vacate his quarters within one month of his ceasing to be in employment ie. by 30th April, 2019. The Company Secretary is seeking one year to vacate premises on the ground of children’s education.

→ Since the company wants the Company Secretary to vacate quarters, the company can file a complaint in the court of law against the Company Secretary. So if the Company secretary does not vacate the quarters within one month given to him, the company can file complaint against him under section 452 of the Companies Act, 2013.

(d) During the course of investigation under section 217 of the Companies Act, 2013 it is revealed that the company has taken loans worth ? 100 crore from a consortium of Banks in India and failed to repay them as per the terms of the loan agreement. Further, the Managing Director of the Company, who is a UK National has moved to London and is not responding to the inquiries by the investigating Officer.

You are required to advise the Bank on the steps to be taken to collect evidence as well as to recover the money lent by the Bank of the Company? (4 Marks)
Answer:
Following is the procedure of investigation and the powers of Inspectors under section 217
1. It shall be duty of all past and present officers, other employees and agents of a company or body corporate or a person under investigation

to preserve and to produce all books and papers of the company or relating to company
otherwise to give all assistance to Inspector.

2. An inspector may examine on oath

Any past or present officer or employee,
With the prior approval of the Central Government, any other person.

3. The inspector making an investigation shall have all the powers of civil court under the Code of Civil Procedure, 1908 while trying a suit namely

The discovery and production of books of account
Summoning and enforcing the attendance of persons and examining them on oath.

4. If any director or officer of the company disobeys the direction issued by the Registrar or the inspector, the director or the officer shall be punishable with imprisonment which may extend to one year and with fine which shall not be less than twenty five thousand rupees but which may extend to one lakh rupees.

5. If any person fails without reasonable or refuse

To produce to an inspector or authorized person any book or paper which is his duty
To appear before the inspector personally when required to do so or to answer any question which is put to him by the inspector, he shall be punishable with imprisonment for a term which may extend to six months and with fine which shall not be less than twenty five thousand rupees but may extend to one lakh rupees and also with a further fine which may extend to two thousand rupees for every day after the first during which the failure or refusal continue.

6. Letter of Request from India: On an application made by the inspector to the competent court in India, such court may issue a letter of request to a court or authority in such country of place, competent to decil with such request. Such application shall state that evidence is, or may be, available in that country or place outside India. The letter of request shall ask the court in that country or place outside India

to examine orally,” or otherwise, any person, supposed to be acquainted with the facts and circumstances of the case;
to record his statement made in the course of such examination;
to require such person or any other person to produce any document or thing, which may be in his possession pertaining to the case, and
to forward all the evidence so taken or collected or the authenticated copies thereof or the things so collected to the court in India which had issued such letter of request.

The letter of request shall be transmitted in such manner as the Central Government may specify in this behalf. According to rule 6 of the Companies (Inspection, Investigation and Inquiry) Rules, 2014, the letter of request shall be transmitted in such manner as specified by the Ministry of Corporate Affairs.

Every statement recorded or document or thing received under this sub-section shall be deemed to be the evidence collected during the course of investigation.

7. In the present case the Managing Director of the Company, who is a UK National has moved to London and is not responding to the inquiries by the investigating Officer. As can be seen from the above mentioned provisions, a Letter of Request can be sent to UK so that the court in UK can examine the director and records his statement. Accordingly the company can follow these provisions to collect evidence and recover the loan.

OR (Alternate to Q.2)

Question 2A. Comment:
i. The term ‘fraud’ has been defined for the first time in the Companies Act, 2013’ – Briefly, discuss the background and importance of the definition of ‘fraud’ under the Companies Act, 2013? (4 Marks)
Answer:
The JJ Irani Committee set up by the Government in 2004 submitted its report in 2005 with far reaching recommendations. The recommendations of the committee have received shape in the Companies Act, 2013. One of the recommendations of the committee was that there should be deterrent penalties for companies that show irresponsible behaviour or conduct fraudulent activities.

The relevant extract of the report is as below:
→ “The provisions of the Companies Act relating to penalties for fraudulently inducing persons to invest money should be made more stringent. The practice relating to imposition of penalties under provisions in the present Companies Act have been found to ineffective since there are not many cases under which punishment has actually been imposed. The legal procedure associated with such prosecution should be revisited so as to make the process more effective. The offence of fraudulent inducement should be non-compoundable. The Government may also consider actions such as attachment of bank accounts in such cases subject to the orders of Judicial Magistrate First Class.”

→ Thus, the committee felt that there should be stringent penalty for fraudulent inducement of persons to invest and also it opined that the then prevalent practice of imposing penalties was ineffective. The committee also felt that such offences should be non-compoundable. The committee also went ahead in recommending attachment of bank accounts backed by approval of courts.

→ The committee further recommended that if the investigation reveals fraudulent conduct then the law should provide for lifting the corporate veil to make available access to promoters and shareholders to ascertain the role. The committee also felt that the companies should be allowed to raise capital so long as they provide true and correct information to investors and the regulators. There could be flexibility to raise capital by making adequate disclosures. However non-compliance with disclosure norms or raising money fraudulently should be subject to strict penalty regime.

→ As discussed, fraudulent behaviour requires stringent action when compared to mere procedural violations. While the term fraud is commonly used by one and all; the meaning of which changes in a legal connotation depending on the definition, if any, contained in the respective piece of law.

→ ‘Fraud’, in general, refers to a wrongful or criminal deception practiced which is intended to result in financial or personal gain to oneself and a financial or personal loss to the other.

→ In view of this, the definition of Fraud has been included in the Companies Act, 2013.

(ii) ‘De-criminalisation of most offences under the Companies Act, 2013 is key to E-adjudication framework’ – Elaborate highlighting recent developments in this context? (4 Marks)
Answer:
→ Section 447 of the Act lays down the punishment for any person found guilty of fraud to imprisonment not less than six months but which may extend to ten years and fine not less than the amount involved in fraud but which may extend to three time the amount involved. Further, in case the fraud involves public interest, the minimum imprisonment shall be not less than three years.

→ The MCA set up a committee to review the Companies Act, 2013. The Committee has dealt with fraud and the corresponding provision i.e., section 447 of the Companies Act, 2013. The Committee received suggestions that the ambit of section 447 was too broad and would result in minor infractions being punished with severe penalties, which are non-compoundable. The Committee observed that the provision has a potential of being misused and may also have a negative impact on attracting professionals in the post of directors etc. and, therefore, recommends that only frauds, which involve at least an amount of rupees ten lakh or one per cent of the turnover of the company, whichever is lower, may be punishable under section 447 (and non-compoundable). Frauds below the limits, which do not involve public interest, may be given a differential treatment and compoundable since the cost of prosecution may exceed the quantum involved.

→ In July, 2018 the Ministry of Corporate Affairs (MCA) has constituted a 10 Member Committee, headed by the Secretary of Ministry of Corporate Affairs, for review of the penal provisions in the Companies Act, 2013 may be setup to examine ‘de-criminalisation’ of certain offences. Consequently, it has been decided that the existing compoundable offences in the Companies Act, 2013 viz. offences punishable with fine only or punishable with fine or imprisonment or both may be examined and a decision may be taken as to whether any of such offences may be considered as ‘civil wrongs’ or ‘defaults’ where a penalty by an adjudicating officer may be imposed in the first place and only consequent to further non-compliance of the order of such authority will it be categorised as an offence triable by a special court.

Following are the key recommendations of the MCA Committee:

Re-categorization of 16 out of the 81 compoundable offences by shifting them from the jurisdiction of special courts to an in-house E-adjudication framework wherein defaults would be subject to levy of penalty by the authorised adjudicating officer (Registrar of Companies);
remaining 65 compoundable offences to continue under the jurisdiction of special courts due to their potential misuse;
instituting a transparent online platform for E-adjudication and E-publication of orders;
necessitating a concomitant order for making good the default at the time of levying penalty, to achieve better compliance;
enlarging the jurisdiction of the Regional Director with enhanced

(iii) pecuniary limits for compounding of offences under section 441 of the Companies Act 2013; (From Rs. 5 Lakhs to Rs. 25 Lakhs). ‘There is a difference in legislative intent for incorporating section 441 and section 454 under the Companies Act, 2013’ – Discuss. (4 Marks)
Answer:
Differences between section 441 and section 454
1. Adjudication Order u/s 454 is appealable
While the adjudication order is appealable with the higher authorities as per the express provision provided in sub-section (5) of section 441, with the procedure being provided by the Rules, a compounding order is generally not appealable unless the victim is aggrieved by the compounding order. Once he agrees on the compounding order, he cannot go on appeal against it. Once an offence is compounded, penalty or prosecution proceedings cannot be taken for the same offence. Thus the compounding authority nor the offender can appeal against the compounding order in the normal course.

2. Adjudicating officer’s order u/s 454 will be arbitrary and not on consensus.

In the case of section 454, the adjudicating officer’s order is more arbitrary and not on consensus, though a reasonable opportunity may be given to the company and the officer in default as required u/s 454(4) before the imposition of any penalty. The compounding amount is arrived at after consensus between the legal authority and the company. If the company does not agree with the compounding amount then compounding cannot be done.

3. Powers under section 441 are exercised by different authorities in certain cases but the power of adjudication under section 454 vests with only the Regional Director

(iv) ‘The words “oppression” and “mismanagement” are not defined in the Act. The meaning of these words for the purpose of company law should be used in board generic sense and not in any strict literal sense’- Discuss citing suitable case law? (4 Marks)
Answer:
→ The words “oppression” and “mismanagement” are not defined in the Act. The meaning of these words for the purpose of Company Law should be used in a broad generic sense and not in any strict literal sense.

→ The meaning of the term “oppression” as explained by Lord Cooper in the Scottish case of Elder v. Elder & Western Ltd [1952] Scottish Cases 49, which has been cited with approval by Wanchoo, J (afterwards C J.) of the Supreme Court in Shanti Prasad v. Kalinga 7ufres[1965] 1 Comp. L.J. 193 at 204 is as under:
“The essence of the matter seems to be that the conduct complained of should at the lowest, involve a visible departure from the standards of fair dealing, on which every shareholder who entrusts his money to the company is entitled to rely.”

→ An attempt to force new and more risky objects upon an unwilling minority may in circumstances amount to oppression. This was held in Re. Hindustan Co-operative Insurance Society Ltd. AIR 1961 Cal. 443 wherein the life insurance business of a company was acquired in 1956 by the Life Insurance Corporation of India on payment of compensation. The directors, who had the majority voting power, refused to distribute this amount among shareholders, rather they passed a special resolution changing the objects of the company to utilise the compensation money for the new objects. This was held to be an “Oppression”.

→ A similar relief was allowed by the House of Lord in Scottish Co-operative Wholesale Society v. Mayer [1959] AC 324. In this case, the society created a subsidiary company to enable it to enter in the rayon industry. Subsequently when the need for the subsidiary ceased to exist, the society adopted a policy of running down its business which depressed the value of its shares. The two petitioners who were managing directors and minority shareholders in the company successfully pleaded “oppression”. The court ordered the society to purchase the minority shares at the value at which they stood before the oppressive policy started.

Thus, the meaning of ‘the words “oppression” and “mismanagement” for the purpose of company law should be used in board generic sense and not in any strict literal sense’.

Attempt all parts of either Q No. 3 or Q No. 3A

Question 3. (Or)
(a) Are the following offences compoundable and if yes, by whom?
(i) failure to maintain Register of Member and Debenture-holders
(ii) Fraudulently issuing duplicate share certificates.
(iii) Failure to keep proper books of account
(iv) Tempering with minutes of meetings. (4 Marks)
Answer:
(i) Offence of failure to maintain Register of Member and Debenture-holders under section 88(5) of the Companies Act, 2013 is compoundable by Regional Director.
(ii) Offence of Fraudulently issuing duplicate share certificates under section 46(5) of the Companies Act, 2013 is compoundable by NCLT (National Company Law Tribunal).
(iii) Offence of failure to keep proper books of account under section 128 (6) of the Companies Act, 2013 is compoundable by Regional Director.
(iv) Offence of Tempering with minutes of meetings under section 118 (12) of the Companies Act, 2013 is a non-compoundable offence.

(b) Answer with reasons, under COFEPOSA, 1974:
(i) Can Maharashtra Government order detention of a person in Guj arat?
(ii) A detention order has been issued against a person on several grounds. Some of these grounds have been proved to be non-existent. Is the detention order still valid?
(iii) Can a person detained in Mumbai be shifted to Ahmedabad and detained there?
(iv) Can any, restriction be imposed on a detained person with respect to communication with others? (4 Marks)
Answer:
(i) Yes. Maharashtra Government may order detention of a person in Gujarat provided such order is passed by the officer not below the rank of Secretary if he is so satisfied. However the person in Gujarat, cannot be removed from there without permission of the Gujarat Government.

(ii) Yes. As per section 5A of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974, the order for detention shall not be deemed invalid or inoperative merely because one or some of the grounds is or are vague, non-existent, not relevant etc. Thus the order is still valid.

(iii) Yes. The person detained in Mumbai can be shifted to Ahmedabad and detained there with prior permission of the Gujarat Government (Section 5)

(iv) Yes. There is no provision in the Act which allows communication by detainee with others.

(c) One of a relative of an Authorised Officer under Prevention of Money Laundering Act (PMLA), annoyed by his neighbour, passes a false information to the authorised officer that his neighbour is keeping smuggled gold bars. Based on the information of his relative, authorised officer conducts search in the place and found nothing. Affected person claims that the search conducted by authorised officer is vexatious. Whether claim of the affected person is tenable. Briefly discuss the provisions under PMLA with punishment for vexatious search. (4 Marks)
Answer:
→ As per Prevention of Money-Laundering Act (PMLA), where the Director or any other officer not below the rank of Deputy Director authorized by him for the purposes of this section, on the basis of information in his possession, has reason to believe (the reason for such belief to be recorded in writing) that any person has committed any act which constitutes money-laundering, or

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

enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept. (Section 17)

→ Provided that no search shall be conducted unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under section 157 of the Code of Criminal Procedure, 1973 (2 of 1974), or a complaint has been filed by a person, authorized to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or in cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorized to investigate a scheduled offence to an officer not below the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or Department or Unit, as the case may be, or any other officer who may be authorized by the Central Government, by notification, for this purpose.

→ In the given case the search has been carried out basis of false information given by the neighbour to the authorised person. The reasons for search has not been recorded in writing. The authorised person has not hied a complaint or forwarded report in relation to the scheduled offence. This is a pre-condition for conducting the search. Smuggling of gold bars is scheduled offence for which the filing of report or complaint is mandatory before the search. In the present case this has not be done and hence the search vexatious and the claim of the affected person is right.

→ Any authority or officer exercising powers under this Act or any rules made thereunder, who, without reasons recorded in writing,

searches or causes to be searched any building or place; or
detains or searches or arrests any person, shall for every such offence be liable on conviction for imprisonment for a term which may extend to two years or fine which may extend to fifty thousand rupees or both.

(d) An Assessing Officer who is empowered to impound the books of Account has impounded the books of account under section 131(3) of the Income-tax Act, 1961 without writing and retained such books for one month for in-depth checking. Comment upon the manner of impounding and retention of books, whether it is valid or not with justification? (4 Marks)
Answer:
According to section 131(3) of the Income-tax Act, 1961, subject to any rules made in this behalf, any authority referred to in sub-section

or sub-section (1A) or sub-section
may impound and retain in its custody for such period as it thinks fit any books of account or other documents produced before it in any proceeding under this Act.

According to proviso to section 131 (3), an Assessing Officer or an Assistant Director or Deputy Director shall not

impound any books of account or other documents without recording his reasons for so doing, or
retain in his custody any such books or documents for a period exceeding, fifteen days (exclusive of holidays) without obtaining the approval of the Principal Chief Commissioner or Chief Commissioner or Principal ; Director General or Director General or Principal Commissioner or Commissioner or Principal Director or Director therefor, as the case may be.

As mentioned in the above provisions, the appropriate authority may impound the books without recording the reasons in writing. Also the books can be impounded for more than 15 days without any approval. In view of this the impounding of the books is valid.

OR (Alternate to Q.3)

Question 3A.
Write a short notes on: (4 Marks each)
(i) ‘Consent Order’ issued by SEBI. ‘
Answer:
→ Consent Order means an order settling administrative or civil proceedings between the regulator and a person (Party) who may prima facie be found to have violated securities laws. It may settle all issues or reserve an issue or claim, but it must precisely state what issues or claims are being reserved. A Consent Order may or may not include a determination that a violation has occurred.

→ Consent Order provides flexibility of wider array of enforcement and remedial actions which will achieve the twin goals of an appropriate sanction, remedy and deterrence without resorting to litigation, lengthy proceedings and consequent delays.

→ Consent orders cannot be construed as waiver of statutory powers by the Board. The Board always has the right to proceed for appropriate action if it cannot achieve its objectives through a consent order.

→ US Securities and Exchange Commission settles a substantial number (over 90%) of administrative/civil cases by consent orders. Consent orders may provide flexibility of wider array of enforcement actions which will achieve the twin goals of an appropriate sanction and deterrence without resorting to a long-drawn litigation before SEBI/Tribunal/Courts. Passing of consent orders will also reduc regulatory costs and would save time and efforts taken in pursuing enforcement actions. This effort could more effectively be used for pursuing cases which require the full process of enforcement action and for policy work.

→ Therefore, it has been decided that all appropriate administrative or civil actions e.g. proceedings under sections 11,1 IB, 1 ID, 12(3) and 15-1 of SEBI Act and equivalent proceedings under the SCRA and the Depositories Act, 1996 and other civil matters pending before Securities Appellate Tribunal (SAT)/courts may be settled between SEBI and a person (party) who may prima facie be found to have violated the securities laws or against whom administrative or civil action has been commenced for such violation. Compounding of offence may cover appropriate prosecution cases filed by SEBI before the criminal courts.

→ Consent order may be passed at any stage after probable cause of violation has been found under SEBI Laws. However, in the event of a serious and intentional violation, the process should not be completed till the fact-finding process is completed whether by way of investigation or otherwise.

→ Compounding of Offence can take place after filing criminal complaint by SEBI. Where a criminal complaint has not yet been filed but is envisaged, the process for consent orders will be followed.

(ii) ‘Search’ and ‘Seizure’ under Prevention of Money-Laundering Act (PMLA)
Answer:
‘Search’ and ‘Seizure’ under section 17 of Prevention of Money-Laundering Act (PMLA)

→ Where the Director or any other officer not below the rank of Deputy Director authorized by him for the purposes of this section, on the basis of information in his possession, has reason to believe (the reason for such belief to be recorded in writing) that any person

has committed any act which constitutes money-laundering, or
is in possession of any proceeds of crime involved in money-laundering, or
is in possession of any records relating to money-laundering, or
is in possession of any property related to crime,

then, subject to the rules made in this behalf, he may authorize any officer subordinate to him to
(a) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept;
(b) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (a) where the keys thereof are not available;
(c) seize any record or property found as a result of such search;
(d) place marks of identification on such record or property, if required or make or cause to be made extracts or copies therefrom;
(e) make a note or an inventory of such record or property;
(f) examine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this Act:

→ Where it is not practicable to seize such record or property, the officer authorized under section 17(1), may make an order to freeze such property whereupon the property shall not be transferred or otherwise dealt with, except with the prior permission of the officer making such order, and a copy of such order shall be served on the person concerned:

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

→ The authority, who has been authorized under sub-section (1) shall, immediately after search and seizure or upon issuance of a freezing order, forward a copy of the reasons so recorded along with material in his possession, referred to in that sub-section, to the Adjudicating Authority in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period, as may be prescribed. [Section 17(2)]

→ Where an authority, upon information obtained during survey under section 16, is satisfied that any evidence shall be or is likely to be concealed or tampered with, he may, for reasons to be recorded in writing, enter and search the building or place where such evidence is located and seize that evidence:

→ Provided that no authorisation referred to in sub-section (1) shall be required for search under this sub-section. [Section 17(3)]

→ The authority seizing any record or property under sub-section (1) or freezing any record or property under sub-section (1A) shall, within a period of thirty days from such seizure or freezing, as the case may be, file an application, requesting for retention of such record or property seized under sub-section (1) or for continuation of the order of freezing served under sub-section (1A), before the Adjudicating Authority. [Section 17(4)]

(iii) ‘Cognizable’ and ‘Non-bailable’ offences under the Companies Act, 2013.
Answer:
Offences to be Cognizable and Non-Bailable under Companies Act, 2013 are
→ Not with standing anything in the Code of Criminal Procedure, 1973, every offence under the Companies Act, 2013 except the offences referred to in sub-section (6) of section 212 shall be deemed to be non-cognizable.

→ Section 212(6) provide, offence covered under section 447 of Companies Act, 2013 shall be cognizable and no person accused of any offence under those sections shall be released on bail or on his own bond unless

the Public Prosecutor has been given an opportunity to oppose the application for such release; and
where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail:

→ Provided that a person, who, is under the age of sixteen years or is a woman or is sick or infirm, may be released on bail, if the Special Court so directs:

→ Provided further that the Special Court shall not take cognizance of any offence referred to this sub-section except upon a complaint in writing made by any officer of the Central Government authorized, by a general or special order in writing in this behalf by that Government.

(iv) Inspection of accounts or records under Foreign Contribution (Regulation) Act, 2010.
Answer:
→ Inspection of accounts under the Foreign Contribution (Regulation) Act, 2010

→ According to Section 23, of the Foreign Contribution (Regulation) Act, 2010 if the Central Government has, for any reason, to be recorded in writing, any ground to suspect that any provision of this Act has been or is being, contravened by

any political party; or
any person; or
any organization; or
any association,

it may, by general or special order, authorize such Gazetted Officer, holding a Group A post under the Central Government or such other officer or authority or organization, as it may think fit (hereinafter referred to as the inspecting officer), to inspect any account or record maintained by such political party, person, organization or association, as the case may be, and thereupon every such inspecting officer shall have the right to enter in or upon any premises at any reasonable hour, before sunset and after sunrise, for the purpose of inspecting the said account or record.

→ Section 23 provides that if the Central Government has, for any reason, to be recorded in writing, any ground to suspect that any provision of this Act has been or is being, contravened by any political party; or any person; or any organization; or any association, it may, by general or special order, authorize such gazetted officer, holding a Group A post under the Central Government or such other officer or authority or organization, as it may think fit, to inspect any account or record maintained by such political party, person, organization or association, as the case may be, and thereupon 1 every such inspecting officer shall have the right to enter in or upon any premises at any reasonable hour, before sunset and after sunrise, for the purpose of inspecting the said account or record.

Question 4. (a)
Companies Act, 2013 allows settlement of disputes even through ‘Mediation and Conciliation’ – Enumerate the matters which cannot be referred to mediation and Conciliation? (4 Marks)
Answer:
Matters not to be referred to the mediation or conciliation as per rule 30 of the Companies (Mediation and Conciliation) Rules, 2016.

The matters relating to proceedings in respect of inspection or investigation under Chapter XIV of the Act; or the matters which relate to defaults or offences for which applications for compounding have been made by one or more parties.
Cases involving serious and specific allegations of fraud, fabrication of documents forgery, impersonation, coercion etc.
Cases involving prosecution for criminal and non-compoundable offences.
Cases which involve public interest or interest of numerous persons who are not parties before the Central Government or the Tribunal or the Appellate Tribunal as the case may be.

(b) ‘Under the Companies Act, 2013, where a Company seeks compounding before institution of any prosecution, no prosecution shall be instituted in relation to such offences either by Register of Companies or any person authorised by the Central Government’ – Discuss the objective of providing compounding, immunity and its economics benefits?
Answer:
1. Objective of providing Compounding
It was felt and considered necessary that there is great need of leniency in the administration of the Corporate Law(s) particularly its penalty provisions not only because a large number of defaults are of technical nature but also because they arise out of ignorance of the lengthy and bewildering complexity of the provisions of the Law(s). Therefore, the concept of compounding of offences was incorporated as a measure to avoid the long-drawn process of prosecution, which would save both cost and time in exchange of payment of a penalty to the aggrieved.

2. Compounding Immunity
By looking into the provisions of the Corporate Laws which contain provision for compounding, it will be noted that compounding is an admission of guilt either voluntarily or on receipt of notice of default or initiation of prosecution. The defaulters agree to pay penalty which may be ordered by the Compounding authority to be paid.

Thus, it can be said that Compounding is essentially a compromise or arrangement between administrator of the enactment and person committing an offence. Compounding crime consists of receipt of some consideration (termed as compounding fees) in return for an agreement not to prosecute one who has committed an offence. When compounding is done, the prosecution is converted into fine Le. condoning of prosecution by imposing penalty. It enables the offender company and the director/officer-in-default to avail peace and honourable discharge and avoid cumbersome trial. Thus compounding provides immunity against prosecution.

3. Economic benefits

Buy peace of mind.
Compounding amount shall not be treated as fine for the purpose of Part I of Schedule V of Companies Act, 2013 relating to appointment of managerial personnel provided therein.
No need to appear before prosecution authorities. It provides comfort to individuals and corporates and persons connected with it.
Amount paid as compounding fee under law for can be claimed as a tax deduction under the Income-tax Act while a penalty paid for contravention is not eligible for deduction.
Speedy disposal of offences and justice.
Judiciary can devote more time and concentrate on serious cases.

(c) “Though the term ‘settlement’ is widely used in stock exchanges and securities market, Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 has different meaning to it” – Discuss and also brief on the terms of settlement as per aforesaid regulations? (4 Marks)
Answer:
Consent Order means an order settling administrative or civil proceedings between the regulator and a person (Party) who may prima facie be found to have violated securities laws. It may settle all issues or reserve an issue or claim, but it must precisely state what issues or claims 2; are being reserved. A Consent Order may or may not include a determination that a violation has occurred.

Settlement Terms: Regulation 9 of Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018.
1. The settlement terms may include a settlement amount and/or non-monetary terms, in accordance with the guidelines specified in Schedule II.

2. The non-monetary terms may include the following:

Suspension or cessation of business activities for a specified period;
Exit from Management;
Disgorgement on account of the action or inaction of the applicant;
Refraining from acting as a partner or officer or director of an intermediary or as an officer or director of a company that has a class of securities regulated by the Board, for specified periods;
Cancel securities and reduce holdings where the securities are issued fraudulently, including bonus shares received on such securities, if any, and reimburse any dividends received, etc.
Lock-in of securities;
Implementation of enhanced policies and procedures to prevent future securities laws violations as well as agreeing to appoint or engage an independent consultant to review internal policies, processes and procedures;
Provide enhanced training and education to employees of intermediaries and securities market infrastructure institutions;
Submit to enhanced internal audit and reporting requirements.

3. The settlement amount, excluding the legal costs and disgorged amount, shall be credited to the Consolidated Fund of India.

4. The application fee referred to in sub-regulation (2) of regulation 3 and the legal costs, if any, forming part of the settlement amount shall be credited to the Securities and Exchange Board of India General Fund.

5. The amount of profits made or losses avoided by the applicant that may be disgorged as part of the settlement terms, shall be credited to the Investor Protection and Education Fund

(d) ‘There are monetary limits for each authority to compound the offence’ – Enumerate the powers of Reserve Bank of India and Enforcement Di-rectorate to compound contraventions. (4 Marks)
Answer:
The following are Compounding Authorities under FEMA:
1. Officers of the Reserve Bank as may be authorized in this behalf by the Central Government in such manner as may be prescribed if the offence is not contravention under section 3(a) of the FEMA.

2. Officers of the Enforcement Directorate not below the rank of Deputy Director or Deputy Legal Adviser (DLA) if it is relating to section 3(a) of FEMA.

It may be noted that section 3(a) of FEMA prescribes the provisions for the deal in or transfer any foreign exchange or foreign security to any person not being an authorised person (commonly dubbed as Hawala 1 transaction).

3. Power of Reserve Bank to compound contraventions
If any Person contravenes any provisions of Foreign Exchange Management Act, 1999 except clause (a) of section 3 of the Act
(a) in case where the sum involved in such contravention is ten lakh rupees or below, by the Assistant General Manager of the Reserve Bank of India;
(b) in case where the sum involved in such contravention is more than rupees ten lakhs but less than rupees forty lakhs, by the Deputy General Manager of Reserve Bank of India;
(c) in case where the sum involved in the contravention is rupees forty lakhs or more but less than rupees one hundred lakhs by the General Manager of Reserve Bank of India;
(d) in case the sum involved in such contravention is rupees one hundred lakhs or more, by the Chief General Manager of the Reserve Bank of India;

4. Power of Enforcement Directorate to compound contraventions If any Person contravenes provisions of section 3(a) of Foreign Exchange Management Act.
(a) in case where the sum involved in such contravention is five lakhs rupees or below, by the Deputy Director of the Directorate of Enforcement;
(b) in case where the sum involved in such contravention is more than rupees five lakhs but less than rupees ten lakhs, by the Additional Director of the Directorate of Enforcement;
(c) in case where the sum involved in the contravention is rupees ten lakhs or more but less than fifty lakh rupees by the Special Director of the Directorate of Enforcement;
(d) in case where the sum involved in the contravention is rupees fifty lakhs or more but less than one crore rupees by Special Director with Deputy Legal Adviser of the Directorate of Enforcement;
(e) in case the sum involved in such contravention is one crore rupees or more, by the Director of Enforcement with Special Director of the Enforcement Directorate. Provided further that no contravention shall be compounded unless the amount involved in such contravention is quantifiable.

Question 5. (a)
‘In today’s environment, directors and officers are exposed to risk of personal financial loss as a result of serving a Director or Officer of the Companies’ – Discuss the statement and also elaborate on tools available for mitigation of such risks. (8 Marks)
Answer:
→ Being a director of officer of a company there is always a major risk of losing one’s own personal belonging (including car and house) due to the business decisions made. But this situation can be avoided if the director or officer of a company purchased a director liability insurance. It is essential for every company to have a director and office insurance (D&O), in order to have some peace of mind.

→ Directors and officer’s insurance afford protection to directors and officers from liability arising from actions connected to their corporate responsibilities. The policy provides indemnity to the directors and officers in respect of Legal costs in defending proceedings brought against them alleging wrongful acts. Key reasons to buy D&O insurance are:

Personal assets of directors are at risk: If a director has been accused of breaching duties, their personal assets are at risk in case they don’t have any D&O insurance.
Defending a legal action is an expensive affair: The legal costs and expenses in litigations involving directors are usually complex and costly.
Investors can file a case: If investors believe that they have incurred losses due to mismanagement of the company, they could approach the court to seek compensation.
Employees can sue: It is not only shareholders who can file a case against the directors as even employees reach the court to challenge the decision of the directors. It is a hard reality that in today’s corporate world, there has been a rise in the number of cases filed by employees, related to sexual harassment or wrongful dismissal.
Customers can take legal actions: In some cases, customers also reach the court against misrepresentations made in the advertisement ma-terials and deceptive trade practices.
Enquiry initiated by regulatory authorities: Regulatory bodies like SEBI, Revenue Department, etc., can initiate enquiry against directors.
In case of bankruptcy or insolvency: If faced with bankruptcy, cred-itors can pursue legal action against directors if they think that they have not acted in their best interest.
Helps in attracting/retaining talent: Not having a comprehensive D&O may discourage talented employees from joining the company as they know will not be guarded against any legal case if arise in future.
D&O claims are not covered under any other policy: Most of the people believe that D&O claims are also covered under other liability insurance plans like professional indemnity.

→ In 2016, Tata Sons sacked its director Cyrus Mistry who later made a statement that the company was taking some loss-making decisions on emotional grounds. As the company was listed in the USA, the risk of investor actions in that country was very high. However, the company had a director liability insurance, which covered the legal cost and other expenses.

→ It can be concluded that in recent years, the role of directors and officers has become more stringent and. challenging, given the increasing responsibilities and litigation pressure. In most of the cases, directors and officers carry personal responsibility and liability with respect to their acts. As a result, it is pertinent to go with a director liability insurance, which can safeguard directors and officers against the monetary burden of litigation and damage to their reputation.

→ The Companies also go for Professional Indemnity Insurance to cover the cost of losses caused by business decisions to the third parties.

→ Professional Liability Insurance is also known as “Errors and Omissions Insurance” or “Malpractice Insurance”. Its coverage focuses specifically on the lawsuits that stem from the professional services rendered.

→ Most organizations decide to take up professional indemnity insurance keeping in mind their own protection against coughing up a large sum of money, in case they have caused their clients a huge loss due to their own mistakes and have to compensate for that amount.

→ Though this policy is especially important for service providers to carry, most small business owners can benefit from its coverage. It shields the insured from third-party lawsuits alleging:

Negligent professional services.
Failure to uphold contractual promises.
Incomplete or shoddy work.
Mistakes or omissions.

(b) ‘Managing Social media is one of the important facets of present Brands’
– Discuss the statement quoting live incident(s) and as a Company Secretary suggest briefly, the ways for managing such crisis? (8 Marks)
Answer:
1. Facebook’s silence about its data breach:
The social media giant reportedly chose to stay silent even though it had known for three years that Cambridge Analytica – the consulting firm hired by President Donald Trump’s 2016 campaign – improperly accessed information on millions of people. Since then, the company has racked up misstep after misstep. From the failure to issue an immediate statement from Chief Executive Officer Mark Zuckerberg when Facebook finally admitted what happened to hiring a shady opposition research firm to investigate its critics. Facebook was the subject of more trouble, when the New York Times reported that it shared even more user data with outside companies than previously acknowledged.

Ways to crisis management in the given scenario
When the news broke, disclosure is the most effective strategy in a crisis because the truth always emerges. Companies and even the government need to explain what happened on their own terms and regain confidence by demonstrating that they have learned a lesson and are taking immediate steps to change course.

2. Lockheed Martin asks people to share photos of its products:
In August, the world’s largest weapons maker tweeted: “Do you have an amazing photo of one of our products? Tag us in your pic and we may feature it during our upcoming #WorldPhotoDay celebration on Aug. 19!” People quickly responded with pictures showing the impact of its weapons, including an image of UNICEF backpacks belonging to children killed in Yemen with a bomb made by the company. Lockheed Martin later deleted the tweet.

Ways to manage crisis in the given scenario
Although it’s important to engage in conversations on social media, first be aware of how people generally feel about your company, products and policies. Carefully consider possible responses before asking for content.

3. Under Armour Inc. winks at employees’ trips to strip clubs:
Earlier in the year 2018, the company emailed staffers to inform them they could no longer put strip-club visits on their corporate credit cards. According to the Wall Street Journal, “Over the years, executives and employees of the sports-apparel company, including Chairman and Chief Executive Kevin Plank, went with athletes or co-workers to strip clubs after some corporate and sporting events, and the company often paid for the visits of many attendees.”

Ways to manage crisis in the given scenario
Although the company was right to end the practice in 2018, the fact that it allowed it at all shows an astonishing lack of judgment. But there’s a larger takeaway here: Executives need to avoid the temptation to socialize with staffers through activities that are offensive or exclude team members. As Laura Liswood, former managing director of global leadership and diversity at Goldman Sachs, wrote in “The Loudest Duck: Moving beyond Diversity While Embracing Differences,” if a manager plays basketball with colleagues, for example: You will feel comfortable with your sports buddies, and when the next opportunity comes up, you may be inclined to put that companion forward for a promotion – possibly over someone better qualified whom you know less well, or with whom you have fewer common bonds. To keep the playing field level, the skilled manager needs to find ways to learn about the other members of the team so that an equal level of comfort and knowledge exists with the people who aren’t naturally like you.

4. H&M uses black child to model “coolest monkey in the jungle” hoodie:
The picture generated widespread outrage on social media. The com-pany apologized quickly and later stopped selling the item.

Ways to manage crisis in the given scenario
A diverse team needs to dissect every message and image to make sure it doesn’t Inadvertently offend people of different races, cultures, genders, generations and views.

5. KFC’s Chicken Crisis:
A chicken restaurant without any chicken is not an ideal situation in terms of bottom line or reputation. The chain went through an intense few weeks in the UK last year, after a logistics fiasco with a new de-livery partner DHL, which took over the contract on Valentine’s Day alongside Quick Service Logistics (QSL).

Problems with deliveries of KFC’s highly perishable supplies started immediately: KFC started to shut down outlets after managers com-plained their chicken had not arrived, and by 18 February most of its 900 UK restaurants were closed.

KFC posted statements about the “delivery hiccups” in its closed shops and went into full-on social media response and media relations mode – as head of brand engagement Jenny Packwood told the Holmes Report, the team handled the equivalent of half its annual press calls in one week. The offensive culminated in a national newspaper advertising campaign as the restaurants slowly re-opened.

“Within hours of the initial problems coming to light, customers knew exactly what had gone wrong, how it was being resolved and, importantly, when it would be fixed,” he says. “Not only did KFC recognize mistakes had clearly been made, but they also used that to their advantage by injecting their own sense of humour and keeping the language straight-forward, clear and to the point.”

6. Nissan’s Boss Gets Arrested
Even by Japan’s storied standards of corporate malfeasance, the scandal at Nissan Motor deserves special mention – combining, as it does, financial wrongdoing, political intrigue and hubris to almost unparalleled effect.

Now relegated to a tiny cell in Tokyo, former Nissan chairman Carlos Ghosn sits at the heart of the affair, arrested and charged with under stating his compensation by more than $80 million over eight years, and causing Nissan to make payments to the company of a Saudi Arabian friend.

7. Coca-Cola PR Crisis Management
The company came under a storm of criticism after The New York Times charged that Coca-Cola was funding obesity research that attempted to disprove the link between obesity and diet and shift the problem to lack of exercise.

The article says Coca-Cola, desperate to halt sliding sales, financed the new non-profit Global Energy Balance Network. Critics call it a front group created to espouse misinformation and deflect the role of soft drinks in the spread of obesity and Type 2 diabetes.

Kents reaction to the crisis:
Corporations under fire can look to Kent’s op-editorial for guidance when responding to attacks and considering apologies.

Kent outlines the company’s response and admits the company’s misstep while not exactly apologizing in his opinion, Coca-Cola: We’ll Do Better.

In a matter-of-fact tone, Kent takes the accusations head on, acknowledging the accusations that it has deceived the public about its support for scientific research. He defends the company by saying it is attempting to tackle the global obesity epidemic and has always had good intentions.

A New Strategy:
Kent also admits the company’s strategy “is not working.” “I am disappointed that some actions we have taken to fund scientific research and health and well-being programs served only to create more confusion and mistrust,” he writes.

He explains how the company will act going forward. First, he says it will act with even more transparency. The company will publish a list of health and well-being partnerships and research activities it has funded in the past five years on its website and will update the list every six months.

The company will continue its efforts to provide healthy options, he says, such as waters, lower-calorie and lower-sugar drinks, diet soda and zero-calorie drinks. At the same time, he inserts a sales plug by referring to Coca-Cola’s wide range of beverage options.

Opinion stresses the company’s commitment to fighting obesity. “We want to get focused on real change, and we have a great opportunity ahead of us,” he says. “We are determined to get this right.”

Kent successfully filled the three O’s of crisis management:
Mark Braykovich, vice president at Atlanta-based The Wilbert Group, says Kent successfully filled the three O’s of crisis management: Own up to it. Assuming responsibility at some level usually helps the corporate reputation over the long run. Get the CEO Out front. The CEO is the best spokesperson for the corporation. Most PR disasters happen when companies shield the CEO, or the CEO appears to have little interest in the problem. Make an Outsized response. Overreaction is preferable to small measures or ignoring the critics. Kent directs the president of Coca-Cola North America to create an oversight committee of independent experts to provide governance on company investments in academic research, and engage experts to explore opportunities for research and health initiatives. Braykovich says he gives Kent an A for using the three O’s.

Question 6. (a)
Register of companies (RoC) prosecuted a Director of public sector undertaking under the provisions of the Companies Act, 1956 for non-filing of Balance Sheet and Annual Return. The Director pleaded before the Court that the RoC has not followed appropriate procedures while prosecuting him. Whether pleadings of the Director is tenable. Elaborate the provisions of CrPC citing relevant case law. (4 Marks)
Answer:
→ Section 220(1) of CrPC 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 Gopal Dey v. State [1969] 39 Comp. Cas. 119 held that if several offences are committed in the course of the same transaction, “section 235 of Criminal Procedure Code, 1898 (‘the code’) would authorise their joinder for the purpose of a single trial.

→ The substance of the charges framed against the petitioners is that they had failed to hold the annual general meeting and they had further failed to file with the Registrar the annual return and copies of the balance-sheet and profit and loss account within the specified periods as required by the Companies Act, 1956.

→ Whether the offences mentioned above could be said to be so connected together as to a form the same transaction was discussed in the case law.

→ The term “same transaction” has nowhere been defined. The term suggests a continuity of action and purpose and it has been held that the real and substantive test for determining whether several offences are so connected together as to form one transaction depends upon whether they are related together in point of purpose or as cause and effect or as principal and subsidiary acts so as to constitute one continuous action.

→ It was held that the defaults and omissions in the present cases constitute a series of acts which are so connected as to form the same transaction and as such whatever offences might have been committed in the course of that transaction are liable to be joined together under section 235 of the Code for the purpose of a single trial. Section 239 of the Code permits the joinder at the same trial of persons accused of the same offence committed in the course of the same transaction. The directors as well as the company were thus liable to be jointly tried and the learned Magistrate cannot be said to have fallen into an error of law in jointly trying the petitioners in the cases at the same trial.

→ Hence the pleadings of the Director are not tenable.

(b) A Director of a Limited Company was prosecuted before Metropolitan Magistrate for certain offences involving a punishment up to 3 years imprisonment under the provisions Companies Act, 2013. The Director contended that Metropolitan Magistrate is not the appropriate Authority 1 to try this case. Whether this contention of the Director is valid? Referring the relevant provisions of the Companies Act, 2013, discuss the powers of various Courts to try the offences under the Companies Act, 2013. (4 Marks)
Answer:
Section 435 of the Companies Act, 2013, states as follows:
1. The Central Government may, for the purpose of providing speedy trial of offences under this Act, by notification, establish or designate as many Special Courts as may be necessary.

2. A Special Court shall consist of

a single judge holding office as Session Judge or Additional Session Judge, in case of offences punishable under this Act with imprisonment of two years or more; and
a Metropolitan Magistrate or a Judicial Magistrate of the First Class, in the case of other offences,
who shall be appointed by the Central Government with the concurrence of the Chief Justice of the High Court within whose jurisdiction the judge to be appointed is working.

3. Where a person accused of, or suspected of the commission of, an offence under this Act is forwarded to a Magistrate under section 167(2) or section 167(2A) of the Code of Criminal Procedure, 1973, such Magistrate may authorise the detention of such person in such custody as he thinks fit for a period not exceeding 15 days in the whole where such Magistrate is a Judicial Magistrate and 7 days in the whole where such Magistrate is an Executive Magistrate. [Section 436]

In the present case, A Director of a Limited company was prosecuted before Metropolitan Magistrate for certain offences involving a punishment up to 3 years imprisonment under the provisions Companies Act, 2013. However as per section 435 of the Companies Act, 2013, offences punishable with imprisonment of two or more years should be tried in Special Court established by the Central Government. And hence the contention of the Director that Metropolitan Magistrate is not the appropriate Authority to try this case is valid.

(c) Upon prosecution for offences under the Companies Act, 2013, High Court awarded Managing Director of a Company an imprisonment of 3 months. A director of the Company approaches you seeking advice on filing an appeal against the order of the High Court. Referring to relevant provisions of CrPC, advice the Director. (4 Marks)
Answer:
→ As per Article 132 of the Constitution, an appeal shall lie to the Supreme Court from any judgment, decree or final order of a High Court whether in a civil or criminal or any other proceeding, if the High Court certifies under Article 134A that the case involves a substantial question of law as to the interpretation of some provision of the constitution involved in the case.

→ As per Article 134 of the Constitution an appeal shall lie before the Supreme Court in a criminal proceeding, from any judgment, final order or sentence, if the High Court on appeal has reversed the order of acquittal of an accused and sentenced him to death or has withdrawn for trial before for any case from any court subordinate to its authority and in such trial, if the High Court had convicted the accused and sentenced him to death or when the High Court certifies under Article 134A that it is a fit case to appeal before the Supreme Court.

→ Under section 406 of CrPC, the Supreme Court is empowered to transfer, in the interests of justice, cases and appeals from one High Court to another High Court or from one criminal court subordinate to one High Court to another criminal court subordinate to another High Court.

→ Thus, the director may file an appeal with Supreme Court within specified period of time if the case involves a question of law and not a question of fact.

(d) Food Department prosecuted a Director of a Multi-national company for certainoffenccs. The Case went upto Supreme Court, wherein the Director con tended that though he is one of the Director of the Company, he was not in-charge of operations of the company and hence, cannot be prosecuted. Discuss with relevant case law if any. (4 Marks)
Answer:
→ In Pepsico India Holdings Private Limited v. Food Inspector [2011](SC), the Supreme Court held that in a complaint against a Company and, its Directors, the Complainant has to indicate in the complaint itself as to whether the Directors concerned were either in charge of or responsible to the Company for its day-to-day management, or whether they were responsible to the Company for the conduct of its business. A mere statement that a person was a Director of the Company against which certain allegations had been made is not sufficient to make such Director liable in the absence of any specific allegations regarding his role in the management of the Company.

→ It is clear from the above case that a person is not liable for an offence merely because he is one of the directors. Every Director need not be and is not in charge of the business of the company. In relation to a complaint against any offence committed by a company, it is necessary to show how an accused is an officer in default and how he or his role fits within the description of the term “Officer in Default”. It is important to clearly mention in the complaint, the identity of the accused, in what capacity he is liable.

→ The contention of the director that though he is one of the Director of the Company, he was not in-charge of operations of the company and hence, cannot be prosecuted is a valid contention.

CS Professional Resolution of Corporate Disputes Non Compliances & Remedies Question Paper

CS Professional Resolution of Corporate Disputes Non Compliances & Remedies Question Paper

Resolution of Corporate Disputes Non Compliances & Remedies Notes