Due Diligence-II – Secretarial Audit Compliance Management and Due Diligence Important Questions
Question 1.
What is meant by contravention and compounding of contravention?
Answer:
- “Contravention” is a breach of the provisions of any Act and Rules/
- Regulations/Notification/Orders/Directions/Circulars issued there under.
- “Compounding of contravention” refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal.
As per section 13 of Foreign Exchange Management Act, 1999, the Reserve Bank of India is empowered to compound any contraventions except the contravention under section 3(a) of the Act for a specified sum after offering an opportunity of personal hearing to the contravener.
- It is a voluntary process in which an individual or a corporate seeks compounding of an admitted contravention.
- It provides comfort to any person who contravenes any provisions of FEMA, 1999 [except section 3(a) of the FEMA] by minimizing transaction costs.
- Wilful, mala fide and fraudulent transactions are, however, viewed seriously which will not be compounded by the Reserve Bank of India.
Question 2.
Mr. Ronu an Indian National failed to realize and repatriate foreign exchange amounting to 1NR 1 crore. Subsequently, Mr. Ronu realized that he has committed a contravention of the Foreign Exchange Management Act, 1999. He desires to compound the said offence. State whether Mr. Ronu can do so?
Answer:
1. Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal.
2. As per section 15 of the Foreign Exchange Management Act, 1999 permits the offending party to compound the contravention within 180 days from the date of receipt of application by the Directorate of Enforcement or such other offices of the Directorate of Enforcement and officers of RBI as may be authorised by Central Government is such manner as may be prescribed.
3. No Contravention shall be compounded unless the amount involved in such contravention is quantifiable.
4. Where a contravention has been compounded, no proceeding can continue or be initiated against the person in respect of the contravention so compounded.
Thus, in line with provisions discussed above in the given case, Mr. Ronu has failed to realise and repatriate foreign exchange and contravened the provisions of section 8 of FEMA and he is liable to the penalties leviable under Section 13 of the Foreign Exchange Management Act, 1999 followed by adjudication proceedings.
Question 3.
Prepare a note on provisions with respect to punishment under section 392 of the Companies Act, 2013 for contravention of the provisions by a foreign company.
Answer:
Section 392 : Punishment for Contravention.
Without prejudice to the provisions of section 391 of the Companies Act, 2013, if a foreign company contravenes the provisions of Chapter XXII – Companies Incorporated Outside India, the foreign company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees and in the case of a continuing offence, with an additional fine which may extend to fifty thousand rupees for every day after the first during which the contravention continues and every officer of the foreign company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty five thousand rupees but which may extend to five lakh rupees, or with both.
Question 4.
What are the criteria for suspension of the trading in the shares of the listed entities? Describe.
Answer:
Criteria for suspension of the trading in the shares of the listed entities are as under :
- Failure to comply with regulation 17(1) with respect to board composition including appointment of woman director for two consecutive quarters.
- Failure to comply with regulation 18(1) with respect to constitution of audit committee for two consecutive quarters.
- Failure to comply with regulation 27(2) with respect to submission of corporate governance compliance report for two consecutive quarters.
- Failure to comply with regulation 31 with respect to submission of shareholding pattern for two consecutive quarters.
- Failure to comply with regulation 33 with respect to submission of financial results for two consecutive quarters.
- Failure to comply with regulation 34 with respect to submission of annual report for two consecutive financial years.
- Failure to submit information on the reconciliation of shares and capital audit report for two consecutive quarters.
- Receipt of the notice of suspension of trading of that entity by any other recognized stock exchange on any or all of the above grounds.
Question 5.
Write note on: “Classification of offences under the Companies Act, 2013″.
Answer:
Classification of offences under the Companies Act, 2013:
Depending on the type of punishment: Punishment includes fine, penalty and imprisonment. The law may impose either of these or a combination of these as an alternative or an addition. Such Offences can be broadly categorised into three categories:
- Those punishable mandatorily with imprisonment.
- Those where imprisonment might be ordered.
- Where there is no scope of imprisonment.
Depending on Cognizability: Whether a person can be arrested with or without a warrant will depend on whether the offence is ‘cognizable’ or ‘non-cognizable’ as defined below:
- Cognizable Offences are offences for which a police officer may, in accordance with law, arrest without warrant.
- Non-cognizable Offences are offences for which a police officer has no authority to arrest without warrant.
Question 6.
What are compoundable offences?
Answer:
The offences that are not mandatorily punishable with imprisonment are compoundable as mentioned below:
- Offences punishable with fine only.
- Offences punishable with fine or imprisonment.
- Offences punishable with fine or imprisonment or both.
Note: In such types of Offence, the punishment may or may not include imprisonment.
Question 7.
What are non-compoundable offences?
Answer:
Offences punishable with imprisonment mandatorily are non-compoundable offences. Therefore, the following offences are non-compoundable:
- Offences punishable with imprisonment only.
- Offences punishable with both imprisonment and fine.
- Any offence for which action is taken under section 447, i.e., fraud is non-compoundable as the punishment is fine and imprisonment.
Question 8.
What is the effect of “Compounding”?
Answer:
Following are effect of “Compounding”:
1. If the offence is compounded before the institution of prosecution, the prosecution cannot be launched against the person by the Registrar or by any shareholder of the company or by any person authorised by the Central Government in relation to the offence which has been compounded.
2. If the offence is compounded after the institution of prosecution such compounding shall be brought by the Registrar in writing to the notice of the Court in which the prosecution is pending. Then the person shall be discharged.
Question 9.
What is the limitation period for filing a Settlement Application under SEBI (Settlement Proceedings) Regulations, 2018?
Answer:
The New Settlement Regulations, SEBI revised the limitation period to ensure that only genuine applications are filed and the settlement process is not adopted as a means of forum shopping and to delay civil and administrative proceedings. The limitation period prescribed under New Settlement Regulations is as follows:
- The Applicant shall file the settlement application within 60 days from the date service of SCN or Supplementary Show Cause Notice (SCN), whichever is later.
- SEBI may accept the application after the expiry of period of 60 days as specified above if it is satisfied that there were genuine reasons for not filing the same.
- If the Settlement application is filed after 60 calendar days from the expiry of 60 days period as specified above ie. 120 days from the service of SCN/Supplementary SCN; subject to the approval of SEBI, the settlement amount so determined will get increased by 25%.
- No delayed application will be accepted by SEBI beyond the period of 180 days from the service of SCN/supplementary SCN or after the first hearing whichever is earlier.
Question 10.
Write note on: “Settlement with Confidentiality under SEBI (Settlement Proceedings) Regulations, 2018”.
Answer:
1. “Settlement with Confidentiality” has been added to provide protection to any person that provides material assistance to the Board in its fact finding process and proceedings. The application has to be made to the Board prior to or pending investigation, inspection, inquiry or audit.
2. The Board would then decide on the facts and circumstances of the case to accept or reject the application seeking confidentiality.
3. Any disclosures which are required to be made as per the law that would not be covered under the confidentiality clause. For any violation of the disclosure and reporting requirements no applications would be accepted seeking confidentiality.
4. It also provides for interim confidentiality and assurance where no action would be initiated against the applicant if the board deems it necessary that the information provided to it relates to a possible securities law violation that has occurred is ongoing or about to occur.