Governance Issue – Multidisciplinary Case Studies Important Questions

Governance Issue – Multidisciplinary Case Studies Important Questions

Question 1.
In United Kingdom, the Combined Code on Corporate Governance of 2008 is the result of studies made from time to time by various committees to prevent the recurrence of scandals and financial collapses experienced in 1980s and early 1990s, when Cadbury Committee was first set-up in 1992 which gave a new dimension to the Corporate Governance.

List out the three important recommendations made by Cadbury Committee and outline atleast five major landmarks in the historical development since the setting-up of the Cadbury Committee for improvement in the Corporate Governance.
Answer:
(i) The Cadbury Report 1992 – Due to several scandals and financial collapses in the UK in the late 1980s and early 1990s, London Stock Exchange setup the Cadbury Committee in may 1991 to raise the standard of corporate governance in future. This committee in its report known as Cadbury Report, recommended mainly:

  • Separating the role of CEO and Chairman of the Board.
  • Balanced composition of Board of Directors with executive and non executive directors.
  • Selection process for non executive directors.

(ii) The Greenbury Report 1995 – The Confederation of British Industry set up a group under the Chairmanship of Sir Richard Greenbury to examine the remuneration of the directors. It recommended the formation of Remuneration committee composed of non executive directors. Its recommendations were incorporated in the Listing Rules of The London Stock Exchange.

(iii) The Hampel Report 1998 – The Hampel Committee was set up to review the implementation of Cadbury and Greenbury Reports and to see that their purposes were being achieved. The Recommendations of the committee coupled with further consultations by the London Stock Exchange resulted in a combined code on Corporate Governance, the original combined code 1998.

(iv) The Turnbull Report – A working group under the Chairmanship of Niger Turnbull recommended the internal Control Guidance for Directors which were included in the combined code.

(v) Higgs Report – The combined code was reviewed in July, 2007 by Derek Higgs about the role and effectiveness of non – executive directors.

(vi) Smith Report – A group under The Chairmanship of Sir Robert Smith was set up to develop guidance for Audit Committee in the combined code.

(vii) The Tyson Report – The Tyson Report was recommended on the recruitment and development of non -executive directors.

(viii) The combined code on Corporate Governance as revised in 2003 – The basis of recommendations of all the reports the combined code was revised in 2003.

(ix) The combined code on Corporate Governance 2006 – The combined code on Corporate Governance was again revised in 2006.

(x) The combined code on 2008 Governance 2008 – The combined code on Corporate Governance 2008 sets out standards of good practice in relation with shareholders. All companies incorporated in the UK and listed on the London Stock Exchange are required to report in their annual reports and accounts about the implementation of the combined code on Corporate Governance.

Question 2.
XYZ Ltd. is a listed company having turnover of ₹ 1,200 crores during the financial year 2015-16. The CSR committee of the Board formulated and recommended a CSR project which was approved by the Board. Company finalised the project under its CSR initiatives which require funds @5% of average net profit of the company for last three financial years. Will such excess expense be counted in subsequent financial years as a part of CSR expenditure? Advise.
Answer:
In terms of Section 135(5), the board of every company, to which Section 135 is applicable, shall ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three preceding year.

There is no provision of spreading over the expenditure incurred in a particular year over the next few years. The words used here is at least. Therefore, any Expenditure over 2% could be considered as voluntary higher spend. However, in case, a company does not want to spend the 2% in the subsequent year on account of it having spent a higher amount in the previous year, the Board’s report may state so.

Question 3.
The elder son of Prem Kumar Biswas was a truck driver with one Bidhan Chander Roy. He met with an accident while on his way to deliver consignment of the owner in the truck from Kolkata (West Bengal) to Lucknow (Uttar Pradesh). He sustained severe injuries on the head and died on the spot.

Prem Kumar Biswas filed, for compensation under the Employees State Insurance Act, 1923 and the Commissioner allowed a compensation of ₹ 15,20,268. Aggrieved by the order, the Insurance company preferred an appeal before the High Court in Kolkata. One of the contentions of the insurance company was that the deceased lost his life as a result of his own negligence and that Prem Kumar Biswas was not entitled to any compensation.

There was no document on record to prove the exact amount of wages being earned by the deceased at the time of the accident. But it was proved that the deceased was a highly skilled workman and was often required to undertake long journeys outside the State in the line of duty. The vehicle he used to ply had a registred National Route Permit.

The High Court set aside the order of the Commissioner for workmen’s compensation and reduced the amount of compensation to ? 11,00,000. Prem Kumar Biswas intends to prefer an appeal before the Supreme Court challenging the correctness of the impugned judgement of the High Court. Will he succeed? Give reasons in support of your answer.
Answer:
The present problem is similar to the case of Jaya Biswas & Ors. V Branch Manager, IFFCO Tokio General Insurance Company Ltd. (SC) – (Civil Appeal No 869 of 2016 (Arising out of S. L.P.(C) No.1903 of 2015 decided on 04/02/2016). In this case Supreme Court inter-alia observed that the Employees’ Compensation Act, 1923 is a welfare legislation enacted to secure compensation to the poor workmen who suffer from injuries at their place of work. The Preamble of the Act reads, “An act to provide for the payment by certain classes of employees to their amount of compensation for injury by “accident”. By increasing the importance for the employer of adequate safety devices, it reduces the number of accidents to workmen in a manner that cannot be achieved by official inspection.

The Act is a social welfare legislation meant to benefit the workers and their dependents in case of death of workman due to accident caused during and is the cause of employment. It has to be proved by the employee that

  • There was an accident
  • The accident had a casual connection with the employment
  • The accident must have been suffered in the course of employment.

In the instant case, the’deceased was on way to deliver the consignment during the course of employment when he met with the accident. The accident squarely arose out of and in the course of employment. The contention of the insurance company that the deceased died as a result of his own negligence, doesn’t hold ground.

Section 3 of the Act, doesn’t create any exception of the kind, which permits the employer to avoid his liability if there was negligence on the part of workman. The act does not envisage a situation where the compensation payable to an injured or deceased workman can be reduced on account of contributory negligence. Mere negligence does not entitle a workman to compensation.

There was no evidence to prove that there was negligence on the part of the driver. Even if there was any negligence on his part, it would not entitle his dependents from claiming compensation under the Act. It can be said that the avail of compensation by the Commissioner was well reasoned and elaborate. The High Court should not have reduced the amount of compensation. It appears the judgement of the High Court suffers from gross infirmity.

In view of the above Prem Kumar Biswas should prefer an appeal before Supreme Court and should succeed.

Question 4.
Ramakrishnan was employed by the Mukateshwara Silk Company Ltd. at its registered office in Mumbai in the dyeing section in the year 1988. He was later on promoted in 1992 and again in 2000 and continued to be located at the company’s registered office in Mumbai. The company in its orders of transfer located Ramakrishnan at the company’s establishment in Panjim (Goa) in 2005 and again transferred him at company’s another establishment in Jamnagar (Gujarat) in 2006. However, Ramakrishnan’s services, were terminated in 2007 due to the closure of the establishment in Jamnagar.

Aggrieved by the order of termination Ramakrishnan intends to institute a suit in the Labour Court in Mumbai under the Industrial Disputes Act, 1947. Will he succeed? Give reasons in support your answer.
Answer:
The fact of the case is similar to the case of Nandram vs. Garware Properties Ltd (SC) Civil Appel No. 1409 of 2016 (Arising out of SLP (C) No. 33917 of 2011) [Decided on 16/02/2016].

Ramakrishnan was employed at the office in Mumbai. He was only transferred to its establishment in Jamnagar. The decision to close down the establishment at Jamnagar was taken by the company in Mumbai. The decision to terminate the services of Ramakrishnan was taken in Mumbai. Thus, part of cause of actions has arisen in Mumbai. No doubt, the Labor Court in Jamnagar has the jurisdiction to consider the case of Ramakrishnan if he prefers to institute the suit there.

But that does not mean that the Labor Court in Mumbai within whose jurisdiction the management of the company has taken the decision to close down the establishment in Jamnagar and pursuant to which services of Ramakrishnan were terminated does not have the jurisdiction.

Hence, both the Labor Courts in Mumbai and Jamnagar have the jurisdiction to deal with the matter. Ramakrishnan can institute the suit in the Labor Court in Mumbai.

Question 5.
Luke Graves (Luke) is the long-serving Chief Executive Officer (CEO) of Hornbill pic, a UK listed company. He had a meeting with the newly-appointed Chairman of the company, Ross Plank (Ross), who is married to Luke’s sister. A number of different items were on the agenda for discussion. Luke said that he had recently had a meeting with two institutional shareholders in the company, who together held 5% of the equity shares. He had also discussed the company’s performance over the past few months with them and they had been pleased by the profit forecasts that he had given them.

The company’s results would be announced to the stock market within the next two weeks. Luke added that he had also discussed the company’s main business strategies with these shareholders and had informed them that he intended to establish a strategy committee within the company, consisting of the executive directors and other senior executives. Luke and Ross later on discussed the retirement and re-election of Board of Directors at the next annual general marketing of the company. Luke said there was an issue with John, one of the directors, who would be retiring by rotation. John had been an independent non-executive director for almost nine years.

He was very experienced and had contributed enormously while attending meetings of the Board. He was considered to be too valuable to lose from the Board, but there was now a problem with his independent status. Luke felt that he was still as independent now as he was when he first joined the Board. Luke also informed Ross that he had arranged for additional training for two Board directors: one of the non-executive directors and also the marketing director.
(a) On the basis of above-mentioned facts, what weaknesses are discernible in the corporate governance practices of the company?

(b) What would be your recommendations and suggestions regarding the appropriate practices to be followed on the weaknesses identified by you?
Answer:
(a) On the basis of the facts of the case, following weaknesses in corporate governance are evident in Hornbill pic:
1. The newly-appointed Chairman Ross Plank is brother-in-law of the CEO Luke and therefore has a close family connection with an existing board member. The Chairman cannot, therefore, be considered independent on appointment. The fact that the Chairman is non-independent and the relationship of Chairman and CEO should be disclosed in the annual report of the company.

2. Luke, the CEO has disclosed price sensitive information i.e. the company’s performance over the past few months and profit forecasts with the institutional shareholders before they have been announced to the stock market. Thus, Luke has violated stock market regulations by giving financial information to the shareholders that has not been made publicly available.

If the institutional shareholders trade shares in the company before the , announcement of the annual results, they would be liable for insider trading. Therefore, the institutional shareholders must be informed that they are insiders and should not deal in shares of the company until the information becomes public knowledge. The board should also discuss and consider the breach of rules and discourse of price sensitive information by Luke.

3. The objective of establishing Strategy Committee comprising of executive directors and senior executives is also not clear. It is the responsibility of the board of directors to decide business strategy, and the executive management should implement those strategies decided by the board. Here, it is not clear what Luke means by ‘ establishing a strategy committee, but it should not be for the purpose of deciding strategies.

4. It is also observed that, the CEO is taking on too many roles outside his proper area of responsibilities and there is a risk that the board of the company will be dominated by a single individual. This risk is increased because of the family connection between the CEO and the Chairman.

(b) Some of the recommendations and suggestions regarding the appropriate practices to be followed are –
1. The Chairperson of the board is the individual charged with providing the board with effective leadership on all aspects of its role and setting its agenda. While the chairperson is required to retain an objective viewpoint of the affairs of the company, the CEO is often required to become intimately involved in developing and executing management plans for the company.

CEO’s main responsibilities include developing and implementing high-level strategies, making major corporate decisions, managing the overall operations and resources of a company, and acting as the main point of communication between the board of directors and the corporate operations. This role clarity should be there among the Chairman Ross and CEO Luke in this case.

2. The independence of the chairman is paramount to the successful implementation of good corporate governance practices at board level. Therefore, as a good governance, chairperson of the board should be independent and free of conflicts of interest at appointment.

3. Collective decision making and discussions among the Board is also missing in the Company. It would have been appropriate for Luke to discuss his intentions to establish a strategy committee with the board colleagues before announcing them to a few shareholders. The board as a whole should be responsible for deciding strategy and for deciding whether any new board committee should be set up.

4. The Nomination and Remuneration Committee should consider the selection and re-appointment of Directors and makes its recommendation to the Board. It should assess the current Board’s skills, experience and expertise to identify the skills that would best increase Board effectiveness.

5. The responsibility for selection and appointment of directors should be done by the Nomination and Remuneration Committee and the CEO Luke should not try to influence the Chairman of the board regarding appointment or selection of any particular director.

6. The Chairman or the Nomination and Remuneration Committee should make policy for the induction and training of directors, particularly Non-Executive Directors, although the task of arranging induction and training may be delegated to the company secretary. The CEO may arrange technical training for another executive directors.

Question 6.
ABC Ltd., is a company which has a net worth of INR ₹ 200 crores, it manufactures rubber parts for automobiles. The sales of the company are affected due to low demand of its products.
The previous year’s financial state:
(₹ in crore)

March 31, 2019 (Current year) 43189 42824 March 31, 2016
Net Profit Sales (turnover) 3.0085 8.5095 4.009 3.008

Answer:
It has been clarified that ‘any financial year’ referred to under sub section (1) of section 135 of the act read with Rule 3(2) of Companies CSR Rule, 2014 implies ‘any of the three preceding financial years’.

A company which meets the net worth, turnover of net profits criteria in any of the preceding three financial years, but which does not meet the criteria in the relevant financial year, will still need to constitute a CSR committee and comply with provisions of Sections 135(2) to(5) read with the CSR rules.

As per the criteria to constitute CSR committee:

  • Net worth greater than or equal to INR 500 crores: This criterion is not satisfied.
  • Sales greater than or equal to INR 1000 crores: This criterion is not satisfied.
  • Net profit greater than or equal to INR 5 crores: This criterion is satisfied in financial year ended March 31,2018.

Hence, the company will be required to form a CSR committee.

Question 7.
AB & CD Limited, a Non-Banking Finance Company (NBFC), was a diversified Company having a complex group structure with more than 20 subsidiaries. Each company had its own Finance department which would report to a Central Finance Team headed by the group CFO. All the Companies and different units of AB & CD Limited were functioning in silos, wherein each one was unaware of the performance of other companies.

There were inter-corporate loan arrangements between Companies in the group. The top management consisted of few professionals and family members. All the top executives were being paid higher remuneration in comparison with the industry benchmarks including high number of stock options.

AB & CD Limited had a whistle blower policy monitored by the Audit Committee. Vyom, a qualified Senior Accountant, working in the Company had approached the Director (Finance) with concerns about the financial statements but he could not get satisfactory answers and so threatened to inform the press. When his threat came to the attention of the Board, he was intimidated to keep quiet.

Another employee had written to an independent director stating that the books of the Company had been manipulated. Although this letter was circulated to the Board, no action was taken. The audit committee also failed to take any action.

When the group was not able to repay its loan to banks, there were concerns from bank and forensic audit was initiated. The forensic audit revealed a fraud within the Company and the share price of the Company plummeted. Based on the above facts, answer the following:
(a) What is the role of Independent Directors and Audit Committee for effective oversight of matters pertaining to Whistle blower complaints?

(b) What are the challenges of effective implementation of a Whistle blower policy in a company such as AB & CD Limited? Give your suggestion for devising better Whistle blower mechanism.
Answer:
(a) While the ultimate responsibility of vigil mechanism is with the Board as a whole. Audit Committee is tasked with principal oversight of whistle blowing systems with the direct responsibility for anti-fraud efforts generally residing with management including internal audit. Whistle blowing procedures are a major line of defence against fraud and audit committee should ensure such procedures are effective. By focusing on whistle blowing channels and considering it within the context of the organisations overall approach to enterprise risk management – the audit committee can help strengthen internal controls, financial reporting and corporate governance.

The audit committee must be properly informed and actively engaged in overseeing the process while avoiding taking on the role or responsibilities of the Management. To this end, it should seek input from legal counsel, internal/external audit.

The audit committee should seek to ensure that the management has considered all risks that are likely to have a significant financial, reputational or regulatory impact on the organization. For any such risks, a rigorous assessment of the relevant internal controls including their ability to detect or prevent fraud should be made.

Effective monitoring of these internal controls and periodic re-assessments of their effectiveness are key elements to stay updated, together with management’s active engagement in the process. The audit committee should consider whether effective fraud awareness programmers are in place, updated as appropriate and effectively communicated to all employees.

(b) Some of the challenges of effective implementation of a whistle blower policy are:
Operational : Extent of whistle blowing mechanism within the organization, awareness about it to staff members and whether the hotlines and reporting lines actually work.

Emotional and cultural : Whistle blowers are commonly viewed as snitches, sneaks, grasses and gossips. This perception can make it difficult to blow the whistle even though individuals recognize that it is good for the company, employees, shareholders and other stakeholders.

Potential whistle blowers often fear reporting incidents to Management : Areas such as legal protection, fear of trouble and potential dismissal all play a part when an individual is considering whistle blowing.

Suggestions for devising better whistle blower mechanism:

  • Whistle blowing policies and procedures to be documented and communicated across the organization.
  • Whistle blowing policy should ensure that it is both safe and acceptable for employees to raise concerns about wrongdoing.
  • The whistle blowing procedures should be arrived at through a consultative process. Management and employees should ‘buy into’ the process. Success stories to be publicized.
  • Concerns raised by employees are responded to within a reasonable time frame.
  • Procedures should be in place to ensure that all reasonable steps are taken to prevent the victimization of whistle blowers and to keep the identity of whistle blowers confidential.
  • Dedicated person to be identified to whom confidential concerns can be disclosed. That person should have the authority and statute to act if concerns are not raised with or properly dealt with, by the line management and other responsible individuals.
  • Management should understand how to act if a concern is raised. They should understand that employees and others have right to blow the whistle.
  • Consideration to be given to the use of an independent advice centre as part of the whistle blowing procedures.
  • In case, issues are not reported to the management through whistle blowing channel, then management must have a re-look on the effectiveness of the whistle blowing procedures.

Multidisciplinary Case Studies CS Professional Notes

Securities Laws – Multidisciplinary Case Studies Important Questions

Securities Laws – Multidisciplinary Case Studies Important Questions

Question 1.
Excel Ltd., a public limited company listed with The Stock Exchange, Mumbai, wants to issue equity shares on preferential basis pursuant to a scheme approved under Corporate Debt Restructuring framework specified by Reserve Bank of India, to various persons as may be selected by the Board of Directors of the company.

Following information relevant to the preferential issue is available :
(i) Total No. of equity shares to be issued. 50 lac equity shares of ₹ 10 each out of which 30 lac equity shares will be allotted on 31st December, 2008 as fully paid up and balance 20 lac equity shares shall be allotted on the same date but paid up to ₹ 5 each and balance ₹ 5 shall be called upon at a later date and shall be paid up on 31st May, 2009.

(ii) Out of the proposed allottees some persons are holding their shares in Excel Ltd. in physical form and not in dematerialised form and some persons had sold their entire shareholding in Excel Ltd. in July, 2008.

(iii) The meeting of general body of shareholders for approving the preferential issue was held on 15th October, 2008.
Based on the above information you are required to answer the following queries with reference to the SEBI (Disclosure and Investor Protection) Guidelines, 2000:

  • What would be the lock-in period for the shares allotted on preferential basis?
  • Who are the persons not entitled for allotment of shares on preferential basis?

Answer:
Present Case:
In the given case, 30 lakh equity shares issued as fully paid up on 30th June, 2005 shall be locked in upto 30th June, 2006. 20 lakh equity shares issued as partly paid up on 30th June 2005 shall be locked in upto 30th November, 2006 (i.e. upto 1 year from 30th November, 2005, when the shares were made fully paid up).

As per Sub-Regulation(1) of Regulation 72, a listed issuer may make a preferential issue of speeded securities, if:

  • a special resolution has been passed by its shareholders:
  • all the equity shares, if any, held by the proposed allottees in (he issuer are in dematerialised form;
  • the issuer is in compliance with the conditions for continuous listing of equity shares as specified in the listing agreement with the recognised stock exchange where the equity shares of the issuer are listed:
  • the issuer has obtained the Permanent Account Number of the proposed allottees.

Lock-in of Specified Securities:
1. The specified securities, allotted on a preferential basis to the promoters or promoter group and the equity shares allotted pursuant to exercise of options attached to warrants issued on a preferential basis to the promoters or the promoter group, shall be locked-in for a period of three years from the date of trading approval granted for the specified securities or equity shares allotted pursuant to exercise of the option attached to warrant, as the case may be:

Provided – that not more than twenty per cent, of the total capital of the issuer shall be locked-in for three years from the date of trading approval:

Provided further – that equity shares allotted in excess of the twenty per cent, shall be locked-in for one year from the date of trading approval pursuant to exerciser of options or otherwise, as the case may be. Provided further that in case of convertible securities or warrants which are not listed on stock exchanges, such securities shall be locked in for a period of one year from the date of allotment.

2. The specified securities allotted on a preferential basis to persons other than the promoters and promoter group and the equity shares allotted pursuant to exercise of options attached to warrants issued on preferential basis to such persons shall be locked-in for a period of one year from the date of trading approval. Provided that in case of convertible securities or warrants which are not listed on stock exchanges, such securities shall be locked in for a period of one year from the date of allotment.

3. Lock-in of the equity shares allotted pursuant to conversion of convertible securities other than warrants, issued on preferential basis shall be reduced to the extent,the convertible securities have already been locked-in.

4. The equity shares issued on a preferential basis pursuant to any resolution of stressed assets under a framework specified by the Reserve Bank of India or a resolution plan approved by the National Company Law Tribunal under the Insolvency and Bankruptcy Code 2016, shall be locked-in for a period of one year from the trading approval:

5. If the amount payable by the allottee, in case of re-calculation of price under sub-regulation (3) of regulation 164 is not paid till the expiry of lock-in period, the equity shares shall continue to be locked-in till such amount is paid by the allottee.

6. The entire pre-preferential allotment shareholding of the allottees, if any, shall be locked-in from the relevant date up to a period of six months from the date of trading approval:

Provided that in case of convertible securities or warrants which are not listed on stock exchanges, the entire pre-preferential allotment shareholding of the allottees, if any, shall be locked-in from the relevant date up to a period of six months from the date of allotment of such securities.

As per Sub-Regulation (2) of Regulation 72, the issuer shall not make preferential issue of specified securities to any person who has sold any equity shares of the issuer during the 6 months preceding the relevant date: However, SEBI, has granted relaxation to the issuer in terms of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011, the preferential allotment of Shares, fully convertible debentures and partly convertible debentures, shall be made by it within such time as may be specified by SEBI in its order granting relaxation.

  • Accordingly, the persons who hold their shares in Excel Ltd. in physical form (whether wholly or partly), shall not be eligible for preferential allotment of shares.
  • Also, the shareholders who had sold their shareholding in Excel Ltd. in January, 2005 shall not be entitled for allotment of shares on preferential basis.

Question 2.
Industrial Finance Corporation of India, established under the Industrial Finance Corporation Act, 1948 having its registered office at Mumbai issued 8% Redeemable Bonds redeemable after 7 years. These bonds were issued directly to the members of the public and not through the mechanism of Stock Exchanges. You are required to state with reference to the provisions of Securities Contracts (Regulation) Act, 1956, whether such direct issue of Bonds by the Industrial Finance Corporation of India is not violating the provisions of the said Act.
Answer :
Act not to Apply In Certain Cases (Sec. 28)
(1) The provisions of this Act shall not apply to –
(a) the Government, the RBI, any local authority or any corporation set up by a special law or any person who has effected any transaction – with or through the agency of any such authority as is referred to in this clause;

(b) any convertible bond or any option or right in relation thereto, in so far as it entitles the person in whose favour any of the foregoing has been issued to obtain at his option from the company or other body corporate, whether by conversion of the bond or warrant or otherwise, on the basis of the price agreed upon when the same was issued.

(2) Without prejudice to the provisions contained in sub-Sec. (1), if the CG (Powers are excercisable by SEBI also) is satisfied that in the interest of trade and commerce or the economic development of the country it is necessary or expedient so to do, it may, by notification in the Official Gazette, specify any class of contracts as contracts to which this Act or any provision contained therein shall not apply, and also the conditions, limitations, or restrictions, if any, subject to which it shall not so apply.

Present Case:
Since Industrial Finance Corporation of India has been set up under a special law VIZ Industrial Finance Corporation Act 1948, the provisions of SCRA, 1956 shall not apply to it. Thus Industrial Finance Corporation can issue 8% Redeemable Bonds directly to the public and not through the mechanism of stock exchanges.

Question 3.
An Unlisted Public Company, having a paid-up equity share capital of ₹ 5 crores consisting of 50,00,000 equity shares of ₹ 10 each fully paid-up, proposes to reduce the denomination of equity shares to less than ₹ 10 per share and make an initial public offer of equity shares at a premium.
Examine whether it is possible for the company to issue shares at a denomination of less than ₹ 10 and, if so, state the minimum issue price and other conditions to be fulfilled under the SEBI (Disclosure and Investor Protection) Guidelines, 2000.
Answer:
Face Value of Equity Shares [Regulation 31]
An issuer making an initial public offer may determine the face value of the equity shares in the following manner:
(a) If the issue price per equity share is five hundred rupees or more, the issuer shall have the option to determine the face value at less than ten rupees per equity shares:
Provided that the face value shall not be less than one rupee per equity share;

(b) If the issue price per equity share is less than ₹ 500, the face value of the equity shares shall be ₹ 10 per equity shares: Provided that nothing contained in this sub-regulation shall apply to initial public offer made by any Government company, statutory authority or corporation or any special purpose vehicle set up by any of them, which is engaged in infrastructure sector.

Conditions for Initial Public Offer [Regulation 26]:
1. An issuer may make an initial public offer, if:
(a) it has net tangible assets of at least three crore rupees in each of the preceding three full years (of twelve months each), of which not more than fifty per cent are held in monetary assets:

Provided – that if more than fifty per cent of the net tangible assets are held in monetary assets, the issuer has made firm commitments to utilise such excess monetary assets in its business or project:

Provided further – that the limit of fifty per cent on monetary assets shall not be applicable in case the public offer is made entirely through an offer for sale;

(b) it has a minimum average pre-tax operating profit of ₹ 15 crore, calculated on a restated and consolidated basis, during the three most profitable years out of the immediately preceding five years;

(c) it has a net worth of at least ₹ one crore in each of the preceding 3 full years (of 12 months each;

(d) the aggregate of the proposed issue and all previous issues made in the same financial year in terms of issue size does not exceed 5 times its pre-issue net worth as per the audited balance sheet of the preceding financial year;

(e) if it has changed its name within the last 1 year, at least 50% of the revenue for the preceding 1 full year has been earned by it from the activity indicated by the new name.

2. An issuer not satisfying the condition stipulated in sub-regulation (1) may make an initial public offer if the issue is made through the book-building process and the issuer undertakes to allot, at least seventy five per cent of the net offer to public, to qualified institutional buyers and to refund full subscription money if it fails to make the said minimum allotment to qualified institutional buyers.

3. An issuer may make an initial public offer of convertible debt instruments without making a prior public issue of its equity-shares and listing thereof.

4. An issuer shall not make an allotment pursuant to a public issue if the number of prospective allottees is less than 1,000.

5. No issuer shall make an initial public offer if there are any outstanding convertible securities or any other right which would entitle any person with any option to receive equity shares:

Provided that the provisions of this sub-regulation shall not apply to:
(a) a public issue made during the currency of convertible debt instruments which were issued through an earlier initial public offer, if the conversion price of such convertible debt instruments was determined and disclosed in the prospectus of the earlier issue of convertible debt instruments;

(b) outstanding options granted to employees pursuant to an employee stock option scheme framed in accordance with the relevant Guidance Note or Accounting Standards, if any, issued by the Institute of Chartered Accountants of India in this regard;

(c) fully paid-up outstanding convertible securities which are required to be converted on or before the date of filing of the red herring prospectus (in case of book-built issues) or the prospectus (in case of fixed price issues), as the case may be.

6. Subject to provisions of the Companies Act, and these regulations, equity shares may be offered for sale to public if such equity shares have been held by the sellers for a period of at least one year prior to the filing of draft offer document with the Board in accordance with sub-regulation (T) of Regulation 6:

Provided – that in case equity shares received on conversion or exchange of fully paid-up compulsorily convertible securities including depository receipts are being offered for sale, the holding period of such convertible securities as well as that of resultant equity shares together shall be considered for the purpose of calculation of 1 year period referred in this sub-regulation:

Provided further – that the requirement of holding equity shares for a period of one year shall not apply:
(a) in case of an offer for sale of specified securities of a Government . company or statutory authority or corporation or any special purpose vehicle set up and controlled by any one or more of them, which is engaged in infrastructure sector;

(b) if the specified securities offered for sale were acquired pursuant to any scheme approved by a Tribunal or under sections 230-234 of the Companies Act, 2013, in lieu of business and invested capital which had been in existence for a period of more than one year prior to such approval;

(c) if the specified securities offered for sale were issued under a bonus issue on securities held for a period of at least 1 year prior to the filing of draft offer document with the Board and further subject to the following:

(i) such specified securities being issued out of free reserves and share premium existing in the books of account as at the end of the financial year preceding the financial year in which the draft offer document is filed with the Board; and

(ii) such specified securities not being issued by utilization of revaluation reserves or unrealized profits of the issuer.

7. An issuer making an initial public offer may obtain grading for such offer from one or more credit rating agencies registered with the Board.

Question 4.
The Securities and Exchange Board of India received serious complaints against Mr. Satyanarayan, a member of Mavli Stock Exchange. State as to what powers can be exercised by the Securities and Exchange Board of India to make enquiries and to take action in this matter, under the provisions of the Securities Contracts (Regulation) Act, 1956?
Answer:
Disciplinary Action against members of Stock Exchange [Sec 6]:
SEBI can exercise the following powers under Securities Contracts (Regulation) Act, 1956 on receipt of serious complaints against the affairs of Mr. Satyanarayan, a member of Mavli Stock Exchange.

(i) SEBI may, by order in writing call upon the member of the stock exchange to furnish in writing information or explanation in respect of the matter under inquiry [Sec. 6(3)(a)].

(ii) SEBI instead of calling for information, may also either appoint one or . more person to make an enquiry or direct the governing body of stock exchange to make inquiry and submit its report to SEBI [Sec. 6(3)(b)].

(iii) In case of adverse findings, SEBI can direct Mavli Stock Exchange to take disciplinary action against Mr. Satyanarayan, such as fine, expulsion from membership, suspension from membership. Mavli Stock Exchange is under obligation to take the action as directed. [Sec. 9]

Question 5.
The Balance Sheet of Royal Ltd. as at 31-03-2013 disclosed the following details:
(i) Authorised share capital : ₹ 400 crores
(ii) Paid up share capital : ₹ 150 crores
(iii) Reserves and surplus : ₹ 750 crores
The company has issued in the year 2008, Fully Convertible Debentures of ₹ 100 crores which are due for conversion in the year 2013. The company proposes, after the conversion of Debentures to issue Bonus shares in the ratio of 1:1. Explain briefly the requirements of the Companies Act, 2013.
Answer:
(a) Requirement of Companies Act, 2013 with regards to Issue of bonus shares [Sec. 63]
1. A company may issue fully paid up bonus shares to its members, in any manner whatsoever, out of.

  • its free reserves;
  • the securities premium account; or
  • the capital redemption reserve account:

Provided that no issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets.

2. No company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares under sub-section (1), unless:

  • it is authorised by its articles;
  • it has, on the recommendation of the Board, been authorised in general meeting of the company;
  • it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it;
  • it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus;
  • the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up;
  • it complies with such conditions as is prescribed under Rule 14 of Companies (Share Capital and Debenture) rules, 2014.

3. The bonus shares shall not be issued in lieu of dividend.

Present Case:
Applying the provisions contained in these Regulation and companies Act, 2013 to the given problem, Royal Ltd. can make a bonus issue in the ratio of 1:1 as follows:
(1) The articles of Royal Ltd. must authorize it to issue the bonus shares. If there is no provision in the articles authorising the company to issue bonus shares, firstly, the articles shall be amended by passing a special Resolution.

(2) Steps for determining whether any increase in Authorised share capital is required.

Details
(a) Paid up share capital as on 31/03/2013 ₹ 150 crores ₹ 150 crores
(b) Paid-up capital as on 31st March 2013 [After conversion of ₹ 100 crores into equity share capital] ₹ 100 crores
(c) Proposed bonus issue – 1 share for every share held [250+250] ₹ 250 crores
(d) Post bonus issue capital ₹ 500 crores
(e) Authorised share capital ₹ 400 crores
(f) Increase in Authorised share capital ₹ 100 crores

(b)

  • The increase in Authorised share capital shall be made by passing a resolution in the general meeting.
  • Sources of bonus issue Reserve & Surplus ₹ 750 crores.
  • Sources are enough to make a bonus issue.

Question 6.
Mr. Gupta has transferred his shares in a listed company registered in his name to Mr. Patel. Due to his busy schedule, Mr. Patel has failed to get the shares registered in his name before the company declared and paid dividend on those shares.
Examine with reference to the provisions of the Securities Contracts (Regulation) Act, 1956, whether Mr. Gupta is entitled to receive and retain the dividend even though he has transferred his shares before declaration of dividend.
Answer:
Title to Dividends:
As per Sec. 27(1) of the Securities Contracts (Regulation) Act, 1956 a holder of security can legally receive and retain any dividend declared by the company even if he has transferred the security for valuable consideration. However, he (i.e. holder of security who is a transferor) cannot receive or retain the dividend if the transfer deed with all other documents required for transfer are lodged with the company within fifteen days of the date on which the dividend became due.

The period of fifteen days shall be extended as follows :
(1) In case of death of the transferee by the actual period taken by his legal representative to establish his claim to the dividend

(2) In the case of loss of the transfer deed by theft or any other cause beyond the control of the transferee, by the actual period taken for the replacement thereof and

(3) In case of delay in the lodging of any security and other documents relating to the transfer due to causes connected with the post, by the actual period of delay (Explanation to Sec. 27(1) of SCRA).

Present Case:
In view of the above, Mr. Gupta is entitled to receive and retain the dividend received by him if the transferee, Mr. Patel has not lodged the transfer deed with the company within fifteen days of the date on which dividend became due or the extended period as per explanation to Sec. 27(1).

However, Sec. 27(1) will not affect the right of the transferee to enforce his rights, if any against the transferor or any other person, if the company refuses to register the transfer of security in the name of the transferee. Space to write important points for revision :

Question 7.
Mr. S, a member of MN Ltd., obtained an order from the Securities and Exchange Board of India (SEBI) against the company. But the company failed to redress the grievance of Mr. S within the time fixed. Consequently, SEBI imposed penalty on the company. The company, however, did not pay the penalty also. State how the penalty can be recovered from the company?
Answer:
According to Sec. 28A of the Securities and Exchange Board of India Act, 1992, if a person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any direction of the Board for refund of monies or fails to comply with a direction of disgorgement order issued under section 11B or fails to pay any fees due to the Board, the Recovery Officer may draw up under his signature a statement/certificate in the specified form specifying the amount due from the person and shall proceed to recover from such person the amount specified in the certificate by one or more of the following modes, namely:

  • Attachment and sale of the person’s movable property
  • Attachment of the person’s bank accounts
  • Attachment and sale of the person’s immovable property
  • Arrest of the person and his detention in prison
  • Appointing a receiver for the management of the person’s movable and immovable properties.

Question 8.
Securities and Exchange Board of India (SEBI) has undertaken inspection of books of accounts and records of LR Ltd., a listed public company. Specify the measures which may be taken by SEBI under the Securities and Exchange Board of India Act, 1992 to protect the interest of investors and securities market, on completion of such inquiry.
Answer:
Measures SEBI on completion of inquiry: Following measures are undertaken as per Sec. 11 (4) of SEBI, Act, 1992.
(a) Suspend the trading of any security in a recognised stock exchange.

(b) Retain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities.

(c) Suspend any office bearer of any stock exchange or self regulatory organisation from holding such position.

(d) Impound and retain the proceeds or securities in respect of any transaction which is under investigation etc.

(e) Attach, after passing of an order on an application made for approval by the Judicial Magistrate of the first class having jurisdiction, for a period not exceeding one month, one or more bank account or accounts of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder:

Provided – that only the bank account or accounts or any transaction entered therein, so far as it relates to the proceeds actually involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder shall be allowed to be attached;

(f) Direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation:

Provided – that the Board may, without prejudice to the provisions contained in sub-section (2) or sub-section (2A), take any of the measures specified in clause (d) or clause (e) or clause (f), in respect of any listed public company or a public company (not being intermediaries referred to in section 12) which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market:

Provided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned.- The amount disgorged, pursuant to a direction issued, under section 11 B of this Act or section 12 A of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or section 19 of the Depositories Act, 1996 (22 of 1996), as the case may be, shall be credited to the Investor Protection and Education Fund established by the Board and such amount shall be utilised by the Board in accordance with the regulations made under this Act.]

Question 9.
Industrial Finance Corporation of India, established under the Industrial Finance Corporation Act, 1948 having its registered office at Mumbai issued 8% redeemable bonds redeemable after 7 years. These bonds were issued directly to the members of the public and not through mechanism of stock exchanges.

You are required to state with reference to the provisions of Securities Contracts (Regulation) Act, 1956, whether such direct issue of bonds by the -Industrial Finance Corporation of India is not violating the provisions of the said Act.
Answer:
In order to prevent undesirable transactions in securities and to promote healthy stock market, the Securities Contracts (Regulation) Act, 1956 was enacted and all the Stock Exchanges in the country are registered under this Act. Section 40 of the Companies Act, 2013 states that offer of shares or debentures to public for subscription shall be made only after the permission of a stock exchange.

Section 28(1) of the Securities Contracts (Regulation) Act, 1956 states that the provisions of this Act shall not apply to the Government, the Reserve Bank of India, any local authority, or corporation set up by a special law or any person who has effected any transaction with or through the agency of any such authority as stated earlier.

As stated in the question Industrial Finance Corporation of India is a corporation set up under the Industrial Finance Corporation Act, 1948. i.e. under a special statute enacted by the Parliament. Therefore, this Corporation does not need any permission from a Stock Exchange to issue any Bond or other securities. Accordingly, it has not violated the provisions of the Securities Contracts (Regulation) Act, 1956. The nature and tenure of the Bonds are immaterial.

Question 10.
RSE Stock Exchange Limited, a recognised stock exchange is involved in trading of shares of Son Limited. The SEBI on receiving a complaint from a group of investors enquired and found that trading of shares of Son Limited is being conducted in a manner detrimental to the interest of the general investors. In order to curb the same, the SEBI wants to issue some directions to RSE Stock Exchange Limited.

Referring to the provisions of the Securities Contract (Regulation) Act, 1956, discuss whether the SEBI has power to issue such directions. Can such directions be given to an individual who made some profit in any transaction in contravention of any provision of the Securities Contracts (Regulation) Act, 1956, or regulations made thereunder?
Answer:
Power to Issue Direction : As per Sec. 12A of Securities Contracts (Regulation) Act, 1956, SEBI may issue directions if after inquiry it is satisfied that issue of direction is necessary for:

  • in the interest of investors;
  • for development of securities market;
  • to prevent the affairs of any recognised stock exchange or clearing corporation which is detrimental to the interests of investors or securities market;
  • to secure the proper management of any such stock exchange or clearing corporation.

SEBI can give directions to:

  • stock exchange
  • clearing corporation
  • any person associated with the securities market
  • any company whose securities are listed or proposed to be listed with stock exchange.
  • any person, who made profit or averted loss by involving in any transaction or activity in contravention of Act to disgorge of amount of wrongful gain or averted loss.

Present Case:
Referring to above provision, if trading of shares of Son Limited who is a member of RSE Stock Exchange Limited, is being conducted in a manner detrimental to the interest of the general investor then SEBI has power as per Sec. 12 A to give directions to RSE Stock Exchange Ltd. SEBI has also power to issue directions to an individual who made some profit in any transaction.

Question 11.
Securities of Herbal Products Limited were listed in Madras Stock Exchange, which is a recognized stock exchange. The company has incurred losses during the preceding three consecutive years and it has also negative net worth. On having such information, Madras Stock Exchange decided to delist the securities of the company.
Decide the validity of the decision and explain the provisions of Securities Contract (Regulation) Act, 1956 along with the grounds made under the Securities Contract (Regulation) Rules regarding delisting of securities.
Answer:
As per Sec. 21 A of the Securities Contract (Regulation) Act, 1956:
A recognised stock exchange may delist the securities, after recording the reasons therefore, from any recognised stock exchange on any of the ground or grounds as may be prescribed under this Act. The securities of a company shall not be delisted unless the company concerned has been given a reasonable opportunity of being heard. A listed company or an aggrieved investor may file an appeal before the securities Appellate Tribunal against the decision of the recognised stock exchange within fifteen days from the date of the decision.

As per Rule 21 of Securities Contract (Regulation) Rules, the alleged grounds for delisting of security are stated as follows:
(i) the company has incurred losses during the preceding 3 consecutive years and it has negative net-worth;

(ii) trading in securities of the company has remained suspended for a period of more than 6 months;

(iii) the securities of the company have remained infrequently traded during the preceding 3 years;

(iv) the company or any of its promoters or any of its director has been convicted for failure to comply with any of the provisions of the Act or SEBI Act, 1992, or Depositories Act, 1996 or rules, regulations, / agreements made thereunder, as the case may be and awarded a penalty of not less than one crore rupees or imprisonment of not less than 3 years;

(v) the addresses of the company or any of its promoter or any of its, directors, are not known or false addresses have been furnished or the company has changed its registered office in contravention of i the provisions of companies Act; or

(vi) Shareholding of the company held by the public has come below the minimum level applicable to the company as per the listing agreement under the Act and the company has failed to raise public holding to the required level within the time specified by the recognised stock exchange.

Present Case:
In the given case, Herbal Products Ltd. which is listed in Madras Stock Exchange, a recognised stock exchange, has incurred losses during the preceding three consecutive years and it also has negative net worth.

So, as per Sec. 21A read with Rule 21 of the Securities Contract (Regulation) Rules, it is an alleged ground on the basis of such ground the recognised stock exchange may delist the securities of the company.

Here, Madras stock exchange decided to delist the securities of ‘Herbal Product Limited. So, here decision taken by Madras stock exchange is valid in law.

Question 12.
The Delhi Stock Exchange Ltd. was granted recognition by Securities Exchange Board of India. SEBI received compliant alleging that the said Stock Exchange is indulging in fraudulent activities. SEBI is of the opinion that the recognition granted should be withdrawn in the interest of trade and public. State the provisions to withdraw the recognition under the Securities Contracts (Regulation) Act, 1956. Examine the validity of the contracts entered by the Stock Exchange prior to such withdrawal order.
Answer:
Withdrawal of recognition under the Securities Contracts (Regulation) Act, 1956:
Sec. 5(1) states that if the Central Government, SEBI is of the opinion that the recognition granted to a stock exchange under the provisions of this Act should in the interest of the trade or in the public interest, be withdrawn, the Central Government or SEBI may serve on the governing body of the stock exchange, a written notice that the Central Government is considering the withdrawal of the recognition for the reasons stated in the notice and after giving an opportunity to the governing body to be heard in the matter, the Central Government may withdraw by public notification in the official Gazette, the recognition granted to the stock exchange.

Provided that no such withdrawal shall affect the validity of any contract entered into or made before the date of the notification, and the Central Government may, after consultation with the stock exchange, make such provision as it deems fit in the notification of withdrawal or in any subsequent notification similarly published for the due performance of any contracts outstanding on that date.

Question 13.
Primex Securities (P) Ltd. is a Company involved in stock broking and is registered with SEBI. The said broking Company failed to:

  • Redress the grievances of the investors within the stipulated time.
  • Segregate securities or money of clients and used the same for self use or for any other clients.

The Securities and Exchange Board of India issued an Order against the said Company for committing the above offences. The Managing Director of the Company seeks your advice on the following under the provisions of the Securities Contract (Regulation) Act, 1956.
(i) What is the penalty for the above offences?
(ii) Whether the offence committed by the stock broking company is compoundable? If so, by whom?
(iii) Whether this offence can be compounded after institution of proceedings against the stock broking Company?
Answer:
(i) As per Sec. 23 of the securities contract (Regulation) Act, 1956.
The SEBI issues an order against the company for committing offences and impose penalty as follows :

  • Offence : Redress the grievances of the investors within the stipulated time.
  • Penalty : Fine of at least ₹ 1,00,000 but may extend to ₹ 1,00,000 per day during which such failure continues, subject to a maximum of ₹ 1 crore.
  • Offence : Segregate securities or money of clients and used the same for self use or for any other clients.
  • Penalty : At least ₹ 1,00,000 but may extend to ₹ 1 crore.

(ii) The offence committed by the stock brooking company, not being an offence punishable ‘with imprisonment’ only, or‘with imprisonment and also with fine’ is compoundable. Such offences shall be compoundable by the Securities Appellate Tribunal (SAT) or a Court.

(iii) The offence may either before or after the institution of any proceedings can be compounded against the stock brooking company.

Question 14.
DEF Limited is a listed company. The Board of Directors of the company at their meeting held on 1st November, 2018 approved the proposal to issue bonus shares in the ratio of 1 : 1. Such bonus issue is authorized by its Articles of Association for issue of bonus shares and capitalization of reserves. The company implemented the bonus issue on 15th November, 2018. Whether the company has contravened the provisions of Securities Exchange Board of lndia (Issue of Capital and Disclosure Requirements) Regulation 2018?
Answer:
Bonus Issue: According to the provisions of Chapter IX of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, a listed issuer may issue bonus shares to its members if it is authorised by its articles of association for issue of bonus share, Capitalisation of reserves, etc.

An issuer, announcing a bonus issue after the approval of its board of directors and not requiring shareholders’ approval for Capitalisation of profits or reserves for making the bonus issue, shall implement the bonus issue within fifteen days from the date of approval of the issue by its board of directors. According to the stated facts, Board of Directors of DEF Ltd. approved the proposal to issue of bonus shares in the meeting held on 1st November 2018. This issue of bonus shares, is without requiring shareholders’ approval.

Accordingly, DEF Ltd. implemented the bonus issue within fifteen days from the date of approval of the issue by its board of directors (i.e. on 15th November 2018). So, DEF Ltd. is in compliance with the SEBI (ICDR) Regulation, 2009 and thus has not contravened.

Question 15.
N was a senior official of Xeta Limited, a listed Company. He was convicted for involvement in insider trading and manipulation of share price of the company. The adjudicating officer levied penalty as provided in the Securities and Exchange Board of India Act, 1992, for which the recovery officer issued a certificate of recovery including interest on penalty. N filed an appeal before the securities Appellate Tribunal challenging that the interest cannot be levied by the recovery officer. Is N’s argument tenable?
Answer:
The present case is similar to the case of PVP Global Ventures Pvt Ltd. v. SEBI [SAT] Appeal No. 451 of 2018 [Decided on 12/04/2019]. In this case the Securities Appellate Tribunal (SAT) observed that the object and intention of inserting Section 28A to the SEBI Act, 1992 was to provide a mechanism for recovery of the amount due to SEBI.

Instead of prescribing an independent mechanism for collection and recovery of the amounts due to SEBI, the legislature deemed it fit to follow the mechanism provided under the Income Tax Act, 1961 and accordingly inserted Section 28A to SEBI Act wherein the provisions of the Income Tax Act, 1961 relating to collection and recovery have been incorporated.

Thus, the legislature by inserting Section 28A to SEBI Act, 1992 has provided that if a person fails to pay the amounts referred in Section 28A, then the Recovery Officer shall draw up a statement/certificate and proceed to recover the amounts specified in the certificate by any one or more of the five modes specified therein.

This Tribunal in Dushyant N. Dalai & Anr. v. SEBI decided on March 10, 2017 (Appeal No. 41 of 2014) in which judgment was affirmed by the Supreme Court reported in 2017 SCC Online SC 1188, after considering the provision of Section 28A of SEBI Act, 1992 read with Section 220 of the Income Tax Act, 1961 held that the liability to pay interest under Section 28A read with Section 220 is automatic and arises by operation of law,

From the aforesaid, it becomes clear that interest was not only chargeable under Section 28A read with Section 220(2) of the Income Tax Act, 1961 but the provisions of the Interest Act, 1978 could also be taken into consideration and interest could be charged from the date on which the penalty became due.

In the light of the aforesaid, we are of the view that the Recovery Officer was justified in charging interest from the date of the order passed by the Adjudicating Officer. In view of the aforesaid, we find no merit in these appeals and are dismissed. In the circumstances there shall be no order on costs.

Hence, N’s argument is not tenable.

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