RCD-Revision Book-June, Dec 23-CS Muskan Gupta-Yes Academy

CHAPTER 1
SHAREHOLDER’S
DEMOCRACY
CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

SHAREHOLDERS DEMOCRACY
 The rule of shareholders, by shareholders, and for shareholders in the corporate enterprise, to which the shareholders
belong.
 To directly or indirectly manage the affairs of the company by electing BOD who are responsible for managing the day
to day affairs of the company.
SHAREHOLDER’S RIGHTS SHAREHOLDER’S POWERS
 Alteration of MOA and AOA

 Right to receive information
 Right to give approval  Further issue of share capital
 Right to appoint and remove directors.  Reduce the share capital
 Right to appoint auditor.  To Appoint auditors
 Right to requisition a meeting  To cancel, redeem debentures
 Right to vote including e-voting (in case of listed  To allow Related Party Transactions
companies)  To approach Central Government for investigation
 Grievance redressal mechanisms of affairs of company.
 Provisions related to Oppression and  To allow a director, partner his relative to hold
Management. office or profit.
 Provisions related to class action suits.  To increase or reduce the number of directors
 Application to the Serious Fraud Investigation within the limits laid down in AOA.
Office.  Payment of commission of more than 1%

SHAREHOLDER’S ACTIVISM
Involves the efforts of the shareholders to bring about a desired change in the operations of the company or to influence the
management in governing the company to protect the interest of the shareholders.
C. APPROVAL OF RELATED PARTY

A. ELECTRONIC VOTING B. SEBI REGULATIONS
TRANSACTION BY SHAREHOLDERS
 RULE 15(3):
 RULE 15(1):
Agenda for the Board meeting and disclose the I. Sale, Purchase or Supply of any goods or material : 10%
followings:  RULE 15(2): or more of Turnover of the Company
II. Selling or otherwise disposing of, or buying, property of
I. Related Party’s name and nature of relationship Directors interested in any
any kind: 10% or more of Net Worth of the Company
with related party; contract or arrangement with the
III. Leasing of property of any kind: 10% or more of the
II. Particulars of the contract or arrangements; related party shall not be
Turnover of the Co.
III. Nature and term of the Arrangement or Contract; presented at the meeting during
IV. Availing or rendering services: 10% or more of the
IV. Any amount in advance paid or received for discussion on the subject matter
Turnover of the Co.
contract or arrangement; of the resolution relating to
 Appointment of related party to any office or Place of Profit
V. Methods of determining the pricing; contract or arrangement.
in the Company or its Subsidiary Company or its
VI. All other factors relating to the contract or Associate Company: Monthly Remuneration upto Rupees
arrangement shall considered; 2,50,000
VII. Any other relevant information.  Underwriting the Subscription of any Securities or
Derivatives thereof, of the company: Remuneration upto
1% of the Net worth.
MAJORITY POWERS AND MINORITY RIGHTS:
 Majority Shareholders are those  It is a cardinal rule of company law  The resolution of a majority of
who own more than 50% shares of that prima facie all the resolutions shareholders, passed at a duly
the Company. are passed according to the will of convened general meeting, upon
majority. any question with which the
company is legally competent to
deal, is binding upon the minority
 The majority members have the power and consequently upon the
to rule and also have the supremacy company. Thus, the majority of the
in the company. But there is a members enjoy the supreme
limitation in their powers. The authority to exercise the powers of
 Companies Act, 2013 has laid following are two limitations: the company and generally to its
down certain provisions which
a. The powers of the majority of the affairs.
restrict the unbridled supreme
majority and confer rights on members are subject to the MOA and
AOA of the company. A company
minority to apply to the
cannot authorise or ratify any act
National Law Company
legally outside the memorandum
Tribunal or Central
Government in case of b. The resolution made by the majority
Oppression or should not be inconsistent relating to
Mismanagement. The Companies Act or any statutes. It
should also not commit fraud on the
minority by removing their rights.

PRINCIPLE OF NON INTERFERENCE: EXCEPTIONS TO THE RULE OF NON-INTERFERENCE:
• During a difference among the members,

the majority decides the issue.
• If the majority crushes the rights of the ULTRA VIRES ACT:
minority shareholders, then the provisions An individual shareholder can take action if they find that the
of The Company Law will prevail. majority has done an illegal act or ultra-virus act.
The individual shareholder has the power to restrain the company or
• Majority exercises its powers in the can make an application to the tribunal.
matters of a company’s internal
administration, then the courts will not
interfere to protect the rights of the
majority.
FRAUD ON MINORITY:
If the majority commits fraud on the minority, then the minority can
take necessary action. Though there is no clear definition of
JUSTIFICATIONS FOR THE PRINCIPLE: expression “fraud on the minority”, but the court decides a particular
case according to the surroundings facts.
 Recognition of the separate legal personality

of company.
WRONGDOERS IN CONTROL:
 Need to preserve right of majority to decide
If the company is in the hands of the wrongdoer, then the minority of
 Multiplicity of futile suits avoided
the shareholder can take representation act for fraud.
 Suit filed by minority is of no use if majority
does not wish it

Foss vs Harbottle
RESOLUTIONS REQUIRING SPECIAL MAJORITY
PASSED BY SIMPLE MAJORITY: Shareholder can
individually make an application to the tribunal.
FACTS:
Two shareholders, Foss and Turton brought an action on behalf of
themselves and all shareholders against the directors of the company. PERSONAL ACTIONS:
The majority of shareholders always oblige to the
rights of the individual membership. The
ALLEGATIONS: individual member has the right to insist on the
It was alleged that by their concerted and illegal transactions they majority on compliance with the statutory
had caused the company’s property to be lost to the company. It provisions and legal rules.
was also alleged that there was no qualified board.
BREACH OF DUTY: The minority shareholder can

DAMAGES CLAIMED:
take action. Case Law: Daniels v. Daniels
Plaintiff claimed damages to be paid by defendants to the company.
VERDICT:
It was held by the court that the action could not be brought by the PREVENTION OF OPPRESSION AND
minority shareholders. The company (i.e. the majority) is the proper MANAGEMENT: To prevent oppression and
plaintiff for wrong done to the company, so the majority of members are
competent to decide whether to commence proceedings against the mismanagement suit can be filed.
directors.

CHAPTER 2
CORPORATE DISPUTES

OPPRESSION AND WHO CAN MAKE AN APPLICATION
MISMANAGEMENT TO TRIBUNAL (Section 241)
abuse of authority by majority
Members CG
UNDERSTANDING THE MEANING OF
OPPRESSION AND MISMANAGEMENT THROUGH
CASE LAWS
1. Shanti Prasad Jain v. Kalinga Tubes Ltd. Affairs of the Co. Material changes
(continuous effect)
2. Maharashtra Power Development Corporation ltd
P Public Interest
v. Dabhol Power Company. (Basis of single act
R Member
treatment) E Company
3. Increase in share capital of the company for the J
sole purpose of gaining control of the company. U
4. Non-declaration of dividend. D Company
5. Non-availability of records. I
6. Non holding of meetings of the board Member
C
7. Filing of unaudited balance sheets I Public
8. Minor acts of mismanagement A interest
9. Past acts of oppression L
10. Suit of oppression by majority
11. Suit by a creditor

WHETHER A SHAREHOLDER IS ELIGIBLE TO MAKE AN APPLICATION UNDER THIS SECTION?
- A person who is holding shares but whose name does not exist in register of members is not eligible to make an application.
WHETHER A PERSON WHOSE NAME IS ENTERED AS BENEFICIARY IN RECORDS OF NSDL AND CDSL IS ELIGIBLE TO
MAKE AN APPLICATION UNDER THIS SECTION?
- Yes
WHETHER MEMBERSS HOLDING PARTLY PAID SHARES ELIGIBLE TO MAKE AN APPLICATION UNDER THIS SECTION?
- Members holding partly paid shares are eligible to make an application
WHETHER BODY CORPORATE MENTIONED AS MEMBER IN REGISTER OF MEMBERS IS ELIGIBLE TO MAKE AN

APPLICATION UNDER THIS SECTION?
- Yes, body corporate who holds share of the companies and whose name exists in the register of members is considered as
member.
WHETHER A PREFERENCE SHAREHOLDER IS ELIGIBLE TO MAKE AN APPLICATION UNDER THIS SECTION?

- Yes, preference shareholder is also a member
WHETHER A DEBENTUREHOLDER IS ELIGIBLE TO MAKE AN APPLICATION UNDER THIS SECTION?

- Debenture holders are not included in the definition of members
WHETHER OTHER STAKEHOLDERS ARE ELIGIBLE TO MAKE AN APPLICATION UNDER THIS SECTION? -
- The affected person cannot directly approach the Tribunal but Member of the company can go
POWERS OF TRIBUNAL
a. the regulation of conduct of affairs of the

company in future; PUNISHMENT FOR CONTRAVENTION
b. the purchase of shares or interests of any
members of the company by other members
thereof or by the company;
c. in the case of a purchase of its shares by the
company as aforesaid, the consequent Fine - one lakh rupees which may
reduction of its share capital; extend to twenty-five lakh rupees
d. restrictions on the transfer or allotment of the
shares of the company; Every officer of the company who is in
e. appointment of such number of persons as default punishable with
directors, who may be required by the Imprisonment – 6 months or with
Fine – 25000 which may extend to one
Tribunal to report to the Tribunal on such
lakh rupees, or with both.
matters as the Tribunal may direct;
f. imposition of costs as may be deemed fit by
the Tribunal;
g. any other matter for which, in the opinion of
the Tribunal, it is just and equitable that
provision should be made.

TRANSFER AND TRANSMISSION OF REFUSAL OF REGISTRATION AND
SECURITIES (Section 56) APPEAL AGAINST SUCH REFUSAL
1) CONDITIONS FOR TRANSFER

 proper instrument of transfer, duly stamped, In a Private Company:
dated and executed
 by or on behalf of the transferor and the 30 days Communicate Refusal
transferee
 has been delivered to the company by the
transferor or the transferee 30 days Appeal
 within a period of sixty days from the date of
execution NCLT
(Only transferee)
2) WHEN THE INSTRUMENT OF TRANSFER HAS

BEEN LOST OR PRESENTED LATE
– will be registered on the basis of indemnity
In a Public Company:
30 days Communicate Refusal
TRANSFER IN CASE OF PARTLY PAID UP SHARES -

shall not be registered, unless the company gives the 60 days Appeal
notice of the application, to the transferee and the
transferee gives no objection to the transfer within two NCLT
weeks from the receipt of notice. (Only transferee can file appeal)

RECTIFICATION OF REGISTER OF MEMBERS
If the name of any person is, without

sufficient cause Power of Tribunal:
a) entered in the register of members of  dismiss the appeal or
a company, or  direct that the transfer or transmission
b) after having been entered in the shall be registered by the company within a
period of ten days of the receipt of the order
register, is, without sufficient cause,
or
omitted therefrom
 direct rectification of the records of the
c) Unnecessary delay takes place in depository or the register and direct the
entering in the register, the fact of any company to pay damages, if any, sustained
person having become or ceased to be by the party aggrieved.
a member
Right to appeal: the following persons may PUNISHMENT FOR WRONGFUL WITHOLDING
prefer an appeal-
OF PROPERTY (SECTION 452)
 Member of Company
Fine - one lakh rupees which may extend to five
 Company itself or
 Aggrieved person lakh rupees.

CHAPTER 3
CLASS ACTION
SUITS

A class action suit
 is a lawsuit
 where a group of people
 representing a common interest may approach the Tribunal
 to sue or be sued.
Also called as representative action suit where set of persons representing a larger group approach the court for
redressal of their grievances.
TYPES OF CLASS ACTION SUITS
3. Securities class actions

1. Employment class actions
filed by
filed by employees against labor law
2. Consumer class actions shareholders/depositors/members
violations.
filed by a group of consumers etc

CLASS ACTION SUIT (245/37 OF COMPANIES ACT, 2015)
LARGE GROUP OF PEOPLE
FILE A COMBINED SUIT
SAME GRIEVANCES
CLASS ACTION SUIT/

REPRESENTATIVE ACTION
SUIT
AGAINST SAME INDIVIDUAL

CLASS ACTION SUITS UNDER COMPANES ACT, 2013
Companies Act, 2013
Action by affected persons (section 37) Class action under section 245
By Depositors read with

Section 36 By Members
Section 34 Criminal Rule 84 of NCLT Rule, 2016
Liability for Punishment for
Misstatement in Fraudulently
Prospectus inducing person s to
invest money 100 members
With Share capital W/o Share capital or
Section 35 Civil 5% of total members
Liability for (whichever is less)
Misstatement in
1/5th of total
Prospectus
members OR
100 members depositor or depositors

Listed Company- to whom the company
or Members holding 2% of
OR owes five per cent. of
5% of total members issued share capital total deposits of the
(whichever is less) company.
Unlisted Company -
Members holding 5% of
issued share capital
AGAINST WHOM CLASS ACTION SUIT CAN BE
WHO CAN FILE CLASS ACTION SUITS? FILED
 Company
Any class of them

Members
 Directors
Depositors
 Auditor
 Subscriber
 Person whose name is
entered in the register
of members of the  Section 73 – Private  Expert
company Company
 Beneficial owner  Section 76 – Public
Company
 Advisor or consultant

ORDERS THAT MAY BE SOUGHT FROM THE NATIONAL COMPANY LAW TRIBUNAL
Restrain Order Damages/Compensation
a) to restrain the company from committing an act

which is ultra vires  Company
b) to restrain the company from committing breach of
 Director
any provision of the company’s memorandum or
articles
 Auditor
c) to declare a resolution altering the memorandum or
articles of the company as void  Expert
d) to restrain the company and its directors from  Consultant

acting on such resolution;
e) to restrain the company from doing an act which is

contrary to the provisions of this Act or any other
law for the time being in force;
f) to restrain the company from taking action contrary

to any resolution passed by the members;

CLASS ACTION SUITS AND THE RELATED LAW IN INDIA
Code of Civil Procedure,

1908 Consumer Protection Act,
1986
Persons having the 'same Consumers of the goods

interest" in the suit can Companies Act, 2013 Competition Act, 2002 or services can file a
file a combined suit combined suit
Shareholders and Any person, consumer, or

Depositors in the Company their association can file a
can file a class action suit combined suit

Particulars Section 241 Section 245
Who can apply? Members Members or Depositors or any class of

them
When can apply? When the affairs of the company have The Management or conduct of the
been or are being conducted in a manner affairs of the company are being
prejudicial conducted in a manner prejudicial
To whom? Prejudicial Prejudicial to the interests of the

 to public interest,  Company
 to member or any other member,  its members
 to the interests of the company,  Depositors
 to the interests of its members or any
class of members
Power of Central Government CG may itself apply under Section 241. No such provision is available
Inclusion of auditors, consultants etc No provision available Application can be made against
auditors, consultants or experts.
Public Notice No public notice is required Tribunal is required to issue public
notice
Consolidation of various applications There is no such mention anywhere Consolidation of various applications of
under different jurisdictions similar nature under different
jurisdictions is made by the tribunal and
can appoint a lead applicant
Waiver of conditions to make an Under Section 244 the Tribunal has got No such power is vested with Tribunal
application power to waive the requirement of limit u/s 245
CHAPTER 4
FRAUD UNDER COMPANIES

ACT 2013
AND
INDIAN PENAL CODE 1860
FRAUD UNDER COMPANIES ACT, 2013
any act,
omission, Frauds – 10,00,000
concealment of any fact or or
abuse of position Company, 1% of the turnover of the
company,
Shareholders, whichever is lower.
Creditors or any other
person Imprisonment:
six months which may extend to
ten years
intention to deceive Fine: Three times the amount
involved in the fraud.
Frauds below the limits, which

do not involve public interest
wrongful gain or wrongful Imprisonment - five years
loss or
Fine - fifty lakh rupees or with
both.
Intention to cause injury

DUTIES OF AUDITORS OF THE COMPANY / SAFEGAURDING STRATEGY FOR FRAUD
COMPANY SECRETARY / COST ACCOUNTANT
ON FRAUD REPORTING
CORPORATE CULTURE
SCREENING AND BACKGROUND CHECKING
 Provides a non-obstante clause casting a duty STRONG INTERNAL CONTROLS

on the auditors of the company to report to the
central government an offence of fraud
committed. WHISTLE BLOWING
 Amount involved in the fraud – One crore and
above.
 If less than one crore - inform the same to the . REMUNERATION
Board or Audit Committee.
 Auditor, cost accountant, or company secretary
in practice does not comply: EXIT CHECKS AND CLAW BACKS
- in case of a listed company - penalty of five lakh
rupees; and
- in case of any other company - penalty of one INDEPENDENT AUDIT SYSTEM
lakh rupees.
OPERATIONAL REPORTING SYSTEM
PROFESSIONAL EXPERT FOR FRAUD PREVENTION

FRAUD UNDER INDIAN
CHEATING (SECTION 415 TO 420)
PENAL CODE
Wrong
Deceive Convince Harm
Intention
Physical
To do something which he Mental
To keep the possession of Property
To deliver the property would have not done if not
the property
deceived
CHEATING WITH KNOWLEDGE THAT WRONGFUL LOSS MAY OCCUR

Punishment:
TO PERSON WHOSE INTEREST OFFENDOR IS BOUND TO PROTECT
Imprisonment – 1 year OR Fine
Imprisonment – 3 years Or Fine Or With both
CHEATING BY PERSONATION:
CHEATING AND DISHONESTLY INDUCING DELIVERY OF PROPERTY
Imprisonment – 3 years Or Fine Or With both
Imprisonment- 7 years and also liable to fine

CRIMINAL BREACH OF TRUST (Section 405 of IPC)
Misappropriate
Entrustment of property/ Wrongfully/fraudulently/

Control over the Property with wrong intention
Convert to its own use
Discharge the property

against the law
PUNISHMENT FOR CRIMINAL BREACH OF TRUST (SECTION 406)
Imprisonment- 3 years or fine
CRIMINAL BREACH OF TRUST BY CRIMINAL BREACH OF TRUST BY

CRIMINAL BREACH OF TRUST CLERK OR SERVANT (SECTION PUBLICSERVANT/BANKER/MERCHA
BY CARRIER (SECTION 407) 408) NT OR AGENT (SECTION 409)
Imprisonment - seven years, and Imprisonment - seven years, and Imprisonment for life, or
fine. fine.
Imprisonment - Ten years, and fine

FORGERY (Section 463)
False
Document/ Cause damage
Wrong Intention
Fake Electronic / injury
Record
PUNSIHMENT (SECTION 465) – Imprisonment upto 2 years or fine or both

FRAUDULENT DEEDS AND DISPOSITIONS OF PROPERTY (SECTION 421 TO 424)
DISHONEST OR FRAUDULENT REMOVAL OR DISHONESTLY OR FRAUDULENTLY PREVENTING

CONCEALMENT OF PROPERTY TO PREVENT DEBT BEING AVAILABLE FOR CREDITORS
DISTRIBUTION AMONG CREDITORS (SECTION 421) (SECTION 422)
Imprisonment – 2 Years or fine or with both Imprisonment – 2 Years or fine or with both
DISHONEST OR FRAUDULENT EXECUTION OF

DISHONEST OR FRAUDULENT REMOVAL OR
DEED OF TRANSFER CONTAINING FALSE
CONCEALMENT OF PROPERTY (SECTION 424)
STATEMENT OF CONSIDERATION (SECTION 423)
Imprisonment – 2 Years or fine or with both
Imprisonment – 2 Years or fine or with both

CHAPTER 5
REGULATORY ACTION

INSPECTION, INQUIRY, INSPECTION REPORT AND SEARCH AND SEIZURE (SECTION 206 TO 209)
INSPECTION
By Registrar By Regional Director By Central Government
 No information or explanation is
given
 The information or explanation
 The Central Government after  by general or special order
furnished is inadequate
examining report direct RD authorise any statutory authority
 Satisfied – that some unlawful
affairs are conducted in the
company

INQUIRY SEARCH AND SEIZURE
Warrant issued by Special court

a) for a fraudulent purpose
b) unlawful purpose  enter and search the place or places
c) not in compliance with the provision where such books or papers are kept;
of this Act or and
d) Investor’s grievances not being  Seize such books and papers as he
addressed. considers necessary after allowing the
company to take copies of, or extracts
• Before conducting the inquiry from, such books or papers at its cost
inspecting officer has to give
opportunity of being heard Seize for 180 days max

INVESTIGATION (SECTION 210 TO 229)
INVESTIGATION OF THE AFFAIRS OF THE COMPANY

KINDS OF INVESTIGATION (SECTION 210)
1. Investigation of the affairs of the company (Sec 210) a) After receiving report of the Registrar or inspector;
2. Investigation on the order of Tribunal (Sec 213) b) After a special resolution is passed by a company that
3. Investigation about the ownership of a Company (Sec 216) the affairs of the company should to be investigated; or
4. Investigation of the affairs of related companies (Sec 219) c) In public interest
5. Investigation by Serious Fraud Investigation Office (sec 212)
INVESTIGATION INTO COMPANIES AFFAIRS ON AN

APPLICATION MADE BY MEMBERS OR OTHER PERSONS
(SECTION 213)
Tribunal may make an order of investigation:
a) Company having share capital- not less 100 members or
members holding not less than one - tenth of the total voting
INVESTIGATION OF OWNERSHIP OF COMPANY
power or
(SECTION 216) –
b) Company not having share capital- not less than one - fifth of
the persons on the company’s register of members
(a) Who are or have been financially interested in the success or
failure of the company; or
2. The tribunal may also pass order for investigation
(b) Who are or have been able to control or to materially influence a) The business of the company is being conducted with intent to
the policy of the company; or defraud its creditors, members or any other person or for a
fraudulent or unlawful purpose.
(c) Who have or had beneficial interest in shares of a company or b) Person concerned in the formation of the company or the
who are or have been beneficial owners of a company. management of its affairs have been guilty of fraud or other
misconduct towards the company or towards its members or,
c) The members of the company have not been given all reasonable
information required to be given under the Act

INVESTIGATION INTO AFFAIRS OF A COMPANY (SEC 212)
Grounds:
INVESTIGATION INTO AFFAIRS OF
1. On receipt of a report of the Registrar or inspector under Section 208
RELATED COMPANIES (SEC 219)
2. On intimation of a Special Resolution passed by a company that its affairs are
a) Any other body corporate which
required to be investigated
is or has been the company’s
3. In the public interest
subsidiary company or holding
4. On request from any department of Central Government or State Government.
company or a subsidiary of its
holding company;
Composition:
The SFIO consists of experts in the field of accountancy, forensic auditing, law,
b) Any other body corporate which
information technology, investigation, company law, capital market and taxation for
is or has been managed by any
detecting and prosecuting white-collar crimes/ frauds.
person as managing director or
The office should be headed by directors and consist of experts of following fields:
as manager of the company;
a. Banking d. Forensic auditing
b. Corporate affairs e. Capital market
c) Any other body corporate whose
c. Taxation f. Information technology g. Law or other fields
Board of Directors comprises
nominees of the company or is
accustomed to act according to Procedure: CG SFIO
the directions or instructions of Application to tribunal for
the company or any of its Disgorgement
directors; or Investigation officer team
d) Any person who is or has at any

relevant time been the company’s Take Arrest
Fraud
managing director or manager or Possession
CG SFIO
employee. 24 Hours - Magistrate
However, this investigation is in Investigation
continuation of on going investigation report
under sections 210, 212 and 213.

PROCEDURE AND POWERS OF INSPECTOR (SECTION 217)
Duty of all past and present officers, other employees and Any director or officer of the company disobeys
agents of a company or body corporate or a person under a) Imprisonment - one year and
investigation to preserve and to produce all books and papers b) Fine - twenty - five thousand rupees which may extend to
of the company or relating to the company one lakh rupees.
The inspector may require any other body corporate to furnish

such information to or produce such books and papers before Powers of inspectors similar to civil court
him
If any person fails or refuse – a. The discovery and production of books of

a. To produce to an inspector or authorised person any book account and other documents, at such place
or paper and time as may be specified by such person;
b. To furnish any information
c. To appear before the inspector personally when required to b. Summoning and enforcing the attendance of
do so or to answer any question which is put to him by the persons and examining them on oath; and
inspector;
d. To sign the notes of any examination, c. Inspection of any books, registers and other
documents of the company at any place.
Punishable - The inspector shall not keep books and papers

for more than one hundred eighty days
Fine - extend to one lakh rupees

INVESTIGATIONS PROCEDURE BY SEBI UNDER SEBI ACT
Section 11 C
Section 11 D
Call for information
Company IO
Deals with the cease and desist powers of SEBI
duty to give additional information
If information is not given

Imprisonment – upto 1 year
Or
Fine – upto 1 crore
Search and seize

(max 180 days)
Powers are similar to Civil Court (SIID)

SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR
INVESTIGATION UNDER FOREIGN EXCHANGE
TRADE PRACTICES RELATING TO SECURITIES
MANAGEMENT ACT (FEMA)
MARKET) REGULATIONS, 2003
a. buy, sell or otherwise deal in securities in a fraudulent

manner; Central Government establishes Directorate of
Enforcement with directors and other officers
b. use or employ, any manipulative or deceptive device in

connection with issue, purchase or sale of any security listed
or proposed to be listed in a recognized stock exchange in POWER OF OFFICERS
contravention of the provisions of the Act or the rules or the a) presume, that the signature and every other part
regulations made there under of such document have been signed by or is in the
handwriting of, that particular person.
b) presume, unless the contrary is proved, the truth
c. employ any device, scheme or artifice to defraud in of the contents of such document.
connection with dealing in or issue of securities which are c) admit the document in evidence despite the fact
listed or proposed to be listed on a recognized stock exchange; that it is not duly stamped, if such document is
admissible in evidence
d. engage in any act, practice, course of business which

operates or would operate as fraud or deceit upon any
person in connection with any dealing in or issue of
securities which are listed or proposed to be listed on a
recognized stock exchange in contravention of the provisions
of the Act or the rules and the regulations made there under.

INVESTIGATION UNDER FOREIGN CONTRIBUTION AND (REGULATION) ACT (FCRA)
If the Central Government has any reason to suspect that any provision of this Act has been or is being, contravened
by –
 any political party; or
 any person;
 any organisation; or
 any association,
it may, by general or special order, authorise a Gazetted Officer, to inspect any account or record maintained by such
political parties
Prohibitory order is served on any person he shall be Any person accepts or assists any person he shall be
punishable with punishable with
a) imprisonment - three years, or a) imprisonment - Five years, or
b) with fine, or b) with fine, or
c) with both or, c) with both or,
DISPOSAL OF SEIZED ARTICLE OR CURRENCY OR SECURITY
Documents seize – forward to officer – Prepares inventory – Magistrate certifies – becomes an appropriate evidence
of assets seized

RELEVANT MARKET INQUIRY BY CCI
RELEVANT GEOGRAPHIC MARKET CG/SG CCI PRIMA FACIE - YES DG

The Commission shall, while determining the
PRIMA FACIE - X Drop
“relevant geographic market”, have due regard to all
or any of the following factors, namely: –
(a) regulatory trade barriers; Convinced
(b)local specification requirements;
(c) national procurement policies; Further inspection
(d) adequate distribution facilities;
(e) transport costs Inspection inquiry
Submit to CCI
RELEVANT PRODUCT MARKET
Report
The Commission shall, while determining the
“relevant product market”, have due regard to all or
any of the following factors, namely: –
(a) physical characteristics or end-use of goods;
(b) price of goods or service;
(c) consumer preferences;
(d) exclusion of in-house production;
(e) existence of specialised producers; and
(f) classification of industrial products

INCOME TAX ACT
POWER TO CALL FOR INFORMATION

Require POWER SIMILAR TO CIVIL COURTS
 any firm
 any HUF a) Summoning and examining witnesses on oath;
 any assesse b) Issuing commissions;
 any dealer, broker or agent or any person concerned. c) Issuing inquiries
 any banking company, d) Discovery or production of books of account and other
to provide information relating to names and addresses of documents
the partners of the firm. OR
or to furnish statements of accounts and affairs verified
in the manner specified by the Assessing Officer
POWER OF SEARCH AND SEIZURE
a) Enter and search any building, place, vessel, vehicle
ORDER NOT TO REMOVE or aircraft where he has reason to suspect that
If it not possible to take physical possession of any books or documents are kept
valuable thing and remove it to a valuable place due to its b) Open the lock of any door, box, locker, safe, almirah
volume, weight etc, then authorised officer may serve an for exercising the powers conferred
order that he shall not remove or deal with it without the c) Seize any such books of account, other documents,
permission of authority. money, bullion, jewellery or other valuable article or
thing found as a result of such search, except when
bullion, jewellery or other valuable article are stock-
POWER OF SURVEY –
in-trade of the business
a. any place within the limits of the area assigned to him,
d) Place marks of identification on any books of
b. any place occupied by any person in respect of whom
account or other documents
he exercises jurisdiction, or
e) Make a note of any such money, bullion, jewelry or
c. any place in respect of which he is authorised for the
other valuable article or thing.
purposes of this section by such incometax authority,
PRESUMPTION ABOUT BOOKS
1. That such books of account, other documents, INVESTIGATION UNDER FOREIGN EXCHANGE
money, bullion, jewellery or other valuable article MANAGEMENT ACT (FEMA)
or thing belong or belongs to such person;
2. That the contents of such books of account and
other documents are true ; and
3. That the signature and every part of books of
account and other documents are in that person’s Central Government establishes Directorate of
handwriting. Enforcement with directors and other officers
Section 135A:
(a) eliminating the interface between the income-tax
authority and the assessee or any other person to POWER OF OFFICERS
the extent technologically feasible; a) presume, that the signature and every other part
(b) (optimising utilisation of the resources through of such document have been signed by or is in the
economies of scale and functional specialisation; handwriting of, that particular person.
(c) (introducing a team-based exercise of powers, b) presume, unless the contrary is proved, the truth
including to call for, or collect, or process, or of the contents of such document.
utilise, the information, with dynamic jurisdiction. c) admit the document in evidence despite the fact
that it is not duly stamped, if such document is
admissible in evidence
FAIR MARKET VALUE
The authorized officer may, during the course of the
search or seizure or within a period of sixty days from
the date on which the last of the authorizations for
search was executed, make a reference to a Valuation
Powers are similar to Income Tax officer
Officer referred to in section 142A, who shall estimate
the fair market value of the property in the manner
provided under that section and submit a report of the
estimate to the said officer within a period of sixty days
from the date of receipt of such reference.
CENTRAL BUREAU OF INVESTIGATION TYPE OF INESTIGATION
Anti-corruption division: it is the largest division having

presence almost in all the States of India. It investigates cases
 The Central Bureau of Investigation is an under the Prevention of Corruption Act, 1988 against Public
organization established under the Delhi Special officials and the employees of Central Government, Public
Police Establishment Act, 1946. Its jurisdiction Sector Undertakings, Corporations or Bodies owned or
extends to Delhi and other Union territories. controlled by the Government of India.
 CBI can also conduct investigation in the state Economic offences division: investigates major financial
however, prior consent of state government will be scams and serious economic frauds, including crimes relating
required for the same. to Fake Indian Currency Notes, Bank Frauds and Cyber Crime
 If the Supreme Court and High Courts, order CBI to Special crimes division: investigates serious, sensational and
investigate a crime anywhere in the country, no organized crime under the Indian Penal Code and other laws on
consent of state Government would be required. the requests of State Governments or on the orders of the
Supreme Court and High Courts.
ECONOMIC OFFENCE WING
 Economic Offence Wings are specialized wings of state police to handle investigation of economic offences.
 To prevent, detect and investigate cases of economic, cyber and Intellectual Property related crimes to ensure prompt justice
and desired relief to the victims.
 The EOW strive to achieve excellence in the investigation of cases of economic crimes by adopting professional and modern
methods and by being aware of the emerging trends in the field

CHAPTER 6
ADJUDICATION,
PROSECUTION, OFFENCES AND
PENALTIES

PENALTIES UNDER THE ACT
 Pursuant to provisions of section 454A of the Act, the amount of penalty payable for any second or subsequent defaults shall be
twice the amount prescribed under the Act in case the same default has been committed again within a period of 3 years from
the date of order imposing penalty for the first or earlier default.
 The default or non-compliances of provisions of the Act also attracts restrictions or withdrawal of benefits provided under the
Act in addition to liability to pay penalties.
 Default or failure in compliance with the provisions of section 92 (Annual Return) will result into
1. withdrawal of exemptions available to a private company, etc.
2. company becoming ineligible to undertake buy-back of its equity shares or other specified securities
3. disqualification of directors, and
4. company being classified into an inactive company.
ADJUDICATION OF PENALTIES
ROC is the adjudicating Appeal against the Regional director Decisions of Regional Director
officer and passes an order order of ROC within 60 days is final and binding
of natural justice

ROLE OF COMPANY SECRETARY ADJUDICATION
Adjudication is the process by which a judge reviews

The current regulatory scenario demands the arguments and evidences of both the parties and after
Company Secretary be more vigilant and providing them an opportunity of being heard passes all
diligent specifically about the applicability of necessary decisions.
multiple laws and timely compliances, thus,
the role which a company secretary plays has
been briefly discussed hereunder: Questions that arise with respect to adjudication:
1. To ensure timely compliances of the
provisions of the Act to avoid any action for 1. Circumstances for adjudication: Under what
default or failure. circumstances can an adjudication be ordered u/s
2. To represent the Company before the ROC, 454? Or what triggers an action u/s 454? Is it on the
RD or NCLT, in the event of any action for findings of the MCA that an offence has occurred
default or failure. following an inspection u/s 206 or on scrutiny of the
3. To develop a robust internal compliance Balance Sheet or from the statutory auditors’ report
system which generates the details of or from the secretarial audit report?
compliances undertaken and any 2. Authority: Who orders Adjudication Proceedings u/s
compliance lapses in a timely manner. 454? Can the ROC himself order? In which case can
4. To initiate the compounding procedure in the Central Government appoint him as the
the event of any non-compliance(s) comes adjudicating officer?
to light and to avoid recurrence of such 3. Prevailing provision: When there is a provision for
non-compliances in future. compounding u/s 441 how does section 454 come
5. To ensure timely and appropriate into play? Does Section 454 override section 441
disclosure pertaining to penalties or since it is a later section? Or do both sections play
compounding offences or action by any parallelly? Which section prevails? ; and
authorities. 4. Suo motto application: When a suo motto
application for compounding is pending disposal,
how does Section 454 come into play?
Difference between compounding and
Under what circumstances can adjudication be ordered u/s 454?
adjudication - There must have been a default or non-compliance of the
provisions of the Companies Act, 2013;
- The default has to be ascertained and the nature of non-
compliance must be identified by the concerned office of the ROC
Adjudication order u/s 454 is appealable or emanate from inspection/investigation or from the statutory
auditor’s report or the secretarial audit report;
- Fine is not the same as penalty. Penalty is a broader term which
includes fine. Before initiating adjudication proceedings u/s 454,
Order u/s 454 is arbitrary and not on consensus: it has to be ascertained if the penal provisions in the section
alleged to have been violated for which these proceedings are
sought to be initiated are in the nature of fine or penalty.
Authorities
Authority: Who orders adjudication proceedings u/s 454? Can
the RoC himself order?
- In which case can the Central Government appoint him as the
No compounding for pending investigations adjudicating officer?
- Either the ROC himself on a scrutiny of documents filed with him
and on his satisfaction has to come to a conclusion that there
has been non-compliance of the provisions of the Act
Mandatory hearing - or has to come to a conclusion of such non-compliances based on
any report on inspection or investigation,
- or on the qualifications of the statutory auditors in the Annual
Report or by the secretarial auditors in their Secretarial Audit
Compounding similar offences Report.

OFFENCES AND PENALTIES UNDER SEBI ACT, 1992
The Enforcement Department is responsible for handling Appeals against SEBI orders filed before the Hon’ble Securities
Appellate Tribunal (SAT), Appeals filed against the SAT order in the Hon’ble Supreme Court, Criminal Complaints filed by
SEBI in appropriate Courts and Settlement Proceedings. The Enforcement Directorate consists of mainly three divisions:
1) SAT Litigation Division 2) Prosecution Division 3) Settlement Division
SETTLEMENT DIVISION
SAT LITIGATION DIVISION PROSECUTION DIVISON
The Settlement Division is responsible
1. This division handle appeals This division handles the work
for handling Registration of Settlement
against orders of SEBI and its relating to filing prosecution
Application, Calculation of Settlement
Adjudicating officers made to SAT. proceedings under the Court.
amount as per the Settlement
2. It collaborates with senior
Regulations, organizing Internal
advocates, law firms to represent
Committee Meeting between the
SEBI or Adjudicating officers in
Applicants and Internal Committee
front of SAT.
Members for formulating the settlement
3. It assist SEBI in filing
amount/terms, Organizing High
affidavits/written submissions, as
Powered Advisory Committee (HPAC)
and when needed, while attending
Meeting, placing the recommendation of
hearings.
HPAC before the Panel of Whole Time
CS MUSKAN GUPTA 9532064262 Members for approval.
YES ACADEMY, PUNE 8888 235 235
POWER TO ADJUDICATE 15-I
 Adjudicating officer has the power to call for any other information, documents or issue summons to any other person who is
well aware of the facts of the case.
 If the person fails to comply with the order of the officer then he may levy penalty for the same.
 Board can anytime call for the order of the officer and if it is found that the order passed by the officer is wrong to such an
extent that it is not in favor of securities market, board may increase the amount of penalty.
SECURITIES CONTRACTS(REGULATION) ACT, 1956
RECOVERY OF AMOUNTS APPEAL TO SAT
a) attachment and sale of the person’s movable property;  Every person aggrieved by the orders of Adjudicating
b) attachment of the person’s bank accounts; authorities or SEBI can make an appeal to Securities
c) attachment and sale of the person’s immovable property; Appellate Tribunal (SAT) within 45 days from date of
d) arrest of the person and his detention in prison; receiving order by SEBI or AO.
e) appointing a receiver for the management of the person’s  SAT on receiving an application can confirm, modify or
movable and immovable properties. set aside any order after giving equal opportunity of
 Recovery officer means any officer of the Board being heard to both the parties.
authorised by the Board to act as recovery officer.  Copy of order is send to both the parties.
 Recovery of amounts by a recovery officer will have  Appeal filed before SAT has to be disposed off as soon as
priority over any other claim against such person. possible and finally within 6 months from date of receipt
of appeal.

THE CONSERVATION OF FOREIGN EXCHANGE AND PREVENTION OF SMUGGLING
ACTIVITIES ACT, 1974
POWER TO MAKE ORDERS DETAINING CERTAIN PERSONS –

The Central Government or the State Government if satisfied, that any person (including a foreigner), is involved in following
activities, he may make an order directing such person to be detained–
1. smuggling goods, or
2. encouraging the smuggling of goods, or
3. engaging in transporting or concealing or keeping smuggled goods, or
4. dealing in smuggled goods otherwise than by engaging in transporting or concealing or keeping smuggled goods, or
5. protecting persons engaged in smuggling goods or in abetting the smuggling of goods,
According to article 22 of Indian Constitution, when a person is detained, grounds of his detention should be communicated
to him as soon as possible but not later than 5 days and 15 days, in exceptional cases, from the date of detention.
Section 5A:
Where detention has been made on two or
more grounds, such detention order shall be
POWER TO REGULATE PLACE AND CONDITIONS OF deemed to have been made separately and
DETENTION (SECTION 5) such order shall not be deemed to be invalid
Every person against whom detention order has been made or inoperative merely because one or some of
can be detained in any place and can be removed from one the grounds is or are –
place of detention to other, inside or outside the state, 1. vague,
however, permission of Central Government would be 2. non-existent,
required in latter case. 3. not relevant,
4. not connected or not proximately
connected with such person, or
5. invalid for any other reason whatsoever.
ADVISORY BOARDS CASES IN WHICH AND CIRCUMSTANCES UNDER WHICH
PERSONS MAY BE DETAINED FOR A PERIOD LONGER
THAN THREE MONTHS WITHOUT OBTAINING THE
 The Central Government and each State OPINION OF ADVISORY BOARD (SECTION 9)
Government constitute one or more Advisory
Boards consisting of a Chairman and two other
Government is satisfied that such person –
persons.
1. smuggles or is likely to smuggle goods into, out of or through any
area highly vulnerable to smuggling.
 The appropriate Government within five weeks
from the date of detention of a person under a
2. abets or is likely to abet the smuggling of goods into, out of or
detention order make a reference in respect thereof
through any area highly vulnerable to smuggling.
to the Advisory Board constituted.
 The Advisory Board , after considering the 3. engages or is likely to engage in transporting or concealing or
reference and the materials placed before it, after keeping smuggled goods in any area highly vulnerable to smuggling.
calling additional information, if it considers
necessary. MAXIMUM PERIOD OF DETENTION (SECTION 10)
 Where the Advisory Board has reported that in its
1. The maximum period for which any person may be detained in
opinion there is sufficient cause for the detention pursuance of any detention order to which the provisions of section 9
of a person, the appropriate Government may do not apply and which has been confirmed under clause (f) of section
confirm the detention order and continue the 8 shall be a period of one year from the date of detention or the
detention of the person for such period as it thinks specified period, [whichever period expires later]
fit and where the Advisory Board has reported that 2. The maximum period for which any person may be detained in
in its opinion there is sufficient cause for the pursuance of any detention order to which the provisions of section 9
detention of the person concerned, the appropriate apply and which has been confirmed under clause (f) of section 8
Government shall revoke the detention order and read with sub-section (2) of section 9 shall be a period of two
cause the person to be released. years from the date of detention or the specified period,
whichever period expires later.
APPELLATE TRIBUNAL AND
APPOINTMENT OF APPEAL TO SPECIAL DIRECTOR
APPEAL TO APPELLATE
ADJUDICATING AUTHORITY (APPEALS)
TRIBUNAL
 Central government may appoint an

adjudicating authority for holding an
inquiry in the manner prescribed  Appeal against the orders of Central
under the act.  Every appeal has to be made within 45
Government will be made to special
days from the date of receiving the
director of appeals.
 Adjudicating authority will provide order.
opportunity of being heard to both  Every appeal shall be filed within
the parties and impose the necessary  Tribunal would provide reasonable
forty-five days from the date on
penalty. However, if the authority is opportunity of being heard to both the
which the copy of the order made by
of the opinion that the person guilty parties and pass any necessary order
the Adjudicating Authority is received
may abscond without paying the confirming, modifying or setting aside
by the aggrieved person.
complete amount, they may direct the order appealed against.
him to furnish a bond  Special director (appeals) would
 A copy of order will be sent to both the
provide reasonable opportunity of
 Adjudicating authority will hold an parties.
being heard to both the parties and
enquiry only when a complaint is pass any necessary order confirming,
writing is made by any officer  Tribunal will make an attempt to
modifying or setting aside the order
authorized by the Central dispose off the cases as soon as
appealed against.
Government. possible but not later than one
hundred eighty days from the date of
 A copy of order will be sent to both
 Every adjudicating authority will filing of appeal.
the parties.
make an attempt to dispose off the
cases as soon as possible but not
later than one year from the date of
receipt of complaint.
PROCEDURE AND POWERS OF APPELLATE APPEAL TO HIGH COURT
TRIBUNAL AND SPECIAL DIRECTOR (APPEALS)
 Any person aggrieved by any decision or order of the
1. summoning and enforcing the attendance of any person and Appellate Tribunal may file an appeal to the High Court
examining him on oath within sixty days from the date of communication of the
decision or order of the Appellate Tribunal to him on
any question of law arising out of such order.
2. requiring the discovery and production of documents
 Provided that the High Court may, if it is satisfied that
the appellant was prevented by sufficient cause from
3. receiving evidence on affidavits filing the appeal within the said period, allow it to be
filed within a further period not exceeding sixty days.
4. subject to the provisions of sections 123 and 124 of the
Indian Evidence Act, 1872 (1 of 1872), requisitioning any public
record or document or copy of such record or document from DIRECTORATE OF ENFORCEMENT
any office
5. issuing commissions for the examination of witnesses or

documents  The Central Government shall establish a Directorate
of Enforcement with a Director and such other officers
or class of officers as it thinks fit, who shall be called
6. reviewing its decisions
officers of Enforcement, of this Act.
 The Director of Enforcement and other officers of
7. dismissing a representation of default or deciding it ex parte Enforcement, not below the rank of an Assistant
Director, shall take up for investigation.
 The Central Government may also, by notification,
8. setting aside any order of dismissal of any representation for authorise any officer or class of officers in the Central
default or any order passed by it ex parte and Government, State Government or the Reserve Bank,
not below the rank of an Under Secretary to the
Government of India to investigate any contravention.
9. any other matter which may be prescribed by the Central
Government.
ATTACHMENT, ADJUDICATION AND CONFISCATION UNDER PREVENTION OF MONEY LAUNDERING ACT
(PMLA), 2002
1. Central Government shall by notification appoint any adjudicating authority, consisting of a Chairperson and two
other members (one Member each shall be a person having experience in the field of law, administration, finance or
accountancy).
2. A person shall not be qualified for appointment as member of adjudicating authority
• In the field of law, unless he i) is qualified for appointment as District Judge or
• has been a member of the Indian Legal Service and has held a post in Grade I of that service
• In the field of finance, accountancy or administration unless he possesses such qualifications, as may be prescribed.
3. The Central Government shall appoint a Member to be the Chairperson of the Adjudicating Authority.
4. The Chairperson and every Member shall hold office as such for a term of five years or unless they attain the age of
65 years.
5. If, any vacancy occurs in the office of the Chairperson or any other Member, then, the Central Government shall
appoint another person in accordance with the provisions of this Act to fill the vacancy and the proceedings may be
continued before the Adjudicating Authority from the stage at which the vacancy is filled.
6. In the event of the occurrence of any vacancy in the office of the Chairperson by reason of his death, resignation or
otherwise, the senior-most Member shall act as the Chairperson of the Adjudicating Authority until the date on
which a new Chairperson enters upon his office.
7. When the Chairperson of the Adjudicating Authority is unable to discharge his functions owing to absence, illness or
any other cause, the senior-most Member shall discharge the functions of the Chairperson of the Adjudicating
Authority until the date on which the Chairperson of the Adjudicating Authority resumes his duties.
8. The Chairperson or any other Member shall not be removed from his office except by an order made by the Central
Government after giving necessary opportunity of hearing.
9. Adjudicating authority is not bound to follow the principles laid down in Civil Procedure Code. They can follow the
principles of Natural justice.
10. Powers of Adjudicating authority are similar to Civil Courts

APPELLATE TRIBUNAL UNDER PMLA
APPELLATE TRIBUNAL APPEAL TO HIGH COURT SPECIAL COURTS UNDER PMLA
1. Any reporting entity aggrieved by any

order of the Director made under sub-
section (2) of section 13, may prefer an 1. The Central Government, in
appeal to the Appellate Tribunal. • Any person aggrieved by any consultation with the Chief
2. The Director or any person aggrieved by decision or order of the Justice of the High Court,
an order made by the Adjudicating Appellate Tribunal may file designate one or more Courts of
Authority under this Act, may prefer an an appeal to the High Court Session as Special Court.
appeal to the Appellate Tribunal, within within sixty days from the
a period of forty-five days from the date date of communication of the 2. Save as otherwise provided in
on which a copy of the order is received. decision or order of the this Act, the provisions of the
3. On receipt of an appeal, the Appellate Appellate Tribunal. Code of Criminal Procedure, 1973
Tribunal may, after giving the parties to (including the provisions as to
the appeal an opportunity of being
• However, if High Court is bails or bonds), shall apply to the
heard, pass such orders thereon as it
satisfied that the appellant proceedings before a Special Court
thinks fit, confirming, modifying or
setting aside the order appealed against. was prevented by sufficient and for the purposes of the said
4. The Appellate Tribunal shall send a copy cause from filing the appeal provisions, the Special Court shall
of every order made to both the parties. within the said period, allow be deemed to be a Court of
5. The appeal filed before the Appellate it to be filed within a further Session and the persons
Tribunal shall be dealt with by it as period not exceeding sixty conducting the prosecution before
expeditiously as possible and attempts days. the Special Court, shall be
should be made by it to dispose of the deemed to be a Public Prosecutor.
appeal finally within six months from
the date of filing of the appeal.

APPLICATION OF CODE OF CRIMINAL PROCEDURE, 1973 TO PROCEEDINGS BEFORE SPECIAL COURT
(SECTION 46)
APPEAL AND REVISION

The High Court may exercise, so far as may be
applicable, all the powers conferred by the PUNISHMENT FOR FALSE INFORMATION OR FAILURE TO GIVE
Code of Criminal Procedure, 1973, on a High INFORMATION, ETC. (SECTION 63)
Court, as if a Special Court within the local
limits of the jurisdiction of the High Court 1. Any person willfully and maliciously gives false information and
were a Court of Session trying cases within the causes an arrest or a search to be made under this Act shall on
local limits of the jurisdiction of the High conviction be liable for imprisonment for a term which may
Court. extend to two years or with fine which may extend to fifty
thousand rupees or both.
2. If any person - being legally bound to state the truth of any
matter relating to an offence refuses to answer any question put
PUNISHMENT FOR VEXATIOUS SEARCH to him by an authority in the exercise of its powers under this
(SECTION 62) Act; or
Any authority or officer exercising powers - refuses to sign any statement made by him in the course of any
under this Act or any rules made proceedings under this Act, which an authority may legally
thereunder, who, without reasons recorded require to sign; or
in writing- - to whom a summon is issued to give evidence or produce books
- searches any building or place; or of account or other documents at a certain place and time, omits
- detains, searches or arrests any person to attend or produce books of account or documents at the place
shall for every such offence be liable on or time,
conviction for imprisonment for a term Shall pay, by way of penalty, a sum which shall not be less than five
which may extend to two years or fine hundred rupees but which may extend to ten thousand rupees for
which may extend to fifty thousand each such default or failure.
rupees or both.

LIST OF OFFENCES COMPOUNDABLE IN NATURE (POWERS VESTED WITH REGIONAL DIRECTOR)
1. Contravention of provisions relating to issue of a 9. Failure to keep proper books of account.

prospectus.
2. Committing default in complying with the 10. Failure to keep proper financial statement.
provisions regarding to variation of shareholders’
rights. 11. Default in complying with the provisions regarding
3. Committing default in complying with the order of financial statement and Board’s report.
Tribunal relating to rectification of register of
members. 12. Failure of auditor to intimate to Central
4. Failure to publish the order of confirmation of the Government regarding fraud against the company
reduction of share capital by the Tribunal. by officers or employees.
5. Contravening provisions relating to purchase by
company or loans by company for purchase of its 13. Functioning as a director after vacation of office.
own shares
6. Committing default in complying with the order of 14. Contravention of the provisions of sub-section 1
Tribunal relating to redemption of debentures. relating to loans, guarantee or security.
7. Failure to maintain register of members or
debenture-holders or other security holders as 15. Related party transaction in case of other company
prescribed. and listed company.
8. If a company secretary in practice certifies the
annual return otherwise than in conformity with 16. Forward dealing in securities of the company by
the requirements of this section or the rules made Key Managerial personnel or director.
thereunder.

LIST OF OFFENCES COMPOUNDABLE IN
LIST OF OFFENCES NON-COMPOUNDABLE IN NATURE
NATURE (POWERS VESTED WITH THE
(POWERS VESTED WITH SPECIAL COURT)
TRIBUNAL)
1. Committing default in complying with the

1. Deceitfully personating as an owner of any shares or
requirements relating to formation of
interest in a company
companies with charitable objects, etc.
2. Contravention of an order of the Tribunal regarding
the refusal of registration and appeal against refusal.
2. Committing default in complying with the
3. Contravening provisions relating to purchase by
provisions relating to securities to be dealt
company or loans by company for purchase of its
with in stock exchanges.
own shares.
4. Tampering with the minutes of the proceedings of
3. Fraudulently issuing of duplicate share
meeting.
certificates by a company.
5. Failure to distribute dividend within thirty days.
6. Failure of auditor to comply with the provisions of
4. If a company fails to repay the deposit or
sections 139, 143, 144 and 145
part thereof or any interest thereon within
7. Political contribution made in contravention of the
the time specified or such further time as
provision
may be allowed by the Tribunal.
8. Contravention of the provisions relating to loans and
investment
5. Punishment for fraud involves an amount
9. Disobeys the direction issued by the Registrar or
less than ten lakh rupees or one per cent.
inspector
of the turnover of the company, whichever
10. Disobeys the direction issued by the Registrar or
is less and does not involve public
inspector in relation to investigation
interest.

CHAPTER 7
RELIEF AND REMEDIES

COMPOUNDING
WHICH OFFENCES CAN BE COMPOUNDED

 referred to as “to come to a settlement or agreement” ANY
 Admission of the guilt by the accused OFFENCE FINE IMPRISON IMPRISONMENT
PUNISHABLE ONLY MENT OR OR FINE OR
WITH FINE BOTH
COMPOUNDING PROVISIONS UNDER WHICH OFFENCES CAN BE COMPOUNDED

COMPANIES ACT, 2013 (Section 441)
ANY OFFENCE IF THE INVESTIGATION OFFENCE IS COMMITTED
Maximum amount of fine - Twenty-five lakh PUNISHABLE WITH AGAINST SUCH WITHIN A PERIOD OF
rupees, the Regional Director will have power to IMPRISONMENT ONLY COMPANY HAS BEEN THREE YEARS FROM THE
compound the offence and in all other cases OR IMPRISONMENT INITIATED OR IS DATE ON WHICH A
Tribunal will have the power to compound the AND ALSO WITH FINE PENDING UNDER THIS SIMILAR OFFENCE IS
offence ACT. COMMITTED
PROCEDURE FOR COMPOUNDING OF OFFENCES

 A resolution will be passed at the board meeting for compounding of offences.
 Application for compounding of offence will be made to the Registrar who will further forward it to Tribunal or Regional Director
in the e-from GNL-1.
 RD or Tribunal will conduct hearing and decide the amount to be paid for compounding.
 Order of RD or Tribunal is then filed with the ROC with 30 days in form INC-28.

COMPOUNDING PROVISIONS UNDER FEMA
POWER OF RBI TO COMPOUND CONTRAVENTION POWER OF ENFORCEMENT DIRECTORATE TO COMPOUND

When a person contravenes provisions of section 3 except CONTRAVENTION
section 3 (a) of the act, compounding can be done:
If a person contravenes provisions of section 3(a) of the Act then following have
 ten lakhs rupees or below, by the Assistant General Manager
of the Reserve Bank of India; the authority to compound the offences:
 more than rupees ten lakhs but less than rupees forty lakhs, 1. five lakhs rupees or below, by the Deputy Director of the Directorate of
by the Deputy General Manager of Reserve Bank of India; Enforcement;
 forty lakhs or more but less than rupees one hundred lakhs 2. more than rupees five lakhs but less than rupees ten lakhs, by the
by the General Manager of Reserve Bank of India; Additional Director of the Directorate of Enforcement
 one hundred lakhs or more, by the Chief General Manager of
3. ten lakhs or more but less than fifty lakhs rupees by the Special Director of
the Reserve Bank of India;
the Directorate of Enforcement;
4. fifty lakhs or more but less than one crore rupees by Special Director with
LIMITS OF COMPOUNDING Deputy Legal Adviser of the Directorate of Enforcement;
Any contravention committed by a person within a period of three
5. one crore rupees or more, by the Director of Enforcement with Special
years from the date on which a similar contravention was
committed, cannot be compounded. Director of the Enforcement Directorate.
PROCEDURE OF COMPOUNDING
FACTORS CONSIDERED WHILE COMPOUNDING
An application is to be made to the compounding authority
Every application for compounding shall be made in Form to the
 The amount of gain of unfair advantage.
along with a fee of Rs, 5.000 by Demand Draft
 The amount of loss caused to any authority/ agency/ exchequer.
The Compounding Authority may call for any information, record or
 Economic benefits accruing to the contravener from delayed compliance
any other documents providing opportunity of being heard to both
or compliance avoided.
the parties within 180 days from the date of receiving the
 The repetitive nature of the contravention, the track record and/or
application.
history of non-compliance of the contravene.
Where contravention is compounded before adjudication - no inquiry
 Contravener’s conduct in undertaking the transaction, in disclosure of
Where contravention is compounded after making a complaint such
full facts in the application and submissions made during the personal
compounding shall be brought in the notice of adjudicating
hearing.
authority.
MEDIATION AND CONCILIATION
Mediation means an act of a third person who interferes between two contending parties with a view to reconcile them or
persuade them to adjust or settle their dispute.
Conciliation means the process of adjusting or settling disputes in a friendly manner through extra judicial mean.
COMPANIES (MEDIATION AND CONCILIATION) RULES

PANEL OF MEDIAOR AND CONCILIATORS
1. Regional Director - prepare - a panel of experts - placed on the website of the Ministry of Corporate Affairs - any other
website as may be notified by the Central Government.
2. RD - invite applications - mediator or conciliator.
3. RD - scrutinize the application - application is rejected - provide reasons for the same.
4. Make an application - form MDC-1.
QUALIFICATIONS FOR EMPANELMENT

A person shall not be qualified for being empanelled as mediator or conciliator unless he ─
a) has been a Judge of the Supreme Court of India; or
b) has been a Judge of a High Court; or
c) has been a District and Sessions Judge; or
d) has been a Member or Registrar of a Tribunal constituted at the National level under any law for the time being in force; or
e) has been an officer in the Indian Corporate Law Service or Indian Legal Service with fifteen years’ experience; or
f) is a qualified legal practitioner for not less than ten years; or
g) is or has been a professional for at least fifteen years of continuous practice as Chartered Accountant or Cost Accountant or
Company Secretary; or
h) has been a Member or President of any State Consumer Forum; or
is an expert in mediation or conciliation who has successfully undergone training in mediation or conciliation.
APPLICATION FOR APPOINTMENT OF MEDIATOR AND
DISQUALIFICATIONS FOR EMPANELMENT CONCILIATOR
a) is an undischarged insolvent or has applied to be a) Parties may agree to appoint a sole mediator or sole
adjudicated as an insolvent and his application is conciliator. Where parties are unable to agree upon a sole
pending or mediator or sole conciliator, may themselves appoint the
b) has been convicted for an offence which, in the opinion mediator or conciliator.
b) The application to the Central Government or the Tribunal or
of the Central Government, involves moral turpitude or
the Appellate Tribunal shall be in Form MDC-2 l be
c) has been removed or dismissed from the service of the accompanied with a fee of one thousand rupees.
Government or the Corporation owned or controlled by c) On receipt of application, Tribunal or Central Government
the Government or may appoint a mediator or conciliator from the panel of
d) has been punished in any disciplinary proceeding, by the experts.
appropriate disciplinary authority. d) Central Government or Tribunal may suo moto refer a matter
before the panel, in public interest.
PROCEDURE FOR DISPOSAL OF MATTERS

a) He will fix, the dates and the time of each mediation or
conciliation session, where all parties have to be present, in
REPRESENTATION OF PARTIES AND CONSEQUENCES OF
consultation with the parties.
b) He shall hold the mediation or conciliation at the place NON-ATTENDANCE
decided by the Central Government or the Tribunal or the If a party fails to attend a session a meeting fixed by the
Appellate Tribunal, as the case may be, or such other place
mediator or conciliator deliberately for two consecutive times,
where the parties and the mediator or conciliator jointly
agree; the mediation or conciliation shall be deemed to have failed and
c) He may conduct joint or separate meetings with the parties; mediator or conciliator shall report the matter to the Central
d) Each party shall, ten days before a session, provide to the Government or the Tribunal or the Appellate Tribunal.
mediator or conciliator a brief memorandum providing
issues which needs to be resolved;
e) Each party shall provide all the information as may be
required by the mediator or conciliator.
TIME LIMIT FOR COMPLETION OF MEDIATION AND
CONCILIATION COMMUNICATION BETWEEN MEDIATOR OR CONCILIATOR AND
 The process for any mediation or conciliation shall be THE CENTRAL GOVERNMENT OR THE TRIBUNAL OR THE
completed within a period of three months APPELLATE TRIBUNAL
 About the failure of the party to attend the sessions;
 However, if same cannot be completed within the said
 About the consent of the parties;
period - grant an extension three months.  About his assessment that the case is not suited for settlement
through the mediation or conciliation;
SETTLEMENT AGREEMENT  About settlement of dispute between the parties.
 Where an agreement is reached between the parties, the
same shall be reduced in a written format and shall be EXPENSES OF THE MEDIATION AND CONCILIATION
submitted to the mediator or conciliator, who then forwards  At the time of referring the Central Government or the Tribunal
it to the Central Government or the Tribunal. or the Appellate Tribunal may fix the fee of the mediator or
 Where no agreement is reached between the parties or no conciliator
settlement is possible, mediator or conciliator will inform the  Expenses of Mediation and Conciliation are borne equally by the
parties.
same to the Central Government or the Tribunal.
 Each party shall bear the costs for production of witnesses on
 The Central Government, Tribunal or Appellate Tribunal, his side..
shall fix a date of hearing normally within 14 days from the  If any party or parties do not pay the amount as specified above,
date of receipt of report of mediator or conciliator and on the the Central Government or the Tribunal or the Appellate
said date if the Government or Tribunal is satisfied that the Tribunal, shall on the application of the mediator or conciliator,
issue appropriate directions to the concerned parties.
parties have settled their dispute, it shall pass a necessary
 The mediation or conciliation shall commence only on the deposit
order. of amount referred to in sub-rule (4) and in case amount is not
 If the settlement has dealt with only few issues, then paid before such commencement, the mediation or conciliation
Tribunal may proceed with the rest. shall be deemed to have terminated.
MATTERS NOT TO BE REFERRED TO THE MEDIATION OR CONCILIATION

• Cases involving serious and specific allegations of fraud, • Cases which involve public interest or interest of numerous
fabrication of documents forgery, impersonation, coercion etc. persons.
• Cases involving prosecution for criminal and non-compoundable • The matters relating to proceedings in respect of inspection or
offences. investigation.
SECURITIES AND EXCHANGE BOARD OF INDIA (SETTLEMENT PROCEEDINGS) REGULATIONS,
2018
APPLICATION FOR SETTLEMENT SCOPE OF SETTLEMENT PROCEEDINGS

1. No application for settlement of any proceedings may
 Any person against whom any proceeding has been initiated or be accepted if-
can be initiated can make an application to the Board.  An earlier application regarding same default has been
rejected.
 Complete disclosures about the alleged defaults in the  Audit, investigation or inquiry is pending regarding the said
application. offence.
 Monies due under an order issued under securities laws are
 If complete detail are not provided by the applicant - liable for recovery under securities laws.
application is returned, - submit a complete application within
15 days from the date of communication received from the 2. Board may not settle any matter if it is of the opinion
Board. that the default:
 has market wide impact
 The application made should be accompanied by non-  caused losses to a large number of investors, or
refundable fees, undertakings and waivers  affected the integrity of the market
REJECTION OF APPLICATION
LIMITATION ON APPLICATION 1. The applicant refuses to receive or respond to the communications sent by the
Board;
 application made after the expiry of 60 2. The applicant does not submit or delays the submission of information, document,
days from the date on which the show etc., as called for by the Board
cause notice was received, will not be 3. The applicant who is required to appear, does not appear before the Internal
considered Committee on more than one occasion
 shall be increased by twenty five 4. Where the applicant violates in any manner the undertaking and waivers
percent. 5. The applicant does not remit the settlement amount within the period specified
and/or does not abide by the undertaking and waivers.
COMMITTEES
HIGH POWERED ADVISORY COMMITTEE

INTERNAL COMMITTEE
The Board shall constitute a High-Powered Advisory
Internal Committee is also constituted by the Board.
Committee for consideration and recommendation of the
Composition:
terms of settlement.
1. an officer of the Board not below the rank of Chief General
Composition:
Manager.
1. A judicial member who has been the Judge of the
2. such other officers as specified by the Board.
Supreme Court or a High Court and
2. Three external experts having expertise in securities
market or in matters connected therewith or incidental
thereto. PROCEEDINGS BEFORE THE INTERNAL
3. Term: 3 years COMMITTEE
4. Quorum: three members 1. Application is referred to Internal Committee to
determine whether the proceedings may be settled
PROCEEDINGS BEFORE THE HIGH-POWERED ADVISORY and the settlement terms as per the regulations.
COMMITTEE 2. The Internal Committee may:
1. Internal committee will place settlement terms before the High- • call for relevant information, documents, etc.,
powered committee and the committee would take into pertaining to the alleged default(s) in possession of
consideration the applicant or obtainable by the applicant.
a) the application, • call for the personal appearance of the applicant
b) settlement terms or revised settlement terms proposed by the before it: Provided that a duly authorized
applicant, representative of the applicant may represent on
c) factors specified, behalf of the applicant.
d) any material available on record. • permit the applicant to submit revised settlement
2. Committee has the power to seek revision of terms and refer terms within a period not exceeding 15 working days
application back to Internal Committee.
from the date of the Internal Committee meeting.
3. The recommendations of the High-Powered Advisory Committee
shall be placed before the Panel of Whole Time Members.
SETTLEMENT WITH CONFIDENTIALITY
SUMMARY SETTLEMENT PROCEDURE
1. An applicant can seek the benefit of confidentiality

subject to conditions imposed under this chapter
• Any undertaking in non-monetary terms for which includes:
following defaults: a) Providing and continuing to provide true and
a) Delayed disclosures complete disclosures of informations, documents or
b) Non-disclosure in relation to companies already evidences which are in his possession or he is
listed on stock exchange capable to obtain.
c) Disclosures not made in specified formats b) Co-operating fully, continuously and expeditiously
d) Delayed compliance of any requirement laid down throughout the investigation, inspection, inquiry or
by the board audit and related proceedings before the Board
e) Such other defaults as may be determined by the c) Not concealing, destroying, manipulating or
Board. removing the relevant documents in any manner
that may contribute to the establishment of the
• The notice may, within thirty calendar days from alleged violation.
the date of receipt of the notice of settlement 2. The Board may subject the applicant to further
a) File a settlement application restrictions or conditions, as deemed fit, after
b) remit the settlement amount as specified in the considering the facts and circumstances of the case.
notice of settlement 3. Upon being satisfied, the Board may assure the
benefit of confidentiality and shall thereupon mark
c) comply or undertake to comply with other non-
the status of the application depending upon its
monetary terms as specified in the notice of
priority.
settlement
4. The Board may, at any stage, reject the application
d) ask for rectification of the calculation of the
if the information, documents or evidence is found
settlement amount, as communicated in the to be incomplete or false to the knowledge of the
notice of settlement. applicant.
5. An application made shall be made prior to any
order of investigation, inspection, inquiry or audit.

PROVISIONS OF APPEAL UNDER PROVISION OF APPEAL UNDER SECURITY
COMPANIES ACT, 2013 LAWS
NCLT NCLAT SUPREME Adjudicating SAT SUPREME

COURT officer/SEBI COURT
PROCEDURE
1. An appeal can be made against the order of NCLT, within 45
days from the date of receiving the order.
2. On the receipt of an appeal, NCLAT shall, after giving the
parties to the appeal a reasonable opportunity of being heard,
pass such orders PROVISONS OF APPEAL UNDER FEMA
3. NCLAT shall send a copy of every order made by it to NCLT and
the parties to appeal.
4. Every appeal filed before the NCLAT, an endeavor should be
made for the disposal of appeal within three months from the ADJUDICATING SPECIAL APPELLATE HIGH
date of the filing of the appeal. AUTHORITY DIRECTOR TRIBUNAL COURT
5. If the appeal is not disposed of within the period, NCLAT shall (APPEALS)
record the reasons for not disposing of the appeal not
exceeding ninety days.
APPEAL AGAINST THE ORDER OF NCLAT

1. If a person is aggrieved by the orders passed by NCLAT, it can
make an appeal to the Supreme Court, within a period of 60
days from the date of receiving the order of the Tribunal.
2. However, if the Supreme Court is satisfied that the appellant
was prevented by sufficient cause from filing the appeal within
the said period, it may allow the appeal to be filed within a
further period not exceeding sixty days.
3. Appeal to Supreme Court is possible only when there arises any
question of law out of the order
CHAPTER 8
CRISIS MANAGEMENT & RISK

AND LIABILITY MITIGATION

CRISIS MANAGEMENT
 Identification of threats to an organization and its stakeholders, and the methods used by the organization to deal with these
threats.
 In order to reduce uncertainty in the event of a crisis, organizations often create a crisis management plan.
 Crisis management is not similar to risk management.
TYPES OF CRISIS MANAGEMENT
Natural crisis Crisis due to Workplace Violence
Technological crisis Crisis due to Rumors
Confrontation crisis Bankruptcy
Crisis of malevolence Crisis Due to Natural Factors
Crisis of organizational misdeeds Sudden Crisis
Crisis of Skewed Management Values:

Smouldering Crisis
Crisis of Deception:
CS MUSKAN GUPTA Crisis of Management Misconduct

9532064262 YES ACADEMY, PUNE 8888 235
PROFESSIONAL LIABILITY PROFESSIONAL LIABILITY INSURANCE
 Required by professionals who have expertise in a Specifically covers suits filed against professional services.
specific area because general liability insurance It comes into picture when a third person files sues a
policies do not offer protection against claims arising professional for:
out of business or professional practices such as  Negligent services
negligence, malpractice or misrepresentation.  Failure to fulfil contractual promises
 Depending on the profession, professional liability  Incomplete work
insurance may have different names.  Mistakes or omissions
GENERAL LIABILITY PROFESSIONAL LIABILITY

GENERAL LIABILITY INSURANCE
 General Liability can spare  Professional Liability
your business from Insurance can protect you
General Liability Insurance covers business
lawsuits. from the high cost of
from a general lawsuit that any business
could face. professional mistakes that
It comes into picture when any person who caused a financial loss to
does not work for the company sues  General Liability protects the third party.
company for: the insured from lawsuits
 Bodily injuries they incurred on over finished work that  Professional Liability
commercial premises. physically harms someone. Insurance concerns itself
 Damage caused their property.
with lawsuits over financial
 Advertising injuries like slander, libel,
misappropriation, and copyright losses that result from
infringement someone’s products or
services.
REASONS TO BUY D&O INSURANCE ARE AS
D&O POLICY
FOLLOWING
 is insurance coverage intended to protect individuals Personal assets of directors are at risk
from personal losses if they are sued as a result of
serving as a director or an officer of a business or other Defending a legal action is an expensive affair
type of organization.
 it can also cover the legal fees and other costs the Employees can sue directors
organization may incur as a result of such a suit.
 covers the cost of legal defense of directors, even in Customers can take legal actions
their individual capacity, when the company is unable
to defend them. Enquiry initiated by regulatory authorities
 applies to former, present, and future members of the
board of directors or any employee performing a In case of bankruptcy or insolvency
managerial role.
Helps in attracting/retaining talent
TRIGGER FOR BUYING D&O COVER IN INDIA
D&O claims are not covered under any other policy:
 SEBI (LODR) Regulations, 2015 has provided that the top
500 listed entities, by market capitalization shall undertake
Directors and Officers insurance (‘D and O insurance’) for Investors can file a case against you
all their independent directors of such quantum and for
such risks as may be determined by its board of directors A director has to work with following principles:
 Globalisation
 Stricter Regulations
 Indian companies are getting themselves listed on foreign Duty of Care
stock exchanges, acquiring or merging with non-Indian
companies it creates a litigious environment and high legal Duty of Loyalty
costs making D&O insurance important for the companies.
Duty of Obedience
OTHER RISK MITIGATION APPROACHES RISK OVERSIGHT FUNCTION OF BOARD OF DIRECTORS
 responsibility of the Board to delve deeper into their
organisation’s risk management practices and consider risk
factor as an integral part of organizational strategy
RECOMMENDATIONS FOR IMPROVING  Board does not play a direct role in managing the risks of the
RISK OVERSIGHT company but it’s role is limited to risk oversight of
management and corporate issues that affect
 review company’s risk tolerance ability and check whether the risk.
company’s strategy is consistent with the agreed-upon risk tolerance
for the company.
 establish a clear framework for holding the CEO accountable for LEGAL COMPLIANCE PROGRAMS
building and maintaining an effective framework for risk tolerance
and providing the board with regular, periodic reports on the
company’s risk status.
 duty of the senior management to provide legal
 review the risk policies and procedures adopted by management,
compliance programme to Board or Committee and
including procedures for reporting matters to the board and
how they are designed to address the company’s
appropriate committees and providing updates, to assess whether
risk profile and detect and prevent wrongdoing.
they are appropriate and comprehensive.
 tailored according to the specific company’s needs
 review implementation of its risk policies and procedures, to assess
and there are a number of principles that needs to
whether they are being properly followed and are effective.
be considered in reviewing the programme.
 review with management the quality, type and format of risk-related
 there should be a strong “tone at the top” from the
information provided to directors.
board and senior management
 review reports from management, independent auditors, internal
 should be designed by persons with relevant
auditors, legal counsel, regulators, stock analysts and outside
expertise
experts as considered appropriate regarding risks the company faces
 Compliance policies should be reviewed periodically
and the company’s risk management function.
to assess their effectiveness and to make any
necessary changes. Policies and procedures should
fit with business realities. A rulebook that looks
good on paper but is not followed will end up
hurting rather than helping
SPECIAL CONSIDERATION REGARDING CYBER SECURITY RISK
 As cybersecurity risk continues to rise in prominence, number of companies have begun to

specifically situate cybersecurity and cyber risk within their internal audit function.
 Ensure a cyber-incident response plan is in place that identifies risk and identifies necessary
notifications to be issued as part of a pre-existing notification plan.
 ensure that the company has developed effective response technology and services (e.g., offsite
data back-up mechanisms and data loss prevention technology)
 ensure that the company’s legal counsel is well versed with technology systems and cyber
incident management to reduce response time.
 establish relationships with cyber information sharing organizations and engage with law
enforcement before a cyber-security incident occurs.
SPECIAL CONSIDERATIONS REGARDING ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) RISKS
 ESG risks represent a specific subset of general risks that a company must manage where relevant,
by identifying and mitigating company-specific risks, such as environmental liabilities, labour
standards, consumer and product safety and leadership succession.
 The board should work with management to identify ESG issues that are pertinent to the business
and its customers and decide what policies and processes are appropriate for assessing, monitoring
and managing ESG risks, as ESG matters have become primary for investors and public.
 Creating more focused board committees or subcommittees, such as a “corporate responsibility and
sustainability” committee, that is specifically tasked with oversight of specified ESG matters or
updating existing committee charters and board-level corporate governance guidelines to address
the board’s approach to such topics may also be considered.
ANTICIPATING FUTURE RISKS
CHALLEES
Risk Mitigation Approaches- FACING BOARDS
Enterprise Risk Management OF DIRECTORS
IN DEVELOPING
ERM
 Enterprise Risk Management (“ERM”), is a

systematic and holistic approach for firms to 1. Effectively linking risk and strategy: Linking risk
address all their risks, whether operational, with strategy means that risk managers must be
strategic or financial, comprehensively. integrated in implementing the company’s strategy and
 focuses on identifying risks, developing and must not be separated from the board and
monitoring a risk management system and management, so that the actual risk taken is tied to the
reacting to risk events, when they occur. company’s risk appetite and ability.
 ERM’s significance can be seen from the value 2. Implementing cost-effective risk management for small
it creates when implemented properly and and medium-sized enterprises: the costs of risk
value it destroys when there are shortcomings management failures can be high but designing and
 Value creation: Effective ERM can enable a implementing efficient ERM can also be costly,
company to manage potential future events especially for small and medium-sized firms.
that create uncertainty and respond to 3. Addressing all major areas of risk: Board needs to
uncertainty in a manner that reduces the have an overview of all the risks. They should consider
likelihood of downside surprises. how all the risk inter-relate rather than teaching them
 Avoiding value destruction: A company separately.
cannot preserve its value if its ERM is below 4. Mitigating new risks: In India, many complex areas of
standard. Failures in risk management have risks have emerged in the last decade, which has made
contributed to some of the most significant risk management particularly challenging.
scandals and losses suffered by companies.
CHAPTER 9
MISREPRESENTATION AND
MALPRCTICES – CIVIL AND
CRIMINAL TRIAL PROCEDURE

CODE OF CRIMINAL PROCEDURE, 1973
 Code of Criminal Procedure, 1973 [CrPC] is a procedural law which applies to every offence punishable under the
IPC or any other special or local law.
 CrPC is the law in relation to trial procedure and is applicable universally to the criminal activities
 While the substantive law creates and defines offences and prescribes penalties for commission of offences, CrPC
contains a complete procedural code for trial of offences.
CRIMINAL PROCEEDINGS VIS-À-VIS CIVIL

PROCEEDINGS
 Civil proceedings are conducted to protect an individual

right, vested under the law
 The criminal proceeding is taken to a logical conclusion If both civil and criminal proceedings are pending against
and if the accused is found guilty, there may be the accused, which should be dealt with first?
imposition of a sentence of fine or imprisonment or both
including a capital punishment.  MS SHERIFF v. The State of Madras
 In civil proceedings there may be an award of  Iqbal Singh Marwah v. Meenakshi Marwah
compensation and damages.
 Civil cases are decided on the basis of preponderance of

evidence while in a criminal case the entire burden lies on
the prosecution and proof beyond reasonable doubt has
to be given
PUBLIC PROSECUTORS AND COMPANY PROSECUTORS
PUBLIC PROSECUTOR COMPANY PROSECUTOR

 A public officer who conducts criminal proceedings on behalf  When a Registrar or any other person authorized, to file a
of the state or in the public interest is called as public complaint for any offence under the Companies Act, 1956,
prosecutor. files a complaint, the prosecution is conducted in the trial
 A person shall be eligible to be appointed as a Public court by a special category of officers called Company
Prosecutor or an Additional Public Prosecutor only if he has Prosecutors.
been in practice as an advocate for not less than 7 years.
 The Central Government or the State Government may  The company prosecutors have all the powers and privileges
appoint, a person who has been in practice as an advocate for of public prosecutors appointed by State Government under
not less than 10 years as a Special Public Prosecutor. CrPC.
CRIMINAL COURTS AND THEIR POWERS
Name Powers
Judicial Magistrates of Class I / Metropolitan To award imprisonment up to 3 years or fine up to INR
Magistrates / Sub- divisional Judicial Magistrates 10,000/-, or both.
Chief Judicial / Chief Metropolitan Magistrate To award imprisonment up to 7 years and / or fine. For
fine, no upper limit has been prescribed.
Assistant Sessions Judge To award imprisonment up to 10 years and / or fine. For
fine, no upper limit has been prescribed
Sessions Judge / Additional Sessions Judge To award any sentence authorised by a substantive law.
Sentence of death should be subject to confirmation by
High Court
High Court To award any sentence as authorised by a substantive
law
COURTS UNDER THE COMPANIES ACT, 2013
Section 436 TRIAL PROCEDURE FOR SUMMONS CASES

 all offences shall be tried by the SUMMONS:
Special Court established for an authoritative call to the accused person, to appear in court to answer to a
the area in which the registered charge of an offence.
office of the company is
situated.
 a person accused of, or
suspected of the commission of, WARRANT CASE SUMMONS CASE
an offence under this Act is  Warrant case means a case  Summons case is a case which is
forwarded to a Magistrate relating to an offence punishable not a warrant case.
under s 167(2) or sec 167(2A) of with death, imprisonment for a  Any offence punishable with
the Code of Criminal Procedure term exceeding two years imprisonment for a term less than
 Magistrate may authorize the  any offence punishable with two years will be a summons
detention of such person in the imprisonment for a term case.
custody as he thinks fit for a exceeding two years will be a  a summons case relates to a
period not exceeding 15 days warrant case. comparatively less serious
 where such Magistrate is a  warrant case relates to a serious offence.
Judicial Magistrate and 7 days offence.  in a summons case a summon is
in the whole where such  in a warrant case a warrant of issued to the accused person by
Magistrate is an Executive arrest is issued for the arrest of the authority, so as to provide
Magistrate the accused. answer to the charge of an
 the total period for permitting offence.
such detention cannot exceed
ninety days and in other cases,
for a period not exceeding 60
days.

NOTICE TO THE ACCUSED
INVESTIGATION WITH OR WITHOUT THE
As per s 251 of CrPC, when in a summons
ORDER OF MAGISTRATE SERVICE OF case, the accused appears or is brought
As per s 156 of CrPC, a police officer may,
SUMMONS ON before the Magistrate, the particulars of the
without an order of the Magistrate, CORPORATE BODIES offence of which he is accused shall be
investigate any cognizable case. Under AND SOCIETIES stated to him, and he shall be asked
companies act, 2013, police officer cannot According to CrPc, whether he pleads guilty, or has any defence
conduct investigation on its own, even in summons is considered to make, but it shall not be necessary to
relation to the offences which are to be served on the frame a formal charge. While the section
cognizable, such as offences falling under corporate bodies or dispenses with a formal charge in a
section 447 because the cognizance of such societies if they are summons case, it does not dispense with
offences can be taken only on the basis of a served to the Secretary, the statement of the particulars of the
complaint made by Central Government or Principal officer, Chief offence for which the accused is to be dealt
by an officer authorised by it Officer or other Local with.
Manager of the
corporation by a
registered post. ADMISSION OF GUILT
CAN DIFFERENT OFFENCES BE According to companies • According to CrPc accused has an option
CLUBBED IN A SINGLE TRIAL? act, 2013, for a to plead guilty or not guilty. If the
CrPc provides for the trial of more than one offence
in a single trial. If series of acts are connected and
company formed and accused pleads guilty, then Magistrate
form a same transaction then more than one registered under the Act may record the words used by the
offence, committed by a person, can be tried a document may be accused and convict the accused. The
together in a single trial. In Madan Gopal Dey and served on a company or right of appeal of the accused depends
Anor. v. State, Calcutta High Court held, that if an officer thereof by upon the fact whether he pleaded guilty
several offences are committed in the course of sending it to the or not.
same transaction, their joinder can be authorized
for the purpose of a single trial. If a continuous
company or officer at • If a number of persons have been
thread runs through the acts complained of, the registered office of arraigned as accused, each one should
charges arising out of those acts would be liable to the company. be made to understand the matters
be joined together under this section. Continuity of accused of.
action, therefore, seems to be a very important test • The Magistrate has the discretion to
in the matter. accept or not to accept the plea of guilty
SUMMONING OF WITNESSES OF
DENIAL OF OFFENCE
PROSECUTION
When once there is a denial
The magistrate may issue summons to the ARGUMENTS OF PROSECUTION
of the offence under s 251 of
witness, directing him to attend or produce any As soon as prosecution evidence are
the Act, the Magistrate is
document or thing. However, the Magistrate may completed, they proceed with the
required to proceed to hear
before summoning any witness direct that the arguments, as per section 314 of
the prosecution and to take
reasonable expense of the witness incurred in CrPc.
the prosecution evidence
attending for the purposes of the trial be
under s 254 of the Act
deposited in court
PERSONAL EXAMINATION OF THE ACCUSED
• Personal examination of the accused is mandatory after examination of the witnesses for the prosecution and before the
accused is called on for his defence except when the personal attendance of the accused has been dispensed with
ARGUMENTS OF THE ACCUSED

HEARING OF THE ACCUSED
After submitting the evidence,
• After the personal examination of accused, the Magistrate shall hear the accused
accused can proceed with his
and take all the evidences that he produce in his defence.
arguments

ISSUE OF SUMMONS TO PRODUCE DOCUMENT OR THING
• Where any court or a police officer considers that the production of a document or thing is necessary or desirable, the court may
issue a summon
• An accused cannot be compelled to produce something, which will be incriminating him - Article 20 of the Constitution of India.
• A petition was filed before the Andhra Pradesh High Court in Nutech Agros Limited v. Mohan Rao for quashing the order of the
Special Judge for Economic Offence at Hyderabad for summoning certain documents from Central Bank of India and for directing
the Manager of the Bank to appear before the court
• The court held that if the company establishes exactly the fact that the unclaimed or unpaid dividend amount had in fact been
transferred to a special account as required under s 205 of the Act, the company discharges its responsibility and is no more liable
for any punishment. Further, the court also held that the burden of establishing that the company took all the requisite steps (to
comply with s 205 of the Act) is on the company.
• The Andhra Pradesh High Court quashed the summons on the ground that even if the documents were summoned and if it was
established that the company did not open a special account in bank for the unpaid dividend amount, the guilt would not get
automatically established as there was nothing in the law which stipulated that the special account as required under s 205 of the
Act should be opened only in Central Bank of India, Adoni Branch. It is always open to the petitioners to establish that such a
special account was opened in some other branch or some other bank.
ACQUITTAL OR CONVICTION
 After considering the evidence of both prosecution and accused, Magistrate gives an order of acquittal or conviction.
 If after considering the evidences of prosecution and accused, it is found that accused is not guilty, then Magistrate may pass an order
of acquittal.
 Where the Prosecutor has sought the assistance of the Court for securing the attendance of the witnesses, the court has to take some
steps for the attendance of the witnesses, before passing any order for acquittal. But if the prosecution did not take proper steps to
produce the witnesses or ask the court to give them time to do the same, or to issue fresh summons, the court can record the order of
acquittal

Non-appearance of any person on behalf of a complainant,
WITHDRAWAL OF COMPLAINT
which is a company
 A complainant can withdraw his complaint at any time before a
 The Kerala High Court in Falcon Tyres Limited v. Mohan Rajan
[1997] held that the Magistrate has jurisdiction under section final order is passed with the permission of the Magistrate
256(1) of CrPC to acquit the accused due to the absence of the provided he satisfies the Magistrate that there are sufficient
complainant which is a juristic person and which will have to grounds for permitting him to withdraw his complaint.
be represented only by natural person.  Withdrawal of the complaint under s 257 of CrPC is permissible
only if the Magistrate is satisfied that there are sufficient
 The Court rejected the contention that the complainant is a grounds for permitting such withdrawal.
juristic person and such complainant cannot be physically
present in Court and hence there is no possibility of the
complainant being absent.
CAN A PERSON BE PROSECUTED AGAIN FOR THE SAME
 The Supreme Court in Associated Cement Company Limited v. OFFENCE?
Keshvanand held that the Magistrate has powers to acquit the • Section 300 of CrPC protect a person from being prosecuted for
accused if the complainant fails to appear and the said power
the same offence again.
would include the absence of the corporeal person representing
the incorporeal complainant and hence the provision is
• courts have laid down that person cannot again be tried on the
applicable even to cases where the complainant is a company. same facts for the offence for which he was earlier tried or for
any other offence arising there from.
 Section 256 of Crpc provides certain protection to the accused • The High Court held that in order to ascertain whether there
against dilatory tactics on the part of a complainant. will be a bar as per section 300 of CrPC, it has to be seen
whether the subsequent trial of the offence can be said to be
 An accused who attend the court on all days of the proceedings upon the same facts.
can be put to much harassment by a complainant if he does • In order to check whether subsequent trial of the offence is
not turn up in the court on occasions when his presence is upon the same facts, it should be proved that the evidence in
necessary. the first case supported the conviction for the offence charged
in the second case also.
 The section, thus, affords a protection to an accused against
such tactics of the complainant.
APPEALS UNDER CRPC
Section 374
1. Any person convicted on a trial held by a High Court in
Section 372 of CrPC The victim shall have a right to its extraordinary original criminal jurisdiction may appeal
prefer an appeal against any order passed by the Court to the Supreme Court.
acquitting the accused or convicting for a lesser offence or 2. Any person convicted on a trial held by a Sessions Judge
imposing inadequate compensation, and such appeal or an Additional Sessions Judge or on a trial held by any
shall lie to the Court to which an appeal ordinarily lies other Court in which a sentence of imprisonment for
against the order of conviction of such Court. more than seven years has been passed against him or
against any other person convicted at the same trial; may
appeal to the High Court.
Section 373 Magistrate may execute a bond and pass an

order to give Security if it is proved that any person
against whom inquiry is issued may breach public peace.
Section 375 if accused has pleaded guilty no appeal can be
However, if any person is aggrieved from the order
made.
requiring security for keeping peace or good behavior, he
can make an appeal to the Court of Session under section
373 of CrPc.
Section 376 No appeal for Petty offences

REVISION POWERS POWERS OF THE SUPREME COURT
 application is made under section 397 of CrPC calling for
and examining records of an inferior court. • As per Article 132 of the Constitution, an appeal shall
lie to the Supreme Court from any judgment, decree or
 The High Court accept or reject the revision application. final order of a High Court whether in a civil or criminal
or any other proceeding, if the High Court certifies
 High Court does not have the power to convert the order under Article 134A that the case involves a substantial
of acquittal into conviction. question of law.
• As per Article 134 of the Constitution an appeal shall
 Where under CrPC an appeal lies but an application for lie before the Supreme Court in a criminal proceeding,
revision has been made to the High Court by any person, from any judgment, final order or sentence
High Court may treat the application for revision as a  If the High Court on appeal has reversed the order of
petition of appeal and deal with the same accordingly. acquittal of an accused and sentenced him to death or
 Has withdrawn a case from any subordinate court and
had convicted the accused and sentenced him to death
or
INHERENT POWERS OF HIGH COURT  When the High Court certifies under Article 134A that
it is a fit case to appeal before the Supreme Court.
• As per Article 136 of the Constitution Supreme Court
 This includes powers to quash
has the power to grant a special leave for appeal from
a. FIR, investigation or any criminal proceedings pending
any judgment, decree, determination, sentence or order
before the High Court or
in any case or matter passed or made by any court or
b. any Courts subordinate to it and are of wide magnitude
tribunal in India.
and ramification.
• As per 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 subordinate court to another

OFFENCES RELATING TO PERJURY
Section 190 of CrPc provides for offences of which

Magistrate can take a cognizance either on its own or on  The complaint made under this section shall be signed, where
the basis of complaint filed by the party or some other the Court making the complaint is a High Court-by such
person officer of the Court as the Court may appoint;
 in any other case-by the presiding officer of the Court or by
such officer of the Court as the Court may authorise in
When an offence under s 195 of the Code of Criminal writing in this behalf.
Procedure, 1973 [CrPC] has been committed, the
person aggrieved must make an application to the
When a party makes an application under section 340 of CrPC to
Court before which the main proceedings is taking
the Court before which the main proceeding is taking place in
place requesting the Court to make a complaint in
relation to which an offence referred to section 195(l)(b) of CrPC
writing to the appropriate judicial magistrate so as to
has allegedly been committed, the Court has a duty to see
prosecute the persons who appear to have committed
whether it is expedient in the interest of justice to make a
the offence which appears to have been committed in
complaint after making an enquiry into the alleged commission
or in relation to a proceeding in that Court or as the
of such offence.
case may be, in respect of a document produced or
given in evidence in a proceeding in that Court.
When a party makes an application under section 340 Therefore, it is clear that even after forming an opinion that an
of CrPC to the Court before which the main offence referred to under section 195(l)(b) appears to have been
proceeding is taking place in relation to which an committed by a party to the main proceeding, the Court need
offence referred to section 195(l)(b) of CrPC has not rush to make the complaint.
allegedly been committed, the Court must hold a
preliminary enquiry and record a finding as to
whether any such offence has been committed
DIVERTING FUNDS OF THE COMPANY
 Fodare Pty Ltd v. Shearn [2011] NSWSC 479. Fodare

DIVERTING PROPERTIES OF THE COMPANY was a company and Shearn was its sole director. Shearn
sold the properties of it’s company and diverted one part
of the funds to its bank account and another to
discharge the mortgage over the property of her
daughter.
 In J.K. Paliwal and Shri B.K. Paliwal v. Paliwal
Steel Ltd. and Ors., the Principal Bench of the
 The company was wound up. Liquidator commenced
Company Law Board had found that a property
proceedings seeking a declaration that Shearn was in
of the company had been sold without any
breach of fiduciary duties and her daughter was charged
authorization by the Board of Directors or
on the ground that she falls within the ambit of a
shareholders to sell.
constructive trustee as she was aware that she is
receiving funds out of proceeds arising from sale of
 Further, it was observed that the transaction
company’s property.
was sham and the sale consideration was
deposited in the bank and was withdrawn on the
 The Supreme Court held that Shearn was liable to the
same day.
Company for equitable compensation of both the
amounts and statutory compensation together with
 On these facts, in the above case, the Company
interest and costs.
Law Board held that the respondents have
breached their fiduciary duties as directors
 The Court said the liability of the mother and the
daughter for equitable compensation plus interest would
run concurrently such that both of them will be jointly
and severally liable

INSOLVENT TRADING
 The powers of the Board of Directors continue to exist until a company is wound up.
 Before the petition is filed for the winding up of the Company, the Board of Directors of the company has to ensure that
if there is no reasonable prospect of paying debts, the company should not contract for further debts and obtain goods
and services on credit.
 In case of voluntary winding up, winding up is deemed to commence immediately after passing of resolution. Hence, in
such a case Board will have to ensure that no debts are taken if company is not in a position to repay the same
 In any winding up other than a voluntary winding up, the winding up of a company by the Tribunal shall be deemed to
commence at the time of the presentation of the petition for the winding up itself.

Muskan is a graduate from ILS Law College, Pune. She Qualified as a
CS Muskan Gupta Company Secretary at the age of 21 with AIR 15 in Foundation
Programme. She has completed her masters in Psychology and
pursing masters in law from Bhartiya Vidyapeeth, Pune.
She has worked with esteemed lawyers and firms and has always
shown great interest in subjects like Crpc, CPC, Constitution of India
and Corporate Laws. She contributes to the legal fraternity by
running a project called “VAKAALAT” which is a venture to brighten up
the future of students pursuing law.
She has authored and published research papers in the field of

Intellectual Property Rights, Cyber Law, Corporate Laws, etc. She has
an inherent passion for teaching and firmly believes-
“Keep working hard, until you are insanely proud of yourself”
Office 30A, 1st Floor, Gate No. 1, Kumar Prestige Point, Behind BSNL Office, Bajirao Road, Shukrawar Peth, Pune - 411 002
8888 235 235, 8888 545 545, 8888 569 569, 8888 280 280 yesacademypune@gmail.com
yesacademy.co.in /yesacademyforcsandlaw /yesacademyforcsandlaw /yesacademyforcsandlaw

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CHAPTER 1

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

SHAREHOLDER’S RIGHTS SHAREHOLDER’S POWERS

 Alteration of MOA and AOA

C. APPROVAL OF RELATED PARTY

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

• During a difference among the members,

 Recognition of the separate legal personality

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

BREACH OF DUTY: The minority shareholder can

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

WHETHER BODY CORPORATE MENTIONED AS MEMBER IN REGISTER OF MEMBERS IS ELIGIBLE TO MAKE AN

WHETHER A PREFERENCE SHAREHOLDER IS ELIGIBLE TO MAKE AN APPLICATION UNDER THIS SECTION?

WHETHER A DEBENTUREHOLDER IS ELIGIBLE TO MAKE AN APPLICATION UNDER THIS SECTION?

a. the regulation of conduct of affairs of the

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

1) CONDITIONS FOR TRANSFER

2) WHEN THE INSTRUMENT OF TRANSFER HAS

30 days Communicate Refusal

TRANSFER IN CASE OF PARTLY PAID UP SHARES -

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

If the name of any person is, without

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

TYPES OF CLASS ACTION SUITS

3. Securities class actions

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

LARGE GROUP OF PEOPLE

FILE A COMBINED SUIT

CLASS ACTION SUIT/

AGAINST SAME INDIVIDUAL

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

Companies Act, 2013

By Depositors read with

100 members depositor or depositors

Any class of them

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

Restrain Order Damages/Compensation

a) to restrain the company from committing an act

d) to restrain the company and its directors from  Consultant

e) to restrain the company from doing an act which is

f) to restrain the company from taking action contrary

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

Code of Civil Procedure,

Persons having the 'same Consumers of the goods

Shareholders and Any person, consumer, or

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

Who can apply? Members Members or Depositors or any class of

To whom? Prejudicial Prejudicial to the interests of the

FRAUD UNDER COMPANIES

Frauds below the limits, which

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

SCREENING AND BACKGROUND CHECKING

 Provides a non-obstante clause casting a duty STRONG INTERNAL CONTROLS

OPERATIONAL REPORTING SYSTEM

PROFESSIONAL EXPERT FOR FRAUD PREVENTION

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

CHEATING WITH KNOWLEDGE THAT WRONGFUL LOSS MAY OCCUR

CS MUSKAN GUPTA 9532064262 YES ACADEMY, PUNE 8888 235 235

Entrustment of property/ Wrongfully/fraudulently/

Discharge the property