Co. Law -Summary of Notification to exempt private companies

Summary of Provisions notified vide Notification No.... to exempt private companies 

Dear Colleague, 

The Summary of provisions that are notified vide Notification to exempt private companies u/s 462 of the Companies Act, 2013 are tabulated below.

Regards, 

Ghia Tarun Jamnadas 

S. No	Section No	Particulars	Amendments	Remarks
1.	Chapter I, Sub-clause (viii) of clause (76) of section 2- Definition of Related Party	(76) ​“related party”, with reference to a company, means— (i) ​a director or his relative; (ii) ​a key managerial personnel or his relative; (iii) a firm, in which a director, manager or his relative is a partner; (iv) a private company in which a director or manager or his relative is a member or director; (v) a public company in which a director or manager is a director and holds along with his relatives, more than two per cent. of its paid-up share capital; (vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager; (vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:      Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;  (viii) any company which is— (A) a holding, subsidiary or an associate company of such company; or (B) a subsidiary of a holding company to which it is also a subsidiary; (ix) such other person as may be prescribed;

Central Government was to be directed to order investigation into affairs of respondent-company

CL: Where respondent-company had not furnished information in respect of its affairs, to Chartered Accountants appointed by Court which it was reasonably expected to furnish, Central Government was to be directed to order investigation into affairs of respondent-company
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[2015] 55 taxmann.com 238 (Madras)
HIGH COURT OF MADRAS
T. Kannan
v.
Shapre Infotech India Ltd.
R. SUDHAKAR, J.
COMPANY PETITION NO. 198 OF 2007
APRIL  30, 2014
Section 213 of the Companies Act, 2013/Section 237 of the Companies Act, 1956 read with rule 11 of the Companies (Court) Rules, 1959 - Investigation of Company's affairs in other cases - Petitioner shareholders had subscribed to shares in respondent-company based on assurance that they would get good returns on their shares and that their shares would also be listed on other stock exchanges - However, petitioners alleged that from beginning they had not received notice from respondent-company regarding convening of Annual General Meetings or Extraordinary General Meetings and were also not informed of any major activities of company like amalgamation, listing and de-listing of shares - Hence, court appointed chartered accountants to look into affairs of company to understand seriousness of allegations made by petitioners - However, respondents did not comply with directions given by Court to furnish relevant particulars to chartered accountants - Whether, conduct of business of respondent-company was oppressive to its members and non-cooperation of respondent-company with chartered accountants, despite series of orders of Court, clearly showed that respondents intended to thwart attempts of Court to do substantial justice to either parties - Held, yes - Whether facts, as presented, clearly made out a case for Court to direct Central Government to order investigation into affairs of respondent-company, more particularly in view of fact that respondent-company had not furnished information in respect of its affairs, which it was reasonably expected to furnish - Held, yes [Para 15]

Winding up petition wasn't maintainable when debt was seriously disputed by respondent-Company

CL: Winding up petition wasn't maintainable when debt was seriously disputed by respondent-Company
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[2015] 55 taxmann.com 121 (Andhra Pradesh)
HIGH COURT OF ANDHRA PRADESH
Ajit Exports
v.
MBS Impex (P.) Ltd.
C.V. NAGARJUNA REDDY, J.
C.P. NO. 180 OF 2011
FEBRUARY  12, 2014
Section 271 of the Companies Act, 2013/ Section 433, read with section 434 of the Companies Act, 1956 - Winding up - Circumstances in which a company may be wound up - Petitioner manufactured jewellery at request of respondent and exported same to customer based on memorandum of understanding between parties - Petitioner contended that it had manufactured jewellery out of its own gold - However, respondent conteneded that jewellery was manufactured from gold supplied by it - Memorandum of understanding was bereft of essential terms such as quantity of jewellery that was agreed to be exported and whether jewellery had to be manufactured from out of gold supplied by respondent or out of petitioner's own gold - Whether in absence of a clear understanding between parties stipulating that petitioner will manufacture jewellery from out of its own gold or at least any contemporaneous correspondence between parties unequivocally proving claim of petitioner, Court could not have held that denial of debt by respondent was not bona fide - Held, yes - Whether since debt claimed by petitioner was seriously disputed by respondent company, winding up petition was not to be admitted - Held, yes [Paras 6 & 8]
V.S. Raju for the Petitioner. S. Ravi, Senior Counsel and J. Prabhakar for the Respondent.

Section 333, read with sections 279 and 283, of the Companies Act, 2013

CL : Where business of company in liquidation was sold to appellant with an express stipulation that property of respondent was to be handed over before stipulated date, Official Liquidator was to be directed to hand over vacant possession of property to respondent
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[2015] 53 taxmann.com 498 (Calcutta)
HIGH COURT OF CALCUTTA
SST Media (P.) Ltd.
v.
Official Liquidator
ASHIM KUMAR BANERJEE AND ASHIS KUMAR CHAKRABORTY, JJ.
A.P.O. NOS. 442 & 444 OF 2014†
CP NO. 39 OF 2009
CS NO. 74 OF 2008
DECEMBER  16, 2014
Section 333, read with sections 279 and 283, of the Companies Act, 2013/Section 535, read with sections 446 and 456, of the Companies Act, 1956 - Winding up - Disclaimer of onerous property in case of a company which is being wound up - Whether right of landlord to invoke sections 535 and 446 for recovery of possession of a property from Official Liquidator is a statutory right for public benefit - Held, yes - Respondent had let out a property to company-in-liquidation but it failed to pay monthly occupation charges - In disclaimer proceedings initiated by respondent, Company Judge by impugned order directed Official Liquidator to hand over vacant possession of property to respondent - Appellant had purchased business of company-in-liquidation - Whether since Official Liquidator sold business of company in terms of order of Company Judge with express stipulation that appellant had to vacate said property before stipulated date, appellant was estopped from challenging impugned order and Official Liquidator was to be directed to hand over vacant possession of said property to respondent -Held, yes [Paras 22,23,32,33 & 35]

Section 271 of the Companies Act, 2013 / Section 433 of the Companies Act, 1956 - Winding up - Circumstances

CL : Where respondent-company admitted debt due to petitioner several times and failed to establish its counter claim against petitioner, winding up petition filed by petitioner as creditor was maintainable
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[2015] 53 taxmann.com 396 (Bombay)
HIGH COURT OF BOMBAY
Severn Trent Water Purification Inc.
v.
Capital Controls India (P.) Ltd.
G.S. PATEL, J.
CO. PETITION NO. 857 OF 2004
DECEMBER  18, 2014
Section 271 of the Companies Act, 2013 / Section 433 of the Companies Act, 1956 - Winding up - Circumstances in which a company may be wound up - Petitioner had filed winding up petition against respondent as a contributory but same was dismissed and petitioner was allowed to amend its petition to claim winding up as a creditor of company on failure of company to pay admitted dues - Whether since respondent company had admitted debt due several times and failed to establish its counter-claim against petitioner, defence raised by respondent was invalid and, therefore, winding up petition filed by petitioner as creditor was maintainable and admissible - Held, yes [Paras 49, 50, 51 & 52]

Petitioners failed to substantiate allegations of oppressions and mismanagement

CL : Where petitioners failed to substantiate allegations of oppressions and mismanagement and petition was filed for collateral purpose to escape possible liabilities that might arise on account of recovery proceedings initiated by bank, such petition could not be allowed
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[2014] 51 taxmann.com 344 (CLB - Mumbai)
COMPANY LAW BOARD, MUMBAI BENCH
Bharat Savla
v.
Hirak Plastics (P.) Ltd.
ASHOK KUMAR TRIPATHI, JUDICIAL MEMBER
CP NO. 121 OF 2008
SEPTEMBER  16, 2013
Section 241, read with section 242 of the Companies Act, 2013/Section 397, read with sections 398 and 402, of the Companies Act, 1956 - Oppression and mismanagement - Whether in absence any registered instrument evidencing transfer of company's property, allegation of siphoning off funds in such matter was to be rejected - Held, yes - Whether where tax consultant's appointed by petitioner's group as statutory auditor's of company failed to make statutory compliances as a result of which there was a lapse in filing statutory returns and company had to pay penalties, respondent group could not alone be held responsible - Held, yes - Whether where statement of account's of company were signed by persons belonging to rival group, respondent group alone could not be blamed for any misappropriation of funds; further petitioner founder director could not be absolved from his responsibility to look after affairs of company - Held, yes - Whether since instant petition was filed for collateral purpose as petitioner was trying to escape from possible liabilities that might arise on account of recovery proceeding initiated by bank under SARFAESI and DRT Acts, such petition could not be allowed - Held, yes

Where area of land short delivered in auction was less than 5 per cent, auction purchaser was not entitled to refund of any amount with respect to land short delivered

CL : Where area of land short delivered in auction was less than 5 per cent, auction purchaser was not entitled to refund of any amount with respect to land short delivered
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[2014] 48 taxmann.com 341 (Gujarat)
HIGH COURT OF GUJARAT
Aarsh Infrastructure Ltd.
v.
Official Liquidator of Aryodaya Ginning and Manufacturing Mills Ltd.
M.R. SHAH AND S.H. VORA, JJ.
O.J. APPEAL NO. 102 OF 2009†
CO. APPLICATION NO. 43 OF 2008
OFFICIAL LIQUIDATOR REPORT NO. 101 OF 2006
CO. PETITION NO. 157 OF 1989
JANUARY  15, 2013
Section 283 of the Companies Act, 2013/Section 456 of the Companies Act, 1956 - Winding up - Custody of company’s properties - Appellant was highest bidder in auction conducted in respect of industrial plot of company-in-liquidation consisting of two plots and sale was confirmed in its favour - However, on taking possession of land appellant found that land in plot was short conveyed and claimed refund in that respect - Company Court by impugned order dismissed appellant's claim holding that as area, which was short conveyed, was less than 5 per cent of total area of 5 per cent, appellant was not entitled to any refund - Whether since plots were sold under a composite offer and area short delivered was less than 5 per cent, Company Court was justified in its order - Held, yes - Whether even otherwise since sale was on 'as is where is' and whatever there is basis, it was not open for purchaser to make any grievance with respect to short delivery after sale was confirmed and conveyance deed had been executed - Held, yes [Paras 5 & 5.1]

Application filed by applicant under section 219 was to be dsimissed

CL : Where applicant demanded copy of annual accounts of company but cheque of requisite fee could not be encashed due to overwriting, application filed by applicant under section 219 was to be dsimissed
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[2014] 48 taxmann.com 334 (CLB - Mumbai)
COMPANY LAW BOARD, MUMBAI BENCH
Anil Kumar Poddar
v.
Alka India Ltd.
ASHOK KUMAR TRIPATHI, JUDICIAL MEMBER
CO. PETITION NO. 79 OF 2013
JANUARY  28, 2014
Section 136 of the Companies Act, 2013/ Section 219 of the Companies Act, 1956 - Accounts - Right of member to copies of balance sheet and auditor's report - Applicant shareholder had sent a cheque to respondent company and requested for copies of memorandum and articles of association and last five years annual report - On failure to receive such documents, applicant filed application under section 219 against company - Company in its reply stated that requisite fees through cheque had overwriting and, hence, cheque could not be encashed and being a listed company annual accounts of company were available on BSE website - Whether applicant was in habit of making such frivolous application and had filed instant application with an oblique motive - Held, yes - Whether applicant failed to give any specific reason as to why he submitted requisite fees through cheque which could not be encashed by company due to overwriting and, therefore, application being devoid

Method of valuation is such as has resulted in an artificially depressed or contrived valuation

CL: To disregard a method of valuation of shares in scheme of reduction, it must be shown that chosen method of valuation is such as has resulted in an artificially depressed or contrived valuation well below what a fair-minded person may consider reasonable
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[2014] 49 taxmann.com 52 (Bombay)
HIGH COURT OF BOMBAY
Cadbury India Ltd., In re
G.S. PATEL, J.
CO. PETITION NO. 1072 OF 2009
CO. APPLICATION NOS. 1332 OF 2009 AND 71 & 120 OF 2010
MAY  9, 2014
Section 66 of the Companies Act, 2013/Section 100 of the Companies Act, 1956 - Share capital - Reduction of - Whether before a Court can decline sanction to a scheme of reduction on account of a valuation, an objector to scheme must first show that valuation is ex-facie unreasonable - Held, yes - Whether sanctioning Court has no power or jurisdiction to exercise any appellate functions over scheme; it is not a valuer and it does not have necessary skills or expertise - Held, yes - Whether Court cannot substitute its own opinion for that of shareholders, its jurisdiction is peripheral and supervisory, not appellate - Held, yes - Whether it is impossible to say which of several available valuation models are 'best' or most appropriate - Held, yes - Whether no valuation is to be disregarded merely because it has used one or other of various methods; it must be shown that chosen method of valuation is such as has resulted in an artificially depressed or contrived valuation well below what a fair-minded person may consider reasonable - Held, yes - Whether where in proposed scheme of reduction of share capital of Cadbury India valuation of shares was done by Court appointed valuer and was accepted by overwhelming majority including a bulk of non-promoter minority, scheme was to be sanctioned - Held, yes [Paras 7.1.5, 7.1.7, 7.1.9, 7.1.11 & 8.1]

Where respondent-company had disputed neither debt owed to petitioner-bank nor fact that it had been unable to discharge its debt, winding up petition against it was to be admitted

CL: Where respondent-company had disputed neither debt owed to petitioner-bank nor fact that it had been unable to discharge its debt, winding up petition against it was to be admitted
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[2014] 49 taxmann.com 481 (Delhi)
HIGH COURT OF DELHI
Small Industries Development Bank of India
v.
Nirmaan Bharati Samajik And Arthik Vikas Sangathan
VIBHU BAKHRU, J.
CO. PETITION NO. 107 OF 2011
CA NO. 363 OF 2011
AUGUST  25, 2014
Section 271 of the Companies Act, 2013/ Section 433 of the Companies Act, 1956 - Winding up - Circumstances in which a company may be wound up - Petitioner bank had granted financial assistance to respondent-company by virtue of loan agreements - Respondent failed to pay instalments of principal sum and interest and, therefore, petitioner filed winding up petition against respondent - Respondent raised a defence that petitioner bank was liable to support it - Whether since respondent company had disputed neither debt owed to petitioner bank nor fact that it had been unable to discharge its debt, winding up petition was to be admitted - Held, yes - Whether as regards liability of petitioner to extend a rehabilitation package to respondent-company, petitioner bank could not be compelled to provide further assistance contrary to its commercial wisdom - Held, yes [Paras 22 & 25]

Where petitioner had borrowed money from bank and upon being unable to repay same

CL: Where petitioner had borrowed money from bank and upon being unable to repay same, bank had taken possession of secured asset pursuant to orders obtained by Court and since no law or any fact had been cited in petition for Court to deviate from procedure; bank was to be permitted to take steps in accordance with orders passed by Magistrate under section 14 of SARFAESI Act, 2002
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[2014] 50 taxmann.com 377 (Calcutta)
HIGH COURT OF CALCUTTA
Anita Katyal
v.
State of West Bengal
SANJIB BANERJEE, J.
T.NO. 301 OF 2014
WP NO. 982 OF 2014
OCTOBER  9, 2014
Section 14 of the Securitisation And Reconstruction of Financial Assets And Enforcement of Security Interest Act, 2002 read with sections 17, 19 & 21 of Protection of Women from Domestic Violence Act, 2005 - Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset- Petitioner had borrowed money from respondent bank - Upon petitioner being unable to pay same, respondent bank took possession of secured asset pursuant to orders obtained and by procedure established by law - Petitioner took refuge under 2005 Act in a

here applicant sought for payment of interest on claims of ex-employees of company-in-liquidation, Official Liquidator was directed to declare rate of interest and pay same

CL: Where applicant sought for payment of interest on claims of ex-employees of company-in-liquidation, Official Liquidator was directed to declare rate of interest and pay same
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[2014] 50 taxmann.com 103 (Karnataka)
HIGH COURT OF KARNATAKA
Mysore Acetate & Chemicals Co. VRS Employees Association
v.
Mysore Acetate & Chemicals Ltd. (Under Liquidation)
A.S. BOPANNA, J.
CO. APPLICATION NO. 1348 OF 2014
CO. PETITION NO. 45 OF 2001
AUGUST  21, 2014
Section 328, read with section 352, of the Companies Act, 2013/ Section 530, read with section 555, of the Companies Act, 1956 - Winding up - Preferential payments - Applicant-employees association sought for appropriate orders regarding payment of interest on claims made by ex-employees of company-in-liquidation - Court had directed Official Liquidator to make payment of interest - Whether Official Liquidator was permitted to declare interest at 4 per cent per annum as same being done pursuant to order of Court - Held, yes - Whether since ex-employees were scattered in different parts of State, Official Liquidator would make payment through office bearers of association and in respect of unclaimed dividend, Official Liquidator was permitted to comply with provision of section 555 - Held, yes [Paras 4 & 6]
Sridhar C.K., Advocate for the Applicant. V. Jayaram, Advocate for the Respondent.

No leave can be granted to company to submit Form 32 with RoC to intimate vacation of office

CL : No leave can be granted to company to submit Form 32 with RoC to intimate vacation of office by director before action contemplated in requisite provision is actually taken
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[2014] 50 taxmann.com 211 (CLB - Kolkata)
COMPANY LAW BOARD, KOLKATA BENCH
Dr. Pramod Kanoi
v.
Sapoi Tea Co. Ltd.
A. BANDOPADHYAY, MEMBER
CA NO. 580/2012
CP NO. 920/2011
AUGUST  14, 2013
Section 167, read with section 241, of the Companies Act, 2013/ Section 283, read with section 397, of the Companies Act, 1956 - Directors - Vacation of office by - Respondent company filed application praying for leave to submit Form 32 with ROC to intimate vacation of office as director by petitioner in main petition under sections 397 and 398 - Whether no leave could be granted because it would tantamount to an advance ruling in respect of invoking relevant provision of Act before action contemplated in requisite provision is actually undertaken - Held, yes - Whether however, respondent company would have right to invoke provision of section 283(1)(g) after getting satisfied that inbuilt criteria, as laid down in said provision, have been duly fulfilled in accordance with law - Held, yes [Para 6] 

Govt plans ‘corporate data mgmt’ scheme

In a move that will ensure that a more detailed data of companies registered in India is made available to the public, regulators and other agencies, the ministry of corporate affairs has proposed a centrally sponsored scheme, called Corporate Data Management, which entails conversion of statutory information of 13.94 lakh registered companies into readable statistical information for data analysis and research. The proposed scheme intends to analyse the current information base of registered companies.

"The proposed scheme is likely to aid in bringing more objectivity and transparency in reporting by the corporates. Dissemination of company level data comprising both financial and non-financial parameters, and analysis thereof would enable evidence based policy formulation, strengthen decision making process, encourage high quality empirical research on various aspects of corporate governance," the ministry said.
Initially, data of about 7,000 listed companies will be mined and tabulated in readable form, it said.
The corporate data management scheme will require an additional budgetary support of R33.94 crore (to be spent over next three years). This amount, the ministry said, will be above and beyond the Budget allocated for the 12th Five-year Plan period. A proposal for obtaining the necessary clearances from the Planning Commission has been moved by the ministry.

To execute this scheme, the ministry will obtain the services of professional IT companies via tendering process and a forward linkage of MCA 21, the e-governance project under which it is mandatory for all registered companies to file their company-related information online. The IT companies hired for this project will have to develop software/IT tools for data cleaning, data mining and data analysis.
As per the proposal, the third-party IT company engaged for this project will clean the data stored with MCA21 and make available financial aggregates and non-financial information relating to Indian corporates in the public domain for individuals, research agencies and regulators.

"Given the importance of such statistical information for planning, research, economic analysis and other such important purposes, it is imperative that this Project is established as a forward linkage of MCA21," the ministry said in a note moved seeking comments from stakeholders.
‘‘An extended Plan Scheme could be considered for the next Plan Period to cover a larger canvas if the present pilot yields gratifying results,’’ it said.

The ministry will also constitute an Inter-Ministerial advisory group under chairmanship of Additional Secretary having representation from various ministries, to provide apex level guidance and monitoring for efficient implementation of the Project.
Source : http://www.financialexpress.com/

China arm of US giant withdrawing products over stale meat allegations

The parent company of a scandal-hit Chinese food supplier said it is withdrawing all products made by the subsidiary.

Shanghai Husi Food Co, owned by Illinois-based OSI Group, is at the centre of a major food safety scandal, which has spread from China to Hong Kong and Japan, over allegations it mixed fresh and expired meat. In a statement posted on its website late Saturday, OSI Group said it would “withdraw from the marketplace” all products made by Shanghai Husi, and that it was conducting an internal investigation into current and former senior management.

It vowed to take “swift and decisive action” including legal measures against those responsible for the scandal, and said a new management team would be brought to China.
Regulators in Shanghai said on Saturday that Husi had forged production dates on smoked beef patties and then sold them after they expired.

OSI Group said it would fully cooperate with Chinese regulators. The scandal, which has dragged in global food brands including McDonald's, KFC-parent Yum Brands and Starbucks Corp, was triggered by a local TV report showing staff at Shanghai Husi using long-expired meat.

Source : http://www.financialexpress.com/

‘Bolder’ Chinese media ready to expose corporate wrongdoing

China's campaign to stamp out corruption has emboldened the country's normally docile state media to push the barriers in exposing corporate wrongdoing.

While it's still off-limits to delve too deeply into what government leaders and powerful institutions may be up to, recent 'undercover' state TV reports accusing state-owned Bank of China of aiding money laundering and a US-owned food supplier of safety violations suggest the media are more ready to run critical reports.
China's central bank said earlier this month it was investigating allegations by state broadcaster China Central Television (CCTV) that Bank of China offers a service to help Chinese move more of their cash offshore than is allowed. Bank of China, the country's fourth largest lender, has denied the allegations.

“Part of the reason the report went forward was because of the anti-corruption campaign,” said a CCTV network employee. “It isn't like corruption never existed before, but now there's a bit more room to report on it.”

Five current and former CCTV employees told Reuters that while the network had run critical reports on state-owned enterprises before, it was unusual to target a major entity such as Bank of China. All asked not to be named because of the sensitivity of the matter. CCTV could not be reached for comment.

“The Bank of China investigative reporting by CCTV is definitely part of the government-wide push to clamp down on corruption and related activities,” another CCTV insider said, adding that Chinese-language TV channels were putting more resources into chasing investigative stories.

Foreign companies operating in China, and their local suppliers, are also in state-media's crosshairs.
A documentary last week by Shanghai government-owned Dragon TV accused food supplier Shanghai Husi Food, owned by Illinois-based OSI Group, of mixing expired meat with fresh produce, triggering a food safety scandal that has since spread to Hong Kong and Japan.

Several foreign fast-food brands, including McDonald's Corp, pulled the company's products from their outlets and switched suppliers. Regulators in Shanghai said Husi forged production dates on smoked beef patties and sold them after they had expired.

Late on Saturday, OSI said on its website it was withdrawing all products made by its Shanghai Husi business, and was carrying out an internal investigation into senior management that could end in legal action against those responsible.

“Reports on food safety have a broad impact and the (Dragon TV) investigative report was totally on the mark,” said Zhang Zhi'an, a journalism professor at Sun Yat Sen

Source : http://www.financialexpress.com/

Corporate Frauds

A Market Research and Analysis Unit (MRAU) has been set up in the Serious Fraud Investigation Office (SFIO) with the objectives of analyzing media reports relating to financial frauds and for conducting market surveillance of such corporates. In order to strengthen MRAU’s functioning, an Expert Committee was constituted and on the basis of its recommendations a forensic lab with appropriate technology and skilled technical manpower has been set up in SFIO. During 2011-12, 2012-13 & 2013-14 and during the current financial year, i.e. from 01-04-2014 to 30-06-2014, SFIO has completed investigations in 78 cases. In these investigations, frauds amounting to Rs 10,818 crore involving 31 companies has been detected. SFIO files complaints in the court and has no power to settle cases on its own. It is the continuous endeavour of the Government to upgrade skills, systems and knowledge through improved coordination mechanisms with other investigating agencies to deal effectively with corporate frauds.

Sunita Bhagat vs. Securities and Exchange Board of India.

2014] 182 Comp Cas  467 (Delhi)

[In the Delhi High Court]

Sunita Bhagat vs. Securities and Exchange Board of India.

Unless directors prove that an offence committed by the Company is without his knowledge or he has exercised all due diligence to prevent the commission of the offence, he is liable for punishment

Brief Facts

The Accord Plantation Ltd. (“Company”) had collected monies from various investors under Collective Investment Scheme (“CIS”). As per Section 12(1B) of the SEBI Act, 1992, which came into force on January 25, 1995, no person shall sponsor or caused to be sponsored or carry on any venture capital fund or CIS, unless it obtains a certificate of registration from the SEBI. Any person carrying out CIS prior to the above-stated period, must provide certain information to the SEBI as well as obtain registration. The Government of India asked the SEBI to form a CIS regulation and conveyed that instruments like agro bonds, plantation bonds, etc. shall be treated as CIS.

One of the objects of the Company is to carry business of agricultural, horticultural, floricultural and forestry related activities. The standard application form and brochure issued to
prospective investors contain names of four persons as directors.

Based on SEBI’s request, the Company provided the information on monies collected under the CIS. While communicating to SEBI, the Company conveyed that it had not floated any CIS and that they were not collecting any additional money under the current scheme. Subsequently, when the Company provided the information, it was observed that the Company had collected additional funds during these periods.

The SEBI notified the CIS regulation in October 1999 and the same was informed to the Company.  In its reply, the Company disclosed that they are not interested in CIS registration and will return the monies to the investors upon maturity. The reply shows that during the period 2001-2004, the Company intended to raise additional funds and pay part of it. As the Company has not registered under the CIS, SEBI had sent the show cause notice.  Upon several communications from the SEBI that the Company was not complying with the CIS regulation and after giving personal hearing to the Company, the SEBI Chairman passed an order directing the Company to pay amount to investors within one month from the date of the order.  During these periods, letters sent to the Company were returned undelivered. After due process of law, SEBI filed compliant before the ACMM, Delhi. ACMM passed an order against the Appellants. As per the said order, Appellants were sentenced for rigorous imprisonment for six months and pay a fine of Rs. 10 lakhs each. If the fine was not paid, then an additional imprisonment of
3 months for punishment as stated above would be applicable.

The appeal is filed by the Appellants against the order of ACMM, Delhi. The main contention of the application is that whether they are liable at the time the provisions of Section 12(1B) and / or CIS regulations were contravened by the Company and were they responsible for the Company’s business?  Further, the SEBI had to also prove that the offence by the Company was committed with the consent or connivance of any of the Appellants or attribute to their negligence.

Judgment and Reasoning:

The Court rejected the application of the Appellants. The Court perused the report of Dave Committee and the judgment in Paramount Bio-Tech Industries Ltd. vs. Union of India [2003] Law Suit (All) 1206; [2004] 120 Comp Case 18 (All) as to activities falling under CIS. The Court has also observed that the Company had not complied with various requirements of CIS regulations. The Court also noted that no receipt of refund of monies to the investors or books of accounts to that effect were produced. The Court also noted from the witness of one of the directors that some of the investors had filed winding up petition against the Company for not refunding their money. The Court also reviewed its judgment in Vishnu Prakash Bajpai vs. Securities and Exchange Board of India [2010] 154 Comp Cas 147 (Delhi) [2010] 2 Crimes 394 (Delhi), that offence is continuous offence under Section 24 of the SEBI Act till the time the Company complies with the CIS regulations.  The Court also looked into events date wise and the position of the directors at that point of time. The Court also observed that till the Company complied with the requirements as to refund of monies to the investors, the offence would continue and thus all the directors during such periods, even though resigned or appointed in between, are liable.

Simplex Infrastructures Ltd. and Banwarilal Bajoria and others vs. Registrar of Companies, West Bengal

[2014] 182 Comp Cas 243(Cal.)

[In the Calcutta High Court]

Simplex Infrastructures Ltd. and Banwarilal Bajoria and others vs. Registrar of Companies, West Bengal

Court can grant relief to directors for any proceedings initiated for negligence, default or breach of duty, if there is no specific allegation of dishonest intent and that same is a technical default and does not affect any person or is not opposed to public policy

Brief Facts

The Petitioners are the directors of the Company. The Registrar of Companies, West Bengal (“RoC”) had issued several show cause notices to the Petitioners for various non-compliances and non-disclosures in the audited accounts as required under Section 211 of the Companies Act, 1956 (“Act”). The show cause notices indicated the following non-compliances and non-disclosures:

a.      The loss on account of exchange fluctuation not being provided in the Company’s accounts.

b.      Advance received on account of work in progress not being shown separately.

c.       Not disclosing the cancellable and non-cancellable lease separately.

Company had duly replied to all the show
cause notices and had given proper explanation and justification as to all non–contraventions.

In anticipation of any action which may be taken against the Company and its directors, the Petitioners filed this application under Section 633 of the Act.  Section 633 refers to powers of a court to grant relief in case of any proceedings for negligence, default, breach of duty, misfeasance or breach of trust against an officer of the company.

The argument from the Respondent is that although, the powers exercised by the Court under Section 633(2) is discretionary, the same should be exercised with great caution.

Judgment and Reasoning

The Hon’ble Court allowed the petition. While allowing the petition, the Court noted that for relief to be granted under Section 633, the Petitioners should have shown to have acted in a manner in which any man of affairs with reasonable care could be expected to act in the case and circumstances of the facts. The court also noted the replies given to the said show cause notices of the RoC. The Court also relied on the judgment in the case of Bhagwati Foods
P. Ltd vs. Registrar of Companies, West Bengal [2008] 143 Comp Cas 531 (Cal.),  in which it was held that the show cause notice should not only contain an exact offence but also a specific allegation of dishonest intent. The Court noted that a technical default, if it does not affect any person or is not opposed to public policy, can be excused under Section 633(2) of the Act.

Corporate Frauds

238 companies were identified as ‘Vanishing Companies’. They had raised funds through Public issues and had stopped filing financial statements and annual returns with the concerned regulators. Of these, 128 companies were removed from this category and placed under a ‘Watch List’, as they had started filing their financial statements and annual returns. In addition, 32 companies are presently under liquidation. As on date, there are 78 companies that continue to be classified as ‘vanishing companies’. The total amount of Public Issues made by these 78 companies comes to approximately Rs 310.21 crores.                   Companies Act, 2013 contains various provisions to protect investors. Views of all stakeholders including professionals, financial institutions, banking sector, CII etc. were invited and taken into consideration before enactment of the Companies Act, 2013. The provisions for protection of investors, as under the Companies Act, 2013, inter alia, include: i)       Enhanced disclosure norms so that investors get all relevant information from companies;  ii)     “Fraud” defined for the first time as a substantive offence, and cover many dubious activities which were not specifically covered under the Companies Act, 1956; iii)   Serious Fraud Investigation Office (SFIO) has been granted statutory status with adequate powers. iv)   Provisions for attachment and disgorgement of assets. v)     Auditors’ accountability and independence enhanced through provisions which inter alia include rotation of auditors, etc. This would improve objectivity of audit and provide better insights to the investors; (e)        A Market Research and Analysis Unit (MRAU) has been set up in the Serious Fraud Investigation Office (SFIO) with the objectives of analyzing media reports relating to financial frauds and for conducting market surveillance of such corporates. In order to strengthen MRAU’s functioning, an Expert Committee was constituted and on the basis of its recommendations a forensic lab with appropriate technology and skilled technical manpower has been set up in SFIO. (f)        The Ministry organizes investor awareness programmes regularly in association with the three professional institutes – Institute of Chartered Accountants of India (ICAI), Institute of Cost Accountants of India (ICAI) and Institute of Company Secretaries of India (ICSI) in various cities under the aegis of Investor Education and Protection Fund (IEPF). The programmes are held for creating awareness and empowerment amongst investors. Since 2012-13, MCA has also started organizing such programmes in rural areas through CSC e-Governance Services India Ltd., an entity under Department of Electronics and Information Technology. 2897 such programmes were organised during the year 2013-14, under the IEPF.                        This was stated by the Minister of Corporate Affairs,Shri Arun Jaitley in a written reply to a question in Lok sabha today. MJPS