COMP LAW 2 MOD 9-20

Question 1

What is corporate governance

Answer 1

framework of rules and mechanisims by which companies and those in control of the companies are held accountable- it is a means to steer organisation in the disired direction by introducing accountability and reducing the principal agend issue in organisations.. , the heart of corporate governance is transparency, disclosure, accountability and integrity. It is to be borne in mind that mere legislation does not ensure good governance. Good governance flows from ethical business practices even when there is no legislation.

Question 2

Need for corporate governance

Answer 2

a. Corporate Performance
b. Enhanced Investor Trust
c. Better Access to Global Market
d. Combating Corruption
e. Easy Finance from Institutions
f. Enhancing Enterprise Valuation
g. Reduced Risk of Corporate Crisis and Scandals
h. Accountability

Question 3

what is the cadbury committee

Answer 3

Cadubry committee- initiated the idea of corporate governance after UK awas in a tuff financial spot (whats new)
established in May 1991 by the Financial Reporting Council, the London Stock
Exchange, and the accountancy profession.

due to: financial collapse of Coloroll and Polly Peck consortium?
during the committees formation- 2 more scandals
the collapse of the Bank of Credit and Commerce International and discovery of ** Robert Maxwell’s
appropriation of £440m from his companies’ pension funds as the Maxwell Group filed for
bankruptcy in 1992.**

first report- criticized
second report in dec 1992=
* shareholders have the right to directly question
the Chairs of audit and remuneration committees at AGMs,
* Senior Non-Executive Director to represent shareholders’ interests in the event
that the positions of CEO and Chairman are combined.

Voluntary code:
* clear division of responsibilities at the top, primarily that the position
of Chairman of the Board be separated from that of Chief Executive, or that there
be a strong independent element on the board
* majority of the Board be comprised of outside directors
* remuneration committees for Board members be made up in the majority of
non-executive directors
* Board should appoint an Audit Committee including at least three non-executive
directors.

Question 4

Kumar Mangalam Committee

Answer 4

SEBI set up committee under Shri Kumar Mangalam Birla, member SEBI Board, to promote and raise the
standards of good corporate governance.

Objective: - view corporate governance from the
perspective of the investors and shareholders
-prepare a ‘Code’ to suit the
Indian corporate environment.

Mandatory Reccomendations:
(applicable to listed compinies w paid up share capital over 3 cr or abv
- Composition of board of directors should be optimum combination of executive
& non-executive directors.
-** Audit committee should contain 3 independent directors **with one having financial
and accounting knowledge.
- Remuneration committee should be setup w 3 non executive directors
- The companies should be required to give consolidated accounts in respect of all their
subsidiaries in which they hold 51% or more of the share capital

• Board should hold at least 4 meetings in a year with maximum gap of 4
  months between 2 meetings to review operational plans, capital budgets, quarterly
  results, minutes of committee’s meeting.
• Director shall not be a member of more than 10 committees and shall not act as
  chairman of more than 5 committees across all companies
• Any Information should be shared with shareholders in regard to their investments.
• The half-yearly declaration of financial performance including summary of the significant
  events in last six months should be sent to each household of shareholders

Non Mandtory Reccs:
- Role of chairman
 Shareholders’ right for receiving half yearly financial performance.
 Postal ballot covering critical matters like alteration in memorandum
 Corporate restructuring
 Further issue of capital
 Venturing into new businesses
 These recommendations were to apply to all the listed private and public sector
companies, their directors, management, employees and professionals associated with
such companies.

Question 5

CII Task Force reccomendations

Answer 5

1. Integrity, ethics, governance,
2. high performing board
3. balancing stakeholder interests
4. independent directors and women direcotrs
5. risk management
6. audit committee and audit quality
   **1. Listed companies with a turnover of Rs. 100 Crs. and above should have professionally competent
   non-executive directors on the board.
7. The non-executive directors should constitute at least 30% of the board if the chairman of the
   company is non-executive director and 50% of the board if the chairman of the company and the
   managing director is the same person.
8. No more than 10 directorships in listed companies by one person.
9. The Board should meet at least 6 times a year preferably at an interval of two month
10. Listed companies with either a turnover of over Rs. 100 crs. or a paid up capital of Rs. 20 crs.,
    whichever is less, should set up audit committees within 2 years. The committee should consist
    of a least three members, who should have adequate knowledge of finance, accounts, and basic
    elements of company law. They should provide effective supervision on financial reporting.
    **

‘Desirable Corporate Governance Code’ was released in April 1998.- voluntary
these are not mandatory

Question 6

Naresh Chandra Committee Report
(2002)

Answer 6

Report on Corporate Audit & Governance

• At least 50% of the board of any listed company and unlisted public limited companies having
  paid-up share capital and free reserves of Rs. 10 crores or more, or a turnover of Rs 50 crores or more, should be the independent directors. The minimum board size of such companies should
  be 7 outof which at least 4 should be independent directors
• The committee, in line with the international best practices suggested a list of disqualification
  for audit assignment which prohibits the audit firm, the partners, or their direct relatives to
   Anydirect financial interest in the audit client,
   Receiving any loans and/or guarantees,
   Anybusiness relationship,
   Personal relationship by the audit firm, its partners, as well as their direct relatives, prohibition
  of
   Service or cooling off period for a period of at least two years, and
   Undue dependence on an audit client

The audit partners and at least 50% of the engagement team responsible for the audit should
be rotated every 5 years.
- Audit firm must submit a certificate of independence to audit committee or the board
- Non-executive and independent directors shall be exempted from criminal and civil liabilities
mentioned in the Negotiable Instruments Act, Provident Fund Act, ESI Act, Factories Act,
Financial disputes Act, e

Question 7

Kotak Committee report 2017

Answer 7

Recommendations
1. In publicly traded firms with 40% public shareholding, the chairmanship and managing
directorship should be separated, and chairmanship should be limited to non-executive directors alone
2. Number of board should be expanded to six members, with at least one woman as an
independent director.
3. All publicly traded companies should produce a cash flow statement every six months
4. atleast half of Board members at publicly listed companies must be independent directors and all directors must attend atleast half of the board meetigns
5. Minimum number of audit committee meetings should be 5 in a year
6. At least 2/3rd members of the nomination and remuneration committee should be independent directors
7. Increase the number of independent directors from 33% to 50%
8. Half yearly disclosures of RPTs

** As per the committee, an independent director
 Specifically exclude persons who constitute the ‘promoter group’ of a listed entity;
Requirement of an undertaking from the independent director regarding existence of any
situation which can effect his independence**

Question 8

Narayan Murthy Committee report

Answer 8

Recommendation
1. Persons eligible for the office of non-executive director so long as the term of office did not exceed nine years (in three terms of three years each, running continuously)
2. All audit committee members shall be non-executive directors. They should be financially
literate and at least one member should have accounting or related financial management
expertise
3. Audit comm must review stuff like: financial statements, related party trnxn
4. Personnel who observe an unethical or improper practice (not necessarily a violation of law) should be able to
approach the audit committee without necessarily informing their supervisors.
5. All listed companies to provide certification by CEO & CFO confirming the financial statements as true and fair
and are consistent with the accounting standards, internal control system, etc.

The committee defined the term “independent director” as a non-executive director of the company who:
apart from receiving director remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its senior management or its holding company, its subsidiaries and associated companies;
 is not related to promoters or management at the board level or at one level below the board;
 has not been an executive of the company in the immediately preceding three financial years;
 is not a partner or an executive of the statutory audit firm or the internal audit firm that is associated with the company
 is not a substantial shareholder of the company, i.e. owning two percent or more of the block of voting shares.

Question 9

just read no need to memorise

J. J. Irani Committee Report

Answer 9

• Minimum number of directors should be provided by the law for various classes of companies,
  however nosuch maximum number should be set statutorily.
• Every company should have at least one director resident in India to ensure availability in case
  of any issue regarding accountability of the board.
• The managing director and the whole time directors should not be appointed for more than
  five years at a time.
• A minimum of one-third of the total strength of the board should be independent directors.
• Total number of directorships held by an individual should not be more than 15.
• The gap between two board meetings should not exceed four months
• Meetings at short notices should be held only to transact emergency business. In such
  meetings, the mandatory presence of at least one independent director should be required in
  order to ensure that only well considered decisions are taken.
• The rights of minority shareholders should be protected during general meetings of the
  company
• Every director should disclose to the company on his directorships and shareholdings in the
  companyand in other companies

Question 10

ENRON SCAM

Answer 10

Enron was founded in the year 1985 and was one of the largest suppliers of Natural gas and
electricity. Due to a new law passed by the US Congress, which caused Enron to lose its
rights over its pipelines, Jeffery Skilling CEO, convicted for frauds such as=
1. There were massive account discrepancies where huge debts were hidden, whilst
some were overvalued, which led to shareholders equity to reduce over a billion
dollars and reduction in share prices from $90 to $1.
2. He adopted the MTM – Mark to Market accounting system wherein the values of the
accounts are based on appraised prospective values instead of current true values.
This method replaced the Historical cost accounting system. Losses were never
reported and assets were overvalued
3. They created a Special Purpose Vehicle (SPV) as a subsidiary so that even during
bankruptcy, it remains financially independent and mitigates risks.
4. Moreover, the auditors as well took a back seat and asked enron to destroy files and
maintain only necessary information.
5. In 2001, the business admitted its faults and inflated levels of $586 million and hence
eventually filed for bankruptcy.

Question 11

Satyam Scam

Answer 11

Satyam’s terrible demise was caused by four primary factors: the lack of independent
members on the company’s board committee, flaws in audit, disclosure and
transparency difficulties, and a failure in the CEO/CFO roles.
- independent directors failed to do their job- should have inquired why the compay had so much cash- failed to do so. remained silent abt behaiviours that may be detrimental to the company= the carelessness bordered on fraud.
- the audit committee failed to fulfil its obligations. Such actions caused the company’s control system to fail and did not
offer a precise representation of Satyam’s financial position.- The audit committee did not play the appropriate role in limiting incorrect
information about Satyam’s financial concerns

Question 12

Independent directors and their role

Answer 12

• An independent director is a non-executive director of a company who is free from any business
  or other relationship which could materially interfere with the exercise of his independent
  judgement and who helps the company in improving corporate credibility and governance
  standards
• Every listed company shall have at least 1/3rd of the total number of directors as independent
  director (where the listed entity does not have a regular non-executive chairperson, at least half of the board of directors shall comprise of independent directors. Every unlisted public company with a paid up share capital of Rs. 10 crore or more, turnover of Rs. 100 crore or more
  or aggregate, outstanding loans, debentures and deposits, exceeding Rs. 50 crore shall appoint at least 2 independent directors

ROLE:
(1) help in bringing an independent judgment to bear on the Board‘s deliberations especially on issues
of strategy, performance, risk management, resources, key appointments and standards of conduct;
(2) bring an objective view in the evaluation of the performance of board and management;
(3) scrutinise the performance of management in meeting agreed goals and objectives and monitor
the reporting of performance;
(4) satisfy themselves on the integrity of financial information and that financial controls and the systems of risk management are robust and defensible
(5) balance and safeguard the interests of all stakeholders, particularly the minority shareholders

Question 13

appointment and reappointment of independent directors

Answer 13

While selecting independent directors, the Board shall ensure that he has appropriate skills,
experience and knowledge to discharge its functions and duties effectively. appointment is approved at meeting of shareholders

• Such director has to make the declaration of his independence at the first meeting of the board
  which he attends and subsequently at first board meeting of every financial year.
• An independent director holds the office for a term of five years. He cannot serve more than
  two consecutive terms. He can be reappointed only after expiration of 3 years. The
  reappointment of the independent director shall be on the basis of report of performance
  evaluation and with the approval of the shareholders.
• to be selected from a data bank containign names addresses and qualifications of eligilble persons who can act as independent director - maintained by IICA
• For the appointment, re-appointment or removal of an independent director a special
  resolution is to be passed. However, under the recent amendment, if the special resolution fails,
  an ordinary resolution along with majority of minority of shareholder votes would be taken into
  consideration.

Question 14

process of appointment of independent directors

Answer 14

1. Obtain Written Consent and Declaration from the Proposed Independent Director -
   The Proposed Independent Director has to submit Form DIR-2 (consent to act as director)
2. Obtaining DIN and Digital Signature Certificate
3. Meeting of Nomination and Remuneration Committee -
4. COnvene meeting of BOD to consider appointment and pass necessary resolution
5. Declaration of Independence under section 149(7)
6. . File Form MGT-14 with ROC - File Form MGT-14 with the ROC within 30 days of
   passing Special Resolution in General Meeting along with fee along with Explanatory
   Statement.
7. Making Necessary entries in Register of Directors

Question 15

removal of independent director, remuneration, and tenure

Answer 15

An independent director who resigns or is removed from the Board of the company
shall be replaced by a new independent director within a period of not more than one
hundred and eighty (180) days from the date of such resignation or removal, as the
case may be.

• On the basis of the report of performance evaluation, it shall be determined whether to
  extend or discontinue the term of appointment of the independent director. performance is evaluated by the whole BOD apart from director beign evaluated .
  Section 149(10) an independent director shall hold office for a term up to five (5)
  consecutive years on the Board of a company, but shall be eligible for reappointment
  on passing of a special resolution
   Section 149(11) states that without contravening the section 149(10), no independent
  director shall hold office for more than two consecutive terms, but such independent
  director shall be eligible for appointment after the expiration of three years of ceasing
  to become an independent director.

REMUNERATION:
REMUNERATION OF INDEPENDENT DIRECTOR (Section 149(9) )
 an independent director shall not be entitled to any stock option and may receive
remuneration by way of fee provided under of section 197(5), reimbursement of
expenses for participation in the Board and other meetings and profit related
commission as may be approved by the members. - A director may receive remuneration by way of fee for attending meetings
of the Board.

Question 16

Independent director qualification- test etc

Answer 16

• apply online for inclusion of his name in the data bank for a
  period of one year or five years or for his life-time
• hall pass an online
  proficiency self-assessment test conducted by the institute within a period of one year
  from the date of inclusion of his name in the data bank, failing which, his name shall
  stand removed from the databank
• must get 60 percent or abov, can take the test as many times as required
• who is exempt from the test?
• key managerial employees or directors who have served for at least three
  years on the board of entities – listed companies, unlisted companies with INR 100
  million or more paid-up capital, non-resident companies with US$2 million paid-up
  capital, or a commercial entity set up under a central or state law
• practicing advocate of a court for 10 years
• ## practicng Chartered acc, cost accountant, company secretary, senior beuraucrat

Question 17

COPORATE GOVN. history USA

Answer 17

In US, it formally began with passing of the Foreign Corrupt Practices Act in 1977 which provided
specific provisions regarding review of systems of internal control.
*Then in 1979 came the US SEC’s mandatory reporting on internal financial control.
*In 1985 the ‘Tread Way Commission’ suggested the need of proper control environment and
constitution of independent boards with proper internal audit function
Finally, in the year 2002 in the backdrop of the Enron and various other similar scams the SOX (Sarbanes-Oxley Act) was passed. It brought about a complete change in the corporate
governance structure including material changes to the provisions related to auditor
independence, conflict of interests, corporate responsibility, enhanced financial disclosures and
severe penalties for willful default by managers and auditors

Question 18

CORPORATE GOVN history UK

Answer 18

*Various scandals and financial downfalls in the UK in late 1980’s and early 1990’s created a fear- realising the insufficiency in the current framework
In 1991, the Cadbury Committee was set up by the London Stock Exchange. It came up with a
report titled “Code of Best Practices” which contained recommendations to strike balance
between essential powers of Board of Directors and ensure their proper accountability.

The Green Bury Committee in 1995- while the emphasis in the Cadbury Committee report was
on Audit Committee, Remuneration Committee, Director’s Training, Standards of conduct,
Executive Directors on the board, Financial Reporting, Pension Governance etc., the Green bury
Committee recommendations, among others also include interim reporting, Director’s
responsibility statement, compliance certification, voting by institutional investors etc.

LED TO : inclusion of corporate governance practices in the UK’s Companies Act as well as
passing of a separate legislation, namely the UK Corporate Governance Code in 2010 which
provided recommendations as to key best practices for companies

Question 19

TATA vs Mistry case?

Answer 19

mr mistry was removed as chairman of Tata and sons and then filed in NCLT againt opression and mismanagemtn -
- limited
protection our corporate law offers to minority shareholders
- in order to file in NCLT for opression and mismanagement= one must be a shareholder w atleast 10% of shares- here mistry had 18% but including preferential shares- removing preferential shares, they only had 3 percent. so its v difficult for any minority shreholder
- . The shareholder, to get relief, must establish that the
oppression or prejudice is so grave that it is just and equitable to wind up the company. If the grounds fall short of
warranting a winding-up order, the NCLT will not have jurisdiction to grant relief to the shareholders

here, obv just simply removign cyrus mistry was not some opressive act and thus that mere removal of a director or executive chairman cannot be
termed as a ground for winding up a company

question of independence of independent directors arose when:
during this tussle an independent director names Nusil Wadia who was independet director at Tata Steel, Tata Motors and
Tata Chemicals. for decades, was facing issues for supporting cyrus mistry/
in India, listed firms are dominated by a major shareholder, making it easier for the latter
to stamp out dissenting independent voices.

Question 20

IL & FS scandal

Answer 20

L&FS group in 2018, following huge defaults by various entities which together had
a debt burden of over ₹94,000 crore.
Several entities of IL&FS (Infrastructure Leasing and Financial Services) group have
been found to have indulged in multiple circuitous transactions involving several
illegalities, including fast disbursals to some borrowers despite their bad track record
in servicing existing loans and also delayed recoveries.
 Investigations have also found that several entities from the IL&FS group continued
to enjoy high ratings from various rating agencies.

While the top management at IL&FS was aware of the potential problem accounts
which were getting stressed, they continued to provide them with fresh loans to serve
their principal and interest of the defaulters, rather than classifying them as NPAs. It was resulting in ballooning of outstanding liabilities, and auditor and rating agencies were also found to be taking favours

In its charge sheet filed before the court, the SFIO has accused 30 entities/individuals
of various violations and offences, including financial fraud.
 Former top-management members of IFIN have been charged with committing fraud
with intent to injure the interest of the company, its shareholders and creditors,
resulting in wrongful loss to the company.
 Listing names of Deloitte Haskins and Sells LLP and BSR and Associates LLP in the
charge sheet, the SFIO said, “The statutory auditors failed to discharge their duties
diligently and did not use professional skepticism to ensure true and fair disclosure of
the state of affairs of the company”

Grant of immunity to new Directors (NCLT order)
 In order to ensure the independent functioning of the said directors individually and
collectively, immunity was granted to them.
 The NCLT directed that for the past actions of the suspended directors or any of the
officers of the company, no action should be initiated against the newly appointed
directors, without prior approval of the Tribunal.

Question 21

PNB SCAM

Answer 21

PNB= defrauded out of 1.8 BILLION DOLLARS
n the case of PNB, the two employees directly used SWIFT to move millions of dollars
across borders every hour— and bypassed the core banking system (CBS) which processes
daily banking transactions and posts updates.
Letter of undertaking, (LOU) is basically an instrument used by importers to carry out
their business.
n the case of PNB, the LOU’s were issued in favour of Nirav Modi bypassing the
bank’s reporting system using SWIFT messages to overseas banks without
authorization.
In the case of PNB, the LOU’s were issued in favour of Nirav Modi bypassing the
bank’s reporting system using SWIFT messages to overseas banks without
authorization.
 Nirav Modi, with the assistance of senior PNB officials, was able to obtain LOUs
without submitting any securities.

In response to the huge bank scam, the government passed the Fugitive Economic
Offenders Act (2018) which came into force on 21st April 2018.
 The Act was enacted to prevent economic offenders like Nirav Modi from escaping
the country

ROLE OF INDEPENDENT DIRECTORS-
The independent directors had earlier moved the tribunal appealing against the freeze
on their assets, including bank accounts.
 The directors argued in court that they were only ‘independent,’ and had no role in the
day-to-day operations of the companies.
SFIO in its status report on role of independent directors of the flagship companies of
the absconding diamond trader, which was submitted to the ministry of corporate
affairs (MCA), accused these directors of turning a “blind eye” to the “misgivings and
manipulations” of Modi.

Question 22

AUDITORS duty and who can be an auditor

Answer 22

An audit can thus be called as the detection of fraud, technical errors and errors of
principle
c.
An auditor is a person authorized to review and verify the accuracy of financial
records and ensure that companies comply with tax laws.
a person shall be eligible for appointment as an
auditor of a company only if he is a chartered accountant and a member of Institute of
Chartered Accountants of India.

An individual or an audit firm can be appointed as auditors
* A person shall be eligible for appointment as an auditor of a company only if he is a chartered
accountant and has a certificate of practice from ICAI.
* A firm whereof majority of partners practicing in India are qualified for appointment as
aforesaid may be appointed by its firm name to be auditor of a company. Where such a firm is
appointed, only the partners who are chartered accountants shall be authorised to act and sign
on behalf of the firm.
* However, the following are disqualified from being appointed as the auditor [S.141(3)]
oA body corporate, except LLP;
oAn officer or employee of the company;
oAny partner/employee of company;
any person who themselves or their relative / partner has any debt, securtiy , business relation with the company, its subsidiary or holding or associate comp.

o A person who has been convicted by a court of an offence involving fraud and a period of 10
years has not elapsed from the date of such conviction
o A person ,directly or indirectly rendering services mentioned in Section 144 (auditor not to
render certain services)
* Where a person appointed as an auditor of a company incurs any of these disqualifications after
his appointment, he shall vacate his office as such auditor and such vacation shall be deemed to
be a casual vacancy in the office of the auditor.

Question 23

Appointment of auditor

Answer 23

SECTION 139
* every comp at the FIRST AGM appt an individual or firm who shall hold office from conclusion of 1st AGM till conclusion of 6th agm (basically work for 5 years)
* The first auditor of a company shall be appt by BOD within 30 days from incorporation, if they fail to do so, they must inform the members- who within 90 days must appt auditor at EGM.
* must place the matter relating to appt for ratification by members at AGM, and obtain the written consent of auditor and certificate indicating criteria for appointment as per sec 141 and file the said appt within 15 days with the ROC.

NO LISTED company can appoint or re appoint - an auditor for more than 1 term of 5 consecutive years and cannot be reappointed until 5 years after completion of term.

• In the audit firm appointed by it,
  a. the auditing partner and his team shall be rotated at such
  intervals as may be resolved by members.
  b. The audit shall be conducted by more than one auditor.

for govt comps- the first auditor is elected by auditor comptroller general of india

if CASUAL VACANCY arises =
- BOD must fill the vacancy within 30 days and egm to held within 3 months for approval.
- if govt comp= be filled by the Comptroller and Auditor-General of India within 30
days.

Retiring Auditor may be reappointed under se 139 if :
not disqualified from reappt, no notice in writing of unwillingness given, no special resol. has been passed expressly mentioning he will not be reappt.
Where at any AGM, no auditor is appointed or re-appointed, the existing auditor
shall continue to be the auditor of the Company.

Question 24

audit committee

Answer 24

all public companies having a paid-up capital of Rs 10 crore or more or a turnover of Rs 100 crore or more and comps havin outstanding loans or borrowings in excess of Rs 50 crore should constitute an audit committee.

audit committee= consist of 3 directors MINMUM and independent drectors should be majority- w ability to read and understand financial statemtns
they must:
review and monitor the auditor’s independence and performance, and effectiveness
of audit process;
(iii) examination of the financial statement and the auditors’ report thereon;
(iv) approval or any subsequent modification of transactions of the
company with related party

Audit Committee may call for the comments of the auditors about
internal control systems, the scope of audit, including the observations of the
auditors and review of financial statement before their submission to the Board and
may also discuss any related issues with the internal and statutory auditors and the
management of the company

Question 25

remuneration, removal and resignation of auditor

Answer 25

SEC 142= REMUNERATION of AUDITOR = shall be
fixed in its general meeting or in such manner as may be determined therein.
* Board may fix remuneration of the first auditor appointed by it.

REMOVAL section 140
= auditor can be removed b4 expiry of his term by SPECIAL RESOL. aFTER getting approval from central govt. –> auditor must get reasonable opportunity to be heard

RESIGNATION SEction 141
Auditor who resigns from the company shall file with the company and Registrar + CAG if applic.
- statemnt of reasons and other facts within 30 days of resigning. IF not done= liable for penalty of 50k or amount of remuneration whichever is less. further default –> 500 rupees per day upto 2 lakh maximum
- Special notice to be given for appointment of some other person, than the retiring auditor, as the auditor of the company or providing that resigning auditor not be reappointed

• if auditor has been found to be directly or indirectly acting in fraudulent manner/collusion w directors etc., by the tribunal apon application- tribunal can order company to change its auditors
• An auditor, whether individual or firm, against whom final order has been passed by the
  Tribunal under this section shall not be eligible to be appointed as an auditor of any company for
  a period of five years from the date of passing of the order and the auditor shall also be liable
  for action under section 447

Question 26

Powers rights and duties of auditor

Answer 26

1. AUDITOR’S RIGHT TO ATTEND GENERAL MEETING - Section 146
2. The auditor has to inquire into matters such as a) whether loans and advances made by the company on the basis of security have been properly secured
   b) if transactions represented merely by book entries are prejudicial to comps interests
3. d) whether loans and advances made bythe company have been shown as deposits
4. (e) whether personal expenses have been charged to revenue account
5. examine financial statements and relevant docs

based on all this and more he must make an audit report-
this report must include:
1. if all the info obtained was necessary AND TRUE
2. if the proper books of account kept by the company are as required by law and
3. if the companies balance sheet and profit and loss is in agreement w the books of accounts and returns
4. whether, in his opinion, the financial statements comply with the accounting standards
5. any qualification, reservation or adverse remark relating to the maintenance of accounts
6. the company has adequate internal financial controls system
7. if there are any IMPACTS of pending litigations regarding financial position

8. report fraud

Question 27

Auditor reporting fraud and contravention punishment

Answer 27

if during the performance of duty as auditor notices any offenc eof fraud was committed by company officers or employees-
auditor shall report it to CENTRAL GOVT
first report it to the audit committee or the board within 2 days of his knowledge of such fraud who have toreply to him within 45 days.
The auditor than within 15 days of such reply shall forwardthe same with his comments to the
Central Government.[Rule 13, Companies (Audit and Auditors) Rules,2014

contravention of sec 139 to 146 inclusive
penalty for company=
* fine of 25k upto 5L
* every officer in default= imprisonment of upto 1 year with fine b/w 10k to 1L or both

penalty for auditor
. If an auditor of a company contravenes any of the provisions of section 139, section 143, section 144 or section 145, = auditor may be punished w fine of 25k upto 50L or upto 4 times the remuneration of auditor whichever is less.

• Where an auditor has been convicted, he shall be liable to refund the remuneration received
  by him to the company; and pay for damages to the company/ statutory
  bodies/authorities/creditors or to any other persons for loss arising out of incorrect or
  misleading statements of particulars made in his audit report

Where, in case of audit of a company being conducted by an audit firm, it is proved that the
partner(s) of audit firm have acted in a fraudulent manner/abetted/ colluded in any fraud–> the partner or partners of such firm shall be liable jointly and severally

Question 28

CARO 2020 and NFRA

Answer 28

*NFRA is an independent regulatory body for regulating the audit and accounting profession in India.
*The aim of CARO 2020 is to enhance the overall quality of reporting by the company auditors.

caro is applicable to all companies including foreign comps EXCEPT:
insurance company or section 8 company or OPC or a private limited company, not having paid up capital, surplus or reserves more than 1 CR, no borrowings of 1 CR and total revenue below 10 CR

change in auditor rules in india :

previous Companies (auditors report) order, 2016 no replaced by CARO 2020, it includes additional reporting requirements after consultations with the
National Financial Reporting Authority (NFRA).
Setting up of a separate and independent regulatory body to assist in the framing and enforcement
of legislation relating to accounting & auditing and
oImproving investor and public confidence in the financial reporting of an entity.
oThe Companies Act requires the NFRA to have a chairperson who will be appointed by the Central
Government and a maximum of15 member

who is governed by NFRA:
- listed companies, unlisted comps having paid up capital of more than 1000 CRORE or aggregate outstanding loans, debentures and deps of 500 cr
- insurance companies, banking companies, companies engaged in the generation or supply of
electricity, companies governed by any special Act
-bodies corporate or companies or persons, on a reference made to the Authority by the Central Government in public interest

*The NFRAhasthe following responsibilities: (Rule 4 NFRA Rules)
oMakerecommendations on the foundation and laying down of accounting and auditing policies and standards;
oMonitor and enforce the compliance of the accounting standards and auditing standards:
oOversee the quality of service of the professionals (such as auditors, CFOs, etc)

Where professional or other misconduct is proved, it shall have the power to impose the following
punishment:
oPenalty:
For individuals a fine between Rs. 1L to 5 times the fees received;
For firms a fine Between Rs. 5L to 10 times the fees received

Question 29

Internal Audit

Answer 29

he companies to have an internal auditor include
oEvery listed company,
oUnlisted public company with turnover of Rs. 200 Crores or more, paid up share capital of Rs.
50 Crores or more; outstanding loans/ borrowings from banks/ Public Financial Institutions
exceeding Rs. 100 Crores or more at any point of time; or outstanding deposits of INR 25 Crores
or more at any point of time.
* Internal audit is a continuous and systematic way of risk managemen
and
oPrivate companies with turnover of Rs. 200 Crores or more; or outstanding loans/ borrowings
from banks/ Public Financial Institutions exceeding INR 100 Crores or more at any point of time.
* An internal auditor either has to be an chartered accountant, cost accountant or other
professional as maybe decided by the board

Question 30

whistleblowers act and vigil mech

Answer 30

• In 2014, the Whistle Blower’s Protection Act was passed= for complaints agaisnt corruption or misuse of power or wilful misuse of discretion against any public servant and to inquire

Every listed company or
other class of companies
= a) the Companies which accept deposits from the public;
(b) the Companies which have borrowed money from banks and public financial institutions in
excess of fifty crore rupees
c) companies required to constitute audit committee

For their Directors or
Employees Establishes a Vigil
mechanism and the
Audit Committee or any
any director nominate takes decision.

• Section 177 of the Companies Act, 2013 which deals with provisions related to ‘audit
  committee’ also provides for setting up of vigil mechanism. “ shall provide for adequate safeguards against
  victimisation of persons who use such mechanism and make provision for direct access to the
  chairperson of the Audit Committee in appropriate or exceptional cases”

Regulation 9A of SEBI PIT regulations provide for whistelblowing against nstances of insider trading = enable employees to report instances of leak of unpublished price sensitive information

in 2021- SEBI included rewards to incentivise whistleblowers under prohibition of insider trading for 1 CR upto 10 CR to encourage them..
also has safegaurds for protection of whistelblower

Question 31

protected disclosure and audit committee role in whistelbowein

Answer 31

“Protected Disclosure” means a concern raised by an employee or group of employees
of the Company, through a written communication and made in good faith which
discloses or demonstrates information about an unethical or improper activity under
the title “SCOPE OF THE POLICY” - it should be factual and not speculative and should
contain as much specific information as possible to allow for proper assessment of the
nature and extent of the concern.
All Employees and Directors of the Company are eligible to make Protected Disclosures

**Role of the Audit Committee **
 Any employee or director shall submit a report of the genuine concerns or grievances
to the Audit Committee.
* in exceptional case, the vigil mechanism shall provide direct access to the
Chairperson of the Audit Committee.
* The decision or direction of Audit Committee shall be final and binding and if
required has to be reported further.

Question 32

international perpective on whistleblowers

Answer 32

• In the US, Sarbanes Oxley Act, 2002 deals with whistleblowing rules. As per the Act, listed
  companies must adopt a business ethics code and create an internal procedure by which
  employee reports about fraud or ethical violations can be taken, reviewed, and solicited. Section
  806 of the Act provides for protection of employees of listed companies who whistelblow
• In the UK, the Public Interest Disclosure Act, 1998 had been enacted to prevent the companies
  and its employees from discriminating against the whistle-blowing employees

Question 33

section 135- CSR

Answer 33

*CSR goes beyond legal obligations: by voluntarily adopting ethical, sustainable, and responsible
business practices, companies seek to deliver benefits to consumers, shareholders, employees,
and society.

• Every company having (in the immediately preceding financial year)
  oNet worth- Rs. 500 Cr or more
  oTurnover- Rs. 1000 Cr. or more
  oNet profit- Rs. 5 Cr. or more
  Shall constitute a Corporate Social Responsibility Committee

committee= 3 or more directors.- atleast one is independent director
or 2/more if the company doesnt need to appts Independent directors

Board shall ensure that at least 2% of the average net profits of the company made during the 3
immediately preceding financial years or where the company has been incorporated less than 3
years ago, during such immediately preceding financial years, in pursuance of its CSR Policy.
- if they fail to do som they must transfer to specified fund in shedule 7 within 6 months from end of financial year.
- If any excess amount is spent by the company, it can set it off against its liability for succeeding
financial years

Any unspent amount, relating to an ongoing CSR project undertaken by the company, shall be
transferred within 30 days from close of financial year in any scheduled bank called the
“Unspent Corporate Social Responsibility Account”. The amount has to be utilized by the
company within a span of 3 financial years from deposit, pursuant to its CSR policies. If the
company fails, the amount has to be transferred to a fund in Schedule VII within 30 days from
the completion of 3rd financial year

in case of DEFAULT:
PENALTY= penalty twice the amount required to be transferred or one crore rupees, wh\tv is less.
every officer responsible from company will be fined= 1/10th of amt to be transferred or 2L wtv is less

In case the amount to be spent by a company is not more than 50 lakh rupees, CSR committee
need not be formed and the functions of the committee in this case shall be carried out by the
Board.

Question 34

Modes of implementing CSR activities

Answer 34

On and after April 1, 2021, companies can undertake CSR activity only through
implementing agencies which are registered with MCA.

i.Entity established by the company itself or along with any other company – a company
established under section 8 of the Act, or a registered public trust or a registered society,
registered under section 12A and 80G of the Income Tax Act, 1961. **
ii.Entity established by the Central Government or State Government** – a company established
under section 8 of the Act, or a registered trust or a registered society.
iii.Statutory bodies – any entity established under an Act of Parliament or a State legislature.
iv.Other bodies – a company established under section 8 of the Act, or a registered public trust
or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961,
and having an established track record of at least three years in undertaking similar activities

Question 35

Related party transaction

section 188

Answer 35

When a company enters into a related party transaction, covered under Section 188 of
the act, this requires the consent of the company’s board of directors.
-f such a transaction exceeds the monetary thresholds prescribed under Rule
15(3) of the Companies (Meeting of Board and its Powers) Rules, 2014, approval of
the shareholders will also be required by way of an ordinary resolution.- this approval can be obtained prior or within 3 months after the entering into the transaction

audit committee may make “omnibus approval for related party transactions
proposed. and the RPT contracts are to be disclosed in BOD report and a register of such contracts is to be made.

Parties are considered to be related if at any time during the
reporting period one party has the ability to control the other party or exercise
significant influence over the other party in making financial and/or operating
decisions

The Companies (Meetings of Board and its Powers) Rules, 2014 provides that
“Related party” means a director or key managerial personnel of the holding
company or his relative with reference to a company, shall be deemed to be a
related party.
 Related Party transaction means “a transfer of resources or obligations between
related parties, regardless of whether or not a price is charged”

under 188 of the
Companies Act, 2013 read with rule 15 of the Companies (Meetings of Board
and its Powers) Rules, 2014 which provides that a **company cannot enter into any
contract or arrangement with a related party except with the prior approval of Board **
or Shareholders as the case may be with respect to following transactions
 limits are to be taken on all transactions are done on a financial year basis.

Question 36

what type of trnxns are under RPT

Answer 36

trnxns that require prior approval of BOD =
sale, purchase, supply of goods or material, leasing of property, and availing or rendering any services directly or indirectly which exceeds the limit of 10% or more of the turnover of the company.

Selling or otherwise disposing of or buying
property of any kind, directly or through the
appointment of agent - 10% of NETWORTH of company

Such related party’s appointment to any office
or place of profit in the Company, its subsidiary or associate Company = monthly remuneration of 2.5L

Underwriting the subscription of any securities
or derivatives thereof, of the company =
1% of the net worth of the
Company

Question 37

explain arms length transaction

Answer 37

arm’s length transaction” as a transaction between two related
parties that is conducted as if they are unrelated, to avoid conflict of interest.
- both parties have equal bargaining poerr and are working for their own interests, and are not under any pressure from opposing party.

Question 38

Omnibus Approval:

Answer 38

 Omnibus Approval means a blanket pre activity approval by the Audit Committee
subject to compliance of the conditions

6A of the Companies (Meetings of Board and its Powers) Rules, 2014, all
related party transactions shall require approval of the Audit Committee and the Audit
Committee may make omnibus approval for related party transactions proposed to be
entered into by the company.

there will be a criteria created for the RPTs in a year with approval of BOD, this criteria is:
maximum value of the transactions, in aggregate, which can be allowed under the
omnibus route in a year;
 the maximum value per transaction which can be allowed;
- review by audit committee,
- The Audit Committee shall consider (a) repetitiveness of the transactions (in past
or in future) and (b) justification for the need of omnibus approval, while
specifying the criteria for making omnibus approval.

when details such as names of parties, nature and duration of trnxn, etc is not available, It has been provided that where the need for related party transaction cannot be
foreseen and aforesaid details are not available, the Audit Committee may make
omnibus approval for such transactions subject to their value not exceeding rupees
one crore per transaction

Omnibus approval shall be valid for a period not exceeding one financial year
and shall require fresh approval after the expiry of such financial year.
** Omnibus approval shall not be made for transactions in respect of selling or disposing
of the undertaking of the company. **

Question 39

does RPT require approval from board and shareholders?

Answer 39

ya duh, u/s 188, prior
approval by way of resolution from the Board of Directors of the Company will
be required.- if director is related to the trnxn then they will not be present at the meeting.

IF the RPT exceeds limits prescribed- it needs to take approval by way of resolution from the shareholders
of the Company.
 However, a Member of a company who is a related party cannot vote on such
resolution EXCEPT:

i) in case of Private Company and Specified IFSC Public Company
ii.in a company where 90% or more members are relatives of promoters or are related parties

shareholder approval is NOT needed when:
1. it aligns w ordinary cours eof business and arms lenght
2. if its a trnxn b/w subsidiary and holding company and accounts are considated with holding company.

Question 40

what if a RPT is done without approval without obtaining the consent of the Board or approval by a special resolution?

Answer 40

if RPT without obtaining the consent of the Board or approval by a special resolution =
, such contract or arrangement shall be voidable at the
option of the Board and if the contract or arrangement is with a related party to any
director, or is authorized by any other director, the directors concerned shall
indemnify the company against any loss incurred by it.
= it shall be open to the company to proceed against a director or any other employee who
had entered into such contract

in case of listed company= imprison upto 1 yr or fine 25k-5L or both
in any other company=
fine which shall not be less
than twenty-five thousand rupees but which may extend to five lakh rupees. NO prison

Question 41

opression and mismanagement and who can approach NCLT

Answer 41

when affairs of the company are being
conducted in a manner prejudiced to public interest or in amanner prejudicial to
public interest or in a manner oppressive to any member or members

Minor acts of mismanagement, however, are not to be regarded as oppression.
 A member can complain of oppression only in his capacity as a member and not
in his capacity as director or creditor.

An Application can be made to the NCLT under section 241

In case of Company having Share Capital: Not less than 100 member or not less
than 1/10 of the total number of members whichever is less or any member(s) holding
not less than 1/10th of the issue share capital.
In case of Company without Share Capital: Not less than 1/10th of the total
number of members (Note: The Tribunal may waive all or any of the requirement
specified therein)

Question 42

RULE OF MAJORITY and exceptions

Answer 42

The rule of majority implies that the will of the majority of members of a company
prevails in the management of affairs of the company.
 Therefore, every question relating to the management of the company is decided by a
resolution passed by a requisite majority in the meeting of the company. But wb protection of minority shareholders

a person becoming a member is aware of the vision of company and A member, therefore, is deemed to have agreed to submit to the will of the majority.

EXCEPTIONS:
1. Acts ultra vires company: beyond MOA AND AOA
2. . Ultra virus acts beyond statute/ basically illegal
3. acts requiring special majority - special resolution-3/4 maj
4. wrongful doers in control
5. Infringement of individual membership rights: For instance, a shareholder has a right to receive
notice of general meeting, to vote at the meeting, to contest for directorship, to
claim payment of declared dividend etc. These are the individual membership rights

6. Fraud on Minority: The majority rule does not apply where the majority of members
   use their power to defraud the minority or to take a discriminatory action. The court
   will allow any action by minority where the majority of the shareholders attempt to
   benefit themselves at the expense of minority.

Question 43

Foss vs. Harbottle

Answer 43

In this case, two shareholders of a company brought an action against the directors of
the company charging them guilty of fraudulent acts resulting in loss to the company.
 They prayed the court to ask the directors to pay damages to the company for the loss
caused to it on account of their acts.
 The company by majority had already decided and resolved not to take any action
against them.
 The court dismissed the suit on the ground that injury was not to the plaintiffs
exclusively. It was an injury to the whole company.
 In such a case, the action should have been brought by the company itself and not by
minority members.
 Besides that, the acts of directors were such as could be confirmed by the majority
members
 The effect of the ruling in the above case is that the minority shareholders cannot
complain of any irregular act which the majority are entitled to do regularly.

Question 44

Acts held as oppressive

Answer 44

 Not calling a general meeting and keeping shareholders in the dark.
 Non-maintenance of statutory records and not conducting the affairs of the company
in accordance with the Companies Act.
 Depriving a member of the right to dividend.
 Refusal to register transmission under will.
 Issue of further shares benefiting a section of shareholders.
 Pushing a shareholder into hopeless minority.
 Violating statutory rights of shareholders.
 Not giving notices.
 Not allowing attendance in general meetings.
 Not permitting inspection of records.
 Disposing of the assets of the company in an illegal manner.
 Depriving a member of his membership.
 Imposition of new and risky objects that are being opposed by the other fraction of
shareholders.

Question 44

application to tribunal for relief in case of opression when?

Answer 44

any MEMBER of Co complains thAT:
A) affair of co. is being or has been conducted in a manner that is
1. prejudicial to public interest
2. prejudicial or opressive to him or any other member(s)
3. prejudicial to interests of co.

B) material change that is not in interest of the creditor and due to this material change it is likely the affairs of comp will be conducted in a manner prejudicial to interests.

Question 44

R.S. Mathur v H.S Mathur

Answer 44

Continuity of mismanagement required: Where the wrongs contemplated were against a
past director, the application was not maintainable under section 241.
 Charges of mismanagement even if proved in the past are not enough to establish an
existing injury to the company or public interest.
 The mismanagement should be present and continuous (R.S. Mathur v H.S Mathur
(1970)1 Comp LJ 35).
 If a director responsible for mismanagement is removed, mismanagement ends,
and therefore application under section 241 is not maintainable.

Question 45

Section 244

Answer 45

Section 244(1)(a) RIGHTTO APPLY FOR OPRRESSION AND MISMANAGEMNT

in the case of a company having a share capital,
(i) not less than one hundred members of the company or
(ii) not less than one-tenth of the total number of its members, whichever is less, or
(iii) any member or members holding not less than one tenth of the issued share capital of the
company, subject to the condition that the applicant or applicants has or have paid all calls
and other sums due on his or their shares;
Section 244(1)(b)
in the case of a company not having a share capital,
 not less than one-fifth of the total number of its members.

Tribunal’s Right to Waive –
Provided that the Tribunal may, on an application made to it in this behalf, waive all or any
of the requirements specified in clause (a) or clause (b) so as to enable the members to apply
under section 241.
Point to be noted –
 where any share or shares are held by two or more persons jointly, they shall be
counted only as one member.

Question 46

Section 242 - Powers of Tribunal to prevent Oppression and Mismanagement

Answer 46

on the basis of grounds which are just and equitable to the
Winding up of the Company or may pass any other order as it deems fit. other orders the tribunal can pass include:
1. Regulation of the conduct of affairs of the company in future
2. Purchase of shares /interests of any members of the company by other members
3. If any shares purchased its consequent reduction of share capital
4. Restriction on the transfer/allotment of shares
5. Termination, setting aside or modification of any agreement
6. Recovery of undue gain made by any managing director, manager or director and the
manner of utilization of the recovery.

Question 47

penalty for contravention and appeal of opression an dmismanagemnt order in tribunal

Answer 47

Any contravention of the provisions of this chapter shall lead company towards the
imposing of fine which shall not be less than 10 lakh rupees and which may
extend to 25 lakh rupees and
 every officer of the company who is in default=
imprisonment of six months and with fine which shall not be less than 25k- 1L

APPEAL=
to NCLAT may be done by any one aggrieved by decision=
UNLESS= the decision by tribunal was done w consent of both parties,
* appeal to be filed within 45 days if there is delay they must show cause= 45 days extra

Shareholders may make a complaint when the company affairs are conducted
prejudicial to the company and its shareholders.
e central government may even take suo-moto action regarding the same under the
aforementioned provisions.

Question 48

Class Action Suits, who can file and agaisnt WHOM ? `

Answer 48

section 254- class action suits is to safeguard the
interests of the minority shareholders.
- that enables one or more plaintiffs to file and
prosecute litigation on behalf of a larger group or class having common rights
and grievances.

who can file:

1. Members or depositors of a class
2. In case of Company having a Share Capital:= not less than 100 membs or 5% of total number wtv is less OR members holding NOT LESS than 5% of issues share capital in UNLISTED
3. in LISTED= not less than 2% of issued share capital.
4. IN company NOT having share capital= 1/5th of total members, 100 depositors or 5% of depositors wtv is less

AGAINST WHOM can it be filed:
1. Company or directors
2. auditor including audit firm
3. y expert or advisor or consultant or any other person for any incorrect or
misleading statement made to the company or for any fraudulent, unlawful or
wrongful act or conduct or any likely act or conduct on his part.

Question 49

what are the releifs that can be sought in class action

Answer 49

1. to restrain company from commiting ultra vires act or breaching MOA
2. to declare the alteration of MOA and AOA VOID if there was suppression of material facts
3. to restrain comp from any act contrary to a resolution passed by members or from ACTING on a fraud resolution

Question 50

order of tribunal in class action law suits and non compliance penality

Answer 50

Section 245(6) provides that any order passed by the Tribunal shall be binding on
the company and all its members, depositors and auditor including audit firmetc

h fails to comply with an order passed by the Tribunal = fine of 5L-25L and every liable officer can go to jail for upto 3 years and fine of 25K upto 1L

Question 51

Pre-requisites/ Conditions for considering admissibility of Application filed [Section
245(4)

Answer 51

mandatory obligation
 Whether the member or depositor is acting in good faith in making the Application
for seeking an order [Section 245(4)(a)];
 Any evidence before it as to involvement of any person other than directors or
officers of the Company on any matters which involve the Orders to be taken against the Company or its directors

Whether the cause of action is one which the member/depositor could pursue in his
own right than through an order under this section [Section 245(4)(c)];
Whether the class has so many members that joining them individually would be
impractical, making a class action desirable;
 Whether there are questions of law or facts common to class;
 Whether the claims or defences of the representative parties are typical of the claims
or defences of the class;
 Whether the representative parties will fairly and adequately protect the interest of the
class.

Question 52

if the class action suit is addmitted

Answer 52

public notice shall be served on the admission of the application to all the members or
depositors of the class in such manner as may be prescribed;
 all similar applications prevalent in any jurisdiction should be consolidated into a
single application and the class members or depositors should be allowed to choose
the lead applicant and in the event, the members or depositors of the class are unable to come to a consensus, the Tribunal shall have the power to appoint a lead applicant,

two class action applications for the same cause of action shall not be allowed;
 the cost or expenses connected with the application for class action shall be defrayed
by the company or any other person responsible for any oppressive act.
 Where any application filed before the Tribunal is found to be frivolous or vexatious,
it shall, for reasons to be recorded in writing, reject the application and make an order
that the applicant shall pay to the opposite party such cost, not exceeding one lakh
rupees, as may be specified in the order.

Question 53

once the class action suit is filed and accepted, whats the procedure?

Answer 53

1. Public Notice shall be served on admission of the application to all the members or depositors of the class, published in a vernacular newspaper of the state within 7 days and in an english newspaper
2. Requiring the Company to place the public Notice on the website of such Company, if
   any;
3.  Notice shall also be placed on the website of the Tribunal, MCA, concerned RoC and
   in case of the Listed Company on the website of the concerned Stock Exchange until the Application is disposed off by the
   Tribunal.
4. The date of issue of the newspaper in which such notice appears shall be considered
   on the date of serving the public notice to all the members of the class.
   //
   As a general Rule, a Class member who receives a Public Notice as per the provisions of the Sectionshall be deemed to be a memberof the Class unless he expressly opts out of the proceedings.

Question 54

CLASS ACTION VS. OPPRESSION:

Answer 54

Section 241 limits its protection to the shareholders of a company, while section 245
also includes depositors in its purview.
 as compared to Section 245, the scope of remedies available under Section 241 is
much wider (such as order for purchase of shares by any member, restrictions on
transfer or allotment, termination or modification of an agreement, removal
or appointment of director etc.)
 Section 245 is much more generous with an award for damages and compensation to
the applicants.
 Any order made under Section 245 is in nature of rem and is binding even on those
members or depositors who are not party to the application as opposed to an order of
oppression and mismanagement which is only binding on the parties to the
application.
 While a Class Action can be invoked in case of any act prejudicial to the interest of
the members, the depositors or the company; in case of oppression and management,
public interest is also taken into account.

241= opression and mismange
245= class action

Question 55

0

SFIO? what is it and when is there a probe launched?

Answer 55

It is a multi-disciplinary organisation consisting of experts for prosecuting or recommending prosecuting or detecting
any frauds or white-collar crimes.
—
1. If the central govt beleives its necessary to investigate a companys affairs on reciept of registrar or inspector or a special resolution= center MAY order an investigation (descretionary)
2. IF special resolution passed by comp for investigation.
3 if the tribunal/ court orders the investigation- the center SHALL order one/
if apart from this= center is of the opinion that its essential for SFIO to probe- it can delegate the probe to SFIO

SFIO= sec 210 to 228 in Companies act

Question 56

Cognizance of investigation by tribunal not center for serious fraud when?

Answer 56

1. in case of company having share capital either 100 or 10% of members must come
2. in case of company not having share capital= 20% of memebers
   MUst come forward supported by evidence shwing GOOD REASON for seeking an order for conducting and investigation of a copanys affaits.
   //
   so if:
3. the business of company is conductef with intent to defraud its creditors members or a n opressive manner
4. persons concerned with the formation of comp and its management are guitly of fraud misfeasance towards company or its members
5. members of company have not been given all the information with respect to its affairs

then - tribunal will pass order after opportunity of being hears and then the central govt shall apoint competent persosn to investigate

security deposit to investigate= 25k

Question 57

difference between a compromise and an arrangement

Answer 57

The primary difference between a compromise and an arrangement is that whereas

• an arrangement is between a company and its members or class of members,
• a compromise is between a company and its creditors or class of creditors.
• in case of a compromise, there is an element of dispute present as it is done between a
  company and its creditors.
• in case of an arrangement, there is no such element of dispute present.

Guided by Section 230 – 231 of the Companies Act, 2013, Compromise in the
corporate sector is a scheme of give and take in a commercial dispute. - The situation of compromise comes to exist only if there is some dispute. - It can be either between two or more corporate entities or with third parties. Unless
there is some dispute no compromise is required.

An arrangement is made, where a company requires changes in its capital structure
or some reorganization in the share capital of the company is to be done with the
approval of the shareholders without existence of any dispute. - In a compromise there is no surrender of rights without any compensation - No arrangement or compromise can be said to be reasonable in which you can get
nothing and give up everything

Question 58

section 230

Answer 58

Section 230 of the Act whenever any compromise or arrangement is proposed–
* between a company and its creditors or any class of them, or
* between a company and its members or any class of them
//
Section 230(1), an application for order of the meeting has to be filed in the
tribunal by any of the following-
* Company;
* Creditor or member of the company;
* Liquidator, if a company is being wound up.

the application should disclose the following
- Material facts relating to the company like latest financial position of the company,
- latest auditor’s report
- any pendency of any investigation/ proceedings
- Alteration of share capital

Any scheme of corporate debt restructuring which is consented to be atleast 75 % of the secured creditors in value

In case more than 1 company is involved in the scheme, a joint application can also be
filed at the discretion of the companies.
IV. In case the company is not the applicant, a copy of the notice of admission and of the affidavit should also be served on the company.
V. In case the company is being wound up, a copy of the notice of admission and of the affidavit should also be served on its liquidator atleast 14 days before the date fixed for the hearing of the notice of admission.

Question 59

what is corporate restructuring

Answer 59

achange in the business strategyof an organization resulting in diversification,closing partsof
the business to increase long term profitability and it is an inorganic growth strategy

Question 60

sections related to corp restructuring

Answer 60

Sec 230 –Power to compromise and make arrangement with creditors and members
* Sec 231 -Power of tribunal to enforce the scheme
* Sec 232 –Merger and Amalgamation of Companies
* Sec 233 –Fast track merger and amalgamations of various schemes
* Sec 234 –Cross Border Merger
* Sec 235 –Power to acquire shares from dissenting shareholders
* Sec 236 –Purchase of minority shareholding
* Sec 237 –Power of Central Government in amalgamation
* Sec 238 –Register the scheme
* Sec 239 –Preservation of books
* Sec 240 –Officers in default

Question 61

process under sec 230

Answer 61

1. company or members or creditor or liquidtor FILES AND APPLICATION
2. to tribunal along w various disclosures
3. notice of the meeting will be sent to concerned parties or authorities
4. if 3/4 the value of memebers or creditors consent to it = TRIBUNAL SANCTIONS SCHEME

Question 62

Section 230(7): Order by the tribunal

Answer 62

When the compromise or the arrangement involves the conversion of preference shares
into equity shares then the preference shareholders are given the option to obtain arrears
of dividend in cash or they can accept equity shares equivalent to the dividend.
● Protecting any class of creditors.
● Section 48 of the Act will be invoked in case the mode of restructuring has any bearing
upon the rights of the shareholders

Question 63

striking of company

Answer 63

Order of Registrar of company
2. Filing Suo moto Application by the company.

Registrar strikes of company when:
Company fails to commence business within one year from the Incorporation of
Company.
● Company is not carrying Operations from last 2 preceding year. And not Made
application for obtaining status of Dormant Company
● Subscriber has not paid Subscriber money within a period of 180 Days From date of
Incorporation.
● Company is not carrying Business after physical verification under section 12(9) of
Companies Act, 2013.
On the basis of any of the grounds specified above, the Registrar sends notice to the Company
and Director to remove name From ROC and seek their Representation within the period of 30
days.

Question 64

FILLING SUO MOTO APPLICATION BY COMPANYITSELF for strike off

Answer 64

Companycanfile
suo motto application with ROC

Company is
not eligible for making an application for the strike off of a company suo motto if in
previous three month ,
● Companies have changed names or registered offices from one state to another.
● Company has disposed of the property before the immediate cessation of Business
activity.
● Company is engaged in any activity other than necessary for the purpose of making an
application.
● Companyhasmade an application for compromise and arrangement to the tribunal.
● Company is woundupunder chapter XX of companies act, 2013 or under insolvency and
bankruptcy code, 2016.

Question 65

PROCEDUREFORSTRIKEOFFCOMPANY

Answer 65

Step 1: Approval of Board: Issue of Notice to conduct Board Meeting for approval= majority resolution
Step 2: Members Approval: Convene Extraordinary General Meeting
Step 3: Approval of Concerned Authority: In case of a company regulated by Special Act
than such company requires approval from Concerned Authority.
Step 4: Filing with ROC within 30 days from passing of special resolution
Step 5: Calling of information by registrar- if forms are incomplete defective
Step 7: Official publication: After considering the final submission, the Registrar will
issue Public notice in the official Gazette for inviting objection if any within 30 days of such Advertisement

Step 8: Publication for striking off the name of the company In case no objection is
received in such a time period, the Registrar shall publish in the official Gazette a list of
companies which are struck off.

Question 66

Winding up under the Companies Act

Answer 66

Section 271=
1. company by special resolution= wound up by tribunal
2. acted against the interests of sovreignity and integrity of india
3. Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent manner or the company was formed for a fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct
4. defualt in filing w registrar financial statements or annual returns for 5 consecutive financial years

Question 67

section 272

Answer 67

ppl who can file for winding up of the company
Thecompany;
● creditors
* shareholders,
* liquidators
* contingent or prospective creditors
*

● TheRegistrar;
● Any person authorized by the Central Government on that behalf; or
● In a case falling under clause (b) of section 271, by the Central Government or a State
Government.