Category: Company law

INTRODUCTION A much unconventional investment, such as stocks, bonds, or cash, is often categorized as an alternative investment. These are privately pooled funds that invest in venture capital, private equity, hedge funds, infrastructure, and other types of investments that form public equities or debt securities. Because of their complexity, lack of liquidity, and limited rules, the majority of alternative investment assets are owned by institutional investors or accredited, high-net-worth individuals. There are approximately 700 AIFs now, with over Rs 4 trillion in assets under management, representing a 15 times increase since 2015. For international investors anticipating double-digit returns, India has the mushrooming background of the favoured investment destination. During the first nine months of FY 2020-21, India received the biggest ever FDI influx of about $70 billion due to the adoption of investment vehicles AIF as a financial instrument. What is an Alternative Investment Fund? Alternative Investment Funds defined by Regulation 2(b) of Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 as any fund created or incorporated in India in the form of a trust, a company, a limited liability partnership, or a body corporate which; is a privately pooled investment vehicle that collects funds from Indian and overseas investors and invests them according to a defined investment policy for the benefit of its investors; and are not covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999, or any other Board regulations governing fund management operations. The following investments are exempted from the purview of Alternative Investment Funds; namely, they are; According to the Companies Act of 1956, family trusts established for the benefit of “relatives”; ESOP Trusts established in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, or as approved by the Companies Act, 1956; Employee welfare trusts, or gratuity trusts, are trusts established for the benefit of employees; Holding companies, as defined by Section 4 of the Companies Act of 1956; Other special purpose vehicles not established by fund managers, including securitization trusts which are governed by a separate regulatory framework; Funds maintained by a securitization or reconstruction firm that has been registered with the Reserve Bank of India under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Any other pool of funds in India that is directly regulated by another authority; Categorization of Alternative Investment Funds Securities Exchange Board of India has classified Alternative Investment Funds (AIF) broadly into 3 categories as; Category I These are the AIFs that are helpful to the Indian economy and help to boost growth. As a result, SEBI or the Indian government provides incentives or concessions to these funds. These funds often invest in start-ups, early-stage businesses, social initiatives, SMEs, infrastructure, and other areas that are deemed socially or economically vital for the country. Because these initiatives have a multiplier effect on the economy in terms of growth and job generation, the government encourages and incentivizes investment in them. These funds have provided a lifeline for already successful businesses in need of funding. Some comprehensive classification of Category I funds are; Venture Capital Funds A venture capital fund is a form of investment fund that makes investments in early-stage startup firms with high return potential but significant risk. A venture capital firm manages the fund, and the investors are often institutions or high-net-worth individuals. VCFs aggregate money from investors who wish to engage in companies as equity partners. They invest in a variety of companies based on their company characteristics, asset size, and product development stage. Social Venture Fund Social venture capital funds support firms that have a beneficial impact on people while still providing acceptable returns to investors. Because the fund manager is obliged to analyze the social value generated by the firms, they are frequently referred to as impact funds. Financial inclusion, affordable healthcare, renewable energy, education, and agriculture are among the topics that social venture capital firms in India invest in. These funds provide money to early-stage start-ups in this industry. They give initial funding as well as operational and technical assistance to help start-ups establish their businesses and establish governance and compliance systems. A social venture capital fund must invest at least 75% of its assets in firms that have a beneficial impact on society, according to SEBI guidelines. Angel Funds Angel funds invest in startups and early-stage enterprises, providing cash to help them grow. Angel investment is far riskier than debt funding since, unlike a loan, invested cash is not required to be repaid if the firm fails. Angel funds must accept an investment of not less than Rs. 25 lakh from an angel investor for a period of up to three years. These requirements apply to an AIF or a VCF registered under the SEBI (Venture Capital Funds) Regulations, 1996. CATEGORY II All funds that aren’t classified as category I or III by SEBI are classified as category II. Funds that invest in private equity – PE funds, particularly Real Estate PE funds usually decrease risk by providing diverse investment portfolios managed by competent fund managers. By offering an alternate investment asset class, it provides the dual advantage of a defensive investment option as well as a hedging tool. The government offers no incentives or concessions for investing in these funds. Some types of Category II funds are; Private Equity Fund A private equity fund is a type of collective investment scheme that invests in a variety of equities and debt securities. They’re often run by a corporation or a limited liability partnership. Such funds’ duration (investment horizon) might range from 5 to 10 years, with the option of an annual extension. The most distinguishing characteristic of private equity funds is that the money pooled for fund investment is not traded on the stock exchange and is not available for subscription to the public. PE funds invest in private companies that are not publicly traded and take a stake in them. BecauseRead More

This article is written by Indra Priyadarshini, a student of Alliance University, Bangalore. This article discusses investor’s protection. It also gives a brief on the measures taken by SEBI in this regard and the relevant provisions of the Companies Act, 2013.  INTRODUCTION Investors have a very important and crucial role in the financial and securities market. They are also known as the shareholders or members of the company. They are the ones who decide the level of activity in the market. They help in the growth of the market by investing money in funds, stocks, etc., and as a result also aid in economic development. By protecting them, you can protect and enforce the rights and claims of a person in his role as an investor. This is why it is essential to protect the interests of the investors. Various methods have been enacted in order to protect the interested of the investors from malpractices. The Securities and Exchange Board of India (hereinafter referred to as SEBI) provides for the regulations of the Mutual Funds and investor’s protection. SEBI has taken several measures to protect and safeguard the investors from malpractices in mutual fund, stock market, shares, etc. The Companies Act, 2013 also has various provisions related to investor’s protection. Who are Investors? The capital of a company is divided into 2- Equity and Debt. Creditors are those persons who contribute to the debt capital of a company, whereas investors are those who contribute to the equity capital of a company. The creditors get a fixed rate of interest on the amount they loan and have limited voting rights only on matters which are directly linked to their affairs, like winding up of the company, or reduction of capital. On the other hand, investors have voting rights in all matters of the company and are also permitted to obtain dividend. The investors are insiders of the company and are also referred to as shareholders or members. It is important to keep in mind that not all members are shareholders, but all shareholders are members of a company. According to Section 2(55) of the Companies Act, 2013, the definition of the word “member” includes the subscribers of the memorandum of a company, persons who agrees in writing to become a member of a company and whose name is entered in the company’s register of members, and persons holding equity share capital of company and whose name is entered as beneficial owner in the records of the depository.  Investor’s Protection under the Companies Act of 2013 The shortcomings of the previous Companies Act of 1956 in preventing white-collar crimes and providing investors protection was disclosed by the “Indian Enron”. The fall out of Satyam in 2009 highlighted the dire need for protection of investors in India. Therefore, the Companies Act of 2013 was fixated at ensuring sufficient protection to investors. Various provisions were introduced in the 2013 Act to facilitate accountable and transparent management in company’s in order to safeguard the interests of the stakeholders’ like prohibition of insider trading, introduction of class action suits, offence of fraud, and enhanced penalties for breaches and non-compliances. The following provisions of the Companies Act, 2013 are related to protection of investors: Section 73- Under this section, a company accepting or reviewing deposit from the general public is a punishable offence except in manner stated under Chapter V of the Act and the Companies (Acceptance of Deposit) Rule, 2014.  Section 34- A brief information about a company’s profile and their investment proposals are written in the prospectus, which is issued to the general pubic. In this regard, Section 34 imposes criminal liability for any misstatements in the prospectus.  Section 447- If there is any false or misleading information in the prospectus which is issued, distributed or circulated, which encourages others to make an investment, then they shall be liable for action under this section. Fraudulent act of deliberate concealment of facts to induce people to invest money is also punishable under this section.  Section 36- This section provides punishment for persons who deliberately induce investors to invest by any agreement for the purpose or the pretended purpose in order to secure a profit.  Section 123- It is in the agenda of every Assistant General Manager to declare the dividend. Dividend refers to the profits gained by the company and its distribution among the shareholders according to the amount paid-up shares they hold, i.e., it is the return on the investment made by them. This section of the 2013 Act mandates that the dividend should be credited in investors account within in five days after the declaration. Section 125- This section provides for the establishment of investors education and protection fund by the central government. This fund is credited with the unpaid or unclaimed amount of application money, matured money, or deposits. This fund has to be used solely for the promotion of investor’s awareness and protection of the interests of investors.  Section 136- This section deals with the right to demand financial statements. It states that every member of a company has the right to get access to the copies of the Balance-Sheet and Auditors Reports. In case of default, the company will be made liable to pay a fine of rupees twenty-five and the concerned authority will be penalised to a fine of rupees five thousand.  Section 436- In cases where Section 136 is not complied with, then the investor has another option i.e., to proceed against the company or the officers in court according to the guidelines enlisted under Section 436 of the Act.  These are a few of the sections under the Companies Act, 2013 which provide for investors protection.  MEASURE TAKEN BY SEBI: The SEBI has taken numerous measures to ensure the protection of interest of investors. They have released many directives, established investor protection fund to compensate investors, and conducted several investor awareness programmes. Section 11(2) of the SEBI Act enumerates the measures taken for investors protection: Stock ExchangeRead More

This artice is authored by Sujata Porwal, third year BA LLB (Hons.) student at Symbiosis Law School, Pune. The article actively attempts to analyze the issue of oppression and mismanagement in a company and suggest viable solutions for the same. INTRODUCTION As per the ‘Cardinal Rule’ of Company Law, if a member acquires shares of a particular class, he/she is eligible for an equal right to vote. A company is said to function through the decisions of the Board of Directors, which highly depend upon the majority view of the members. Therefore, it is clear that the decisions of a company are controlled and affected by a multitude of members who are entitled to exercise their powers.  The majority decision is binding on the shareholders, provided that it fuses with the legal framework and the articles of the company. However, the working of a company, guided by the majority rule, might often result in the oppression of the minority groups existing within the company. Moreover, the ‘correctness’ of a decision cannot be paralleled with the number of people who stand in favor of it.  The Companies Act, 2013 (hereafter referred to as ‘the Act’) doesn’t render such minorities deserted. The Act guarantees relief in form of remedy to file a case in the tribunal to curb oppression and mismanagement within the company. The regulations and provisions lay a mechanism for statutory protection of the investors against misuse of powers and rights by others.  Comprehending Oppression  The term oppression finds no place in the Act. While the Act suffers from the deficit of an explicit definition of the term, the common dictionary meaning portrays it as exercise of an act in an unruly, harsh or wrongful manner. Lord Cooper explains it as ‘the essence of the matter seems to be that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to the company is entitled to rely’. The essence of the statement is that it must be established that the oppression is caused to a person in his capacity as a member only and that no other form of oppression shall be entertained under this head.  Moreover, merely filing a case with the tribunal doesn’t declare the majority, guilty of oppression and/or mismanagement. The court, in the case of Shanti Prasad v. Kalinga Tubes Ltd., laid down certain essentials that need to be established as a proof; Inequitable conduct Lack of fair deal or probity Prejudice against the member, preventing him from exercising legal and other rights bestowed on him in the capacity of a shareholder Over a period of time, the Indian judiciary has laid down a diverse ground for adjudging whether a situation accounts for as being oppressive or not. Certain examples of oppressive situations include: Barring a shareholder from receiving his due share of dividend as well as his right to vote Forceful introduction of risky objects on a reluctant minority Ruling out minority from profit participation Similarly, certain examples portraying non-oppressive conduct are: Declaration of a moderate rate of interest even when the profits of the company provide scope for a higher rate of dividend Withdrawal of salary by the director in a state where the company is suffering losses Inability to declare dividend Comprehending Mismanagement Mismanagement can be understood as a state of gross misconduct and deviation from the original course of action of a company amounting to substantial failures and loss to the public and the company. In other words, mismanagement can be summarized as: Conduction of company’s affairs in a manner that is detrimental to the interests of the company Occurrence of substantial change in management of control of a company Alteration in ownership of shares of the company or Board of Directors In situations where alteration mentioned above causes occurrence of prejudicial behavior  Certain examples of mismanagement, portrayed by the Indian judiciary, are: Causing hinderances in the way of a director or barring him from performing his duty Selling assets at lower prices thereby failing to comply with the Act Disobeying the provisions of memorandum and articles of the company Certain examples where courts adjudicated that the conduct cannot be termed as mismanagement are: Change in management of the company that does not qualify as an ultra vires act towards the company A bona fide decision to withhold the dividends and accumulate profits into reserves, by the directors Arrangement of directors of a company and the creditors to shift the creditors to the position of shareholder in order to recover the company from losses. Provisions for Prevention of Oppression and Mismanagement under Companies Act, 2013 Sections 241-245 of the Companies Act, 2013 deal with prevention of oppression and mismanagement within a company. The sections are described in brief below: Section 241: Application to the Tribunal for relief  Section 242: Powers of Tribunal Section 243: Consequences of termination or modification of certain agreements Section 244: Right of members to apply for Tribunal Section 245: Class Action The provisions lay down rules for filing complaint against oppression and mismanagement in the company. However, the rules are structured in such a technique that they protect the rights of the minorities without being biased against the majority.  It wouldn’t be wrong to conclude that the Act, along with the courts, tries to balance the Right of Majority while providing protection to the minority.  An application to the tribunal can be made by individuals as well as groups of people who are of the opinion that oppression or mismanagement has taken place in the internal or external matters of a company. Moreover, the government itself can make an application to the tribunal if it believes that a company’s actions are prejudicial to the interest of general public. The tribunals are bestowed with great responsibility and power to handle such matters.  After critical analysis, it can be ascertained that the Companies Act,Read More

This article is written by Indra Priyadarshini, a student of Alliance University, Bangalore. This article discusses the role and significance of audit committees in India. INTRODUCTION INTRODUCTION The main purpose of establishing good corporate governance is to bring about a more transparent and accountable system. As the number of corporate scandals is increasing in both India and other countries around the world, corporate governance is emerging rapidly in order to improve the financial scenario by acquiring the confidence and trust of investors. In this regard, Audit Committees are significant as they provide a mechanism to ensure reliability on financial statements.   The Audit Committee facilitates the independence of an audit process. The process of auditing the operations of a corporation is quite complex. It requires a proper understanding of the rules and judgments taken by the management while preparing financial statements. Section 177 of the Companies Act, 2013 and Rule 6 and 7 of Companies (Meetings of Board and its Powers) Rules, 2014 deals with the Audit Committee. It acts as a channel for the flow of information from the management to the auditors. It also helps in reducing the pressures of management on an auditor. Thus, it is essential that the audit committees are independent of the management. These committees have the responsibility of deciding the work or scope, fixing the audit fees, and determining the extent of non-audit services. Functions and Powers of Audit Committee The following are the functions of an audit committee: It has to supervise various activities of the management like the management of credit, liquidity, and market along with legal and other risks of the corporation.  The committee has to aid the Board in the implementation of its oversight obligation relating to review procedure, arrangement of inside control, and inspecting the consistency with other laws and principles. It has to set up an internal audit function and appoint an independent internal auditor along with the terms of the commitment and dismissal.  It has to evaluate and check whether the annual internal audit plan is in accordance to the corporation’s objectives.  It has to observe and review the sufficiency and adequacy of the internal control framework of the corporation. The committee has to evaluate the reports made by the internal and external auditors as well as the quarterly, half-year, and annual financial statements. Review and fix the non-audit work, if any, of the external auditor and evaluate non-audit fees paid to the external auditor in connection to its significance to the total annual income of the external auditor as well as the corporation’s general consultancy costs. The committee should prevent any non-audit work that will conflict with the obligations of the external auditor or may risk his independence. All the permitted non-audit work has to be reported in the yearly report. Finally, the committee must also decide the reporting line of the Internal Auditor in order for him to carry on his duties and obligations. He will practically report to the Audit Committee. The Audit Committee has to make sure that in the execution of the work of the Internal Auditor, he shall be free from any obstruction by outside parties. The following are the powers of the audit committees: The audit committee has the authority to call for the comments of the auditors about internal control systems, the scope of the audit, and the evaluation of financial statements before their submission to the Board. It can examine any issues regarding the internal and statutory auditors and the management of the corporation. The committee can inspect any matter related to the items referred to it by the Board.  It can receive professional advice from external sources. Finally, the audit committee can have access to all the information available in the records of the corporation. Importance of Audit Committee The audit committee plays a crucial role in any corporation. It contributes to the regulation and enhancement of financial practices and detailing. The committee often hold discussions with the Chief Executive Officer and financial officers to audit and ensure the viability of hierarchical controls and outer financial reporting. They regularly work along with the finance committee. The committee provides productive anti-fraud programs. The audit committee is more experienced in various fields like management, finance, legal and operational issues. Thus, they can ensure a more proactive job working along with the NFP’s leadership team and auditors in making and reviewing an organization-wide fraud prevention and recognition program and ensure that proper investigations take place in case any fraud is revealed. The committee can also provide support to the organization’s leadership team in establishing extensive morals and consistent programs. The audit committee plays a proactive role in the review process of both programs. The audit committee helps to improve the internal audit function. The general respectability of the internal audit function increases when the organizational structure allows the internal audit team to reveal specifically to the audit committee. Under such organizational structure, the internal audit team can assist the audit committee in matters relating to the organization’s capability to fulfil its financial and consistence obligations and ensure that the organization changes its practices and internal controls as and when needed. The external audit of an organisation is directed by the audit committee. The audit committee, along with the external auditors, screen their administrations and activities to ensure that autonomy is persisting between the external auditor and the organization’s management team. The committee also discusses their independent perceptions on management’s capacity with the external auditors in order to maintain the strong internal controls, financial reporting and proper business practices.  The audit committee has another important function, which is to re-establish reliability with the stakeholders. An NFP’s reputation is its most significant resource. The committee showcases an image of independence, credibility and trust. Therefore, it builds the confidence among present and potential constituents, contributors, creditors, and other stakeholders. NFPs and their audit committees can maintain and further expand on this positive image by showing the role and composition of the committee, achievingRead More

This article is authored by Sujata Porwal, third year BA LLB (Hons.) student at Symbiosis Law School, Pune. The article focuses on the concept of insider trading and its applicability in India and abroad. Understanding Insider Trading The term ‘insider trading’ resembles the structure of multifarious definitions in the business world. Insider trading refers to a practice of trading (i.e., buying or selling) of a company’s stock by officers, directors or employees of a company who gain from the knowledge of nonpublic information of a company by the virtue of their work and thereby use this crucial information to act in accordance with the future possibilities or to trade these secrets to draw maximum benefits. In simple words, insider trading includes buying and selling of stocks of a company while obtaining undue advantage of being an ‘insider’. Insider trading can therefore be labelled as the ‘trading of material information of a company’ that is not available to the general public. Promotion of insider trading leads to the establishment of unfair trade practices in a society. The Securities and Exchange Board of India (SEBI) therefore, strictly prohibits such malpractices and promotes fair techniques of business in the stock market.  Examples Some prominent examples of such insider trading can be: A family member working in ABC Ltd. informs Z about the upcoming launch of a new product that is going to be a huge success in the Indian market. As a result, Z purchases the highly undervalued shares of the company at Rs. 100 per share. Within a short time frame of 15 days, the prices of the share boost to Rs. 550 per share. Z would thus be able to gain huge profit from this situation while Q, a colleague of Z, who had sold his shares at Rs. 100 two days before the launch of the product due to his apprehensions wouldn’t be able acquire similar benefit from the situation. The trade by Z would be considered illegal for the mere reason that he took advantage of an information that wasn’t open to the general public.  Similarly, a lawyer of a company acquires knowledge of confidential information that indicates fall in the prices of shares and hence sells all the shares of the company possessed by him. The same shall also fall under the ambit of insider trading. Insider Trading in India In India, SEBI has laid down guidelines to confer liability upon the organizers of a company with regard to insider trading norms. If any associate of a company holds ‘non-published price-sensitive’ information (also known as UPSI) about a company without the proof of a legitimate reason, then he/she shall be liable for the violation of insider trading norms regardless of their shareholding status. SEBI has also clarified that the term legitimate purpose is inclusive of sharing information with partners, lenders, merchant bankers, legal advisors, auditors, etc, until such disclosure doesn’t circumvent the purpose of these regulations. It implies that in the ordinary course of business, non-published price-sensitive information can be shared for professional reasons if it doesn’t defeat the purpose of the control put forth by the Board.  The amendment was introduced in 2019 under the title of prohibition of Insider Trading. The Indian law implicates fines along with federal punishment on the perpetrators of Insider Trading.  The key reasons behind attaching an illegal aspect to Insider Trading are: The question of fairness Insider Trading is a direct violation of the notion of fairness in the stock market since it raises the platform for a few individuals who happen to have access to material information of a company. This assists the emergence of a biased market for the investors who have contacts in multinational companies. This creates a huge gap between a traditional investor who is unaware of the upcoming ups and downs of the share market merely due to lack of resources.  Is it morally correct? While we often tend to separate morality from legality, the present situation calls for a unanimous analysis. Insider trading is often viewed as a morally and ethically wrong way of dealing in the stock market. Taking undue advantage from a situation has, time and again, been criticized due to moral and ethical reasons. An equal opportunity to trade and invest is the sign of a healthy growth of a market and hence is the utopian aspiration of every nation.  Preserving interests of the common public Insider Trading is poisonous to the stock market. If an individual is not confident about his/her position in the stock market, it is likely that he/she would refrain from indulging in any such trading. This would discourage the masses from investing in the stocks of a company which would further cripple the economy of the whole country. It is therefore conclusive that the interest of the economy rests with the interest of the masses and not a privileged few. The integrity of the market and its smooth and healthy functioning is the vital for development.  Case Laws Samir C. Arora v. SEBI The ratio of the decision declared insider trading to be unquestionably detrimental to the interests of ordinary investors. It was held that insider trading resembles the behavior of professional misconduct and is therefore condemned by the SEBI Act, 1992.  Reliance Industries Ltd. (RIL) vs. SEBI (2001) The present case plays an important role in assessing the validity of the concept of insider trading in India. Reliance Industries Ltd. was found to have purchased around 2.5 crore shares in a short time frame of 7 days. The same shares were sold to Grasim Industries Ltd. after a few days at almost 50% higher price. However, SEBI found out that the price-sensitive information was available not by virtue of the inside position in L&T but rather due to the virtue of their position as directors of RIL. Therefore, they cannot be held liable for insider trading. Insider Trading in U.S. Similar to SEBI, US has a regulating body called Securities and Exchange Commission (SEC). TheRead More

This article is written by Gaurav Purohit, a 3rd Year student of Amity University, Rajasthan INTRODUCTION An investor is an individual who allots capital with the desire for a financial return. There are various types of investors, for example, sweat equity investors, angel investors, venture capital, etc Sweat equity has been utilized to depict a party’s contribution to a venture as efforts, instead of financial equity which is a contribution as capital. The parties contributing to his efforts are known as Sweat Equity Investors. In a partnership, a few partners may add to the firm just capital, and others just sweat equity. An angel investor and also known as a business angel is a person with huge monetary assets or financial resources who gives capital to a business start-up. Generally, such investors give capital in exchange for a percentage of return on his investment or for ownership in the management decisions of the company. Angels ordinarily contribute their assets, not at all like venture capitalists who deal with the pooled money of others in a professionally managed store. Different provisions have been specified under the Companies Act, 2013 for the security and protection of the Investors. Since the Companies Bill, 2012 got the consent of the President of India on the 29th August 2013 and was published in the Gazette on 30th August 2013, the Companies Act, 2013 came into power from 30th August 2013. Accordingly, the Companies Act, 1956 is abrogated by the Companies Act, 2013, and hence the provisions under the Companies Act, 2013 will apply to all the Companies. Investors are generally known as shareholders or members of the company. They contribute to the equity share capital, have the right of voting in each issue, and are qualified for getting the dividend. The security of investors implies the protection and enforcement of the rights and claims of an individual in his role as an investor.640  Investors or Speculators are the insiders of the organization. They are known as investors or the members of the company. It is to be noticed that all individuals may not be investors, however, all investors are members of the company. Section 41 of the Companies Act, 1956 gives that member incorporates the subscriber of the memorandum of a company, each other individual who agrees recorded as a hard copy to turn into a member of a company and whose name is entered in its register of members, and each individual holding equity share capital of an organization and whose name is registered as a beneficial owner in the records of the depository. Section 2(55) of the Companies Act, 2013 accommodates the meaning of member which is the same as that given under S. 41 of the Companies Act, 1956. Provisions for Protection of Creditors and Shareholders Section 62 of the Companies Act, 1956 sets down civil liability for error or misstatement in the prospectus. Where a prospectus welcomes people to buy shares in or debentures of a company, the director, promoter ( and individual who has approved the issue of the prospectus, will be obligated to pay to each individual who buys any share or debentures on the faith of the prospectus for any losses or damage he may have supported because of any false statement included in that. Any individual who has bought in for shares against the public issue and sustained losses or damage because of such error is qualified for relief under this particular section. Section 63 of the Companies Act, 1956 sets down criminal liability for fraud or misrepresentation in the prospectus. Each individual who has approved the issue of the prospectus containing any false statements will be punishable with imprisonment which may extend out to two years, or with a fine which may extend out to Rs. 50,000 or both. Section 34 of the Companies Act, 2013 gives that where a prospectus contains any explanation which is false or misleading in structure or context in which it is incorporated or where any consideration or exclusion of any issue is probably going to mislead, then each individual who approves the issue of such prospectus will be punished with imprisonment for a term which will be at least 6 months however which may extend out to 10 years and will likewise be subject to a fine which will not be not exactly the amount associated with the fraud, yet which may extend out to 3  times the amount involved in the fraud.[1] Section 88(1)(a) of the Companies Act, 2013 gives that each organization will keep a register of individuals showing independently for each class of equity and preference shares held by every member living in or outside India. Section 88 (5) gives punishment to default in maintaining such Register. if an organization doesn’t keep a register of members, the organization and each official of the organization who is in default will be punished with a fine which will be a minimum of Rs. 50,000 however which may extend out to Rs. 3 lakh and where the failure is a continuing one, with a further fine which may extend out to Rs. 1,000 per day afterward. The corresponding section of the Companies Act, 1956 in Section 150. If there should be an occurrence of default in keeping up the register of its members, the organization and each official of the organization who is in default will be punishable with a fine which may be extended out to Rs. 500 for every day during which the default proceeds. Other Key Provisions for Protection of Investors Restriction on forwarding dealings in Securities of the organization by a key managerial personnel Restriction or Prohibition on insider trading of securities of  Casting a vote through electronic methods No mid-night Annual regular meeting – The hour of calling of AGM has been determined to be in  hours of business, A quorum of Meetings – fixed according to the membership base of the Company rather than determined number regardless of size. Minutes of procedures ofRead More

This article is written by Mahenoor Khan, a student of Rizvi Law College Background Before getting into details of what lifting of the corporate veil is we shall know what is the company, For a better understanding of application doctrine in the corporate world,  Thus, The word ‘Company’ is derived from the Latin word ‘Com’ meaning “with or together” and ‘Pains’ meaning “bread, however  Under Companies Act, 1956, a company is a corporation registered under the Act  Thus, a company comes into existence only by registration under the Company Law Act or under the company law in India.  It can be concluded that a company is an organization of persons who have come together or who have provided money for some common individuals and who have incorporated themselves into a different legal entity in the form of a company for that purpose. History The Doctrine of the lifting of the corporate veil was first propounded in the year 1897 within the distinguished English case of Salomon v A Salomon & Co Ltd. [1]  This case firmly ascertained that upon incorporation, a new and separate artificial entity appears and according to law, a corporation is a distinct person with its personality separate from and autonomous of the individuals who established it, who invest money in it, and who direct and manage its operation independent of the corporate existence of a registered company, The case, however, is the recognition that a company is a separate legal entity in its own right is the organization of modern corporate law and gave basis to the doctrine ” lifting of the corporate veil” which means that whenever any wrong is committed by the corporation its members cannot be held liable for those wrongs, it further helps to determine when the shareholders of the company are liable for the obligations of the companies. What is Lifting of Corporate Veil? The doctrine of “Lifting of Corporate veil ” is the most essential Principle of Company Law which establishes a company as an entity that is completely distinct from its shareholders, advocates, managers and directors: Thus, when a company is incorporated, a legal entity gets created, which is separate from its members, employees, shareholders, directors, and promoters etc. In simple terms, it divides the personality of a corporation from the personalities of its shareholders and other individuals and protects them from being personally liable for the company’s debts and other obligations and is the mythical boundary that separates the company from those that organize it and from those that acquire it. The objective of establishing this Doctrine was to provide business potency and convenience hence, the main goal behind the formation of a  company is the limited liability which is offered to its shareholders and because of this limited liability, the liability of each shareholder is restricted to only what he or she has provided as shares to the corporation, however, this protection is not invulnerable or sealed, Where a court determines that a company’s business was not conducted by the provisions of corporate legislation. Frequently, it is seen that shareholders of the company commit frauds and unlawful acts which leads to removal of the corporation in most cases Thus, the doctrine of the lifting of corporate veil is used, when a shareholder is held responsible for its company’s debts despite the rule of limited liability( The liability of the members of the company is limited to contribution to the assets of the company up to the face value of shares held by him) and separate personality. (The significance of associating a legal personality to a company is that it is a distinct entity from its members) In the Doctrine of ‘Lifting the Corporate Veil’, the law goes behind the veil of incorporation to determine the group of people behind the company who defrauded and cheated. It is thus used as a means to stop fraud, improper conduct or where the protection of public interest is of important concern, it is to be noted that the corporation is regarded as an organization of persons rather than a legal entity when the very exact legal entity is used to defeat public convenience and justify wrong or to defend crime.  The Concept of “Lifting of Veil in India” The Doctrine of Lifting the Corporate Veil is not cited expressly in any of the  Indian Company Law, but it could be interpreted from various provisions moreover, The doctrine has now become of precedential value after being mentioned in many cases. The Companies Act, 2013 provides for the subsequent provisions facilitating courts to lift the company veil Frequently the courts lift the corporate veil to repair liability and punish the members of the administrators of the company.  Section 7(7) of the Act empowers one such provision. Whither the incorporation of a corporation is effectuated the way of furnishing false information, the court may fix liability and for this purpose, the veil could also be lifted. Section 251(1) may be a corrective provision. The Act asks for the submission of a petition for the removal of the term corporate from the clerk of the businesses. Anyone who creates a deceitful application is overhauled with liability, Moreover Section 34 and 35 of the act also enable the judiciaries to lift the veil of incorporation to repair liability. When a report comprises misrepresentation, the court may impose a compensatory penalty upon the one who has misrepresented. Under Statutory provisions Reduction of membership (section 45) Misrepresentation in the prospectus (Section 62)  Holding Subsidiary companies (Section 212)  For enabling the task of an inspector to examine the affairs of the company (Section 239)   Improper use of Name (Section 147(4)] Fraudulent conduct (Section 542) Failure to refund application money (Section 69(5))  Liability for ultra vires acts Under Judicial Interpretations  Protection of revenue. Prevention of fraud or improper conduct  Determination of the enemy character of a company  Where a company acts as a deputy for its shareholders  In case of economic offences  Where Company is a sham orRead More

This article has been written by Navneet Chandra. Picture credits to WordPress.com Introduction Competition means economic rivalry between entities or companies, to draw the highest number of consumers and earn the most profit. Competition law is also called in some countries as Antitrust law. Free and fair competition is essential for creating and maintaining an environment conducive to business and a prosperous country. The objective of all competition laws, around the world is to ensure an environment where all companies compete fairly. The first act introduced in India for regulation of competition was Monopolies and Restrictive Trade Practices Act, 1969. When the Act was found to be inadequate, a new act called the Competition Act, 2002 was introduced. History Raghavan Committee in 1999 recommended that a new legislation should be framed for competition law for the country, because although the MRTP Act had provisions relating to anti-competitive practices, it was found to be inadequate in comparison to other countries, for encouraging competition in the industry and also for reduction of anti-competitive practices. About the Act The object of this Act is to create an environment that promotes competition and safeguard the independence to do business. The Act states in its Objects and Reasons that because of globalization, India has opened up its economy to the world, removed restrictions and controls and liberalized the economy. The preamble provides for the establishment of a Commission to prevent practices having adverse effect on competition and also promotion of and sustenance of competition in markets. The aim is to protect the interest of the public. The domination of a firm is decided on the basis of firm’s structure. The act is punitive in character. It seeks to promote competition. Evolution and Development of Competition Law in India India adopted its first competition law way back in 1969 in the form of Monopolies and Restrictive Trade Practices Act (MRTP). The Monopolies and Restrictive Trade Practices Bill was introduced in the Parliament in the year 1967 and the same was referred to the Joint Select Committee. The MRTP Act, 1969 came into force, with effect from, 1 June, 1970. However, with the changing nature of business, market, economy on the whole within and outside India, there was felt a necessity to replace the obsolete law by the new competition law and hence the MRTP Act was replaced with the Competition Act of 2002. The enactment of MRTP Act, 1969 was based on the socio – economic philosophy enshrined in the Directive Principles of State Policy contained in the Constitution of India. The MRTP Act, 1969 underwent amendments in 1974, 1980, 1982, 1984, 1986, 1988 and 1991. The amendments introduced in the year 1982 and 1984 were based on the recommendations of the Sachar Committee, which was constituted by the Govt. of India under the Chairmanship of Justice Rajinder Sachar in the year 1977. The Sachar Committee pointed out that advertisements and sales promotions having become well established modes of modern business techniques, representations through such advertisements to the consumer should not become deceptive. The Committee also noted that fictitious bargain was another common form of deception and many devices were used to lure buyers into believing that they were getting something for nothing or at a nominal value for their money. The Committee recommended that an obligation is to be cast on the seller to speak the truth when he advertises and also to avoid half-truth, the purpose being preventing false or misleading advertisements. However, as the times changed, the need was felt for a new competition law. With introduction of new economic policy and opening up of the Indian market to the world, there was a need to shift focus from curbing monopolies to promoting competition in the Indian market. In October 1999, the Government of India constituted a High Level Committee under the Chairmanship of Mr. SVS Raghavan [‘Raghavan Committee’]to advise a modern competition law for the country in line with international developments and to suggest legislative framework, which may entail a new law or suitable amendments in the MRTP Act, 1969. The Raghavan Committee presented its report to the Government in May 2000. The committee inter alia noted: In conditions of effective competition, rivals have equal opportunities to compete for business on the basis and quality of their outputs, and resource deployment follows market success in meeting consumers’ demand at the lowest possible cost. On the basis of the recommendations of the Raghavan Committee, a draft competition law was prepared and presented in November 2000 to the Government and the Competition Bill was introduced in the Parliament, which referred the Bill to its Standing Committee. After considering the recommendations of the Standing Committee, the Parliament passed December 2002 the Competition Act, 2002. Hence, the Monopolies and Restrictive Trade Practices Act, 1969 [MRTP Act] was repealed and was replaced by the Competition Act, 2002, with effect from 1 September, 2009. Conclusion India and the world were going through a new phase of globalisation, liberalisation and privatisation and these changing times were bringing newer challenges and the existing MRTP Act had become obsolete in the modern era. Hence the new Competition Act came into being in order to suit the need of the hour. The new act is based on the regulation of conduct or behaviour of the players in the market and is result oriented rather than being procedure oriented like the MRTP Act. Further its main purpose is to protect and promote competition in the market. Competition is very essential as it benefits: the Consumers as they get wider choice of goods and services, better quality and improved value for money; it benefits the Businesses as a level playing field is created and a redressal of anti-competitive practices is available, the inputs are competitive priced, they tend to have greater productivity and ability to compete in global markets and finally it also benefits the state as there is optimal realisation from sale of assets and there is enhanced availability of resources for socialRead More