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THE INSTITUTE OF COMPANY SECRETARIES OF INDIADisclaimer :Although due care and diligence have been taken in preparation of this Study Material, the Institute shallnot be responsible for any loss or damage, resulting from any action taken on the basis of the contentsof this Study Material. Anyone wishing to act on the basis of the material contained herein should do soafter cross checking with the original source.TIMING OF HEADQUARTERSMonday to FridayOffice Timings – 9.00 A.M. to 5.30 P.M.Public Dealing TimingsWithout financial transactions – 9.30 A.M. to 5.00 P.M.With financial transactions – 9.30 A.M. to 4.00 si.eduE-mailinfo@icsi.eduLaser Typesetting by AArushi Graphics, Prashant Vihar, New Delhi, andPrinted at SAP Printers, Mumbai/February 2020ii

PROFESSIONAL PROGRAMMERESOLUTION OF CORPORATE DISPUTES, NON-COMPLIANCES& REMEDIESThe term Corporate disputes includes the disputes relating to Antitrust, Mala-Fidei, Breach of Contract,Breach of Fiduciary Duty, Business Torts, Class Actions, Debtor/Creditor, Employment and Labour, Fraudand Misrepresentation, Insurance Coverage, Intellectual Property and Patent Infringement, Board MemberDisputes, Partnership Disputes, Privacy, Cyber security and Data Breach, Product Liability, Real Estate, LandUse and Environmental Litigation, Restrictive agreement, Securities Litigation, Shareholder Disputes andDerivative Actions, Tax Disputes, Trade Secret and Unfair Competition.These commercial litigations are different from other civil litigations by virtue of the involvement of businessesrather than just individuals. Further, as the issues involved are very specialized and typically more complex,both factually and legally, the concept of the special court has been introduced in the Companies Act, 2013 tohandle such matters in the speedy manner.Several amendments have been brought in recent past to amend the Companies Act, 2013 and made penalprovisions less onerous for procedural lapses and technical breaches, attract minimum non-compliance liabilityand where public interest is not involved resulting relieve the Special Courts from adjudicating of routine offencesand also to de-clog the NCLT.In the light of above discussion, this study material is published to aid the students in preparing for the paper“Resolution of Corporate Disputes, Non-Compliances & Remedies” for Professional Programme. It is partof the educational kit and takes the students step by step through each phase of preparation emphasizingkey concepts, principles, comprehending, integrating and advising to resolve complex issues, corporatedisputes, case studies, problem solving and decision making company secretaryship being a professionalcourse, the examination standards are set very high, with emphasis as expert of concepts, applications,procedures and case laws, for which sole reliance on the contents of the study material may not beenough. Besides Company Secretaries Regulations, 1982 requires the students to be conversant with theamendments to the laws made upto six months preceding the date of examination. This study material maytherefore be regarded as basic information and must be read along with the respective amendments in theAct, Rules, Regulations, Order, Circulars, Clarification notified by the Central Government or issued by therespective Regulators.The coverage of subject is “Hybrid” in nature which requires integrated application of several Core / Ancillaryareas or references of the other subjects included in the ICSI Syllabus. This study material has covered suchtopics to a limited context. The students are advised to refer the relevant Bare Acts, Rules & Regulationsand study material of the respective subjects and publications such as guidance note, referencer and alikepublished by the ICSI.The amendments made up to December, 2019 have been incorporated in this study material. However, it mayhappen that some developments might have taken place during the printing of the study material and its supplyto the students. The students are therefore advised to refer to the supplement uploaded on ICSI website fromtime to time and ICSI Journal Chartered Secretary and other publications for updation of study material. In theevent of any doubt, students may contact the Directorate of Academics at due care has been taken in publishing this study material yet the possibility of errors, omissions and/or discrepancies cannot be ruled out. This publication is released with an understanding that the institute shallnot be responsible for any errors, omissions and/or discrepancies or any action taken in that behalf.Should there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged, ifthe same are brought to its notice for issue of corrigendum.iii

PROFESSIONAL PROGRAMMERESOLUTION OF CORPORATE DISPUTES, NON-COMPLIANCES& REMEDIESResolving of Corporate Disputes, requires the specialised skills and practical exposures in the person dealingwith the disputes. However, the consensus-based alternatives under adjudication help in prevention, resolution,and reduction of the negative impact of corporate disputes and consequently contribute to improving companiesperformance, strengthening investor confidence, and supporting business continuity.The corporate disputes involve the board’s powers and actions or its failure or refusal to act. The conflicts mayarise between the board and its shareholders or between directors and executive management. They may alsoinvolve issues among the directors themselves and between the board and other stakeholders.The corporate disputes are different from the organisational internal disputes which are generally taken upby the management to resolve them. However, a corporate dispute makes company and/ or its promotersand/or its officials as one of the party in case of litigations. Such matter includes disputes over a contract, alabour claim, or a commercial matters. Further, the Globalization and cross-border trade increase a company’srisks that social, political, and cultural differences can create deep rifts between the company and its externalconstituencies. Reputational and operational risks can increase dramatically.When disputes become public and are discussed in the press or trigger litigation, they indicate an importantfailure of governance in the company. They demonstrate a mismanagement of conflicts within the board orbetween the company and its stakeholders - mainly its shareholders, but sometimes also its suppliers, clients,creditors, and the communities in which the company operates. Corporate governance disputes reflect theinability of executive managers or directors to address major strategy issues and conflicts.If disputes become unresolved and left to fester without being addressed quickly and effectively, disputes do notremain hidden for long, resulting the dispute will attract media coverage.The study material cover the various methods for dealing with the corporate disputes by the professionals likeCompany Secretaries and the provision and procedure of the compounding, adjudication, investigations andremedies available to resolve the corporate disputes.The students are advised to refer the latest newspaper articles, media coverage, blogs and action taken by thevarious regulators in on the disputes which are in the public domain.******iv

PROFESSIONAL PROGRAMMERESOLUTION OF CORPORATE DISPUTES,NON-COMPLIANCES & REMEDIESActs Covered in the Study1.Companies Act, 2013 and Rules made thereunder2.Securities Contracts (Regulation) Act, 1956 and Rules made thereunder3.Securities and Exchange Board of India Act, 1992 and Regulations made thereunder4.Depositories Act, 19965.Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder (To theextent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings)6.Code of Criminal Procedures, 19737.Code of Civil Procedures, 19088.Insolvency and Bankruptcy Code, 20169.NCLT Rules, 201610.NCLAT Rules, 201611.Securities Appellate Tribunal (Procedure) Rules, 200012.Securities Contracts (Regulations) (Appeal to Securities Appellate Tribunal) Rules, 200013.SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 199514.Securities Contracts (Regulations) (Procedure for Holding Inquiry and Imposing Penalties) Rules, 200515.Depositories (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules,200516.SEBI (Settlement Proceedings) Regulations, 201817.SEBI (Appeal to Central Government) Rules, 1993v

PROFESSIONAL PROGRAMMEModule 2Paper 6Resolution of Corporate Disputes,Non-Compliances & Remedies (Max Marks 100)SYLLABUSObjectiveTo acquire knowledge of various kinds of corporate disputes and non-compliances under various laws and theirresolution and management.Detailed Contents1.Shareholders’ Democracy & Rights : Law relating to Majority Powers and Minority Protection; Classaction suits.2.Corporate Disputes : Oppression & Mismanagement – Law & Practice; Refusal of registration oftransfer of securities & appeal against refusal; Wrongful withholding of property of company; corporatecriminal liability.3.Fraud under Companies Act and IPC.4.Misrepresentation & Malpractices : Companies Act, 2013, RBI Act, SEBI Act, FEMA, COFEPOSA,Labour Laws; Prevention of Money Laundering Act; Malpractices under various other laws.5.Regulatory Action : Enquiries; Inspection; Investigation; Search and Seizure; Arrest; Bail(ROC,RD,SFIO, Stock Exchange, SEBI, RBI, CCI, Labour Law Authorities, Income Tax Authorities, ED, CBI,Economic Offences Wing).6.Defaults, Adjudication, prosecutions and penalties under the Companies Act, Securities Laws,FEMA, COFEPOSA, Money Laundering, Competition Act, Labour Laws & Tax Laws.7.Fines, Penalties and Punishments under various laws.8.Civil and Criminal Trial Procedure and Process.9.Relief and Remedies : Compounding of offences under Companies Act, SEBI & FEMA; Mediationand Conciliation; Settlement and Proceeding (Consent order under SEBI law); Appeal against theorder of Adjudicating officer, SAT, NCLT, NCLAT, Enforcement Directorate, IT Commissioner, GSTCommissioner; Revision of order; Appearance before Quasi-judicial and other bodies- NCLT, NCLAT,SAT, SEBI, RD, ROC, RBI, CCI.10.Crisis management, Professional Liability, D&O Policy & other Risk and liability mitigationapproaches.Case Laws, Case Studies and Practical aspectsvi

LESSON WISE SUMMARYRESOLUTION OF CORPORATE DISPUTES,NON-COMPLIANCES & REMEDIESLesson 1 - Shareholders’ Democracy & Corporate DisputesDemocracy indicates that Government is the people, by people and for people. In that context shareholder’sdemocracy means the rule of shareholders is by the shareholders’, and for the shareholders’ in the corporateenterprise, to which the shareholders belong. Precisely it is a right to speak, congregate, and communicate withco-shareholders and to learn about what is going on in the company.Chapter XVI of the Companies Act, 2013 provides various provisions relating to the Prevention of the Oppressionand Mismanagement in the company and aim to maintain a balance between the rights of majority and minorityshareholders by admitting in the rule of the majority but limiting it at the same time by a number of well definedminority rights, and thus protecting the minority shareholders.Class action suits is covered in section 245 of CA 2013 as well as National Company Law Tribunal Rules,2016 (“NCLT Rules”). Section 245 permits members and depositors to file a petition against the company, itsdirectors, auditors or advisors with the National Company Law Tribunal (NCLT) in case they commit any actwhich is prejudicial to the interest of the company. However, the Banking companies are excluded from itspurview.Lesson 2 - Fraud under Companies Act, 2013 and Indian Penal Code, 1860Fraud as a crime is nowhere defined in the Indian Penal Code but we all use this term in general in our day today life which is seen as synonymous to cheating. A fraud is an act of deliberate deception with the design ofsecuring something by taking unfair advantage of another. It is a deception in order to gain by another’s loss.Whenever the term fraud or defraud appears in the context of criminal law, two things are automatically tobe assumed. First is deceit or deceiving someone and second is, injury to someone because of such deceit.Explanation to section 447 under the Companies Act, 2013 has provided that fraud” in relation to affairs ofa company or anybody corporate, includes any act, omission, concealment of any fact or abuse of positioncommitted by any person or any other person with the connivance in any manner, with intent to deceive, to gainundue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any otherperson, whether or not there is any wrongful gain or wrongful loss. The lesson cover the various aspects relatingto the fraud under the Companies Act, 2013 and the Indian Penal Code, 1860.Lesson 3 - Regulatory ActionShareholders have been vested with various rights including the right to elect directors. However, shareholdersare often ill-equipped to exercise effective control over the affairs of companies, and, particularly in companieswhose shareholders are widely scattered, the shareholders are, by and large, sleeping and passive partners,and the affairs of such companies are managed to all intents and purposes, by its Board of directors to theexclusion of a predominant majority of shareholders. Such a situation leads to abuse of power by persons incontrol of the affairs of company. It became, therefore, imperative for the Central Government to assume certainpowers to investigate the affairs of the company in appropriate cases particularly where there was reasonto believe that the business of the company was being conducted with the intent to defraud its creditors ormembers or for a fraudulent or unlawful purpose, or in any manner oppressive of any of its members. ChapterXIV contains Sections 206 to 229 of the Companies Act, 2013, deals with the provisions relating to Inspection,vii

Inquiry and Investigation of the affairs of company. The lesson will cover the detailed procedures of the variousaction taken by the MCA, SEBI, RBI, CCI and SFIO.Lesson 4 - Adjudication, Prosecutions, Offences and PenaltiesOne of the important changes brought in by the Companies Act, 2013 compared to the erstwhile Companies Act,1956 is the manner of dealing with non-compliances. The constitution of Special Courts as judicial authorities,National Company Law Tribunal (NCLT) as administrative cum quasi-judicial authority and delegation of powerof adjudication of penalties to Registrar of Companies (ROC) are the key changes brought in by the Act in theIndian corporate regime. Further, with the intent to promote the ease of doing business in India and ensurebetter corporate compliance, the Companies Act, 2013 was again amended by the enactment of Companies(Amendment) Act, 2019 to reclassify and decriminalize certain procedural or technical non compliances. Thelesson is focused on the substantive provisions of the various corporate laws (concerning the offences anddefaults by the companies and officers in default and the Adjudication mechanism under the respective Act.Lesson 5 - Relief and RemediesToday’s Corporate world, good governance means to comply with all the provisions of Corporate laws. Noncompliance will result in penalties or penalties with imprisonment. Corporate offences are classified into civiland criminal offences. Further it has been classified as Compoundable and Non compoundable offence. TheCompounding of offences is a short cut method to avoid litigation. In case of prosecution for an offence in acriminal court, the accused has to appear before the Magistrate at every hearing through an advocate. Furthercourt proceedings are time consuming and expensive. However, in case of compounding, the accused neednot appear personally and can be discharged on payment of composition fee which cannot be more thanthe maximum fine leviable under the relevant provision. Section 442 of The Companies Act, 2013 providesthat the Central Government to maintain a panel of experts to be called as the Mediation and ConciliationPanel. The panel is for mediation between the parties during the pendency of any proceedings before theCentral Government or NCLT or NCLAT. The lesson cover the compounding procedures under the variouslegislations and the manner of the appeal before the appellate tribunal and the rules relating to the Mediationand Conciliation under the Companies Act, 2013.Lesson 6 - Crisis management, Professional Liability, D&O Policy & other Risk and liabilitymitigation approachesCrisis management is the process by which an organization deals with a disruptive and unexpected event thatthreatens to harm the organization or its stakeholders. The study of crisis management originated with largescale industrial and environmental disasters in the 1980s. It is considered to be the most important process inpublic relations. Errors and Omissions (E&O insurance), is a special type of coverage that protects a companyagainst claims that a professional service provided caused client to suffer financial harm due to mistakes onthe part (errors) of professional or because he may failed to perform some service (omissions). Risk mitigationis a strategy to prepare for and lessen the effects of threats faced by a company. Comparable to risk reduction,risk mitigation takes steps to reduce the negative effects of threats and disasters on business continuity (BC).Threats that might put a business at risk include various factors which may causes of financial and non-financialor virtual damage to a company. The lesson covers understanding of the various technical concepts pertainingto Crisis Management; Professional Liability; D&O Insurance; Other risk management approaches.Lesson 7 - Misrepresentation and Malpractices – Civil and Criminal Trial ProcedureThe NCLT consolidates the corporate jurisdiction of: i. Company Law Board, ii. Board of Industrial and FinancialReconstruction, iii. Appellate Authority for Industrial and Financial Reconstruction and iv. jurisdiction and powersrelating to winding up, restructuring and other provisions as vested with the High Courts resulting the Reductionof the burden on courts and will help companies facing issues related to winding up, mismanagement andviii

insolvency of businesses and to Eliminates the overlap the conflicting rulings and minimize the delays in theresolution of disputes. The proceedings before the NCLT or NCLAT are deemed to be judicial proceedingswithin the meaning of sections 193 and 228, and for the purposes of section 196 of the Indian Penal Code, andthe Tribunal and the Appellate Tribunal shall be deemed to be civil court for the purposes of section 195 andChapter XXVI of the Code of Criminal Procedure, 1973. The lesson cover the various aspects under Code ofCriminal Procedures relevant for dealing with the various judicial authorities.ix

LIST OF RECOMMENDED BOOKS/WEBSITESRESOLUTION OF CORPORATE DISPUTES, NON-COMPLIANCES & REMEDIESMODULE 2 – PAPER 6READINGS1.ICSI Publications :The Companies Act, 2013The Companies RulesPremier on Companies Act, 2013Guidance note on Secretarial AuditReady Reckoner on Private companiesPeer review manualQuality review manual2.Taxmann :3.Regulations/Rules/Guidelines/Circulars issued by SEBI, RBI, MCA etc. from time to time4.Articles by the professionals and Firms5.Important Websites :SEBI nclat.nic.inJOURNALS1.Chartered Secretary:ICSI, New Delhi2.Student Company Secretary : ICSI

The corporate disputes are different from the organisational internal disputes which are generally taken up by the management to resolve them. However, a corporate dispute makes company and/ or its promoters and/or its officials as one of the party in case of litigations. Such matter includes disputes over a contract, a

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