Chapter 7 Relief and Remedies – Resolution of Corporate Disputes Non Compliances & Remedies Notes is designed strictly as per the latest syllabus and exam pattern.
Relief and Remedies – Resolution of Corporate Disputes Non Compliances & Remedies Study Material
Question 1.
Write short notes on:
‘Consent Order1 issued by SEBI. (Dec 2020, 4 marks)
Answer:
Consent order means an order setting aside administrative or civil proceedings between the regulator and a person who may prima facie be found to have violated securities laws.
It may settle all issues or reserve an issue or claim, but it must precisely state what issues or claims are being reserved A consent order may or may not include a determination that a violation has occurred.
Consent order provides flexibility of wider array of enforcement and remedial actions which will achieve the twin goals of an appropriate sanction remedy and deterrence without resulting to litigation lengthy proceedings and consequent delays.
Consent orders cannot be construed as waiver of statutory powers by Securities Exchange Board of India (Board).
The board always has the right to proceed for appropriate action if it cannot achieve its objectives through consent order.
The provisions of Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 regulate the issuance of Consent/ Settlement Orders.
Question 2.
Write a short note on:
Mistake apparent from the record (Dec 2021, 4 marks)
Answer:
Mistake apparent from the record
The concept of mistake apparent from the record may be understood from the below mentioned cases.
In Smt. Baljeet Jolly v. CIT [2000] 113 Taxman 38 (Delhi), it was held that “Mistake’ means to take or understand wrongly or inaccurately; to make an error in interpreting; it is an error; a fault, a misunderstanding, a misconception.
‘Apparent1 means visible; capable of being seen; easily seen; obviously; plain. The plain meaning of the word “apparent is that it must be something which appears to be so ex facie and is incapable of argument or debate.
The plain reading of the word “apparent1 is that it must appears to be so ex facie and it is incapable of argument or debate.
It, therefore, follows that a decision on a debatable point of law or fact or failure to apply the law to a set of facts which remains to be investigated cannot be corrected by way of rectification.
In CIT v. Maruti Insurance Distribution Sen/ices Ltd. [2012] 26 taxmann.com 68/[2013] 212 Taxman 123 (Mag.) (Delhi), it was held that a mistake should exist and must be apparent from the record. The power to rectify the mistake, however, does not cover cases where a revision or review of the order is intended.
‘Mistake’ means to understand wrongly or inaccurately; it is an error, a fault, a misunderstanding, a misconception. “Apparent’ implies something that can be seen, or is visible, obvious; plain.
A mistake which can be rectified is one which is patent, obvious and whose discovery is not dependent on argument.
The amendment of an order under section 254(2) of the Income Tax Act, 1961 (corresponding to Section 420(2) under the Companies Act, 2013), hence, does not mean entire obliteration of the order originally passed and its substitution by a new order which is not permissible.
Further, where an error is far from self-evident, it ceases to be an ’apparent’error.
Undoubtedly, a mistake capable of rectification under section 420(2) of the Companies Act, 2013 is not confined to clerical or arithmetical mistakes, at the same time, it does not cover any mistake which may be discovered by a complicated process of investigation, argument or proof.
In the above provisions, it is clear that the Tribunal, while exercising the power of rectification under relevant provision can recall its order in its entirety if it is satisfied that prejudice has resulted to the party which is attributable to the Tribunal’s mistake, error or omission and which error is manifest error and it has nothing to do with the doctrine or concept of inherent power of review.
Basic philosophy inherent in it is the universal acceptance of human fallibility.
An application for review may be necessitated by way of invoking the latin maxim actus curiae neminem gravabit which means an act of the court shall prejudice no man.
The above principles equally apply to other tribunals based on the principle(s) enumerated above.
Question 3.
Write short note on:
Rejection of Application under Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018. (June 2022, 4 marks)
Question 4.
Enumerate the Compounding Authorities under Companies Act, 2013. Write the procedure for compounding in brief. (June 2019, 4 marks)
Answer:
In terms of Section 441 of the Act, there are two compounding authorities:
- Regional Director: The Regional Director (RD) appointed by the Central Government as a Regional Director for the purposes of the Companies Act, 2013, and
- National Company Law Tribunal (NCLT)
Procedure for Compounding of offence
- Call for a board meeting to decide on compounding as per the Companies Act, 2013.
- Arrive at the amount of the time involved as per the relevant section(s).
- Hold the Board Meeting and pass resolution(s) to compound and provide for preparation and providing necessary authorization for compounding.
- Every application for the compounding of an offence shall be made to the Registrar who shall forward the same, together with his comments thereon, to the Tribunal or the Regional Director or any officer authorised by the Central Government, as the case may be.
- The filing with Registrar of Companies (ROC) is done in the e-from GNL-1 prescribed for this purpose. Also deliver sufficient number of hard copies of the compounding application to ROC for him to forward it to RD/Tribunal based on the quantum of fee involved.
- There will be a personal hearing before the Regional Director or Tribunal which will decide the amount to be paid for compounding.
- Get the order passed by the RD/Tribunal and pay the amount stipulated within the time fixed.
- File Order of RD/NCLT with ROC in form INC-28 and ROC will take note of the same.
Question 5.
“National Company Law Tribunal (NCLT) can rectify mistakes in its own orders on suo-moto basis.” Comment with reference to the Companies Act, 2013 and Judicial Pronouncements. (Dec 2019, 5 marks)
Answer:
As per section 420(2) of the Companies Act, 2013, the National Company Law Tribunal may at any time within two years from the date of the order, with a view to rectifying any mistake apparent from the record:
(i) Amend any order passed by it, and
(ii) Shall make-such amendment, if the mistake is brought to its notice by the parties.
Provided that no such amendment shall be made in respect of any order against which an appeal has been preferred.
Further, pursuant to Rule 11 of National Company Law Tribunal Rules, 2016, Tribunal has inherent power to’make such order as may be necessary for meeting the end of justice or to prevent abuse of the process of the tribunal, accordingly, the Tribunal can rectified the order passed by its own.
In Sree Ayyanar Spinning & Weaving Mills Ltd. v. Commissioner of Income Tax, 2008 (301ITR434), it was held that under first part of the provision, the tribunal is empowered to suo-moto rectify any mistakes apparent on record any time within two years from the date of its original order. Under the second part, either the taxpayer or the department may file an application highlighting the mistake apparent on record.
In light of the provision, the Apex Court held that the appellate tribunal took time beyond the stipulated period even though the application was filed well within the period. Thus, in the mentioned event the applicant has filed the application within the stipulated period of two years from the date of original order, it is binding for the appellate tribunal to decide the matter on the basis of merits and not on the ground of limitation.
Thus, Section 420(2) read with Rule 11,154 and 155 of National Company Law Tribunal Rules, 2016 substantiate that the Tribunal has power to rectify a mistake apparent from the record on its own motion or on an application by a party under the Act.
Question 6.
“A Company and its officers will not be eligible for compounding again for similar offence”. Elucidate. (Dec 2019, 5 marks)
Answer:
If any offence committed by Company or the officers was compounded under Section 441 of the Companies Act, 2013, and an offence similar to what was compounded earlier is committed again by a company or its officers within a period of three years from the date on which the earlier offence was compounded, then the provisions of Section 441 of the Companies Act, 2013 will not be applicable and the company and the officers concerned will not be eligible for compounding again. In other words, similar offence can be compounded only once in three years.
Section 451 of the Companies Act, 2013 provides that if a company or an officer of a company commits an offence punishable either with fine or with imprisonment and where the same offence is committed for the second or subsequent occasions within a period of three years, then, that company and every officer thereof who is in default shall be punishable with twice the amount of fine for such offence in addition to any imprisonment provided for that offence.
Question 7.
A Practicing Company Secretary wants to establish his practice in the field of Mediation and Conciliation. He wants to know whether he would not be eligible to be appointed as a Mediator or Conciliator as per Rule 5 of Companies (Mediation and Conciliation) Rules, 2016. Advise him. (Dec 2019, 4 marks)
Answer:
As per Rule 4 of Companies (Mediation and Conciliation) Rules, 2016,
a Company Secretary with at least fifteen years of continuous practice is qualified for being empaneled as mediator or conciliator.
However, as per Rule 5 of Companies (Mediation and Conciliation) Rules, 2016, a person shall be disqualified, for being empaneled as mediator or conciliator, if he
- is an undischarged insolvent or has applied to be adjudicated as an insolvent and his application is pending;
- has been convicted for an offence which, in the opinion of the Central Government, involves moral turpitude;
- has been removed or dismissed from the service of the Government or the Corporation owned or controlled by the Government;
- has been punished in any disciplinary proceeding, by the appropriate disciplinary authority; or
- has, in the opinion of the Central Government, have such financial or other interest in the subject matter of dispute or is related to any of the parties, as it is likely to affect by the discharge of his professional obligations as a mediator or conciliator.
Question 8.
Are the following offences compoundable and if yes, by whom?
(i) Failure to maintain Register of Members and Debenture-holders
(ii) Fraudulently issuing duplicate share certificates
(iii) Failure to keep proper books of accounts
(iv) Tampering with minutes of meetings. (Dec 2020, 4 marks)
Answer:
(i) Failure to maintain register of members or debenture-holders’: Since the offence is punishable under section 86(5) of Companies Act, 2013, only with fine, it is compoundable under section 441 of Companies Act, 2013, by Regional Director, if the total penalty amount, including the penalty in case of a continuing offence, leviable under Sec 88(5) does not exceeds ₹ 25 Lakhs.
Although, in other cases the offence can be compounded by National Company Law Tribunai including where the total penalty amount under section 88(5) exceeds ₹ 25 Lakh.
(ii) Fraudulently issuing duplicate share certificates:
Since the offence is punishable under section 46(5) of the Companies Act, 2013 with fine only it is compoundable by under section 441 of Companies Act, 2013 by the National Company Law Tribunal.
(iii) Failure to keep proper books of accounts:
The punishment was imprisonment or fine or both. Therefore, it was compoundable by the special court under the Companies Act, 2013.
(iv) Tampering with minutes of proceedings of meetings:
This offence is punishable under section 118(12) of the Companies Act, 2013 and the prescribed punishment for the same is by way of imprisonment and fine.
Therefore, this offence is not compoundable under section 441 of Companies Act, 2013.
Question 9.
(a) ‘Companies Act, 2013 allows settlement of disputes even through Mediation and Conciliation’ – Enumerate the matters which cannot be referred to Mediation and Conciliation.
(b) ‘Under the Companies Act, 2013 where a Company seeks compounding before institution of any prosecution, no prosecution shall be instituted in relation to such offences either by Registrar of Companies or any person authorised by the Central Government’ – Discuss the objective of providing Compounding, immunity and its economic benefits.
(c) Though the term ‘settlement’ is widely used in stock exchanges and securities market, Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 has different meaning to it’ – Discuss and also brief on the terms of settlement as per aforesaid regulations.
(d) ‘There are monetary limits for each authority to compound the offence’ – Enumerate the powers of Reserve Bank of India and Enforcement Directorate to compound contraventions. (Dec 2020, 4 marks each)
Answer:
(a) Matters not to be referred to the mediation or conciliation:
As per Rule 30 of Companies (Mediation and Conciliation) Rules, 2006, the following matters shall not be referred to mediation or conciliation, namely:
(a) the matters relating to proceedings in respect of inspection or investigation under Chapter XIV of the Act; or the matters which relate to defaults or offences for which applications for compounding have been made by one or more parties.
(b) cases involving serious and specific allegations of fraud, fabrication of documents forgery, impersonation, coercion etc.
(c) cases involving prosecution for criminal and non-compoundable offences.
(d) cases which involve public interest or interest of numerous persons who are not parties before the Central Government or the Tribunal or the Appellate Tribunai as the case may be.
(b) The Companies Act, 2013 does not define or for that matter the Companies Act, 1956, did not define the word compounding” or the terms “compounding or composition of offences”.
The dictionary meaning of the word “compounding” means “on prosecution, a prosecutor of an offence accepting anything of value, say a monetary fine, under an agreement not to prosecute the victim or to hamper the prosecution of an offence”. To compound would simply mean to come to a settlement or agreement”.
As per the Black’s Law Dictionary, “to compound” means “to settle a matter by a payment of money in lieu of any other liability.
“This definition represents the concept of compounding as a Settlement Mechanism, a settlement by paying the fine to the concerned compounding authority in lieu of facing the prosecution for the offence committed.
In the process of compounding, the person may either suo moto or on receipt of notice of default /initiation of prosecution, admits the commission of default and makes an application for compounding of the alleged offence.
The defaulters agree to pay the fine which may be ordered by the Central Government.
Compounding is essentially a compromise or arrangement between administrator of the enactment and person committing an offence.
Compounding crime consists of payment of some consideration (termed as compounding fees) in return for an agreement not to prosecute one who has committed an offence.
(c) The terms Settlement, is commonly used in the stock exchanges and stock market to mean as payment of consideration and completion of a market transaction. However, in the context of SEB1 (Settlement Proceedings) Regulations, 2018 the term “settlement” is used more as a mechanism for dealing with the arrears of cases pending before the SEBI while providing flexibility of a wider array of enforcement actions which will achieve twin goals of an appropriate sanction and deterrence without resorting to long-drawn litigation before SEBI, SAT and Courts etc.
Regulation 9 of the Settlement Regulations states that:
1. The settlement terms may include a settlement amount and/or non-monetary terms, in accordance with the guidelines specified in Schedule-ll of SEBI (Settlement Proceedings) Regulations, 2018.
2. The non-monetary terms may include the following:
(a) Suspension or cessation of business activities for a specified period;
(b) Exit from Management;
(c) Disgorgement on account of the action or inaction of the applicant;
(d) Refraining from acting as a partner or officer or director of an intermediary or as an officer of director of a company that has a class of securities regulated by the Board, for specified periods,
(e) Cancel securities and reduce holdings where the securities are issued fraudulently, including bonus shares received on such securities, if any, and reimburse any dividends received, etc.;
(f) Lock-in of securities;
(g) Implementation of enhanced policies and procedures to prevent future securities laws violations as well as agreeing to appoint or engage an independent consultant to review internal policies, processes and procedures;
(h) Provide enhanced training and education to employees of intermediaries and securities market infrastructure institutions;
(i) Submit to enhance internal audit and reporting requirements.
3. The settlement amount, excluding the legal costs and disgorged amount, shall be credited to the Consolidated Fund of India.
4. The application fee referred to in sub-regulation (2) of regulation 3 and the legal costs, if any, forming part of the settlement amount shall be credited to the Securities and Exchange Board of India General Fund.
Explanation: Legal costs shall include liquidated costs, as may be determined by the Board, in respect of costs for obtaining appropriate orders from the Tribunal or Court under sub regulation (2) of regulation 24.
5. The amount of profits made or losses avoided by the applicant that may be disgorged as part of the settlement terms, shall be credited to the Investor Protection and Education Fund.
(d) Power of Reserve Bank to Compound Contravention:
According to the Foreign Exchange Management Act, 1999, read with Rule 4 of the Foreign Exchange (Compounding Proceedings) Rules, 2000, if any person contravenes any provisions of the said Act except clause (a) of Section 3 of the Act:
- in case where the sum involved in such contravention is ten lakhs rupees or below, by the Assistant General Manager of the Reserve Bank of India;
- in case where the sum involved in such contravention is more than rupees ten lakhs but less than rupees forty lakhs, by the Deputy General Manager of Reserve Bank of India;
- in case where the sum involved in the contravention is rupees forty lakhs or more but less than rupees one hundred lakhs by the General Manager of Reserve Bank of India;
- in case the sum involved in such contravention is rupees one hundred lakhs or more, by the Chief General Manager of the Reserve Bank of India;
It may be noted that a contravention shall be compounded only if the amount involved in such contravention is quantifiable.
Power of Enforcement Directorate to Compound Contravention: As per to Rule 5 of the Foreign Exchange (Compounding Proceedings) Rules, 2000, if any person contravenes provisions of Section 3(a) of Foreign Exchange Management Act.
(a) in case where the sum involved in such contravention is five lakhs rupees or below, by the Deputy Director of the Directorate of Enforcement;
(b) in case where the sum involved in such contravention is more than rupees five lakhs but less than rupees ten lakhs, by the Additional Director of the Directorate of Enforcement;
(c) in case where the sum involved in the contravention is rupees ten lakhs or more but less than fifty lakhs rupees by the Special Director of the Directorate of Enforcement;
(d) in case where the sum involved in the contravention is rupees fifty lakhs or more but less than one crore rupees by Special Director with Deputy Legal Adviser of the Directorate of Enforcement;
(e) in case the sum involved in such contravention is one crore rupees or more, by the Director of Enforcement with Special Director of the Enforcement Directorate.
Provided further that no contravention shall be compounded unless the amount involved in such contravention is quantifiable.
Question 10.
Explain the meaning of Mediation and Conciliation. What is the difference between these two terms? (Aug 2021, 4 marks)
Answer:
Mediation:
The term “mediation” has been defined under black law dictionary as “an act of a third person who interferes between two contending parties with a view to reconcile them or persuade them to adjust or settle their dispute”.
Conciliation:
The term “Conciliation” has been defined under black law dictionary as “The process of adjusting or settling disputes in a friendly manner through extra judicial mean”.
| Mediation | Conciliation |
| 1. Mediation is a structured process. The Mediator assists the disputants to reach a negotiable settlement. The Process results in signed agreement which decides the future behaviour of the parties. Further, the decision of the mediator is called “settlement”. | Conciliator brings the disputants to agreement through negotiation. Further, the Conciliator is appointed only after the dispute has arisen. The decision of the Conciliator is called “award”. |
| 2. In mediation, the mediator does not suggest the manner of settlement to the parties. Any settlement arrived at using either process is voluntary. No settlement can be imposed by the mediator or conciliator. | The conciliation process is similar to mediation. But the conciliator suggests terms for settlement on evaluation of the issues discussed by the parties. |
Question 11.
What do you mean by compounding of offences? Which offences car be compounded under the Companies Act, 2013 and which cannot? (Aug 2021, 4 marks)
Answer:
Compounding is not defined in Companies Act, 2013 or Foreign Exchange Management Act, 1999 or SEBI laws. As per the Black’s Law Dictionary, to “Compound” means “to settle a matter by a money payment, in lieu of other liability.” As per this definition Compounding is akin to a Settlement Mechanism, a settlement by paying the penalty in lieu of facing the prosecution for the offence committed.
By looking into the provisions of the Corporate Laws which contain provision for compounding, it will be noted that compounding is an admission of guilt either voluntarily or on receipt of notice of default or initiation of prosecution: The defaulters agree to pay penalty which may be ordered by the Compounding authority to be paid.
Types of Compounding:
1. Compoundable offence:
Any offence punishable under that Act (whether committed by a company or any officer thereof) not being an offence punishable with imprisonment only or imprisonment and also with fine may be compounded. Thus, if the offence is punishable with fine only or imprisonment or fine or with fine alone can be compounded.
2. Non-compoundable offence:
Any offence punishable under this Act (whether committed by a company or any officer thereof) being an offence punishable with imprisonment only or imprisonment and also with fine cannot be compounded.
Any offence otherwise compoundable cannot also be compounded if the investigation against such company has been initiated or is pending under this Act.
An offence committed by a company or its officer within a period of three years from the date on which a similar offence committed by it or him was compounded under this section. If the offence is not similar, this restriction to compound will not apply.
It may be noted that any second or subsequent offence committed after the expiry of a period of three years from the date on which the offence was previously compounded, shall be deemed to be a first offence and is eligible to be compounded.
Question 12.
What is the procedure for compounding of contraventions under Foreign Exchange Management Act, 1999? (Aug 2021, 4 marks)
Answer:
Central Government has notified the Foreign Exchange (Compounding Proceedings) Rules 2000 for the purpose of compounding of offences under section 15 of the Foreign Exchange Management Act, 1999.lt contains the detailed guidelines and procedure for compounding of offences under Foreign Exchange Management Act, 1999. The broader process prescribed for compounding of offences under FEMA is as follows:
- Application is to be made to the appropriate compounding authority as per format given in the Foreign Exchange (Compounding Proceedings) Rules, 2000.
- Every application for compounding any violation under this rule shall be made in Form to the along with a fee of ₹ 5000/- by Demand Draft in favour of compounding authority.
- The Compounding Authority may call for any information, record or any other documents relevant to the compounding proceedings.
- For the purpose of adjudging the quantum of amount on payment of which the contravention shall be compounded, compounding fee, the Compounding Authority shall consider the guidance note provided for the purpose in the amended Rules.
Question 13.
Explain the powers of Enforcement Directorate to compound the contraventions under the provisions of Foreign Exchange Management Act, 1999. (Aug 2021, 4 marks)
Answer:
If any Person violate the provisions of Section 3(a) of Foreign Exchange Management Act, 1999:
(a) in case where the sum involved in such violation is five lakhs rupees or below, by the Deputy Director of the Directorate of Enforcement;
(b) in case where the sum involved in such violation is more than rupees five lakhs but less than rupees ten lakhs, by the Additional Director of the Directorate of Enforcement;
(c) in case where the sum involved in the violation is rupees ten lakhs or more but less than fifty lakhs rupees by the Special Director of the Directorate of Enforcement;
(d) in case where the sum involved in the violation is rupees fifty lakhs or more but less than one crore rupees by Special Director with Deputy Legal Adviser of the Directorate of Enforcement;
(e) in case the sum involved in such contravention is One crore rupees or more, by the Director of Enforcement with Special Director of the Enforcement Directorate.
Provided further that no violation shall be compounded unless the amount involved in such violation is quantifiable.
Question 14.
Section 442 of the Companies Act, 2013 enables settlement of dispute through ‘alternate dispute resolution’ – In this context, highlight the differences between mediation and conciliation. (Dec 2021, 4 marks)
Answer:
Mediation and Conciliation Panel: Section 442(3) of the Companies Act, 2013 provides that the Central Government or the National Company Law Tribunal or the Appellate Tribunal(NCLAT) before which any proceeding is pending may, suo motu, refer any matter pertaining to such proceeding to such number of experts from the Mediation and Conciliation Panel as the Central Government or the NCLT or the NCLAT, as the case may be, deems fit. Section 442 of the Act enables settlement of disputes through ‘Alternate Dispute Resolution’.
Mediation: Mediation is a structured process. The Mediator assists the disputants to reach a negotiable settlement. The Process results in signed agreement which decides the future behaviour of the parties. Further, the decision of the mediator is known as “settlement”.
- It is the process by which the parties to a dispute have closed-door discussions on a contentious issue in the presence of neutral mediator(s).
- This is a voluntary process and is undertaken only if all the parties are willing to go by it.
- The mediator, who is specially trained, helps the parties move from their positions, towards assessing where their interests are.
- Then, he/she helps the parties determine how the matter can be settled, examining various options.
- Unlike formal adjudicatory processes, the mediation need not be confined to the issues raised in the case, but can go beyond to other matters the parties want resolved.
- They can also agree to disagree on some issues, while resolving the rest.
- Mediation is a time-bound, private and confidential process.
- The information shared must be kept confidential by all parties, including the mediator.
- This facilitates a free and frank discussion on matters in dispute.
- Equally important, the discussions cannot be brought up before the court if the disputes are not resolved through mediation.
- In mediation, the mediator does not suggest the manner of settlement to the parties. Any settlement arrived at using either process is voluntary.
- No settlement can be imposed by the mediator or conciliator.
Conciliation: The term “Conciliation” has been defined under black law dictionary as “The process of adjusting or settling disputes in a friendly manner through extra judicial mean”.
- Conciliation is the assistance rendered by a conciliator to the parties to a dispute, in an independent and impartial manner, in their attempt to reach an amicable settlement of their dispute.
- Conciliator brings the disputants to agreement through negotiation.
- Further, the Conciliator is appointed only after the dispute has arisen.
- The decision of the Conciliator is called “award”.
- The conciliation process is similar to mediation. But the conciliator suggests terms for settlement on evaluation of the issues discussed by the parties.
Question 15.
Amexo international Ltd. is aggrieved by the Order of Deputy Director of Enforcement Directorate (ED), and is evaluating to seek further remedies in this regard. Advise the Company regarding the Appellate jurisdiction under FEMA and also explain in brief the procedure for making such Appeal. (Dec 2021, 4 marks)
Answer:
- The first stage of appeal in the Foreign Exchange Management Act, 1999 is the appeal against the order of the Adjudicating Authorities. It is an appeal before the Special Director (Appeals) under section 17(2) of the Foreign Exchange Management Act.
- The Central Government shall, by notification, appoint one or more Special Directors (Appeals) to hear appeals against the orders of the Adjudicating Authorities under this section and shall also specify in the said notification the matter and places in relation to which the Special Director (Appeals) may exercise jurisdiction.
- Any person aggrieved by an order made by the Adjudicating Authority, being an Assistant Director of Enforcement or a Deputy Director of Enforcement, may prefer an appeal to the Special Director (Appeals).
Procedure under Sec 17 of the FEMA (read with the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000)for filling of appeal before Special Director (Appeals):
1. Every appeal under section 17 (1) shall be filed within forty-five days from the date on which the copy of the order made by the Adjudicating Authority is received by the aggrieved person, provided that the Special Director (Appeals) may entertain an appeal after the expiry of the said period of forty-five days, if he is satisfied that there was sufficient cause for not filing it within that period,
2. The Appeal shall be filed in Form I, signed by the applicant in triplicate and accompanied by three copies of the order appealed against, together with the fee of ₹ 5,000/-.
As per section 19 of the FEMA, any person aggrieved from the order Special Director (Appeals) may prefer an appeal to Appellate tribunal.
Further, under section 35 of FEMA, any person aggrieved from the order or decision of the Appellate Tribunal may file an appeal to the High Court.
Question 16.
Explain the effect of Settlement Order on third party rights’or other proceedings. Also, state the circumstances under which the Settlement Order is revoked. (June 2022, 4 marks)
Question 17.
“Mediator or conciliator facilitates in arriving a decision to resolve the dispute and that he shall not and cannot impose any settlement.” In background of this statement, explain who is responsible to take a decision under Companies (Mediation and Conciliation) Rules, 2016 and what is the time limit for completion of mediation or conciliation. “(June 2017, 4 marks)
Question 18.
(i) P is the Managing Director of AMR Limited who committed a fraud against the Company. A judicial proceeding has been initiated against P for fraud committed by him. Now P wants to settle the case through mediation or conciliation. Can P’s case be referred to mediation or conciliation?
(ii) ABC Exports Limited aggrieved by an order of Adjudication Authority under Foreign Exchange Management Act, 1999, wants to file an appeal against the order in Civil Court. As a Company Secretary, advise ABC Exports Limited whether the Civil Court has jurisdiction to entertain such a suit? If not, suggest an alternate remedy. (June 2019, 4 marks each)
Answer:
(i) The crime of fraud comes under non-compoundable offence and these types of crime shall not be referred to mediation or conciliation for settlement. Hence the crime committed by P, cannot be referred to mediation and conciliation.
As per rule 30 of Companies (Mediation and Conciliation), Rule 2016, following matters shall not be referred to mediation or conciliation, namely:
(a) The matters relating to proceedings in respect of inspection or investigation under Chapter XIV of the Companies Act, 2013; or the matters which relate to defaults or offences for which applications for compounding have been made by one or more parties.
(b) Cases involving serious and specific allegations of fraud, fabrication of documents forgery, impersonation, coercion etc.
(c) Cases involving prosecution for criminal and non-compoundable offences.
(d) Cases which involve public interest or interest of numerous persons who are not parties before the Central Government or the Tribunal or the Appellate Tribuna! as the case may be.
(ii) Civil court cannot entertain such suits as civil court has no jurisdiction. As per section 34 of Foreign Exchange Management Act, 1999, no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which an Adjudicating Authority or the Appellate Tribunal or the Special Director (Appeals) is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.
In the given case. ABC Exports Limited can appeal to:
(a) Appeal to Special Director (Appeals)
As per section 17(1) of Foreign Exchange Management Act,1999, the Central Government shall, by notification, appoint one or more Special Directors (Appeals) to hear appeals against the orders of the Adjudicating Authorities under this section and shall also specify in the said notification the matter and places in relation to which the Special Director (Appeals) may exercise jurisdiction.
As per section 17(2) of Foreign Exchange Management Act, 1999, any person aggrieved by an order made by the Adjudicating Authority, being an Assistant Director of Enforcement or a Deputy Director of Enforcement may prefer an appeal to the Special Director (Appeals).
(b) Appeal to Appellate Tribunal (Section 19)
As per section 19(1) of Foreign Exchange Management Act,1999, save as provided in sub-section (2), the Central Government or any person aggrieved by an order made by an Adjudicating Authority, otherthan those referred to in section17(1), or the Special Director (Appeals), may prefer an appeal to the Appellate Tribunal.
Question 19.
(a) ABC Technologies Limited was incorporated under the Companies Act, 2013 as a closely held Public Company. The paid-up capital of Company is ₹ 15 Crore. The Company suo-moto filed a petition for compounding of violation under Section 203 of the Companies Act, 2013 read with Rule 8 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. The Company pleaded that it had tried, but was unable to find and appoint a full time Company Secretary as required under the Act. What would be the consequences for Company, its Directors and KMP in this case? (June 2019, 4 marks)
(b) PQR Express Limited is aggrieved by an order of National Company Law Appellate Tribunal (NCLAT). As a Company Secretary, advise the Company as to where an appeal can be filed against the order of NCLAT and also comment on limitation period of appeal against the order. (June 2019, 4 marks)
(c) Sundry creditors of MNO Trading Limited filed a complaint with the Registrar of Companies (ROC), Delhi & Haryana alleging that the management of the company is indulging in destruction and falsification of the accounting records of the company. The complainants request the ROC to take immediate steps to seize the books of accounts and records of the company so that the management may not be allowed to tamper with the books of accounts & records. The complaint was received at 11 A.M. on 10th January 2019 and the ROC entered the premises at 11.30 A.M., for a search without obtaining an order from the Special Court. Comment on the action of ROC vis-a-vis his powers under the Companies Act, 2013. (June 2019, 4 marks)
Answer:
(a) If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.
The NCLT may levy maximum fine as:
| Particulars | Violation under Section 203 | Fine for continuing of contravention |
| Penalty on Company | Rupees five lakh | Rupees one thousand per day of delay |
| Penalty on Director and KMP | Rupees fifty thousand | Rupees one thousand per day of delay |
Hence, ABC Technologies Limited, its directors and KMP are subjected to penal provisions of Companies Act, 2013 as mentioned above.
(b) As per section 423 of the Companies Act, 2013, any person aggrieved by any order of the Appellate Tribunal may file an appeal to the Supreme Court within sixty days from the date of receipt of the order of the Appellate Tribunal to him on any question of law arising out of such order.
The Supreme Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.
In the given case, PQR Express Limited can file an appeal to Supreme Court of India against order of National Company Law Appellate Tribunal (NCLAT) within 60 days from the date of receipt of order of the Appellate Tribunal.
(c) Section 209 of the Companies Act, 2013 provides that where upon information in his possession or otherwise, the Registrar or inspector has reasonable ground to believe that the books and papers of-
(i) a company, or
(ii) relating to the key managerial personnel, or
(iii) any director, or
(iv) auditor, or
(v) company secretary in practice if the company has not appointed a company secretary, are likely to be destroyed, mutilated, altered, falsified or secreted, he may, after obtaining an order from the Special Court for the seizure of such books and papers,:
1. enter, with such assistance as may be required, and search, the place or places where such books or papers are kept; and
2. seize such books and papers as he considers necessary after allowing the company to take copies of or extracts from, such books or papers at its cost.
According to the above provisions, ROC may enter and search the place where such books or papers are kept and seize them only after obtaining an order from the Special Court.
Since in the given question, ROC entered the premises for the search and seizure of books of the company without obtaining an order from the Special Court, he is not authorised to seize the books of the PQR Trading Limited.
Question 20.
S is a newly qualified Company Secretary. He wants to^cnow whether there is any dress code approved by the Council of ICSI as professional dress code, for Company Secretaries to appear before judicial/quasi-judicial bodies and Tribunal? Advise S. (June 2019, 4 marks)
Answer:
The professional dress prescribed under the code of conduct for the professional is required to be worn by the authorised representative while appearing before the authorities.
The Council of ICSI has approved the following Guidelines for Professional Dress Code for Company Secretaries to appear before judicial/quasi-judicial bodies and tribunals:
1. For Male Members:
(a) Navy Blue Suit (Coat and Trouser), with CS logo, Insignia or Navy Blue Blazer over a sober coloicd Trouser
(b) Neck Tie (ICSI)
(c) White full sleeve Shirt
(d) Formal Black Leather Shoes ‘Shined)
2. For Female Members:
(a) Navy Blue corporate suit (Coat and Trouser), could be with a neck tie insignia or
(b) Saree / any other dress of sober colour with Navy Blue Blazer with CS logo
(c) A sober footwear like Shoes/Bellies/Wedges, etc. (shined)
The Members in employment have also been prescribed the same dress code.
Question 21.
XYZ Software Technologies Limited of Bengaluru was engaged in business of software exports. During the past years, it had exported services to its Parent entity in United States of America (USA), but failed to realize and repatriate the foreign exchange due on its exports to India, within the stipulated time. The Adjudicating Authority imposed a penalty under the provisions of Foreign Exchange Management Act, 1999. Being aggrieved by this penalty, the Company seeks your advice to file an appeal.
Advise the Company. (Dec 2019, 4 marks)
Answer:
Sections 17 and 19 of Foreign Exchange Management Act, 1999 provide for appeals against orders of Adjudicating Authority, if the Adjudicating Authority is Assistant Director of Enforcement or Deputy Director of Enforcement, appeal will lie to Special Director (Appeals).
Further appeal shall lie with Appellate Tribunal for Foreign Exchange. However, if the Adjudicating Authority is senior to the Assistant Director of Enforcement or Deputy Director of Enforcement, then the appeal shall directly be made to the Appellate Tribunal.
Appeal to Special Director (Appeals): Appeal against order of Assistant Director of Enforcement or Deputy Director of Enforcement can be filed with Special Director (Appeals) under Section 17 of the said act within 45 days from the date on which the copy of the order made by the Adjudication Authority is received by the aggrieved person.
Appeal to Appellate Tribunal: Appeal against the order of Adjudicating Authority being senior to Assistant Director of Enforcement or Deputy Director of Enforcement or against the order of Special Director (Appeals) can be made to the Appellate Tribunal for Foreign Exchange under Section 19 of Foreign Exchange Management Act, 1999 within 45 days from the date on which the copy of the order made by such Adjudicating Authority or Special Director (Appeals) is received by the aggrieved person. It may be noted that the Tribunal is the final fact finding authority and no appeal lies against the facts determined by the Tribunal.
Hence, XYZ Software Technologies may file an appeal based on the Adjudicating Authority.
Question 22.
PQ Limited was a Company listed on XYZ Stock Exchange. The Company was making continuous, losses and was not performing well. There were also reports of alleged financial irregularities in media. Also, many complaints were received by Securities Board of India (SEBI), regarding its listed securities. Subsequently, SEBI passed an Order to delist the securities of the Company from the said stock exchange.
As a Company Secretary, advise PQ Limited for further course of action. (Dec 2019, 4 marks)
Answer:
As per Section 15T of the SEBI Act, 1992, any person aggrieved by an order of the Board or by an order made by an adjudicating officer may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter. The appeal shall be filed within a period of 45 days from the date on which a copy of the order made by the SEBI or the Adjudicating Officer, as the case may be, is received by him.
The Tribunal shall give an opportunity of being heard to the respondent and may pass the order confirming, modifying or setting aside the decision of SEBI.SAT shall also send a copy of its order to every party to appeal and to the concerned adjudicating officer. Further, the matter filed before SAT is dealt with as expeditiously as possible and is endeavoured to be disposed of within 6 months from the date of receipt of the appeal.
Thus, PQ Limited should consider filing an appeal to Securities Appellate Tribunal (SAT).
Alternatively, the company may go for delisting of the securities in accordance with the SEBI (Delisting of Securities) Regulations, 2009.
Question 23.
Thinking Star Limited, a Public Limited Company was into manufacturing of steel and steel products. The Company wanted to expand its operations and to fund the same, it evaluated various options including bank loan, private placement, etc. However, due to a paucity of time the Company went ahead and funded its, operations by issuing shares to a friend of Mr. XY, the Managing Director of the Company on private placement basis. The Company failed to comply with the provisions’ of the Companies Act, 2013. Mr. XY was not willing to act, unless there was any notice from the regulators. Mr. S, the Corporate Advisor to the Company suggested Mr. XY to compound the offence as it would be in the best interest of the Company.
Advise Mr. XY. (Dec 2019, 4 marks)
Answer:
As provided under Section 441 of the Companies Act, 2013 any offence punishable (whether committed by a company or any officer thereof) not being an offence punishable with imprisonment only, or punishable with imprisonment and also with fine, may, either before or after the institution of any prosecution, be compounded by the Tribunal; or where the maximum amount of fine which may be imposed for such offence does not exceed twenty five lakh rupees, by the Regional Director or any officer authorised by the Central Government.
However, As per Section 454 of the Companies Act,2013 provides that the adjudicating officer appointed by the central government may, by an order impose the penalty on the company, the officer who is in default, or any other person, as the case may be, stating therein any non-compliance or default under the relevant provisions of this Act; and direct such company, or officer who is in default, or any other person, as the case may be, to rectify the default, wherever he considers fit.
In the given case, the company has made private placement without complying the provisions under Section 42 of the Companies Act, 2013. Hence, the promoters and directors of the company be liable for a penalty which may extend to the amount raised through the private placement or two crore rupees, whichever is lower, and the company shall also refund all monies with interest to subscribers within a period of thirty days of the order imposing the penalty.
Accordingly, the suggestion of Mr. S, Corporate adviser is not correct, as the offence under section 42 of Companies Act, 2013 is subject to the adjudication by the adjudication officer appointed by the Central Government and compounding provisions are not applicable on defaults in private placement.
Question 24.
Raghunath was the General Manager (Forex) in a company named as Impex Overseas Ltd., during the period 1st January, 2018 to 31st March, 2020. He retired from the services of the company at the close of business on 31st March, 2020. Later on, it was revealed that during his tenure, the company has contravened some of the provisions of the Foreign Exchange Management, Act, 1999 (FEMA) and this happened due to non-compliance on the part of Raghunath.
The Company asked Raghunath to pay the penalty, but he denied and told that he is now, not in the service of the company and the company itself, is liable to pay the penalty.
Advise the company about the legal provisions under FEMA in this regard. (Aug 2021, 5 marks)
Answer:
As per Section (1) of Foreign Exchange Management Act, 1999, where a person committing a contravention of any of the provisions of the said Act or of any rule, direction or order made there under is a company, every person who, at the time the contravention was committed, was in charge of, and was accountable to, the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the violation and shall be liable to be proceeded against and punished accordingly.
Nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised due diligence to prevent such violation. Under Section 42(2), where a violation of any of the provisions of the said Act or of any rule, direction or order made there under has been committed by a company and it is proved that the violation has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.
Consequently, as per the given provisions, since Raghunath was in charge of forex Division at the time of occurrence of the contravention and it happened on account of his negligence, hence, he is also liable along with the company to be proceeded against and punished under the provisions of FEMA.
So, Raghunath shall be liable to pay the penalty leviable/levied on him by the appropriate authority under FEMA.
Though, as regards the penalty leviable/levied separately on the Company, the same cannot be recovered from Raghunath, except in accordance with the terms of his employment agreement, since Section 42 clearly holds the company as well separately liable for penalty in case of violation.
Question 25.
Perun Ltd. submitted a scheme of demerger before Hon’ble NCLT, demerging its two divisions as two separate resulting companies. The Company in its application had mentioned that certain proceedings in relation to some other businesses of the Company are pending. Upon clarification sought, it was submitted that an investigation registered out of charge sheet lodged by special investigation team, State Lokayukta Police before Additional City and Sessions Court was pending,… wherein the proceedings were stayed by the High Court. Perun Ltd. argued that those proceedings have no bearing and cannot be an impediment for
approval of the scheme of demerger. However, citing this the Tribunal declined to sanction the scheme of demerger. The Company appealed to NCLAT. Is the contention of the Company tenable? (Dec 2021, 5 marks)
Answer:
- The contention of the company is certainly tenable in view of the fact that the pending investigations/ proceedings relates to some other business of the demerged company, i.e., different from the two business divisions of the Company sought to be demerged through the subject petition.
- The facts given in the question are similar to case decided by NCLAT in Mel Windmills Pvt. Ltd. v. Mineral Enterprises Limited & Anr., wherein in the original proceedings before the Tribunal, the Appellants sought an order for sanctioning the scheme of demerger in terms whereof the wind energy generation business of ‘Mineral Enterprises Ltd.’ (the Demerged Company) was sought to be separated and given to ‘MEL Windmills Pvt. Ltd.’ (Resulting Company No.1) whereas the real estate, shares and security investments of’Mineral Enterprises Ltd.’ were sought to be given to ‘MEL Properties Pvt. Ltd.’ (Resulting Company No.2). In that case the Appellants had also disclosed before the Tribunal, the fact about pendency of certain proceedings in relation to the mining business of the Demerged Company which on clarification turned out to be investigations arising out of charge sheet lodged by Special Investigation Team, State Lokayukta Police before Additional City Civil & Sessions Court and even those proceedings were already stayed by Hon’ble High Court.
- It was noticed in this judgment that the Tribunal declined to sanction the proposed scheme of demerger, albeit on account of several issues pending finalization, without either considering prayer for dispensation of meeting of creditors and members of the three Appellant or in the alternative directing convening of a meeting of the creditors and members of these companies for considering the proposed scheme of demerger.
- The Appellate Tribunal in the above case observed that the mandate of law engrafted under Section 230(1) of the Companies Act, 2013 requiring the Tribunal to order calling of meeting of the creditors/ members of the concerned companies not being complied with and the mandatory provisions being observed in breach, the impugned order cannot be supported.
- The Tribunal, at the very threshold stage, was not required to venture into the merits of the proposed scheme of demerger which had to be examined only after obtaining the consent of creditors/members with requisite majority.
- The National Company Law Appellate Tribunal (NCLAT) further observed that the Tribunal failed to adhere to the mandate of law which was mandatory and imperative in nature. This goes to the root of the impugned order which cannot be sustained.
- Besides National Company Law Appellate Tribunal also observed that the pending issues could not be construed as an impediment in sanctioning the proposed scheme of demerger, in view of the fact already known to the Tribunal, that the demerger scheme proposed by the Appellants was not with regard to business of Mining which1 would continue with the Demerged Company and the pending investigation would continue unhindered against the Director of the Demerged Company without having any impact on the proposed scheme of demerger.
- Second, because pendency of investigation would not stand as a legal impediment in sanctioning the proposed scheme of demerger for any civil action or criminal proceedings in respect of past events/ transactions.
- In identical circumstances, the Hon’ble Gujarat High Court sanctioned the modified composite scheme of arrangement in terms of its judgment dated 1st March, 2007 rendered in Core Health Care Limited v. Nirma Ltd. reported in 2007 SCC Online Guj 235.
- For the foregoing reasons the National Company Law Appellate Tribunal held that the impugned order cannot be supported.
- The Tribunal seriously erred in dismissing the application on merit when the stage of consideration of the proposed scheme of demerger was yet to arrive and that accordingly the impugned order suffers from serious legal infirmity and the same is set aside.
Conclusion: In the above case, the contention of Perun Ltd is tenable.
Question 26.
Arghya Industries Ltd. decided to file an appeal before Hon’ble NCLAT due to an Order that has been passed by Hon’ble NCLT on May 6, 2019 without consent of the parties. The Order was received by the Company on May 7,2019. The employees of the Company went on a strike for a period of 10 days from June 25,2019 demanding salary hike and other benefits. The operations of the Company came to a grinding halt due to the strike and other extraneous reasons. Thereafter, the Company proposed to file an appeal on July 9, 2019 before the Hon’ble NCLAT and the Company prayed for condonation of delay. The Management of the Company was planning to seek professional help on the following queries :
(i) Whether the proposed appeal would be admitted by the NCLAT.
(ii) What is the maximum period allowed by the NCLAT for condonation of delay?
As a Practising Company Secretary, advise the Management of the Company. (Dec 2021, 5 marks)
Answer:
Under section 421 of the Companies Act, 2013 any person aggrieved by an order of the National Company Law Tribunal may prefer an appeal to the National Company Law Appellate Tribunal. Although, no appeal shall lie to from an order made by the National Company Law Tribunal with the consent of parties.
Every appeal section 421 of the Act shall be filed within a period of 45 days from the date on which a copy of the order of the National Company Law Tribunal is made available to the person aggrieved and shall be in such form, and accompanied by such fees, as may be prescribed.
Further, National Company Law Appellate Tribunal may entertain an appeal after the expiry of the said period of 45 days from the date aforesaid, but within a further period not exceeding 45 days, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within that period.
1. In the above case, the order was passed by National Company Law Tribunal on May 6,2019 but was received by the company on May 7, 2019. Accordingly, the appeal should have been filed before National Company Law Appellate Tribunal with 45 days from May 7,2019 i.e., by June 21,2019.
The Company could not file the appeal with the time provided in section 421 of the Act and prayed for condonation of delay. Now, in the given case, the company propose to file the appeal on July 9, 2021. However, the appeal could have been admitted on the grounds that the Order of NCLT was passed without the consent of the parties but the appeal was not tendered within the prescribed time.
Further, the National Company Law Appellate Tribunal may not condone the delay in view of the fact that the strike in the company started on June 25, 2019 i.e., 4 days after the expiry of the 45 days from the date of receiving the NCLT Order.
So, it may be said that the appellant was not prevented by any sufficient cause from filing the appeal within the prescribed time. Therefore, the proposed appeal may not be admitted by National Company Law Appellate Tribunal.
2. The maximum period allowed for condonation of delay is forty five days if National Company Law Appellate Tribunal is satisfied that the appellant was prevented by sufficient cause from filing the appeal within that period.
Question 27.
Write short note on compounding of offence.
Answer:
Compounding of Offences:
Companies are expected to comply with the law(s) governing them and/or applicable to them. In this context, the compliance of Companies Act, 2013, Foreign Exchange Management Act, 1999 and SEBI/Securities laws assume significance. When there is a non-compliance or contravention, it is said that an Offence is committed vis a vis the said compliance/regulatory requirement. It is known that when an offence is committed, the accused is liable to be prosecuted as per the law in respect of which the said offence has been committed. While it is true that good corporate governance demands a corporate citizen to comply with all the legal provisions, it may so happen for various reasons that there could be a lapse on compliance especially considering the number of compliances required. But nevertheless, an offence is committed for which the law provides for a penalty/punishment.
Question 28.
Write short note on Settlement Agreement.
Answer:
Settlement agreement (Rule 25)
1. Where an agreement is reached between the parties in regard to all the issues or some of the issues in the proceeding, the same shall be reduced to writing and signed by the parties and if any counsel has represented the parties, the conciliator or mediator may also obtain the signature of such counsel on the settlement agreement.
2. The agreement of the parties so signed shall be submitted to the mediator or conciliator who shall, with a covering letter signed by him, forward the same to the Central Government or the Tribunal or the Appellate Tribunal, as the case may be.
3. Where no agreement is reached at between the parties, before the time limit specified in rule 19, or where the mediator or conciliator is of the view that no settlement is possible, he shall report the same to the Central Government or the Tribunal or the Appellate Tribunal, as the case may be, in writing.
Question 29.
Write short note on consent order.
Answer:
Consent Order
Consent Order means an order settling administrative or civil proceedings between the regulator and a person (Party) who may prima facie be found to have violated securities laws. It may settle all issues or reserve an issue or claim, but it must precisely state what issues or claims are being reserved. A Consent Order may or may not include a determination that a violation has occurred.
Consent Order provides flexibility of wider array of enforcement and remedial actions which will achieve the twin goals of an appropriate sanction, remedy and deterrence without resorting to litigation, lengthy proceedings and consequent delays.
Consent orders cannot be construed as waiver of statutory powers by the Board. The Board always has the right to proceed for appropriate action if it cannot achieve its objectives through a consent order.
US Securities and Exchange Commission settles a substantial number (over 90%) of administrative/civil cases by consent orders. Consent orders may provide- flexibility of wider array of enforcement actions which will achieve the twin goals of an appropriate sanction and deterrence without resorting to a long-drawn litigation before SEBI/Tribunal/Courts. Passing of consent orders will also reduce regulatory costs and would save time and efforts taken in pursuing enforcement actions. This effort could more effectively be used for pursuing cases which require the full process of enforcement action and for policy work.
Question 30.
Write short note on Settlement notice.
Answer:
Settlement notice (Regulation 18)
1. A notice of settlement in the format as specified in Part-B of Schedule-Ill, indicating the substance of the probable charges and enforcement actions, may, except in cases covered under Chapter VII, be issued by the Board prior to the issuance of the notice to show cause so as to afford the noticee an opportunity to file a settlement application under Chapter-ll, within fifteen calendar days from the date of receipt of the settlement notice,
2. Not with standing anything contained in the settlement notice, the Board shall have the right to modify the nature of the enforcement action to be initiated against the noticee and the charges stated in the notice shall not confer any right to seek settlement on the said basis or avoid any enforcement action due to modified charges.
3. Where a noticee does not file the settlement application under this Chapter or withdraws the settlement application at any time prior to the communication of the decision of the Panel of Whole Time Members under regulation 15, the specified proceedings may be initiated and such a noticee shall only be permitted to file a settlement application in respect of the proceedings pending before a Court or tribunal, after conclusion of the proceedings before the Adjudicating Officer or the Board, as the case may be.
Question 31.
Write short note on confidentiality.
Answer:
Confidentiality (Regulation 22)
The following shall be treated as confidential,
(a) the identity of the applicant seeking confidentiality; and
(b) the information, documents and evidence furnished by the applicant under this Chapter Provided that, the identity of the applicant or such information or documents or evidence may not be treated as confidential if:
- the disclosure is required by law;
- the applicant has agreed to such disclosure in writing; or
- there has been a public disclosure by the applicant.
Question 32.
Write short note Settlement orders.
Answer:
Settlement of proceedings before the Adjudicating Officer and the Board (Regulation 23)
1. The Adjudicating Officer shall by an appropriate order dispose of the proceeding pending before him on the basis of the approved settlement terms.
Explanation: In case of concurrent proceedings, a comprehensive order may be passed by the Panel of Whole Time Members and thereafter the concerned Adjudicating officer may pass an order, disposing of the relevant proceedings before him, in view of the settlement.
2. The Panel of the Whole Time Members shall by an appropriate order dispose of proceedings initiated or proposed to be initiated other than the proceedings referred to in sub-regulation (1).
3. The settlement order passed under these regulations shall, contain the details of the alleged default(s), relevant provisions of the securities laws, brief facts and circumstances relevant to the alleged default, the admissions made by the applicant, if any and the settlement terms.
Question 33.
Write short note on Professional Dress.
Answer:
Professional Dress
The professional dress prescribed under the code of conduct for the professional is required to be worn by the authorisecf’representative while appearing before the authorities.
The Council of IGSI has approved the following Guidelines for Professional Dress Code for Company Secretaries to appear before judicial / quasi-judicial bodies and tribunals like NCLT- NCLAT, SAT, etc.:
1. For Male Members:
(a) Navy Blue Suit (Coat & Trouser), with CS logo, Insignia OR
Navy Blue Blazer over a sober colored Trouser
(b) Neck Tie (ICSI)
(c) White full sleeve Shirt
(d) Formal Black Leather Shoe9 (Shined)
2. For Female Members:
(a) Navy Blue corporate suit (Coat & Trouser), could be with a neck tie/ Insignia
OR
(b) Saree / any other dress of sober colour with Navy Blue Blazer with CS logo
(c) A sober footwear like Shoes/Bellies/Wedges, etc (shined)
Members in Employment: As prescribed in 1 or 2 above Members are advised to strictly adhere to the Dress Code prescribed by the Council.
Meaning of mediation: The term “mediation” has been defined under black law dictionary as “an act of a third person who interferes between two contending parties with a view to reconcile them or persuade them to adjust or settle their dispute”.
Meaning of conciliation:
The term “Conciliation” has been defined under black law dictionary as “Thd process of adjusting or settling disputes in a friendly manner through extra judicial mean”.
Differences between mediation and conciliation
Space to write important points for revision
| Conciliation: Conciliator brings the disputants to agreement through negotiation. Further, the Conciliator is appointed only after the dispute has arisen. The decision of the Conciliator is called “award”. | Mediation: Mediation is a structured process. The Mediator assists the disputants to reach a negotiable settlement. The Process results in signed agreement ‘which decides the future behaviour of the parties. Further, the decision of the mediator is called “settlement”. |
Question 34.
Distinguish between mediation and conciliation.
Answer:
Mediation and Conciliation
Introduction:
Mediation and Conciliation have gained popularity in almost all countries worldwide. In India, the conciliation process was introduced in the Industrial Disputes Act, 1947 and, later, under the Arbitration and Conciliation Act, 1996. In 1999, mediation was specifically recognised in amendments made to the Code of Civil Procedure, 1908. Ever since, courts are empowered to refer a case for resolution through mediation or conciliation at the parties’ request, or if the court feels the case has elements of settlement.
Question 35.
Which offences cannot be compounded?
Answer:
- Any offence punishable under this Act (whether committed by a company or any officer thereof) being an offence punishable with imprisonment only or imprisonment and also with fine cannot be compounded
- Any offence otherwise compoundable cannot also be compounded if the investigation against such company has been initiated or is pending under this Act.
- An offence committed by a company or its officer within a period of three years from the date on which a similar offence committed by it or him was compounded under this section. If the offence is not similar, this restriction to compound will not apply. It may be noted that any second or subsequent offence committed after the expiry of a period of three years from the date on which the offence was previously compounded, shall be deemed to be a first offence and is eligible to be compounded.
Question 36.
Who are the compounding authorities?
Answer:
The Regional Director appointed by the Central Government as a Regional Director for the purposes of this Act and the National Company Law Tribunal (Tribunal) are the two compounding authorities.
Where the maximum amount of fine which may be imposed for an offence does not exceed Twenty-five lakh rupees, the Regional Director or any officer authorised by the Central Government can compound the offence.
In all other case of compoundable offence(s), the Tribunal is authorised to compound.
Here maximum amount of fine means, fine which is payable for alleged violation of a particular section of the Act.
The compounding authority has no power to impose fine which exceeds the maximum amount of fine which may be imposed for offence so compounded. In specifying the sum required to be paid or credited for the compounding of an offence, the sum, if any, paid by way of additional fee under sub-section (2) of Section 403 shall be taken into account:
Procedure for Compounding:
(a) Call for a board meeting to decide on compounding as per the CA 2013.
(b) Arrive at the amount of the fine involved as per the relevant section(s).
(c) Hold the Board Meeting and pass resolution(s) to compound and provide for preparation and providing necessary authorisation for compounding^
(d) Every application for the compounding of an offence shall be made to the Registrar who shall forward the same, together with his comments
thereon, to the Tribunal or the Regional Director or any officer authorised by the Central Government, as the case maybe. The filing with RoC is done in the e-from GNL-1 precibed for this purpose. Also deliver sufficient number of hard copies of the compounding application to RoC for him to forward it to RD/Tribunal based on the quantum of fee involved.
(e) There will be a personal hearing before the Regional Director or Tribunal which will decide the amount to be paid for compounding.
(f) Get the order passed by the RD/Tribunal and pay the amount stipulated within the time fixed.
(g) File Order of RD/NCLT with RoC in form INC 28 and RoC will take note of the same.
Question 37.
Discuss the Power of enforcement Directorate to compound contraventions.
Answer:
Power of Enforcement Directorate to Compound Contraventions:
If any Person contravenes provisions of Section 3(a) of Foreign Exchange
Management Act.
(a) in case where the sum involved in such contravention is five lakhs rupees or below, by the Deputy Director of the Directorate of Enforcement
(b) in case where the sum involved in such contravention is more than rupees five lakhs but less than rupees ten lakhs, by the Additional Director of the Directorate of Enforcement
(c) in case where the sum involved in the contravention is rupees ten lakhs or more but less than fifty lakhs rupees by the Special Director of the Directorate of Enforcement
(d) in case where the sum involved in the contravention is rupees fifty lakhs or more but less than one crore rupees by Special Director with Deputy Legal Adviser of the Directorate of Enforcement
(e) in case the sum involved in such contravention is one crore rupees or more, by the Director of Enforcement with Special Director of the Enforcement Directorate. Provided further that no contravention shall be compounded unless the amount involved in such contravention is quantifiable.
Question 38.
Discuss the Procedure for compounding.
Answer:
Procedure for Compounding
- Application is to be made to the compounding authority either suo moto or on being advised to compound as per format given in the Foreign Exchange (Compounding Proceedings) Rules 2000.
- Every application for compounding any contravention under this rule shall be made in Form to the along with a fee of ₹ 5000/- by Demand Draft in favour of compounding authority.
- The Compounding Authority may call for any information, record or any other documents relevant to the compounding proceedings.
- The Compounding Authority shall pass an order of compounding after affording an opportunity of being heard to all the concerned as expeditiously as possible as and not later than 180 days from the date of application. If the Enforcement Directorate is of the view that the proceeding initiated before it relates to a serious contravention suspected of money laundering, terror financing or affecting sovereignty and integrity of the nation, the Compounding Authority shall not proceed with the matter and shall remit the case to the appropriate Adjudicating Authority for adjudicating contravention under Section 13 of FEMA.
- Where any contravention is compounded before the adjudication of any contravention under Section 16 of FEMA, no inquiry shall be held for adjudication of such contravention in relation to such contravention against the person in relation to whom the contravention is of compounded.
- Where the compounding of any contravention is made after making of a complaint under sub-section (3) of Section 16, such compounding shall be brought by the authority specified in rule 4 or rule 5 in writing, to the notice of the Adjudicating Authority and on such notice of the compounding of the contravention being given, the person in relation to whom the contravention is so compounded shall be discharged.
Question 39.
What are the Qualifications and disqualifications of empanelment ?
Answer:
Qualifications for empanelment (Rule 4)
A person shall not be qualified for being empanelled as mediator or conciliator unless he:
(a) has been a Judge of the Supreme Court of India; or
(b) has been a Judge of a High Court; or
(c) has been a District and Sessions Judge; or
(d) has been a Member or Registrar of a Tribunal constituted at the National level under any law for the time being in force; or
(e) has been an officer in the Indian Corporate Law Service or Indian Legal Service with fifteen years’ experience; or
(f) is a qualified legal practitioner for not less than ten years; or
(g) is or has been a professional for at least fifteen years of continuous practice as Chartered Accountant or Cost Accountant or Company Secretary; or
(h) has been a Member or President of any State Consumer Forum; or
(i) is an expert in mediation or conciliation who has successfully undergone training in mediation or conciliation.
Disqualifications for empanelment (Rule 5):
A person shall be disqualified for being empanelled as mediator or conciliator, if he
(a) is an undischarged insolvent or has applied to be adjudicated as an insolvent and his application is pending
(b) has been convicted for an offence which, in the opinion of the Central Government, involves moral turpitude
(c) has been removed or dismissed from the service of the Government or the Corporation owned or controlled by the Government
(d) has been punished in any disciplinary proceeding, by the appropriate disciplinary authority; or
(e) has, in the opinion of the Central Government, such financial or other interest in the subject matter of dispute or is related to any of the parties, as is likely to affect prejudicially the discharge by him of his functions as a mediator or conciliator.
Question 40.
Explain the role of mediator conciliator.
Answer:
Role of Mediator or Conciliator (Rule 17):
The mediator or conciliator shall attempt to facilitate voluntary resolution of the dispute by the parties, and communicate the view of each party to the other, assist them in identifying issues, reducing misunderstandings, clarifying priorities, exploring areas of compromise and generating options in an attempt to resolve the dispute, emphasising that it is the responsibility of the parties to take decision which affect them and he shall not impose any terms of settlement on the parties. On consent of both the parties, the mediator or conciliator may impose such terms and conditions on the parties for early settlement of the dispute as he may deem fit.
Question 41.
Explain the ethics to be followed by mediator or conciliator.
Answer:
The mediator or conciliator shall-
(a) follow and observe the rules strictly and with due diligence
(b) not carry on any activity or conduct Which shall reasonably be considered as conduct unbecoming of a mediator or conciliator
(c) uphold the integrity and fairness of the mediation or conciliation process
(d) ensure that the parties involved in the mediation or conciliation are fairly informed and have an adequate understanding of the procedural aspects of the process
(e) satisfy himself or herself that he or she is qualified to undertake and complete the assignment in a professional manner
(f) disclose any interest or relationship likely to affect impartiality or which might seek an appearance of partiality or bias
(g) avoid, while communicating with the parties, any impropriety or appearance of impropriety
(h) be faithful to the relationship of trust and confidentiality imposed in the office of mediator or conciliator
(i) conduct all proceedings related to the resolutions of a dispute, in accordance with the relevant applicable law
(j) recognise that the mediation or conciliation is based on principles of self-determination by the parties and that the mediation or conciliation process relies upon the ability of parties to reach a voluntary, undisclosed agreement; and
(k) maintain the reasonable expectations of the parties as to confidentiality and refrain from promises or guarantees of results.
If any party finds conduct of mediator or conciliator violaitive of ethics laid down in this rule, the party may immediately bring it to the notice of the Regional Director.
Question 42.
What are the factors to be considered to arrive at the settlement terms?
Answer:
Factors to be considered to arrive at the settlement terms (Regulation 10)
While arriving at the settlement terms, the factors indicated in Schedule-ll may be considered, including but not limited, to the following:
(a) conduct of the applicant during the specified proceeding, investigation, , inspection or audit
(b) the role played by the applicant in case the alleged default is committed by a group of persons
(c) nature, gravity and impact of alleged defaults
(d) whether any other proceeding against the applicant for non-compliance of securities laws is pending or concluded
(e) the extent of harm and/or loss to the investors’ and/or gains made by the applicant
(f) processes that have been introduced since the alleged default to minimize future defaults or lapses
(g) compliance schedule proposed by the applicant
(h) economic benefits accruing to any person from the non-compliance or delayed compliance
(i) conditions which are necessary to deter future non-compliance by the same or another person
(j) satisfaction of claim of investors regarding payment of money due to them or delivery of securities to them
(k) any other enforcement action that has been taken against the applicant for the same violation
(l) any other factors necessary in the facts and circumstances of the case.
Question 43.
Discuss the procedure of settlement.
Answer:
Procedure of Settlement
Proceedings before the Internal Committee(Regu!ation 13)
1. Save as otherwise provided in these regulations, an application shall be referred to an Internal Committee to examine whether the proceedings may be settled and if so to determine the settlement terms in accordance with these regulations.
2. The Internal Committee may:
(a) call for relevant information, documents, etc., pertaining to the alleged default(s) in possession of the applicant or obtainable by the applicant.
Explanation: Nothing in these regulations shall confer a right upon the applicant to seek information from the Board or require the Board to seek information from any other person for the purpose of relying upon it in the settlement proceedings or request the Board to permit it to present information not already disclosed in the
application, which the applicant was aware of at the time of making the application or which information upon diligent enquiry being made could have become known to the applicant.
(b) call for the personal appearance of the applicant before it:
Provided that a duly authorized representative of the applicant may represent on behalf of the applicant:
Explanation: Personal appearance under this clause includes appearance through audio-video electronic means or through the medium of electronic video linkage as may be permitted by the Internal Committee.
(c) permit the applicant to submit revised settlement terms within a period not exceeding ten working days from the date of the Internal Committee meeting: Provided that the revised settlement terms received after ten working days, but within twenty working days may be considered subject to an increase of ten percent over the recommended settlement amount.
3. The proposed settlement terms, if any, shall be placed before the High-Powered Advisory Committee.
Question 44.
Explain the Procedure of appeal to Appellate Tribunal.
Answer:
Appeal to Appellate Tribunal – Section 19 of FEMA
- Central Government or any person aggrieved by an order made by an Adjudicating Authority other than those referred to sub-section (1) of Section 17, or the Special Director (Appeals), may prefer an appeal to the Appellate Tribunal:
- Any person appealing against the order of the Adjudicating Authority or the Special Director (Appeals) levying any penalty, shall while filing the appeal, deposit the amount of such penalty with such authority as may be notified by the Central Government. Where in any particular case, the Appellate Tribunal is of the opinion that the deposit of such penalty would cause undue hardship to such person, the Appellate Tribunal may dispense with such deposit subject to such conditions as it may deem fit to impose so as to safeguard the realisation of penalty.
- Every appeal shall be filed within a period of forty-five days from the date on which a copy of the order made by the Adjudicating Authority or the Special Director (Appeals) is received by the aggrieved person or by the Central Government and it shall be in such form verified in such manner and be accompanied by such fee as may be prescribed. The Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period.
- On receipt of an appeal, the Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.
- The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the concerned Adjudicating Authority (or the Special Director (Appeals) as the case may be.
- The appeal filed before the Appellate Tribunal shall be dealt with by it as expeditiously as possible and endeavour shalfbe made by it to dispose of the appeal finally within one hundred and eighty days from the date of receipt of the appeal. That where any appeal could not be disposed off within the said period of one hundred and eighty days, the Appellate Tribunal shall record its reasons in writing for not disposing off the appeal within the said period.
Question 45.
Discuss the Summary Settlement Procedure.
Answer:
Summary Settlement Procedure (Regulation 16)
1. Notwithstanding anything contained in Chapter VI, before initiating any specified proceeding, the Board may issue a notice of summary settlement in the format as specified in Part-A of Schedule-Ill, calling upon the noticee to file a settlement application under Chapter-ll and submit the settlement amount and/or furnish an undertaking in respect of other non-monetary terms or comply with other non-monetary terms, as may be specified in the summary settlement notice in respect of the specified proceeding(s) to be initiated for the following defaults,- i. Delayed disclosures, including filing of returns, report, document, etc.; ii. Non-disclosure in relation to companies exclusively listed on regional stock exchanges which have exited; iii. Disclosures not made in the specified formats; iv. Delayed compliance of any of the requirements of law or directions issued by the Board; v. Such other defaults as may be determined by the Board. Provided that, the specified Droceeding(s) shall not be settled under this Chapter, if in the opinion of the Board, the applicant has failed to make a full and true disclosure of facts or failed to co-operate in the required manner.
2. Not with standing anything contained in the notice of settlement, the Board shall have the power to modify the enforcement action to be brought against the notice and the notice of settlement shall not confer any right upon the noticee to seek settlement or avoid any enforcement action.
3. The noticee may, within thirty calendar days from the date of receipt of the notice of settlement, –
(a) file a settlement application in the Form specified in Part-A of Schedule-I along with non-refundable application fee as specified in Part-B and the undertakings and waivers as specified in Part-C of Schedule-I
(b) remit the settlement amount as specified in the notice of settlement;
(c) comply or undertake to comply with other non-monetary terms as specified in the notice of settlement, as the case may be; and
(d) seek rectification of the calculation of the settlement amount, as communicated in the notice of settlement, at the time of filing the settlement application and in all such cases, the decision of the Board shall be final and remittance shall be done within thirty calendar days from the date of receipt of the decision of the Board:
Provided that, the Board may for reasons to be recorded, grant extension of time not exceeding a further period of fifteen calendar days for filing the settlement application, remittance of the settlement amount and/or furnishing an undertaking in respect of any of the non-monetary terms or compliance with any of the non-monetary terms specified in the notice of settlement.
4. Upon being satisfied with the remittance of settlement amount and undertaking furnished in respect of the non-monetary terms or compliance with non-monetary terms, if any as detailed in the settlement notice, the Board shall pass an order of settlement under regulation 23. Regulation 17 states that notwithstanding anything contained in these regulations, where a noticee does not file a settlement application under this Chapter or remit the settlement amount and/or comply with other non-monetary terms to the satisfaction of the Board or withdraws the settlement application at any time prior to the communication of the decision of the Board, the specified proceedings may be initiated, and such a noticee shall only be permitted to file a settlement application in respect of the proceedings pending before the Court or Tribunal, after conclusion of proceedings before the Adjudicating Officer or the Board, as the case may be.
Settlement Notice (Regulation 18)
1. A notice of settlement in the format as specified in Part-B of Schedule-Ill, indicating the substance of the probable charges and enforcement actions, may, except in cases covered under Chapter VII, be issued by the Board prior to the issuance of the notice to show cause so as to afford the noticee an opportunity to file a settlement application under Chapter-ll, within fifteen calendar days from the date of receipt of the settlement notice.
2. Notwithstanding anything contained in the settlement notice, the Board shall have the right to modify the nature of the enforcement action to be initiated against the noticee and fne charges stated in the notice shall not confer any right to seek settlement on the said basis or avoid any , enforcement action due to modified charges.
3. Where a noticee does not file the settlement application under this Chapter or withdraws the settlement application at any time prior to the communication of the decision of the Panel of Whole Time Members under regulation 15, the specified proceedings may be initiated and such a noticee shall only be permitted to file a settlement application in respect of the proceedings pending before a Court or tribunal, after conclusion of the proceedings before the Adjudicating Officer or the Board, as the case may be.
Relief and Remedies Notes
Compounding of offences:
Companies are expected to comply with the law(s) governing them and /or applicable to them. In this context, the compliance of Companies Act, 2013, Foreign Exchange Management Act, 1999 and SEBi/Securities laws assume significance. When there is a non-compliance or contravention, it is said that an Offence is committed vis a vis the said compliance /regulatory requirement. It is known that when an offence is committed.
What is Compounding?
Compounding is not defined in Companies Act or FEMA or SEBI Laws. As per the Black’s Law Dictionary, to “Compound” means “to settle a matter by a money payment, in lieu of other liability.” As per this definition Compounding is akin to a Settlement Mechanism, a settlement by paying the penalty in lieu of facing the prosecution for the offence committed.
Why Compound?
Few of the important benefits of the compounding of offences can be:
- Buy peace of mind.
- Compounding amount shall not be treated as fine for the purpose of Part I of Schedule V of CA-2013 relating to appointment of managerial personnel provided therein.
- No need to appear before prosecution authorities. It provides comfort to individuals and corporates and persons connected with it.
- Amount paid as compounding fee under law for can be claimed as a tax deduction under the income Tax Act while a penalty paid for contravention is not eligible for deduction.
- Speedy disposal of offences and justice
- Judiciary can devote more time and concentrate on serious cases.
Which offences can be compounded?
Any offence punishable under this Act (whether committed by a company or any officer thereof) not being an offence punishable with imprisonment only or imprisonment and also with fine may be compounded. Thus, if the offence is punishable with fine only or imprisonment or fine or with fine or imprisonment or both alone can be compounded.
Which offences cannot be compounded?
- Any offence punishable under this Act (whether committed by a company or any officer thereof) being an offence punishable with imprisonment only or imprisonment and also with fine cannot be compounded
- Any offence otherwise compoundabie cannot also be compounded if the investigation against such company has been initiated or is pending under this Act.
- An offence committed by a company or its officer within a period of three years from the date on which a similar offence committed by it or him was compounded under this section.
Who are the compounding authorities/ who can compound the offence?
- The Regional Director appointed by the Central Government as a Regional Director for the purposes of this Act and the National Company Law Tribunal (Tribunal) are the two compounding authorities.
- Where the maximum amount of fine which may be imposed for an offence does not exceed Twenty-five lakh rupees, the Regional Director or any officer authorised by the Central Government can compound the offence.
- In all other case of compoundabie offence(s), the Tribunal is authorised to compound.
- Here maximum amount of fine means, fine which is payable for alleged violation of a particular section of the Act.
- The compounding authority has no power to impose tine which exceeds the maximum amount of fine which may be imposed for offence so compounded.
- In specifying the sum required to be paid or credited for the compounding of an offence, the sum, if any, paid by way of additional fee under sub-section (2) of Section 403 shall be taken into account
Penal provisions under FEMA:
- Section 13 of FEMA contains the penalties for contravention of any provision of FEMA or any rule, regulation, notification, direction or order issued in exercise of the powers under it including contravention of any condition subject to which an authorization is issued.
- The penalties are quite substantial and can extend up to thrice the sum involved in such contravention where the amount is quantifiable or up to Rupees Two lakhs, where the amount is not directly quantifiable and where the contravention is a continuing one, further penalty which may extend to Rupees Five thousand for every day after the first day during which the contravention continues.
Power of Reserve Bank to Compound Contravention:
If any Person contravenes any provisions of Foreign Exchange Management Act, 1999 except clause (a) of Section 3 of the Act.
(a) in case where the sum involved in such contravention is ten lakhs rupees or below, by the Assistant General Manager of the Reserve Bank of India
(b) in case where the sum involved in such contravention is more than rupees ten lakhs but less than rupees forty lakhs, by the Deputy General Manager of Resen/e Bank of India
(c) in case where the sum involved in the contravention is rupees forty lakhs or more but less than rupees one hundred lakhs by the General Manager of Reserve Bank of India
(d) in case the sum involved in such contravention is rupees one hundred lakhs or more, by the Chief General Manager of the Reserve Bank of India
Power of Enforcement Directorate to Compound Contraventions:
If any Person contravenes provisions of Section 3 (a), of Foreign Exchange Management Act.
(a) in case where the sum involved in such contravention is five lakhs rupees or below, by the Deputy Director of the Directorate of Enforcement
(b) in case where the sum involved in such contravention is more than rupees five lakhs but less than rupees ten lakhs, by the Additional Director of the Directorate of Enforcement
(c) in case where the sum involved in the contravention is rupees ten lakhs or more but less than fifty lakhs rupees by the Special Director of the Directorate of Enforcement
(d) in case where the sum involved in the contravention is rupees fifty lakhs or more but less than one crore rupees by Special Director with Deputy Legal Adviser of the Directorate of Enforcement
(e) in case the sum involved in such contravention is one crore rupees or more, by the Director of Enforcement with Special Director of the Enforcement Directorate. Provided further that no contravention shall be compounded unless the amount involved in such contravention is quantifiable.
Factors considered while Considering Compounding Application:
The following factors, which are only indicative, may be taken into consideration for the purpose of passing compounding order and adjudging the quantum of sum on payment of which contravention shall be compounded:
(a) the amount of gain of unfair advantage, wherever quantifiable, made as a result of the contravention
(b) the amount of loss caused to any authority/ agency/exchequer as a result of the contravention
(c) economic benefits accruing to the contravener from delayed compliance or compliance avoided
(d) the repetitive nature of the contravention, the track record and/or history of non-compliance of the contravener.
Meaning of Mediation:
The term “mediation” has been defined under black law dictionary as “an act of a third person who interferes between two contending parties with a view to reconcile them or persuade them to adjust or settle their dispute”.
Meaning of Conciliation:
The term “Conciliation” has been defined under black law dictionary as “The process of adjusting or settling disputes in a friendly manner through extra judicial mean”.
Application for appointment of Mediator or Conciliator & his appointment (Rule 6)
(1) (a) Parties concern may agree on the name of the sole mediator or conciliator for mediation or conciliation between them
(b) Where, there are two or more sets of parties and are unable to agree on a sole mediator or conciliator, the Central Government or the Tribunal or the Appellate Tribunal may ask each party to nominate the mediator or conciliator or the Central Government or the Tribunal or the Appellate Tribunal may appoint the mediator or conciliator, as may be deemed necessary for mediation or conciliation between the parties.
(2) The application to the Central Government or the Tribunal or the Appellate Tribunal, as the case may be, for referring the matter pertaining to any proceeding pending before it for mediation or conciliation shall be in Form MDC-2 (provided in the rules itself) and shall be accompanied with a fee of one thousand rupees.
(3) On receipt of an application under sub-rule (2), the Central Government or the Tribunal or the Appellate Tribunal shall appoint one or more experts from the panel.
(4) The Central Government or the Tribunal or the Appellate Tribunal, as the case may be, before which any proceeding is pending may, suo moto, refer any matter pertaining to such proceeding to such number of experts from the Mediation and Conciliation Panel, if it deems fit in the interest of parties.
Role of Mediator or Conciliator (Rule 17):
- The mediator or conciliator shall attempt to facilitate voluntary resolution of the dispute by the parties, and communicate the view of each party to the other, assist them in identifying issues, reducing mis- . understandings, clarifying priorities, exploring areas of compromise and generating options in an attempt to resolve the dispute, emphasising that it is the responsibility of the parties to take decision which affect them and he shall not impose any terms of settlement on the parties.
- On consent of both the parties, the mediator or conciliator may impose such terms and conditions on the parties for early settlement of the dispute as he may deem fit.
Settlement agreement (Rule 25):
(1) Where an agreement is reached between the parties in regard to all the issues or some of the issues in the proceeding, the same shall be reduced to writing and signed by the parties and if any counsel has represented the parties, the conciliator or mediator may also obtain the signature of such counsel on the settlement agreement.
(2) The agreement of the parties so signed shall be submitted to the mediator or conciliator who shall, with a covering letter signed by him, forward the same to the Central Government or the Tribunal or the Appellate Tribunal, as the case may be.
(3) Where no agreement is reached at between the parties, before the time limit specified in Rule 19, Or where the mediator or conciliator is of the view that .no settlement is possible, he shall report the same to the Central Government or the Tribunal or the Appellate Tribunal, as the case may be, in writing.
Ethics to be followed by Mediator or Conciliator (Rule 28)
The mediator or conciliator shall-
(a) follow and observe the rules strictly and with due diligence
(b) not carry on any activity or conduct which shall reasonably be considered as conduct unbecoming of a mediator or conciliator
(c) uphold the integrity and fairness of the mediation or conciliation process
(d) ensure that the parties involved in the mediation or conciliation are fairly informed and have an adequate understanding of the procedural aspects of the process
(e) satisfy himself or herself that he or she is qualified to undertake and complete the assignment in a professional manner
(f) disclose any interest or relationship likely to affect impartiality or which might seek an appearance of partiality or bias
(g) avoid, while communicating with the parties, any impropriety or appearance of impropriety
(h) be faithful to the relationship of trust and confidentiality imposed in the office of mediator or conciliator.
Consent Order:
- Consent Order means an order settling administrative or civil proceedings between the regulator and a person (Party) who may prima facie be found to have violated securities laws.
- It may settle all issues or reserve an issue or claim, but it must precisely state what issues or claims are being reserved.
- A Consent Order may or may not include a determination that a. violation has occurred.
- Consent Order provides flexibility of wider array of enforcement and remedial actions which will achieve the twin goals of an appropriate sanction, remedy and deterrence without resorting to litigation, lengthy proceedings and consequent delays.
- Consent orders cannot be construed as waiver of statutory powers by f the Board.
- The Board always has the right to proceed for appropriate action if it cannot achieve its objectives through a consent order.
Scope of Settlement
Scope of settlement proceedings (Regulation 5)
1. No application for settlement of any specified proceedings shall be considered, if:
(a) an earlier application with regard to the same alleged default had been rejected;
(b) the audit or investigation or inspection or inquiry, if any, in respect of any cause of action, is not complete, except in case of applications involving confidentiality; or
(c) monies due under an order issued under securities laws are liable for recovery under securities laws,
2. The Board may not settle any specified proceeding, if it is of the opinion that the alleged default,
- as market wide impact
- caused losses to a large number of investors, or
- affected the integrity of the market.
3. Without prejudice to the generality of the foregoing provisions, for settling any specified proceeding the Board may inter alia take into account the following factors:
(a)whether the applicant has refunded or disgorged the monies due, to the satisfaction of the Board
(b) whether the applicant has provided an exit or purchase option to investors in compliance with securities laws, to the satisfaction of the Board
(c) any other factor as may be deemed appropriate by the Board.
Terms of Settlement:
Settlement terms (Regulation 9)
1. The settlement terms may include a settlement amount and/or non-monetary terms, in accordance with the guidelines specified in Schedule-ll.
2. The non-monetary terms may include the following:
(a) Suspension or cessation of business activities for a specified period
(b) Exit from Management
(c) Disgorgement on account of the action or inaction of the applicant
(d) Refraining from acting as a partner or officer or director of an intermediary or as an officer or director of a company that has a class of securities regulated by the Board, for specified periods
(e) Cancel securities and reduce holdings where the securities are issued fraudulently, including bonus shares received on such securities, if any, and reimburse any dividends received, etc.
(f) Lock-in of securities
(g) Implementation of enhanced policies and procedures to prevent future securities laws violations as well as agreeing to appoint or engage an independent consultant to review internal policies, processes and procedures
(h) Provide enhanced training and education to employees of intermediaries and securities market infrastructure institutions
(i) Submit to enhanced internal audit and reporting requirements.
Procedure Of Settlement
Proceedings before the Internal Committee (Regulation 13)
1. Save as otherwise provided in these regulations, an application shall be referred to an Internal Committee to examine whether the proceedings may be settled and if so to determine the settlement terms in accordance with these regulations.
2. The Internal Committee may:
(a) call for relevant information, documents, etc., pertaining to the alleged default(s) in possession of the applicant or obtainable by the applicant;
(b) call for the personal appearance of the applicant before it:
Provided that a duly authorized representative of the applicant ‘ may represent on behalf of the applicant:
(c) permit the applicant to submit revised settlement terms within a period not exceeding ten working days from the date of the Internal Committee meeting: Provided that the revised settlement terms received after ten working days, but within twenty working days may be considered subject to an increase of ten percent over the recommended settlement amount.
3. The proposed settlement terms, if any, shall be placed before the High-Powered Advisory Committee
Proceedings before the High-Powered Advisory Committee (Regulation 14):
1. The High-Powered Advisory Committee shall consider the proposed settlement terms placed before it along with the following:
(a) the application, undertaking and waivers of the applicant
(b) factors specified in regulation 10
(c) settlement terms or revised settlement terms proposed by the applicant
(d) any other relevant material available on record.
2. The High-Powered Advisory Committee may seek revision of the settlement terms and refer the application back to the Internal Committee.
3. The recommendations of the High-Powered Advisory Committee shall be placed before the Panel of Whole Time Members.
Settlement Notice (Regulation 18):
1. A notice of settlement in the format as specified in Part-B of Schedule-Ill, indicating the substance of the probable charges and enforcement actions, may, except in cases covered under Chapter VII, be issued by the Board prior to the issuance of the notice to show cause so as to afford the noticee an opportunity to file a settlement application under Chapter-ll, within fifteen calendar days from the date of receipt of the settlement notice.
2. Notwithstanding anything contained in the settlement notice, the Board shall have the right to modify the nature of the enforcement action to be initiated against the noticee and the charges stated in the notice shall not confer any right to seek settlement on the said basi^ or avoid any enforcement action due to modified charges.
3. Where a noticee does not file the settlement application under this Chapter or withdraws the settlement application at any time prior to the communication of the decision of the Panel of Whole Time Members under regulation 15, the specified proceedings may be initiated and such a noticee shall only be permitted to file a settlement application in respect of the proceedings pending before a Court or tribunal, after conclusion of the proceedings before the Adjudicating Officer or the Board, as the case may be.
Settlement Orders:
Settlement of proceedings before the Adjudicating Officer and the Board (Regulation 23)
1. The Adjudicating Officer shall by an appropriate order dispose of the proceeding pending before him on the basis of the approved settlement terms.
2. The Panel of the Whole Time Members shall by an appropriate order dispose of proceedings initiated or proposed to be initiated other than the proceedings referred to in sub-regulation (1).
The settlement order passed under these regulations shall, contain the details of the alleged default(s), relevant provisions of the securities laws, brief facts and circumstances relevant to the alleged default, the admissions made by the applicant, if any and the settlement terms.
Appeal against order – Companies Act. 2013 (ACT):
Appeal against order passed by The National Company Law Tribunal (NCLT)
- It is provided in Section 420 of the Act that the NCLT may, after giving the parties to any proceeding an opportunity of being heard, pass such orders thereon as it thinks fit.
- Though the word is “may”, it is mandatory for the NCLT to pass an order so that the aggrieved party may exercise his /its right of appeal against the order under Section 421 of the Act.
Appeal against order passed by The National Company Law Appellate Tribunal (NCLT)
- Any person aggrieved by an order of the Tribunal may prefer an appeal to the Appellate Tribunal- that is the National Company Law Appellate Tribunal (NCLAT) under Section 421 Of the Act.
- However, no appeal shall lie to NCLAT from an order made by the NCLT with the consent of parties.
- Every appeal to NCLAT shall be filed within a period of forty-five days from the date on which a copy of the order of the Tribunal is made available to the person aggrieved and shall be in such form, and accompanied by such fees, as may be prescribed: As perthe National Company Law Appellate Tribunal Rules, 2016, every appeal shall be presented inform NCLAT-1 in triplicate accompanied by a certified copy of the impugned order.
- There shall be an index of documents in triplicate also. The fee presently payable on appeal under Section 421 of the Act is ₹ 5,000/- which is to be deposited in separate demand draft or Indian Postal Order favouring “Pay and Accounts officer, Ministry of Corporate Affairs, payable at New Delhi.
Appeal against order passed by The National Company Law Appellate Tribunal (NCLAT):
- Any person aggrieved by any order of the NCLAT may file an appeal to the Supreme Court within sixty days from the date of receipt of the order of the NCLAT to him on any question of law arising out of such order.
- However, if the Supreme Court is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, it may allow the appeal to be filed within a further period not exceeding sixty days. (Section 423 of the Act).
- Thus, appeal to supreme court is possible only on any question of law arising out of the order of NCLAT and not any other order.
Appeal against order passed by The Securities Appellate Tribunal (SAT):
- Any person aggrieved by any decision or order of the Securities Appellate Tribunal may file an appeal to the Supreme Court within sixty days from the date of communication of the decision or order of the Securities Appellate Tribunal to him on any question of law arising out of such order.
- Supreme Court may, if it is satisfied that the applicant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days. (Section 423 of the Act)
- Thus, appeal to supreme court is possible only on any question of law arising out of the order of SAT and not any other order.
Appeal to Special Director (APPEALS) – Section 17 of FEMA:
- The Central Government shall, by riotification, appoint one or more Special Directors (Appeals) to hear appeals against the orders of the Adjudicating Authorities under this section and shall also specify in the said notification the matter and places in relation to which the Special Director (Appeals) may exercise jurisdiction.
- Any person aggrieved by an order made by the Adjudicating Authority, being an Assistant Director of Enforcement or a Deputy Director of Enforcement, may prefer an appeal to the Special Director (Appeals)
- The appeal shall be filed within forty-five days from the date on which the copy of the order made by the Adjudicating Authority is received by the aggrieved person and it shall be in such form, verified in such manner and be accompanied by such fee as may be prescribed.
- The Special Director (Appeals) may entertain an appeal after the expiry of the said period of forty-five days, if he is satisfied that there was sufficient cause for not filing it within that period.
- On receipt of an appeal the Special Director (Appeals) may after giving the parties to the appeal an opportunity of being heard, pass such order thereon as he thinks fit confirming, modifying or setting aside the order appealed against.
- The Special Director (Appeals) shall send a copy of every order made by him to the parties to appeal and to the concerned Adjudicating Authority.
- The Special Director (Appeals) shall have the same powers of a civil court which are conferred on the Appellate Tribunal.
Appearance before Securities Appellate Tribunal (SAT):
The appellant may either appear in person or authorise one or more chartered accountants or company secretaries or cost accountants or legal practitioners or any of its officers to present his or its case before the Securities Appellate Tribunal.
Appearance before Appellate Tribunal Competition Act, 2002:
Section 53-S of the Competition Act, 2002 dealing with the right of legal representation, enables a person preferring an appeal to the Appellate Tribunal may either appear in person or authorize one or more chartered accountants or company secretaries or cost accountants or legal practitioners or any of its officers to present his or its case before the Appellate Tribunal. The Central Government or a State Government or a local authority or any enterprise preferring an appeal to the Appellate Tribunal may authorize one or more chartered accountants or company secretaries or cost accountants or legal practitioners or any of its officers to act as presenting officers and every person so authorized may present the case with respect to any appeal before the Appellate Tribunal.
Professional Dress:
The professional dress prescribed under the code of conduct for the professional is required to be worn by the authorised representative while appearing before the authorities.
The Council of ICSI has approved the following Guidelines for Professional Dress Code for Company Secretaries to appear before judicial / quasi-judicial bodies and tribunals like NCLT- NCLAT, SAT, etc.:
1. For Male Members:
(a) Navy Blue Suit (Coat & Trouser), with CS logo, Insignia OR Navy Blue Blazer over a sober colored Trouser
(b) Neck Tie (ICSI)
(c) White full sleeve Shirt
(d) Formal Black Leather Shoes (Shined)
2. For Female Members:
(a) Navy Blue corporate suit (Coat & Trouser), could be with a neck tie/ Insignia
OR
(b) Saree / any other dress of sober colour with Navy Blue Blazer with CS logo
(c) A sober footwear like Shoes/ Bellies/ Wedges, etc (shined)