Mcs Ans 2-6

27 PP–MCS–June 2022
The following additional points may be considered regarding control system:

• Placing certain qualification restrictions and employing only certified, qualified
financial managers and staff working with the formulation and implementation of
financial management policies
• Establishing an efficient, direct chain of communication among the accounting
staff, financial managers, and senior-level managers, including the CFO (Chief
Financial Officer)
• Periodic training sessions and information sessions among accounting staff,
etc. to ensure being updated with the changing laws and evolving business
environment concerning business finance
• Periodic, thorough financial analysis and evaluation of financial ratios and
statements wherever fluctuations are significant
• Delegation of financial duties in a segregated and hierarchical fashion in order to
establish a chain of operation and efficiency via specialization
Question 2
(a) M/s. Alpha LLP with M/s. Beta Pvt. Ltd., and their respective partners,
shareholders, and creditors proposed to be amalgamating Alpha (Transferor)
with Beta (Transferee). The petition for joint company; under section 230 to 232
of the Companies Act, 2013, and Companies (Compromises, Arrangements,
and Amalgamation) Rules, 2016 and National Company Law Tribunal Rules,
216; before National Company Law Tribunal (NCLT), Delhi. Alpha is incorporated
on 4th February, 2016 under the provisions of Limited Liability Partnership (LLP),
Act, 2008 and its registered office in Delhi. Beta is a private limited company
incorporated on 12th February, 2017 under the Companies Act, 2013 and having
its registered office in Delhi. Alpha and Beta are engaged in the establishing
and/or acquiring Health care related products.
NCLT found that all statutory requirements have been fulfilled as per Companies
Act, 2013. NCLT also discovered that LLPs can be incorporated into a company
under Section 394(4)(b) of the Companies Act, 1956, but that no such provision
exists in the Companies Act, 2013. Because section 234(2) of the Companies
Act, 2013 allows a foreign LLP to combine with an Indian business, it would be
incorrect to assume that section 234(2) of the Companies Act, 2013 forbids an
Indian LLP from merging with an Indian company.
By the assailed order, the NCLT applied the Casus Omissus principle and
authorised the merger of Alpha and Beta. (6 marks)
(b) Ajay Oza was a director in several companies and was barred from being appointed
or reappointed as a director for a term of five years under Section 164(2)(a) due to
a failure by one of the firms to file annual returns and financial statements for the
financial year 2015-17. In 2018, the list of directors that were disqualified was
made public. Before the Gujarat High Court, Ajay challenged the list of disqualified
directors for defaults in the financial years 2013-15 and 2014-17.
Was there a requirement to provide prior notice and an opportunity to be heard
before publishing the list of disqualified directors ? (6 marks)
PP–MCS–June 2022 28
Answer 2(a)
In the case of Regional Director, Southern Region and Ors. vs. Real Image LLP and
Ors, Company Appeal (AT) No. 352 of 2018, Judgement dated 04.12.2019, NCLAT
observed that it is undisputed that transferor LLP is incorporated on 04.01.2016 under
the provisions of LLP Act, 2008 and the transferee company is incorporated on 12.01.2017
under the Companies Act, 2013. Thus, these corporate bodies were governed by the
respective Acts and not by earlier Act, 1956. Hence, it is apparent that as per Section
232 of the Companies Act, 2013, a company or companies can be merged or amalgamated
into another company or companies. The Companies Act, 2013 has taken care of merger
of LLP into company. In this regard Section 366 of the Companies Act, 2013 provides
that for the purpose of Part I of Chapter XXI the word company includes any partnership
firm, limited liability partnership, cooperative society, society or any other business
entity which can apply for registration under this part. It means that under this part LLP
will be treated as company and it can apply for registration and once the LLP is registered
as company then the company can be merged in another company as per Section 232
of the Companies Act, 2013.
NCLAT further observed that the provisions of the Companies Act, 2013 as a whole
in reference of conversion of Indian LLP into Indian company there is no ambiguity or
absurdity or anomalous results which could not have been intended by the legislature.
The principal of casus omissus cannot be supplied by the Court except in the case of
clear necessity and when reason for it is found in the four corners of the statute itself.
There is no such occasion to apply the principal of casus omissus. Cassus Ommisus is
a situation omitted from or not provided for by statute or regulation and therefore governed
by the common law.
The legislature has enacted provision in the Companies Act, 2013 for conversion of
Indian LLP into Indian Company and vice versa in the Limited Liability Partnership Act,
2008. Thus there is no question infringement of any constitutional right of the Respondent.
The NCLAT held that the impugned order passed by NCLT, Chennai Bench is not
sustainable in law and thus, set aside, which is allowing the merger of an Indian LLP
with an Indian company without such registration.
Answer 2(b)
The present case is similar to the case of the case of Mukut Pathak & Ors. vs.
Union of India & Anr. W.P. (C) 9088/2018 & CM Appln. No.35006/2018, judgement dated
04.11.2019. In this case Delhi High Court observed that principles of natural justice are
only meant to supplement the law and are a kind of code of fair administrative procedure
in the decision making process. However, in the present case, the administrative
authorities are not required to take any qualitative decision, in as to when a director
would be disqualified. Section 164(2) merely sets out the conditions, which if not complied
with, would disqualify a person from being reappointed or appointed as a director. Thus,
it was unable to accept that exclusion of the “audi alteram partem” rule resulted in any
procedural unfairness.
Question 3
(a) M/s. Suraksha Ltd. is aggrieved by the impugned order of the National Company
Law Tribunal (NCLT) Mumbai Branch, pursuant to which Zamaria Bank’s
application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC)
was admitted, a moratorium was imposed, and an Interim Resolution Professional
was appointed with specific instructions. The Zamaria Bank claimed that the
Suraksha had defaulted to the tune of ` 28.15 crore before the NCLT. Suraksha
was granted facilities consisting of cash credit, term loan, and bank guarantee
totaling 14.69 lakh by Zamaria Bank on the basis of a ‘sanction letter’ dated
December 26, 2015, in terms of which Suraksha was granted facilities consisting
of cash credit, term loan, and bank guarantee totaling 14.69 lakh, repayment of
which was secured by various assets.
Zamaria Bank also relied on the ‘statement of accounts’ to back up its claim for
the sum in question. Because the petition was accepted by the NCLT, the
aggrieved party filed an appeal with the National Company Law Appellant Tribunal
(NCLAT). You must decide whether or not the appeal can be accepted in favour
of the aggrieved party. (6 marks)
(b) The Competition Commission of India (CCI) has launched a probe into the alleged
arbitrary procurement of Romania brands by Parikh Agricultural Produce
Marketing Board (PAPMB) and Mojhi Agricultural Produce Marketing Board
(MAPMB), in violation of the Act’s Section 4 requirements. The Director General
(DG) stated that PAPMB, as the sole procurer of A+ category wheat in Madhya
Pradesh, with a 100 percent market share and indisputable supremacy, had
purposefully neglected the importance of diverse wheat brands.
The DG found PAPMB in violation of Section 4(2)(c) of the legislation, as well
as Section 4(2)(b)(i) of the act. MAPMB, on the other hand, was not found to be
in violation. After a thorough deliberation, the CCI issued a show cause notice
to PAPMB and MAPMB on August 30, 2018, asking them to explain why their
actions should not be regarded to be in violation of section 4 of the act. An
appeal was filed with the National Company Law Appellant Tribunal by a party
who felt aggrieved by the same (NCLAT).
You must demonstrate whether or not the appeal before the NCLAT is maintainable
under Sections 53A and 53B. (6 marks)
Answer 3(a)
The present case is similar to the case of Shalini Publicity Creative Pvt. Ltd.
(Appellant) vs. Dena Bank (Respondent) Company Appeal (AT) (Insolvency) No. 153 of
2019 judgement dated 18/02/2019. In this case NCLAT observed that:
The Adjudicating Authority taking note of the fact that the One Time Settlement
(OTS) proposal made by the Corporate Debtor had been rejected by the Financial Creditor
and that the ‘debt’ and ‘default’ was established, proceeded to admit the application
thereby initiating Corporate Insolvency Resolution Process against the Corporate Debtor.
Learned counsel for the Appellant tried to make a vain attempt to assail the impugned
order raising the issue of limitation. In the first place be it seen that no such plea was
raised before the Adjudicating Authority. That apart, under Article 137 of the Limitation
Act, the right to sue accrues when a default occurs. The period of three years, as
envisaged under aforesaid Article, would therefore have to be reckoned from the date of
default unless there is a continuing cause of action. It emanates from record that the
Financial Creditor relied upon various security documents connected with the sanction
of loan facilities. In addition thereto reliance was also placed on notice issued under
Section 13(2) of SARFAESI Act, 2002 demanding a sum of Rs.16, 31, 06,448/- as on
17th February, 2016.
Once the debt was acknowledged on 26th February, 2015 and the suit for recovery
was filed before the Debts Recovery Tribunal-3, Mumbai on 19th October, 2016, the
claim cannot be held to be barred by limitation. Even otherwise, the objection in regard
to the claim being barred by limitation has to be determined during the Corporate
Insolvency Resolution Process only. Triggering of Corporate Insolvency Resolution
Process on grounds of default of a debt that’s payable in law or in fact is different from
admission or rejection of a claim of a creditor during such process.
Section 7 of I&B Code providing for initiation of Corporate Insolvency Resolution
Process by Financial Creditor came into force on 1st December, 2016. Remedy by way
of triggering of insolvency resolution process on the ground of default committed qua
the financial debt was admittedly not available to a Financial Creditor prior to such date.
It is not disputed by learned counsel for the Appellant that the application under Section
7 of I&B Code came to be filed by the Financial Creditor on 12th October, 2018. The
triggering of Corporate Insolvency Resolution Process, therefore,` cannot be said to be
beyond limitation, more so as there has been acknowledgement of debt on 26th February,
2015 and remedy for initiation of Corporate Insolvency Resolution Process in terms of
Section 7 of I&B Code was not available prior to 1st December, 2016. That apart, there
has been continuing cause of action as OA 1194 of 2016 filed by the Financial Creditor
against the Corporate Debtor before the Debts Recovery Tribunal, Mumbai on 19th
October, 2016 is still pending adjudication.
Learned counsel for the Appellant made feeble attempt to contend that the debt
acknowledgement letter dated 26th February, 2015 was manipulated and fictitious and
same could not be made a basis for either reckoning the period of limitation or for
entertaining claim. In absence of such plea having been raised before the Adjudicating
Authority besides no complaint alleging forgery, fabrication/ fudging of record being
lodged, this argument must be rejected with the contempt that it deserves. On one hand
the Appellant was seeking restructuring of loan in terms of RBI Guidelines seeking more
time for One Time Settlement (OTS) but on the other hand alleges fabrication and
manipulation. What prompted the Corporate Debtor to seek restructuring of loan through
One Time Settlement is explainable on no hypothesis other than the one that the Corporate
Debtor had committed default qua the outstanding amount which was payable.
For the foregoing reasons, NCLAT of the considered opinion that the appeal is
devoid of any merit. The appeal is accordingly dismissed.
Answer 3(b)
Hon’ble NCLAT vide judgment dated 12.03.2020 in Uttarakhand Agricultural Produce
Marketing Board vs. CCI & Ors. held that it is clear from the impugned order that
Competition Commission of India (CCI) issued show cause notice to GMVNL & KMVNL
to show cause as to why their conduct should not be held to be in contravention of the
provisions of Section 4(2) (b) and 4(2)(c) read with Section 4(1) of the Competition Act.
The Informant alleged that the opposite parties including appellant herein had abused
their dominant position in contravention of the provisions of Section 4 of the Act and
further alleged that the opposite parties including the appellant herein took advantage of
their monopoly and abused their dominance. No specific finding had been given by the
CCI against UAPMB.
Section 53A of the Competition Act relate to establishment of Appellate Tribunal
which can hear and dispose off the appeal against order passed under sub-section (2)
and (6) of section 26, section 27, section 28, section 31, section 32, section 33,
section 38, section 39, section 43, section 43A, section 44, section 45 or section 46
of the Act.
Section 53B of the Act allows an enterprise aggrieved by any direction, decision
or order referred to in clause (a) of Section 53A to prefer an appeal to the Appellate
Tribunal.
Further, the NCLAT observed that it was also clarified by the CCI in its order that
nothing stated therein shall tantamount to a final expression of opinion on the merits of
the case and the final view would be taken after considering the replies and arguments
of the parties and the material on record. In view of the aforesaid fact, it was held by
NCLAT that the impugned order did not amount to passing of an order under Section 27
of the Act and thereby the appeal under Section 53B read with Section 53A was not
maintainable.
Question 4
(a) A wary purchaser of a secured asset is caught in the litigious cross fire between
the borrowers and the banker. Spent his money, burnt his fingers (as he claims),
and now wants to salvage the situation. The purchaser wants to withdraw from
the sale and get his money back. But he faces uncertainty. After suffering an
adverse order before the DRT, the Bank has filed an appeal before the DRAT,
Chennai. And its disposal assumes importance for the purchaser to press his
claim for refund. He wants the Appellate Tribunal to dispose of the appeal early.
Now the question is, can this Court, in Kerala, assume supervisory jurisdiction
over the Appellate Tribunal in Chennai, Tamil Nadu ?
A question of territorial jurisdiction must be resolved. (6 marks)
(b) Rajula Ltd. and Drink Ltd. have reached an agreement for the building of a soft
drink bottling factory. Drink Ltd. was supposed to supply the concentrates for
making soft drinks. According to the deal between Rajula Ltd. and Drink Ltd.,
the soft drink would be sold in seven districts across Gujarat.
The Drink Ltd. cancelled Rajula Ltd.’s agreement. Commercial manufacturing at
the plant ended in 2010, and Rajula Ltd. filed a lawsuit. After subtracting `18.10
lakh payable by the Rajula Ltd. to the Drink Ltd. as consultant expenses, the
learned Single Judge ruled the Suit, awarding damages for loss of projected
earnings and plant installation costs. Drink Ltd. was ordered to pay Rajula Ltd.
an amount of `8.48 crore plus 10% interest from the date of the suit until payment.
The Division Branch reversed the decree and dismissed the case on appeal. As
a result, an appeal to the Supreme Court has been filed.
You are required to comment whether the Rajula Ltd., is entitled for damages for
loss of anticipated profit ? (6 marks)
Answer 4(a)
The situation given in the question is similar to the case of Thomas Chacko (Appellant)
vs. The Chief Manager, Bank of India & Ors (Respondent).
Decision : Petition allowed.
Reason:
Plainly read, Article 227 of the Constitution of India confers on every High Court
superintendence over all courts and tribunals throughout the “territories” over which the
High Court exercises its jurisdiction. Then, should we reckon “territories” in the literal,
geographical sense or in the figurative, legal sense as fiction.
In Ambica Industries v. Commissioner of Central Exercise (2007) 6 SCC 769, the

appellant carried on business at Lucknow. A dispute involving the appellant, however,
arose before the CESTAT, New Delhi. The Tribunal exercises its jurisdiction over the
cases from the State of Uttar Pradesh, National Capital Territory of Delhi, and the State
of Maharashtra. Against the Tribunal’s order, the appellant filed an appeal under Section
35G of the Central Excise Act before the Delhi High Court. A Division Bench held that it
had no territorial jurisdiction; it dismissed the appeal. So the matter reached the Supreme
Court.
In the above factual backdrop, Ambica Industries has held that as for Article 227 of
the Constitution of India, as also Clause (2) of Article 226, the High Court exercises its
discretionary jurisdiction over the orders passed by the Subordinate Courts within its
territorial jurisdiction. And even if any part of the cause of action has arisen within its
territory that will suffice. But this principle cannot be applied, holds Ambica Industries,
when the High Court exercises its jurisdiction over a Tribunal extending its jurisdiction
over more than one State. Then, “the High Court situated in the State where the first
court is located” should be the proper forum.
Without much ado, I may hold that Ambica Industries’s assertion clinches the issue:
when the High Court exercises its jurisdiction over a Tribunal extending its jurisdiction
over more than one State, then the High Court in the State where the first court is
located should be the proper forum. Indeed, here the first or the primary forum is the
DRT, Ernakulum. So this Court can eminently exercise its supervisory jurisdiction over
the DRAT, Chennai. Here, the petitioner wants a direction to the Appellate Tribunal to
dispose of the appeal early.
That said, this Court cannot be oblivious to the docket pressure the Appellate Tribunal
faces. Nor can it set impracticable deadlines, for adjudication is not akin to answering a
multiple-choice question paper. It is much more. A back-breaking, brain-racking exercise.
So I queried with the learned Central Government Counsel about the Appellate
Tribunal’s convenience and the feasibility of an early disposal. He has, presumably on
instructions, submitted that the Appellate Tribunal will dispose of the AIR (SR) No.460
of 2017 in three months’ time.
Under these circumstances, I hold that the DRAT, Chennai, will dispose of the AIR
(SR) No.460 of 2017 expeditiously in three months
Answer 4(b)
The facts given in the question are similar to the case Kanchan Udyog Ltd. (Appellant)
vs. United Spirits Ltd. (Respondent), SC dated 19.06.2017 wherein the bottler’s agreement
was terminated by the respondent. Commercial production at the plant ceased and the
suit was instituted by the appellant in 1990. The learned Single Judge decreed the Suit,
awarding damages towards loss of anticipated profits, and towards costs for installation
of the plant. But the Division Bench in appeal reversed the decree, and dismissed the
Suit. Hence the appeal was made to the Supreme Court.
Appeal was dismissed by the Supreme Court for the following reasons:
Despite of huge expenditure on advertisement by respondent, the appellant incurred
very less expenditure. The fact that it was unable to pay for the concentrates seeking
deferred payment, acknowledgement on 09.05.1988 that it would continue to suffer loss
for the next six years upto 1992-93 seeking long term credit for five years for supply of
concentrates and its acknowledgement in letter dated 27.04.1987 that due to “many
factors already discussed with you we have not been able to run the factory and the
sales of our product have not picked up in the market”, and not to press for payment of
consultancy fees, failure to deploy adequate manpower as per its own projections
demonstrates the poor financial condition of the appellant as the prime reason for its
inability to run the plant and earn profits.
In the facts of the present case, it cannot be held that the breach by the respondent
was the cause, much less the dominant cause for loss of anticipated profits by the
appellant.
The appellate court with reference to evidence has adequately discussed that the
appellant failed to take steps to mitigate it losses under the Explanation to Section 73 of
the Act. We find no reason to come to any different conclusion from the materials on
record. If concentrates were available from M/s. VEC, the appellant had to offer an
explanation why it stopped lifting the same after having done so for nearly a year, and
could have continued with the business otherwise and earned profits. It could also have
taken steps to sell the unit after its closure in May, 1989 rather than to do so belatedly
in 1996. No reasonable steps had been displayed as taken by the appellant for utilisation
of its bottling plant by negotiations with others in the business. Nothing had been
demonstrated of the injury that would have been caused to it thereby.
That leaves the question with regard to reliance loss and the expectation loss.
Whether the two could be maintainable simultaneously or were mutually exclusive? In
Pullock & Mulla, 14th Edition, Volume II, page 1174, the primary object for protection of
expectation interest, has been described as to put the innocent party in the position
which he would have occupied had the contract been performed. The general aim of the
law being to protect the innocent party’s defeated financial expectation and compensate
him for his loss of bargain, subject to the rules of causation and remoteness. The
purpose of protection of reliance interest is to put the plaintiff in the position in which he
would have been if the contract had never been made. The loss may include expenses
incurred in preparation by the innocent party’s own performance, expenses incurred
after the breach or even pre-contract expenditure but subject to remoteness.
In view of the conclusion, that the appellant was not entitled to any expectation loss
towards anticipated profits, for reasons discussed, any grant of reliance loss would
tantamount to giving a benefit to it for what was essentially its own lapses. There are no
allegations of any deficiency in the plant.
The aforesaid discussion leads to the inevitable conclusion that the appellant had
failed to establish its claim that the breach by the respondent was the cause for loss of
anticipated profits, that the profitability projection in its loan application was a reasonable
basis for award of damages towards loss of anticipated profits. The appellant had failed
to abide by its own obligations under Exhibit ‘C’ and lacked adequate infrastructure,
finances and manpower to run its business. It also failed to take reasonable steps to
mitigate its losses. The appeal lacks merit and is dismissed
For the above stated reasons, the appeal by Rajula Ltd. would be dismissed by the
Supreme Court and he won’t be entitled for damages for loss of anticipated profit.
Question 5
(a) ‘Dakshinarayan’ was a Surat restaurant with rented premises. It was well-known,
with award-winning chefs and attractively decorated premises. Executive lunches
and dinners accounted for a large portion of the company’s revenue.
Dakshinarayan suffered economic losses after the opening of ‘Trusty,’ another
outstanding restaurant in the area, and the business eventually went bankrupt.
Attempts to decrease the rent or sell the firm were both fruitless. Suppliers of
food, beverages and utilities were owed ` 67,50,000 in outstanding supplies
from the previous 45-60 days. There were 50,000 in rental arrears owed to
landlord Rajashekar for one month. Rajashekar was given three months’ advance
rent, with one month’s rent as security and one month’s rent as advance.
‘Saran Bank’ was another secured creditor for Dakshinarayan. Because the
accounts were kept up to date, the bank indicated that it did not want to appoint
a receiver or file for insolvency. Kakubhai ran Dakshinarayan as a private
proprietorship. He had a ten-person team, which included a chef, an assistant
chef, six waiters, and two housekeepers. These employees’ incomes have been
cut in half for the past three months.
In this circumstance, who has the authority to start the insolvency process ?
Justify your actions. (6 marks)
(b) Since the last ten years, Satya Ltd. has been misreporting its financial accounting
accounts, which have been duly audited by the Practicing Chartered Accountants
(PCA) Partnership business. Satya had no choice but to declare the firm bankrupt
when the company’s financial situation deteriorated to the point that it was
unable to pay any current liabilities as well. During the discussion and under
pressure from stakeholders, Satya Ltd. published a press release claiming that
there is a discrepancy between actual and reported earnings over the last decade
due to accounting irregularities.
During the course of the forensic audit, it was discovered that the auditing firm’s
independence had been compromised by a huge audit fee and hefty consultant
income. Because Satya was such a significant client for PCA, it had intentionally
signed off on incorrect statements to protect the company’s management. The
examination also discovered a number of serious internal control flaws, including
a lack of effective management oversight of the external reporting process and
a disregard for applicable accounting standards.
Can the provision of auditor rotation be used to circumvent such situations ?
Examine the situation critically. (6 marks)
Answer 5(a)
Part III of the Insolvency and Bankruptcy Code, 2016 deals with Insolvency Resolution
and Bankruptcy for Individuals and Partnership Firms whereby section 78 of the IBC
stipulates Application of the Part as follows. –
This Part shall apply to matters relating to fresh start, insolvency and bankruptcy of
individuals and partnership firms where the amount of the default is not less than one
thousand rupees: Provided that the Central Government may, by notification, specify
the minimum amount of default of higher value which shall not be more than one lakh
rupees.
Dakshinarayan is run by Kakubhai as properitorship. So, this Part applies to him.
Therefore, for applicability of this part, default of prescribed limit by the debtor is
necessary.
Default is defined in PART I of the Code which applies to whole of the Code. As
defined in section 3(12) of the Code, “default” means non-payment of debt when whole
or any part or instalment of the amount of debt has become due and payable and is not
paid by the debtor or the corporate debtor, as the case may be;
Now, if go by facts of the case to check whether there has been made any default
by the proprietor:
1. Suppliers of food, beverage and utilities were owed INR 67,50,000 in outstanding
supplies from the previous 45-60 days but it is not stated that the same has
become due and payable and is defaulted by Kakubhai, running Dakshinarayan
as proprietorship.
2. No default has been made w.r.t. rent as landlord has three month’s rent in
advance and only one month rent is due.
3. No default has been made w.r.t. Saran Bank, secured creditor.
4. Ten person’s team (employees’) incomes have been cut but not defaulted.
Going by the above facts, no insolvency resolution process can be initiated against
Kakubhai, running Dakshinarayan as proprietorship as no default has been made yet.
It may be noted that section 6 of the Insolvency and Bankruptcy Code, 2016 provides
that where any corporate debtor commits a default, a financial creditor, an operational
creditor or the corporate debtor itself may initiate corporate insolvency resolution process
in respect of such corporate debtor in the manner provided under Chapter II of Part II of
the Code.
Answer 5(b)
An important issue highlighted by the case is rotation of auditors. If the auditors
have been changed after 4- 5 years, they would have different opinion on the financial
statements. Since same auditors were continuing for a long time, the company was able
to mis-report financial statement for more than 10 yrs. A mandatory audit rotation rule
which sets a limit on the maximum number of years an audit firm can audit a given
company’s financial statements is a means to preserve auditor independence and possibly
to increase investors’ confidence in financial reports.
Mandatory audit firm rotation is defined in the Sarbanes-Oxley (SOX) Act as the
imposition of a limit on the period of years during which an accounting firm may be the
auditor of record. Mandatory audit firm rotation is often discussed as a potential way to
improve audit quality – typically gaining attention when public confidence in the audit
function has been eroded by events such as corporate scandals or audit failures. When
the same auditors continue in the same company for years and years, it results in a
close relationship between management and auditors which increases the chances of
fraud.
Section 139(2) read with Rule 5 of the Companies (Audit and Auditors) Rules, 2014
provides that no listed company or a company belonging to the following classes of
companies excluding one person companies and small companies:-
I. all unlisted public companies having paid up share capital of rupees 10 crore or
more;
II. all private limited companies having paid up share capital of rupees 20 crore or
more;
III. all companies having paid up share capital of below threshold limit mentioned in
(a) and (b) above, but having public borrowings from financial institutions, banks
or public deposits of rupees 50 crore or more shall appoint or re-appoint –
• an individual as auditor for more than one term of five consecutive years;
and
• an audit firm as auditor for more than two terms of five consecutive years.
Also, an individual auditor who has completed his term of five consecutive years
shall not be eligible for re-appointment as auditor in the same company for five years
from the completion of his term. An audit firm which has completed two terms of five
consecutive years shall not be eligible for re-appointment as auditor in the same company
for five years from the completion of such term.
Provided further that as on the date of appointment no audit firm having a common
partner or partners to the other audit firm, whose tenure has expired in a company
immediately preceding the financial year, shall be appointed as auditor of the same
company for a period of five years.
Therefore, the provision of auditor rotation as stated above can be used to circumvent
situations given in the question.
Question 6
Babul Sharma, a partner of the Partnership firm, M/s. Jivatma Corporation, had
been agreed upon and submitted his immovable property title deed, i.e., his house,
to the Manjushri Banker, to support the firm to availl the loans from the Manjushri
Banker. The said mortgage deed happened in 23rd April, 2017. Later on, as on 12th
December, 2019; he retired from the firm, on account of his ill health. As on 22nd
December, 2020; Jivatma Corporation seeks mandamnus to Manjushri Banker to
release the mortgage title deeds of the property of the Babul Sharma, and to discharge
the Babul from the guarantee furnished by the Babul, for repayment of the dues of
the M/s. Jivatma Corporation to the Manjushri.
In this regard, it’s worth noting that, prior to filing the current petition, the Babul had
filed a suit against the other Jivatma partners, claiming specific performance of the
agreement contained in the deed of reconstitution of partnership to have the Babul’s
security furnished, in which the Manjushri Bank is also a party.
You are required to make a decision based on legal considerations as to whether the
guarantee should be released by Manjushri Bank or not ? (12 marks)
Answer 6
The facts of the case given in question are similar to the case of Sandeep Gupta vs.
Punjab National Bank & Ors, Delhi High Court, Judgement dated 20.01.2016. Petition
was dismissed in the above case citing the following reasons:
The said suit was admittedly instituted prior to the institution of this petition. The
petition is not maintainable on this ground alone. The petitioner cannot maintain a petition
under Article 226 of the Constitution of India for the relief for which the petitioner, prior to
instituting the writ petition, has already availed of the relief under the civil law.
Supreme Court in Jai Singh vs. Union of India (1977)1 SCC 1 held that the appellant
therein having filed a suit in which the same question as the subject matter in the writ
petition was agitated could not be permitted to pursue two parallel remedies in respect of
the same matter at the same time.
Similarly in Bombay Metropolitan Region Development Authority, Bombay vs. Gokak
Patel Volkart Ltd. (1995) 1 SCC 642 finding that the writ petitioner had availed of the
alternative statutory remedy it was held that the writ petition should not have been
entertained. Yet again in S.J.S Business Enterprises (P) Ltd vs. State of Bihar (2004) 7
SCC 166 it was held that if a party has already availed of the alternative remedy while
invoking the jurisdiction under Article 226, it would not be appropriate for the court to
entertain the writ petition. This rule was held to be based on public policy. Reference in
this regard can also be made to K.S. Rashid and Son vs. Income Tax Investigation
Commission AIR 1954 SC 207, Madura Coats Limited vs. Union of India (UOI) 112
(2004) DLT622.
Even otherwise, the respondent no.1 Bank which is the trustee of public monies
cannot be left high and dry by granting the relief of releasing the security of the outgoing
partners without the continuing / new partners substituting the said security. The petitioner
prior to signing the deed of reconstitution of firm ought to have ensured that the security
furnished by him is released, if that was the agreement with the respondents No.3 & 4.
Therefore in the given question too, guarantee by Babul Sharma should not be
released by Manjushri Bank for the reasons cited above.
***
30 PP–MCS–December 2023
shareholders and the public at large were unhappy about their investments and their
costs.
On the other hand, association with the large group provides a cushion to those
subsidiaries for having brand value and interdependence of resources, which is
beneficial to them.
The repeated and blatant impact of self interest in most parts of the Gabas raised the
question of corporate ethics of the leaders.
The entire episode was seen as a sore in the eyes of the large corporate community.
It also raised questions on the governance structure and its appropriateness in the
family run businesses in the long run.
One of the most critical questions facing family businesses is how to treat the next
generation. They are clearly different from other employees, as current or potential
owners of the company, whose wealth and reputation are on the line. On the flip side,
most parents rightfully worry that providing too many unearned advantages
undermines not only the next generation’s work ethic, but the soul of the company. In
answering this question, families often default to one extreme or another: giving the
next generation special treatment that doesn’t hold them accountable to the same
standards as other employees.
The given case does not throw much light on the matter of conflict of interest between
the Gaba group and its subsidiaries. However, it does indicate that the group was run
as a whole rather than looking at interest of each entity. The Companies were
networked through cross holdings, directors and even trustees such that decision
making is centralized. The group companies paid royalities for use of brand name
‘Gaba’.
Answer 1(d)
Role of independent directors, non-promoter shareholders is very crucial, as well as
limited and controversial in a family run business.
The regulatory guidelines give freedom to the independent directors to decide to
protect the minority (Mozak in the instant case), they get impacted by their self-interest.
As the case highlighted, Gaba could have pulledback their support which would have
impacted the business and thereby impacting the investment values of the other
shareholders. Further, the independent directors would want to be on good terms with
business leaders like Gabas, and thereby may not openly speak out objectively, but
agree with the majority wishes.
The independent directors shall be independent in letter and spirit and objective
enough, to support the decision which is beneficial for the Company.
The role of inactive shareholders in the given case is dubious. Though they get to vote,
still they do not voice their opinions. They have assumed that their voices will not be
heard. And there could as well be an element of self interest in this too.
Mozak was removed without any show cause notice or without an opportunity of being
heard or defending himself. This indicates lack of proper processes at family run
businesses to upload the principles of corporate governance.
Question 2
(a) Halo Private Ltd, had four shareholders, each holding, 25,000 equity shares of
₹ 10. These shareholders were also the directors on the Board. The Company
was initially doing well operationally and financially. However, after four years
of operations, differences arose between the directors managing the
Company’s business and the regulatory filings of the Company were impacted
and not made within time. It was mutually agreed that the Company should be
wound up. Accordingly, a voluntary application was filed as per the Companies
Act, 2013 in January 2019 and the matter was pending before NCLT. However,
one of the directors wanted to revive the Company and had filed an appeal
under Section 252 of the Companies Act, 2013, for revival of the Company,
which was pending adjudication before the NCLT. Meanwhile the Registrar of
Companies (RoC) struck off the name of the Company from Register of
Companies with effect from September 1, 2019.
In the background of judicial pronouncements, comment whether NCLT can
proceed with the winding up petition ?
(6 marks)
(b) Auro Auto Ltd (AAL) is a leading global automobile manufacturer listed on a
Bombay Stock Exchange (BSE). AAL has wide range of products including
fancy cars and sports cars and has a market share of 12% in India. The
Company heavily invests in research and technology and aims to bring higher
sophistication in its products, while providing best in class experience to its
customers. AAL is planning for expansion in India and overseas. It is also
evaluating to invest in start-ups with great ideas and has also founded
incubation centres which give impetus to budding entrepreneurs. During
evaluation process, the Mergers and Acquisitions team has identified few
entities namely, Drive Mauritius LLP, registered under the LLP Act of Mauritius,
and Pluto LLP, an Indian LLP which have developed technology, that can help
AAL. After the initial evaluation, the M & A team, reached out to you, the
Company Secretary of AAL, with the following questions :
(i) Can Pluto LLP be merged with AAL assuming that Pluto LLP is not
registered as a Company ?
(ii) Can Drive Mauritius LLP amalgamate with AAL ? Advise the M & A
team, with reference to applicable legal and regulatory provisions.
(6 marks)
Answer 2(a)
The case presented is similar to case of, Late Mona Aggarwal through her Legal heir
Mr. Vijay Kumar Aggarwal & Anr. (Appellants) vs. Ghaziabad Engg. Company Ltd.
&Ors. (Respondent), on 19.9.2017, NCLT issued notice on the petitioner for winding
up of the Respondent No. 1 to the Respondents therein. During the pendency of the
petition, ROC vide order dated 30.6.2017 exercising powers under sub-section (5) of
Section 248 of the Companies Act 2013 struck off the name of the Company from
register of companies with effect from 7.6.2017.
The Respondent No.2 filed an appeal before NCLT Delhi under Section 252 of the
Companies Act, 2013 for revival of the Company which was pending before the NCLT.
However, on 7.8.2019 NCLT rejected the petition for winding up with liberty to the
petitioner (Appellants) to file a fresh one as and when the Respondent Company is
revived. Being aggrieved with theorder the Appellants filed an appeal.
Appellant submitted that during the pendency of the petition before NCLT, the name of
the company was struck off by the ROC under Section 248 of the Companies Act, 2013
for which an appeal under Section 252 of the Companies Act, 2013 for revival of the
company was pending. However, NCLT rejected the company petition on the ground
that the company's name has been struck off by the ROC and after revival the
appellants herein are at liberty to file the petition. This order is erroneously passed.
Even if the name of the company has been struck off the power of NCLT to wind up
the company shall not be affected as per the provisions under Section 248 (8) of the
Companies Act, 2013.
For this purpose, the appellant placed reliance on the judgement of tribunal in the case
of Hemang Phophalia vs The Greater Bombay Cooperative Bank Ltd., Company
Appeal (AT) No. 765/2019 decided on 5.9.2019. It was submitted that the impugned
order be set aside and the matter be remitted back to NCLT for deciding the petition
afresh on merit.
Respondents submits that the appeal is not maintainable as the Appellants have
sought the same relief on the same ground and cause of action as they have filed this
appeal as well as filed the application before NCLT for review of the impugned order.
Appellant cannot be permitted to exercise concurrent jurisdiction over the same dispute
over the same parties for the same relief and on same ground and same cause of
action. In such circumstances the possibility of conflicting decisions cannot be ruled
out.
The NCLAT observed that under sub-section (8) of Section 248, it is clear that Section
248 in no manner will affect the powers of the Tribunal to wind up the company, the
name of which has been struck off from the register of companies. Therefore, even
after removal of the name of the company from the register of companies the NCLT
can proceed with the petition for winding up under Section 271 of the Companies Act,
2013.
Hence, impugned order was not found to be sustainable in law and was set aside and
the matter was remitted to NCLT, New Delhi for deciding the winding up petition on
merit as per law.
Answer 2(b)
(i) As per Section 232 of the Companies Act, 2013, a company or companies can
be merged or amalgamated into another company or companies. The
Companies Act, 2013 has taken care of merger of LLP into company. In this
regard Section 366 of the Companies Act, 2013 provides that for the purpose
of Part I of Chapter XXI, the word company includes any partnership firm,
limited liability partnership, cooperative society, society or any other business
entity which can apply for registration under this part. It means that under this
part LLP will be treated as a company and it can apply for registration and
once the LLP is registered as company then the company can be merged in
another company as per section 232 of the Companies Act, 2013.
The facts of the present case are similar to the case of Regional Director,
Southern Region and Ors. (Appellants) Vs. Real Image LLP and Ors.
(Respondents) .
Thus, Pluto LLP can merge with AAL, if Pluto LLP converts itself into a
company as per the provisions of section 366 of the Companies Act, 2013 and
not otherwise.
(ii) As per Rule 25A of Companies (Compromises, Arrangements and
Amalgamations) Rules, 2016-
“A foreign company incorporated outside India may merge with an Indian
company after obtaining prior approval of the Reserve Bank of India and after
complying with the provisions of section 230 to 232 of the Act and these rules.”
Further as per Explanation to Section 234(2) of the Companies Act, 2013, the
expression "Foreign Company" means any company or body corporate
incorporated outside India whether having a place of business in India or not.
Thus, from the above discussion it is clear that Drive Mauritius LLP can
amalgamate with AAL by following the provisions and procedures prescribed
in the Companies Act, 2013 and if approved by the NCLT.
Question 3
(a) Rana, Mahim and Guru were close friends, who had great interest in the stock
market. Gradually, they started trading in stocks and options using various
platforms. Whilst they were trying to invest safely, with smaller quantum of
money, they were unable to make large gains. During one of the conversations
about markets, Guru suggested Rana and Mahim, that they should avail some
professional advisory services which would give them inputs about trading in
stocks. One of Guru's cousins, had made good money by investing based on
the tips he got on whatsapp and telegram apps. Guru, Rana and Mahim also
became part of that whatsapp group, and were getting regular updates about
stocks. The updates they got were mostly forwarded messages and they made
good amount of money using those tips. Gradually, over couple of years, they
accumulated funds and were investing higher amount of money. In February
2023, SEBI vide its order imposed a penalty of ₹ 20 Lakhs each on Guru, Rana
and Mahim for violating Section 12 A(d) & 12 A (e) of the SEBI Act 1992 and
Regulation 3(1) of SEBI (Prohibition of Insider Trading) Regulations, 2015. An
appeal was filed by Guru, Rana and Mahim before SAT, stating that they had
not violated any provisions, as they just received information by way of
forwarded messages on whatsapp. Comment in the background of relevant
case law.
(6 marks)
(b) Apna Dhan Ltd., is a Public Sector Undertaking, manufacturing various

beverages. The management of the Company was evaluating to expand its
footprint globally, it was planning to spend USD 7,500 for advertisement in
foreign print media. The Company also plans to donate USD 2,00,000 to a
technical institution established in Chicago at USA for conducting advanced
research in the field of beverages. The foreign earnings of the Company for
the last four financial years is as follows :
Financial Year Amount in USD

3,250,000
2019-2020
3,500,000
2020-2021
3,750,000
2021-2022
4,000,000
2022-2023
The company has reached out to you, to advise them on the following :
(i) Can it spend USD 7,500 for advertisement in foreign media ?
(ii) Assuming that Apna Dhan Ltd., is not a Public Sector Undertaking, can it
donate USD 2,00,000 ?
Advise in the background of relevant legal provisions.
(6 marks)
Answer 3(a)
The given case is similar as in case of Shruti Vora, Neeraj Kumar Agarwal, Parthiv
Dalal and Aditya Omprakash Gaggar (Appellants) vs. Securities and Exchange Board
of India (SEBI) (Respondent). In this matter SEBI had observed that these appellants
had circulated a number of messages on watsapp to various other people containing

financial results of many listed companies which were found to be quite similar to the
results which were published subsequent to circulation of these messages. ’.
The SEBI in its orders reasoned that though the appellants were involved as
employees or otherwise in the securities market, their duties did not involve sending
any such messages to any of the clients and some of the entities to whom the
messages were forwarded were not even clients.
Further the proximity of the circulation of the WhatsApp messages with publication of
financial results, striking resemblances between the figures circulated via messages
and actual results declared by the respective companies, also weighed with the
learned Adjudicating Officer (AO) in each of the case to come to the conclusion that
the message was nothing but circulation of unpublished price sensitive information in
violation of PIT Regulations
SEBI imposed penalty of INR 15 lakhs on each of the appellants as mentioned above
for alleged violation of SEBI (PIT) Regulations i.e., for circulation of unpublished price
sensitive information (UPSI).
An appeal was filed to the Securities Appellate Tribunal (SAT). The SAT set aside the
penalty imposed by the SEBI for forwarding allegedly UPSI of six companies on
WhatsApp.
Further, the SAT said that AO of the SEBI failed -
• to appreciate that the appellants were pleading that the WhatsApp messages
might have been originated from the brokerage houses, or from the estimates
found on the platform of Bloomberg which were floated and were in the public
domain.
• to take into consideration that there were numerous other messages of similar
nature received and forwarded by the appellant which did not at all match with
the published financial results.
Appellant Shruti Vora in the case of Wipro has specifically pointed out that
along with the said message, a similar message regarding Axis Bank had also
reached her which she had also forwarded. The published results, in that case,
however, were widely different. The AO did not give any weightage to the
same, SAT said.
• to prove any preponderance of probabilities that the impugned messages were
unpublished price sensitive information, that the appellants knew that it was
unpublished price sensitive information and with the said knowledge they or
any of them had passed the said information to other parties.
Answer 3(b)
i. As per Schedule II of Foreign Exchange Management (Current Account
Transactions) Rules, 2000, advertisement in Foreign Print Media for the
purposes other than promotion of tourism, foreign investments and international
bidding exceeding USD 10,000 by a State Government and its Public Sector
Undertaking requires permission of Ministry of Finance, Department of
Economic Affairs.
In the given case, Apna Dhan Ltd., wants to spend USD 7,500 for advertisement
in foreign print media so that it may promote its beverages business globally.
Apna Dhan Ltd., can spend such an amount without taking any permission from
the Ministry of Finance, Department of Economic Affairs as the amount to be
spent is below the threshold limit of USD 10,000.
ii. As per Schedule III read with Rule 5 of Foreign Exchange Management (Current
Account Transactions) Rules, 2000, remittances by persons other than
individuals shall require prior approval of the Reserve Bank of India in case of-
Donations exceeding one percent of their foreign exchange earnings during the
previous three financial year or USD 5,000,000 whichever is less, for
• Creation of Chairs in reputed educational institutes
• Contribution to funds (not being an investment fund) promoted by
educational institutes; and
• Contributions to a technical institution or body or association in the field
of activity of the donor company.
Since, the donation amount by Apna Dhan Ltd., does not fall under the
exemption limit, Apna Dhan Ltd., may donate USD 2,00,000 but only with the
prior approval of the RBI.
Question 4
(a) The Dazed Inn, is a 40-unit, no frills resort operating in the less scenic part of
a major Maharashtra town. Its owner Rane, firmly believes that there is a need
for his style of low-cost family accommodation amid the luxury and beauty of
the area. His rooms are large, family style rooms, without television. Although
there is plenty of space for future expansion, the grounds are fairly bare, with
a bit of landscaping Rane can serve breakfast to the rooms and provide tea
making facilities. There are now a lot of good restaurants and take-aways in
the area. Rane’s prices are less than half of what similar resort charges and,
really, it isn’t all that far away from the waterfalls and other attractions.
The problem is occupancy. He has some regulars who come every holiday
period. Overall, occupancy is about 50% year around, however, as per data
available the average occupancy in similar resorts is 68%. Cars pull-in, drive
around the parking areas and then drive away. Currently, Rane does very little
advertising in local district guides and the, holiday papers, mainly because he
really thinks word of mouth is the best form of advertising. He is a member of
the local tourist committee, but too busy to go to the meetings. However, he
does receive local statistics. He is not desperate yet, but he is getting worried
about the future. Rane has requested you to do a SWOT analysis for Dazed
Inn.
(6 marks)
(b) Fun & Feast Ltd (FFL) was a well to do Company with its resorts operating in
two locations near Chennai. However, after COVID the Company was unable
to recover financially and was referred to insolvency proceedings by its
creditors. Roop, an Insolvency Professional, was appointed to sell the property
of Fun and Feast Ltd. (FFL). He finds that an undervalued transaction was
made by the FFL with Tummarsi (a related party of director), in six months
preceding the insolvency commencement date.
Examine the validity of such transaction by FFL with Tummarsi.
(6 marks)
Answer 4(a)
SWOT analysis of the Dazed Inn:
(A) Strengths:
• Located in a popular tourist region.
• Big rooms.
• Large grounds and open areas.
• Breakfast service in rooms.
• Good restaurants and take-aways nearby.
• Low prices.
• Regular customers.
• Membership in the local tourist group.
• Access to information about the industry.
(B) Weaknesses:
• No television.
• Bare and unappealing grounds.
• Initial interest by people who drive in and look but then leave.
• No separate restaurant service.
• Low occupancy compared to other resorts.
• Very little advertising.
• Only local advertising.
• Uninspiring resort name.
• Low rates being charged could be perceived as unappealing.
(C) Opportunities:
• Install televisions immediately.
• Landscape the grounds.
• Add more facilities - a pool, restaurant, BBQ, etc.
• Increase level of advertising.
• Attend touring group meeting.
• Need to do more networking.
• Investigate other markets.
• Increase the rates being charged.
• Add own restaurant.
(D) Threats:
• Potential failure if occupancy doesn't improve.
• Potential failure if other properties begin cutting rates.
• Potential problems if other properties begin big promotional camping.
• Potential problems if more budget resorts are built.
Mr. Rane’s most important action is to raise rates immediately. At less than half the
price of other motels / resorts, the price of his resort is too low, which conveys a poor
image. This combined with the bare ground may be driving potential customers away.
His rates can still be low but should be comparable to the rates of competitive
properties.
Answer 4(b)
As per Section 45 of Insolvency and Bankruptcy Code, 2016:
(1) If the liquidator or the resolution professional, as the case may be, on an
examination of the transactions of the corporate debtor referred to in sub-section
(2) determines that certain transactions were made during the relevant period
under section 46, which were undervalued, he shall make an application to the
Adjudicating Authority to declare such transactions as void and reverse the effect
of such transaction in accordance with this Chapter.
(2) A transaction shall be considered undervalued where the corporate debtor-

(a) makes a gift to a person; or
(b) enters into a transaction with a person which involves the transfer of one or
more assets by the corporate debtor for a consideration the value of which
is significantly less than the value of the consideration provided by the
corporate debtor,
and such transaction has not taken place in the ordinary course of business of the
corporate debtor.
In the given case, Roop the Insolvency Professional, on examination of the
transactions of FFL, determines that certain transactions were made by FFL with a
related party Tummarsi within a period of six months, which were undervalued. Roop
shall make an application to the NCLT to declare such transaction as void and reverse
the effects of such undervalued transaction and requiring the person who benefits from
such transaction to pay back any gains, he/she may have made as a result of such
transaction.
Question 5
(a) Kirmo Rubber Tubes and Tyres Ltd (‘Kirmo’) manufactures tyres with a
peculiar tread pattern over which it has claimed proprietary rights. Sumo Tubes
Private Ltd (‘SUMO’) also manufactures truck tyres with similar tread pattern
like that of Kirmo. During one of the market survey by Kirmo marketing
professionals, it was observed that the shopkeepers were selling SUMO tyres
saying the design and make is similar to those of Kirmo, thereby causing
damage to Kirmo. Kirmo filed a suit against SUMO for infringement of its
proprietary rights and an interim injunction was granted in favour of Kirmo.
SUMO moved an application to vacate the stay and contended that the tread
pattern of truck tyre is not covered under copyright. In the background of
judicial pronouncements, comment whether SUMO will succeed.
(6 marks)
(b) Zarana Ltd, a company providing IT & ITES services entered into an
agreement with Valcon Ltd, a Company registered in Hong Kong, to provide
software services relating to implementation and maintenance of new ERP
module. The agreement was for a period of one year, however, due to cost
overrun and other administrative issues, there was a dispute between the
parties. Valcon Ltd, referred the matter to sole arbitrator based in Singapore
and an award was given by the arbitrator in favour of Valcon Ltd. Zarana Ltd
filed an application under Arbitration and Conciliation Act, 1996 inter alia
praying that the enforcement of impugned award be declined. In the
background of judicial pronouncement, comment whether Zarana Ltd’s
contention is justified ?
(6 marks)
Answer 5(a)
The facts of the given situation are similar to case Apollo Tyres Ltd. vs. Pioneer Trading
decided by Delhi High Court on 17th August, 2017, which is discussed hereunder.
The facts of the case
The Plaintiff manufactures truck tyre Endurance LD 10.00 R20, with a peculiar tread
pattern over which it had claimed proprietary rights. The defendant also manufactures
truck tyre HI FLY with similar tread pattern of the Plaintiff.
Plaintiff filed a suit against the Defendant for infringement of its proprietary rights and
an interim injunction was granted in favour of the Plaintiff. Defendant moved an
application to vacate the stay.
Decision: Interim stay confirmed.
Reason
It was held that the tread patterns are utilized by the manufacturers including by the
plaintiff, in respect of its tyre in question, as a source identifier, i.e. as a trademark.
No doubt, the tread pattern adopted by the plaintiff in respect of its tyre also serves the
purpose which the treads on any tyre serve. However, if the same function can be
achieved through numerous different forms of tread patterns, then the defence of
functionality must fail. It was essential for the defendant to, at least, prima facie,
establish that the tread pattern of the plaintiff was the only mode/ option, or one of the
only few options, which was possible to achieve the functional requirements of the tyre.
The position which emerges on a perusal of the documents placed on record by the
plaintiff is that there are innumerable different and unique tread patterns in existence,
adopted by different manufacturers of tyres, which achieve the same objective.
It cannot be said that the unique tread pattern adopted by the plaintiff is attributable
only to the technical result, namely, of providing grip and stability to the vehicle on
which the tyre of the plaintiff is used. The same function can be performed by any other
tyre with a different tread pattern.
The manner in which the tyres of different manufacturers are advertised and marketed
leaves no manner of doubt that the tread pattern on the tyre of the manufacturer is
prominently displayed, apart from the brand name of the manufacturer. It is also not
uncommon to see the customer - interested in buying a tyre, being shown the tyres by
the vendor with the tread pattern in a vertical position i.e. by showing the “face” of the
tyre, such that the tread pattern is the first thing that strikes and appeals to the eye of
the customer. It is also not uncommon to see that even when tyres are wrapped in
covering, the vendor removes the covering while displaying his tyres to the customers.
Pertinently, the defendant does not display its tyres in question under the brand “HI
FLY” in a wrapped condition in its advertisements. The defendant is displaying its tyre
in question under the brand “HI FLY” in an unwrapped condition, and prominently
showing the tread pattern on the tyre. This itself shows that the wrapping of the tyre
does not inhibit the display and marketing of the tyre, by prominently displaying the
tread pattern on the tyres.
Thus, the submission that the tread pattern adopted by the plaintiff is functional and,
therefore, not capable of protection, cannot be accepted. This submission is rejected.
The tread pattern on a tyre, in court’s view, is such a prominent feature - and is so
prominently displayed and advertised, that the added matter, namely the brand name
on the sides of the tyre, is not sufficient to distinguish the goods of the defendant from
those of the plaintiff. Similarly, the inclusion of the tyre-tube and flap in the plaintiff’s
tyre, and only the flap along with the tyre in the defendant’s tyre - minus the tube, is
not sufficient to distinguish the plaintiff’s tyre from that of the defendants. It is not in
dispute that both tyres of the plaintiff and the defendant in question are tyres meant for
trucks. Therefore, some change of specifications between the two is of no
consequence, when it comes to the aspect of confusion in the mind of the customer.
Hon’ble Court also observed that the customers of the truck tyres, by and large, are
semi-literate middle class truck owners, operators and drivers, from whom it is difficult
to expect a detailed examination, threadbare, of all the differences in the tyres of the
plaintiff and that of the defendant before the purchase of the tyre is made.
In view of the aforesaid, the Hon’ble Court was inclined to confirm the injunction
granted in favour of the plaintiff till the disposal of the suit. Accordingly, the plaintiff’s
application, i.e. I.A. No. 19350/2015 is allowed and the ex- parte ad interim order of
injunction dated 15.09.2015 is confirmed till the disposal of the suit.
In view of the above case, it can be said that SUMO will not succeed.
Answer 5(b)
In case of, Falcon Progress Ltd (Decree Holder) Vs. Sara International Ltd. (Judgment
Debtor), petition was filed by Falcon Progress Limited (hereafter 'FPL'), a company
registered under the laws of Hong Kong, for enforcement of the foreign award dated
22.11.2012 (hereafter 'the impugned award'). The impugned award was rendered by
the sole arbitrator pursuant to arbitration proceedings conducted under the rules of
Singapore International Arbitration Centre (SIAC) in respect of disputes between FPL
and Sara International Ltd. (hereafter 'Sara'), the Judgment Debtor. Sara filed an
application under Section 48 of the Arbitration and Conciliation Act, 1996 (hereafter
'the Act') inter alia praying that enforcement of the impugned award be declined. The
application was dismissed and the major grounds observed are given below:
The contention advanced on behalf of FPL that the question as to the existence of a
contract cannot be agitated in these proceedings as the same had been considered by
the Arbitral Tribunal, is unmerited. The existence of an arbitration agreement is sine
qua non to constitute a foreign award.
Section 44 of the Act defines a foreign award to mean an arbitral award rendered on
differences between the parties arising out of legal relationships, considered as
commercial under the law in force in India, in pursuance of an agreement in writing for
arbitration to which the New York Convention applies. Thus, the question of existence
of a foreign award does not arise if there is no agreement in writing between the parties.
It is also necessary to understand that the Arbitral Tribunal has the jurisdiction to rule
on the existence and validity of the agreement and, consequently to rule on its own
jurisdiction, however, the said decision is not final and binding and is amenable to
challenge. In case of arbitration to which Part I of the Act applies, the decision of the
Arbitral Tribunal to assume jurisdiction is subject to challenge under Section 34 of the
Act. In case of an award, which is sought to be enforced under Part II of the Act, the
court has to be satisfied at the threshold that the award is a foreign award. Plainly, the
Arbitral Tribunal's decision regarding existence of an agreement - which clothes the
Arbitral Tribunal with the jurisdiction to decide the disputes - would not be immune to
judicial review because if the party challenging the existence of the agreement is
correct then the Arbitral Tribunal's decision on its own jurisdiction would be without
jurisdiction. The Arbitral Tribunal owes its existence to the agreement between the
parties. And, although the Arbitral Tribunal can rule on the same in the first instance,
the same would be amenable to judicial review. There is no substance in the contention
that if the Arbitral Tribunal has considered and decided that the agreement is in
existence, this court should accept the same; because, if there is no agreement
between the parties, the decision of the Arbitral Tribunal is of no value at all. The rule
of Kompetenz - Kompetenz, which is now accepted in the UNCITRAL model of law
and also embodied in Section 16 of the Act, does not in any manner preclude or curtail
challenge to the Arbitral Tribunal's jurisdiction, once the award is made. The rule only
clothes the Arbitral Tribunal to decide the existence of the agreement and its
jurisdiction in the first instance without the parties seeking recourse to courts.
It is also necessary to observe that the question whether the enforcement of a foreign
award would be declined under Section 48 of the Act has to be considered only on the
grounds as set out in Section 48 of the Act, notwithstanding the decision of the Arbitral
Tribunal. If the grounds as indicated in Section 48 of the Act are established, the
recognition and enforcement of the award is to be declined.
Having stated the above, the principal question to be considered is whether there was
a concluded contract between the parties. A plain reading of the agreement indicates
that all essential terms had been agreed to between the parties. Article II(2) of the New
York Convention expressly provides "The term "agreement in writing" shall include an
arbitral clause in a contract or an arbitration agreement, signed by the parties or
contained in an exchange of letters or telegrams". In the present case, it is not disputed
that the agreement attached with the emails referred hereinabove contained an
arbitration clause and, therefore, the contention that there is no arbitration agreement
between the parties is also devoid of any merits.
Thus, in the given case, based on above settled matter, Zarana’s contention is not
justified.
Question 6
(a) In modern businesses, Corporate Secretaries are key managerial personnel
occupying pivotal positions in their companies. They have a central role in
fostering good governance practices and supporting the development of highly
functioning Boards. As sustainability has become a business imperative, it is
essential that boards provide stewardship and oversight over a company’s
sustainability performance. The role of the Corporate Secretary in
Sustainability Governance provides an overview of how governance
professionals can support the board’s emerging “environmental, social and
governance” (ESG) mandate. Company Secretaries also play a vital role in
forming the Board’s Corporate Social Responsibility policy. It’s the Company
Secretaries responsibility to consider the best interest of both the organization
and its stakeholders. One of the key roles of the Company Secretary is “to
ensure that the CEO and the management communicate effectively and
frequently with the Board to establish corporate governance, CSR and internal
controls required to enable the organization to effectively execute the Business
Strategy, and to facilitate a clear mandate being given to the various
departments of the organizations.” As a Company Secretary, explain the
difference between ESG and Corporate Social Responsibility.
(6 marks)
(b) Atherno Ltd, was a start-up Company founded by four IIT graduates, for
identifying solutions through technology for water contamination and to provide
water filters at a lower cost. The Company had already received funding from
big angel investors and was planning to expand its operations. As part of their
IPO readiness, the Company appointed Srimo, a Practising Company
Secretary to review compliance with applicable laws and regulations and also
to suggest improvements to the existing processes. After a detailed review,
Srimo identified and informed the Directors and Management, various finer
points on compliance and how it can be improved further. He emphasised that,
the Company should have a robust risk management policy in place, for which
the Board of Directors may voluntarily form a risk management committee. In
the background of the above, explain :
(i) Legal provisions relating to role and functions of risk management
committee.
(ii) Outline of risk management policy for the Company.
(6 marks)
Answer 6(a)
The difference between Corporate Social Responsibility (CSR) and Environmental,
Social and Governance (ESG) can be highlighted as under:
• Corporate Social Responsibility (CSR) refers to sustainability strategies
companies employ to ensure that the business is carried out ethically. In
contrast, Environmental, Social and Governance (ESG) are criteria used to

measure a company's overall sustainability.
• CSR is a sustainability framework employed by organisations, while ESG
measures the organisation's level of sustainability- increasingly demanded by
investors and other stakeholders.
• CSR practices are usually self-regulated and can have a lot of variations. It is
a more qualitative measure and can be challenging to define. ESG, on the
other hand, provides investors with a measure they can use to decide which
companies to invest in.
• CSR takes into account the legal and ethical implications of a company's
actions, while ESG focuses on how corporate practices can have an impact
on wider social issues such as climate change, resource depletion and income
inequality. CSR considers how a company treats its employees, customers
and suppliers, whereas ESG broadens this scope to consider how a company
monitors and reduces its environmental footprint in addition to workforce
treatment and governance transparency.
• Establishing and controlling fiscally-relevant environmental, social and
governance risks and opportunities is an essential component of ESG
strategy. This process separates ESG from CSR by focusing the disclosed
data on its significance concerning a company's operations or business model.
In comparison, CSR may reflect values held within the company itself, but ESG
reporting focuses solely on materiality to identify potential areas for
improvement.
Answer 6(b)
(i) Regulation 21(4) of the SEBI (LODR) 2015 states that the board of directors
shall define the role and responsibility of the Risk Management Committee and
may delegate monitoring and reviewing of the risk management plan to the
committee and such other functions as it may deem fit such function shall
specifically cover cyber security.
Provided that the role and responsibilities of the Risk Management Committee
shall mandatorily include the performance of functions specified in Part D of
Schedule II.
Part D of Schedule II of the SEBI (LODR) 2015 provides that:
a. To formulate a detailed risk management policy which shall include:
- A framework for identification of internal and external risks
specifically faced by the listed entity, in particular including financial,
operational, sectoral, sustainability (particularly, ESG related risks),
information, cyber security risks or any other risk as may be
determined by the Committee.
- Measures for risk mitigation including systems and processes for
internal control of identified risks.
- Business continuity plan.
b. To ensure that appropriate methodology, processes and systems are in
place to monitor and evaluate risks associated with the business of the
Company;
c. To monitor and oversee implementation of the risk management policy,
including evaluating the adequacy of risk management systems;
d. To periodically review the risk management policy, at least once in two

years, including by considering the changing industry dynamics and
evolving complexity;
e. To keep the board of directors informed about the nature and content of
its discussions, recommendations and actions to be taken;
f. The appointment, removal and terms of remuneration of the Chief Risk
Officer (if any) shall be subject to review by the Risk Management
Committee.
The Risk Management Committee shall coordinate its activities with other
committees, in instances where there is any overlap with activities of such
committees, as per the framework laid down by the board of directors.
(ii) A risk management policy serves two main purposes: to identify, reduce and
prevent undesirable incidents or outcomes and to review past incidents and
implement changes to prevent or reduce future incidents. A risk management
policy should include the following sections:
• Risk management and internal control objectives (governance)
• Statement of the attitude of the organisation to risk (risk strategy)
• Description of the risk aware culture or control environment
• Level and nature of risk that is acceptable (risk appetite)
• Risk management organisation and arrangements (risk architecture)
• Details of procedures for risk recognition and ranking (risk assessment)
• List of documentation for analysing and reporting risk (risk protocols)
• Risk mitigation requirements and control mechanisms (risk response)
• Allocation of risk management roles and responsibilities
• Risk management training topics and priorities
• Criteria for monitoring and benchmarking of risks
• Allocation of appropriate resources to risk management
• Risk activities and risk priorities for the coming year
***
PP–MCS–December 2022 26
Answer 1(b)
The resource and capabilities for creating Starbucks as one of the ten most global
brands is the ambience in which it serves. It could be regarded as Starbucks sell experience
beside Italian coffee. The main role in convincing a customer is to relate him/ her with
cultural value proposition that Starbucks relates to.
Skilled employees drive the revenue by adding customer satisfaction. The company
focused on the design of its stores to create a relaxed, informal and comfortable
atmosphere. Employee are constantly trained not only how to prepare the best coffee
but also to get trained in handling customer satisfaction.
A noteworthy approach of the company is offering employees with compensation
policies that give even part-time employees stock option grants and medical benefits.
Further, targeting the group of people with average income level of about $85,000 has
served the purpose of target marketing also.
Answer 1(c)
Starbuck’s resources, capabilities and distinctive competencies translate into superior
financial performance by providing them -
a. Great Value Proposition – Customer satisfaction.
b. As a Forum for Gathering – apart from home and office.
c. Premium Roasted Coffee along with freshly Brewed Espresso Style coffee
beverages, a variety of pastries, coffee accessories, teas and other products, in
a coffeehouse settings.
d. Good Market Segmentation – targeting customers group having average income
of $85,000.
e. Placing the retail chains at well-known location. For instance, the company
would even sometimes locate stores on opposite corners of the same busy
street in order to attract the traffic moving in various directions down the street.
Answer 1(d)
The company believes that by owning and running the stores itself, it can have
control on the quality directly, as quality control would be possible only under direct
control. Moreover, there will not be any profit sharing. Even if one franchise would perform
badly then it could exert a negative impact on the brand value of Starbucks.
Starbucks provides premium quality to customers, which is difficult to learn and
explain to clients, requiring a well-trained team. If Starbucks had franchised their business
model, it would have been extremely difficult to maintain the same level of consumer
attentiveness. Starbucks, a retail corporation that primarily offers coffee-related beverages,
operates under the company-owned, chain business model.
Question 2
(a) HOPE Ltd is a manufacturer of cars of various models and is catering to both
domestic and export markets. For this purpose, Hope Ltd avails various schemes
such as Export Promotion Capital Goods (EPCG), Target Plus, Focus Product
Scheme (FPS), etc., announced by DGFT, Ministry of Commerce, Government
of India (GOI). EPCG scheme is an initiative of DGFT to promote exports out of
India. PQR Ltd is Competitors of Hope Ltd and informant to the Competition
Commission, according to the Informant, Hope Ltd is allegedly misusing the
EPCG Policy framed by DGFT for promotion of exports out of India. Hope Ltd is
alleged to be importing the Capital Goods for manufacture of different models of
cars that are meant for exports but selling them domestically. As the Capital
Goods imported under the EPCG scheme are exempted from customs duty, it is
alleged that the same are purchased by Hope Ltd at cheaper rates - reducing its
cost of production viz-a-viz its competitors. As per the allegations, Hope Ltd is
in fact not using the imported Capital Goods to meet even 50% of the Export
Obligation, which is mandatory for it to do. Whether the complaint filed to
Competition Commission as provided under the Foreign Trade (Development
and Regulation) Act, 1992 is correct and it also violation of Competition Act,
2002. Give reasons in support of your answer. (6 marks)
(b) ABC Limited has five factories in Madhya Pradesh and having a turnover of `
1,000.00 crore. Sharad Acharya, General Manager, Commercial was appointed
as an occupier of all the factories. During the inspection of one of the factories,
Factory Inspector has taken objection and raised a show cause notice to the
Company for appointment of General Manager as an Occupier of the Factory.
The objection taken by Factory Inspector is right in the eyes of the Factories
Act, 1948. Explain the position of Factory Inspector. What would be your answer
if ABC Limited is Partnership firm ?
Answer 2(a)
The facts of the given case are similar to Hyundai Motor India Ltd (HMIL) with regard
to misuse of an export promotion policy. It was alleged that HMIL had misused the
Export Promotion Capital Goods (EPCG) policy, framed by the DGFT, to reduce cost of
production compared to its competitors. Dismissing the complaint, the Competition
Commission of India (CCI) said the allegations raise issues relating to the Foreign Trade
(Development and Regulation) Act, 1992 and the Customs Act, 1962, while noting that
no competition issue arises out of the information presented or is otherwise made out.
The Competition Commission of India has perused the information/ additional
submissions and the documents filed therewith. The allegations made by the Informant
raise issues relating to the Foreign Trade (Development and Regulation) Act, 1992 and
the Customs Act, 1962. No competition issue arises out of the information presented or
is otherwise made out. The reliefs sought by the Informant do not fall within the ambit of
the Competition Commission of India as provided under the Act. In the result, the
Commission is of considered opinion that no case of contravention of the provisions of
either Section 3 or Section 4 of the Competition Act is made out against OPs in the
instant case. The Informant has sought protection from disclosure of his/ her identity in
terms of Regulation 35(1) of the General Regulations, 2009. The Commission is of opinion
that identity of the Informant may be protected from disclosure, as prayed for. In view of
the above, the Competition Commission of India is of the opinion that no case of
contravention of the provisions of the Act is made out against the Opposite Parties and
the information is ordered to be closed forthwith in terms of the provisions contained in
Section 26(2) of the Competition Act
Answer 2(b)
According to Section 2(n) of the Factories Act, 1948 “occupier” of a factory means
the person who has ultimate control over the affairs of the factory”
Provided that-
a. in the case of a firm or other association of individuals, any one of the individual
partners or members thereof shall be deemed to be the occupier;
b. in the case of a company, any one of the directors shall be deemed to be the
occupier
c. in the case of a factory owned or controlled by the Central Government or any
State Government, or any local authority, the person or persons appointed to
manage the affairs of the factory by the Central Government, the State Government
or the local authority, as the case may be, shall be deemed to be the occupier.
In case of Company, only Director of the Company will be occupier of the Factory.(J.K.
Industries Limited Etc. vs. The Chief Inspector of Factories ... on 25 September, 1996).
Considering the provisions of Factories Act and Relevant case law as stated above
the objection raised by factory inspector is right as general manager cannot become
occupier of factory in case of company.
In case if ABC limited would be a partnership firm, then also the objection raised by
factory inspector is right as in case of partnership firm only individual partner can become
occupier of factory.
Question 3
(a) RR Limited has deducted ` 500 from each worker of the Factory for depositing
to Prime Minister Relief Fund without authorisation of any worker. The General
Manager HR informed that the Board of directors has decided to deduct and
deposit the amount. All workers has taken objection. Explain the deduction is
justified in the eye of the Payment of Wages Act, 1936.
(b) The Food Company for online orders, is charging prices higher than the prices
(menu prices) charged by the respective restaurants for walk-in customers,
without the knowledge of the customers. This means that the customers ordering
food online via app/website of Food Company end up paying higher prices than
they would have paid by walking in or ordering directly through phone from that
particular restaurant. Gopal Verma has alleged that Food Company is abusing
its dominance by charging unfair price to its customers and acting in contravention
of Section 4(2) (a) (ii) of the Competition Act, 2002. Explain whether Food
Company is charging prices higher is correct ?
Answer 3(a)
Section 7 of the Payment of Wages Act, 1936 deals with deductions which may be
made from wages. According to Section 7(2)(p), deductions from the wages of an
employed person shall be made only in accordance with the provisions of this Act, and
may be of the following kinds only, namely- deductions, made with the written authorisation
of the employed person, for contribution to the Prime Minister’s National Relief Fund or
to such other Fund as the Central Government may, by notification in the Official Gazette,
specify.
In the above case, there was no written authorisation, therefore, deduction is illegal
and mandatory to refund. RR Limited will be subject to Penalty under section 20 of the
Act for contravening provisions of section 7.
Answer 3(b)
Allegation against the Food Company charging higher prices is not correct.
Reason :
Before examining the abuse of dominance by an entity generally the first step is to
delineate the relevant market in terms of Section 2(r) of the Competition Act, which in
turn requires delineation of Relevant Product Market and Relevant Geographic Market in
terms of Section 2(t) and 2(s) of the Competition Act, respectively.
The Informant has suggested the relevant product market to be app-based food
delivery with restaurant search platform, as iterated in earlier paras. Swiggy does not
agree with the relevant market identified by the Informants. As per Swiggy, the distinguishing
factor of the food delivery business is the service of receiving a restaurant’s food without
leaving the comfort of one’s home and not the ability to search for restaurants. Swiggy
asserted that the consumers can use phone based direct ordering from the restaurants
or order directly from the restaurant’s website, and merely the search function does not
put the platform in a different relevant market as compared to other food delivery options.
Thus, the relevant market should be defined as ‘market for food delivery’. The Commission
notes that the main grievance of the Informants is of charging high prices on the platform
by Swiggy. The Commission further notes that Swiggy has denied the said allegation
with reference to the contractual arrangement it has entered into with its various Partners
(restaurants) seeking them to maintain a uniform price of food items sold by such Partners
to customers when dealing with them directly or through the platform of Swiggy. Further,
it is evidenced that Swiggy, as and when it has received complaints pertaining to price
differentia from its customers, has taken up the matter with the concerned Partner. This
indicates, that allegations against Swiggy do not appear to be substantiated in the present
case. Further, Swiggy has stated that it only acts as an ‘intermediary’ as defined under
Section 79 of the Information Technology Act, 2000 and its role is limited to providing
access to a communication system over which information made available by third parties
is transmitted or temporarily stored/hosted.
The Competition Commission of India also notes the contention of Swiggy that it
does not select or modify the information contained in the transmission made through
the platform, and thus, any discrepancy in the rates, is solely attributable to Partners
and not to it. In this regard, the Competition Commission of India observes that it would
be apposite for Swiggy to give sufficient disclosures on its platform that it is not involved
in fixation of price of the products/menus of the restaurants on its platform, so as to allay
misgivings, if any, in the minds of any stakeholders including the consumers.
The Competition Commission of India in the facts and circumstances of the present
case observes that it may not be germane to define a precise relevant market and conduct
further analysis. Having been satisfied with the averments of Swiggy that it has no role to
play in the pricing of the products offered by the Partners on the platform, the Competition
Commission of India finds that no prima facie case of contravention of the provisions of
Section 4 of the Competition Act is made out against Swiggy in the instant matter. Accordingly,
the matter is closed under the provisions of section 26(2) of the Competition Act.
Question 4
(a) Plaintiff and Defendant 1 had entered into Shareholders Agreement, Share
Purchase Agreement and Memorandum of Understanding, which are to be read
together in order to ascertain the aforesaid outstanding consideration. A conjoint
reading of thesaid documents clarify the rights and obligations which were to be
incurred by both the parties. Disputes arose between the parties and Plaintiff
filed the present suit seeking recovery of a total sum of ‘ 5 crore. In the suit,
plaintiff has impleaded defendants No. 2 and 3 also, which are group companies
of defendant No. 1 Company. Defendant No. 1 filed the present application
under Section 8 of the Arbitration and Conciliation Act, 1996 besides the written
statement, praying to refer the suit for arbitration. Explain whether the arbitration
application will be allowed.
(6 marks)
(b) Rajesh Sharma, son of the petitioner, has executed a Relinquishment Deed
dated 1st March, 2020, in favour of the petitioner, with respect to the property
bearing No. B-123, Ashok Nagar, Phase-I, Delhi. By the Impugned Order dated
5th March, 2020, the respondent no. 1, however, impounded the said document
treating the same to be as a Gift under Article 33 of Schedule IA of the Indian
Stamp Act, 1899 as applicable to the Union Territory of Delhi (hereinafter referred
to as ‘‘Act’’) and thereafter held the Release Deed to be deficiently stamped and
impounded the same. Aggrieved of the said order the present petition has been
filed. Explain whether the Impugned Order can be sustained and set aside?
(6 marks)
Answer 4(a)
The facts of the of the given situation is similar to the case Magic Eye Developers
Pvt. Ltd. vs. Green Edge Infra Pvt. Ltd. & Ors. decided by Delhi High Court on 21st May,
2020. The relevant part of the case is discussed as under:
The two main grounds on which plaintiff contests the present application seeking
reference of disputes to arbitration is firstly that in the suit besides the recovery of the
acknowledged unsecured liability the plaintiff has also sought a decree of damages,
which is not an arbitrable dispute and the suit would be thus maintainable as held by the
Supreme Court in the decision Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya reported
as 2003 (5) SCC 531. Secondly, it is urged that the defendant Nos. 2 and 3 not being
party to the Shareholders Agreement (SHA), Share Purchase Agreement (SPA) and the
Memorandum of Understanding (MOU) and thus not party to the clauses agreeing to
refer the dispute to the arbitration, the application filed by the defendant No.1 is liable to
be dismissed.
The first plea of learned counsel for the plaintiff that since the plaintiff has sought the
relief of damages for which there is no arbitration agreement and the reliefs in the present
suit cannot be bifurcated, hence the dispute cannot be referred to arbitration deserves to
be rejected. A perusal of the claim for damages from the plaint is evidently based on the
failure of defendant No. 1 to perform its contractual obligations as entered into vide the
SHA, SPA and MOU is an arbitrable dispute duly governed by the arbitration clauses in
the SHA, SPA and MOU. The two reliefs sought in the plaint are not required to be
bifurcated as held in Sukanya Holding (Supra) and can be very well decided by arbitration.
Plea of the plaintiff that defendant Nos. 2 and 3 are not parties to the SHA, SPA and
MOU and thus being third parties to the arbitration agreement, the disputes cannot be
referred to arbitration is also liable to be rejected. In the plaint case of the plaintiff itself is
that defendant Nos. 1, 2 and 3 companies are the companies of one family and defendant
No. 1 company with an authorized share capital of 1,00,000/- has no work and has been
incorporated to perpetrate financial jugglery of funds with defendant Nos. 2 and 3
companies with a motive to defraud innocent third parties. The plaintiff itself claims that
the corporate veil of the three companies deserves to be pierced in view of the manner of
transfer of funds and siphoning thereof. Thus, according to the plaint itself defendant
Nos. 1, 2 and 3 are group companies of a single family. Thus Supreme Court in Cheran
Properties Limited vs. Kasturi & Sons Limited 2018 (16) SCC 413, came to the conclusion
that even if the third party was not impleaded as a party to the arbitral proceedings, the
said party would be bound by the award and the award can be enforced against it, once
the tests embodied under Section 35 of the Arbitration and Conciliation Act are fulfilled.
Though defendant Nos. 2 and 3 have filed separate written statements claiming mis-
joinder of parties and causes of action in the suit by the plaintiff and that the suit was
liable to be dismissed against the plaintiff and in favour of defendant Nos. 2 and 3 for the
reason there was no privity of contract between the plaintiff and defendant Nos. 2 and 3
since the SHA, SPA and MOU were executed between the plaintiff and defendant No. 1,
however, in response to the cause of action paragraph-29 of the plaint wherein it is stated
that the subject matter of the suit cannot be referred to arbitration as there is no provision
under the Arbitration and Conciliation Act, 1996 for splitting the cause or the parties and
referring the subject matter of the suit to the arbitrator, defendant Nos. 2 and 3 in their
written statements have simply rebutted the said paragraph as denied for want of knowledge
and that it did not pertain to defendant Nos. 2 and 3. It may be also noted that during the
course of arguments the defendant Nos. 2 and 3 never opposed the plea of defendant No.
1 that the disputes are liable to be referred to arbitration. Considering the fact that there
are valid agreements between the plaintiff and defendant No. 1 containing clauses for
reference of disputes to arbitration and defendant Nos. 2 and 3 being group companies of
defendant No. 1, from the intent of the parties as noticed from the agreements as also
the averments in the plaint it is evident that not only would defendant No. 1 but also the
defendant Nos. 2 and 3 companies be amenable to the jurisdiction of the arbitrator as per
the arbitration clauses is the SHA, SPA and MOU. Consequently, the present application
is disposed of holding that the present suit is not maintainable and the disputes between
the parties are required to be referred to the arbitration.
In view of the above mentioned case, it may be said that the arbitration application
will be allowed.
Answer 4(b)
The facts of the situation given in the question are similar to a case in Tripta Kaushik
vs. Sub Registrar Vi-A, Delhi & Anr on 20 May, 2020. The relevant part of the case is
discussed as under:
Whether the instrument amounts to a release document or not is not a pure question
of law. The test to determine whether an instrument can be considered as a Release/
Relinquishment Deed can be summarized as under:
a. In determining whether the document is a release or Gift/ Conveyance, the
nomenclature used to describe the document or the language which the party
may choose to employ in framing the document, is not a decisive factor. What is
decisive is the actual character of the transaction intended by the executants;
b. Determination of the nature of the document is not a pure question of law;
c. Where a co-owner renounced his right in a property in favour of the other co-
owner, mere use of word like, “consideration” and “transfer” would not affect the
true character of the transaction;
d. What is intended by a Release Deed is the relinquishment of the right of the co-
owner;
e. Co-ownership need not be only through inheritance, but can also be through
purchase;
f. Where the relinquishment of the right by the co-owner is only in favour of one of
the co-owner and not against all, the document would be one of Gift/Conveyance
and not of “release”.
Applying the above test to the facts of the present petition, the Relinquishment Deed
dated 01.03.2019 has been executed by a co-owner in favour of the only other co-owner.
This would truly be a Release Deed and falls within the ambit of Article 55 of the Act
(Indian Stamp Act, 1899). The Impugned Order, therefore, cannot be sustained and is
accordingly set aside. The petition succeeds.
In view of the above of the abovementioned case, it may be said that impugned
cannot be sustained and should be set aside.
Question 5
(a) Smt Sheela Devi’s husband Mr Shyam had joined the service of the ABC Ltd on
15th March, 1979. The application seeking voluntary retirement was submitted
on 28th July, 2005. The Company rejected the application. In that circumstance
the husband of the Sheela submitted his resignation on 3rd May, 2006 which
was accepted bythe Company and was relieved on 31st May, 2006 and all the
service benefits payable in respect of an employee who had resigned from service
was paid, which was accepted by the Sheela’s husband. The Sheela’s husband
subsequently died on 14th April, 2011. Subsequent to the death of the husband,
Sheela had filed the writ petition before the High Court, contending that
immediately thereafter an application was made indicating that the word
‘resignation’ was inadvertently mentioned and the intention of the Sheela’s husband
was to renew his request for voluntary retirement. Explain whether Sheela will
retrial benefits from the date of voluntary retirement or not and whether appeal
will be allowed ?
(b) ABCD Ltd was struck off by the Registrar of Companies (ROC) during the month
of July, 2021 as the company had not been carrying on business or nor in
operations for two immediately preceding financial years and the company had
not obtained the status of dormant company under Section 455 of the Companies
Act, 2013. The ABCD Ltd filed an appeal before NCLT claiming that it had not
been served with Notice under Section 248(1) of the Act and the Registrar of
Companies (ROC) had proceeded to issue notice under Section 248(5) of the
Act and the name of the ABCD Ltd was then struck off. The appellant claimed
that the company had been doing business and was in operation and audited
financial statements for the year financial year 2012-13 to FY 2016-17 were
filed. Whether the claim of the Company is justified and action of the ROC is
correct ? Give reasons in support of your answer.
Answer 5(a)
The short question that arises for consideration herein is as to whether the husband
of the respondent had acquired an indefeasible right to seek for voluntary retirement from
service and in that light whether the High Court was justified in arriving at the conclusion
that the subsequent resignation dated 03.05.2006 submitted by the husband of the
respondent be considered as an application for voluntary retirement and treat the cessation
of the jural relationship of employer/ employee under the provision for Voluntary Retirement.
Having heard the learned counsel for the parties, Apex Court find that the factual
aspects which were relevant for decision making in the instant case has not been referred
by the High Court during the course of its order but has merely assumed that the voluntary
retirement application should be deemed to have been accepted when there was no
rejection. During his lifetime up to 14.04.2011 the husband did not raise any issue with
regard to the same. It is only thereafter the respondent has filed the writ petition before
the High Court. Primarily it is to be noticed that when the application for voluntary retirement
was filed on 28.07.2005 and had not been favourably considered by the employer, instead
of submitting the resignation on 03.05.2006, if any legal right was available the appropriate
course ought to have been to seek for acceptance of the application by initiating appropriate
legal proceedings. Instead the respondent’s husband had yielded to the position of non-
acceptance of the application for voluntary retirement and has thereafter submitted his
resignation. The acceptance of the resignation was acted upon by receiving the terminal
benefits. If that be the position, when the writ petition was filed belatedly in the year 2012
and that too after the death of the employee who had not raised any grievance during his
life time, consideration of the prayer made by the respondent was not justified. The High
Court has, therefore, committed an error in passing the concurrent orders. In the result,
the appeal is allowed.
Answer 5(b)
The facts of the present case are similar to facts of Kanodia Knits Pvt. Ltd vs.
Registrar Of Companies, Delhi. 28 January, 2019. Wherein the name of the appellant
company was struck off by the Registrar of Companies, after STK 5 Notice as the company
had not been carrying on business or nor in operations for two immediately preceding
financial years and the company had not obtained the status of dormant company under
Section 455 of the Companies Act, 2013.
The appellant before NCLT claimed that the appellant had not been served with
Notice under Section 248(1) of the Act and the Registrar of Companies (ROC) had
proceeded to issue notice under Section 248(5) of the Act and the name of the appellant
company was then struck off. The appellant claimed that the company had been doing
business and was in operation and audited financial statements for the year financial
year 2012-13 to FY 2016-17 were filed.
ROC claims that the appellant company had not filed financial statements from the
financial year ending 31.3.2004 till 31.3.2011. The balance sheet and annual return was
filed for the year ending 31.3.2012 and thereafter again there was no filing and according
to ROC, STK-1 notice was duly issued to company and the copy of the same has been
filed. According to the ROC the appellant did not respond to the notice and further steps
to strike off the company were taken. According to ROC, later on public notice as per
Section 248(5) was issued.
Having heard the learned counsel for the appellant, and seeing the documents when
we have considered the above findings and observations of the Learned NCLT, we do not
find any reason to differ from NCLT. There is no substance in this appeal. The appeal is
rejected. No order as to costs.
Considering the facts of above case it can be said that claim of company is not
justified and action taken by ROC is correct. Hence the application filed by Applicant
Company is rejected.
Question 6
(a) SSB Ltd has accepted `15.00 lakh as an advance against supply of goods. As
per supply agreement, the company will supply the goods after three years from
the date of deposit. Later on, Secretarial Auditors has taken objection in their
report that the Company has contravened the provisions the Companies Act,
2013. The Directors have explained that this is required to complete the order.
Whether the explanation of directors are justified for accepting the deposit in the
Companies Act, 2013.
(b) PQR Ltd has decided not to preserve the books of accounts and other related
records of accounts, more than three years immediately preceding the relevant
financial year of 2020-21. Action decided by PQR Ltd is justified in your view.
Comment.
Answer 6(a)
This shall be treated as deposit. According to the Section 2(31) of the Companies
Act read with Rule 2(c) of Companies (Acceptance of Deposits) Rules, 2014, “deposit”
includes any receipt of money by way of deposit or loan or in any other form by a
company, but does not include-
(xii) any amount received in the course of or for the purposes of the business of the
company:
(a) as an advance for the supply of goods or provision of services provided that such
advance is appropriated against supply of goods or provision of services within a period of
three hundred and sixty five days from acceptance of such advance.
In case of any advance which is subject matter of any legal proceedings before any
court of law, the said time limit of three hundred and sixty five days shall not apply.
SSB LTD has to comply the provisions of the Act regarding deposit and contention of
the Secretarial auditors is correct.
Answer 6(b)
The books of accounts, together with vouchers relevant to any entry in such books,
are required to be preserved in good order by the company for a period of not less than
eight years immediately preceding the relevant financial year. In case of a company
incorporated less than eight years before the financial year, the books of accounts for the
entire period preceding the financial year together with the vouchers shall be so preserved.
The provisions of Income Tax Act shall also be complied with in this regard. As per
proviso to sub-section 5, where an investigation has been ordered in respect of a company
under Chapter XIV of the Act related to inspection, inquiry or investigation, the Central
Government may direct that the books of account may be kept for such period longer
than 8 years, as it may deem fit and give directions to that effect.
The decision taken by PQR Ltd is not in accordance with the law and the company
cannot do so.
***
Providing amenities that will appeal to these customers is vital for hotels looking to benefit from business
travel. The most obvious examples are private meeting areas and easy access to laptop or phone charging
ports.
Corporate travelers will likely be busy and may need to fit things in when they can, so any 24-hour services
or facilities you can offer will appeal.
Analyze your existing corporate travelers. Use data in your property management system, look at feedback
on online review platforms, and turn to Google Analytics to understand online habits. Try to identify some
trends or details that help you to understand your business travel guests.
Question 2.
(a) You have recently been promoted to head of risk management at a steel casting company. ABC Steel
Castings Ltd. [ABC] is the company’s name.
ABC has assured you that it will continue to enhance its risk management capillarities in order to better
protect and increase shareholder value. As stated earlier, the risk management system ensures
compliance with Clause 49, as amended, of the Listing Agreement. With this structure in place, the
Company will be able to apply standardised risk management practises across all of its divisions and
departments. Risks are managed in accordance with a well-defined framework that is periodically
verified and doublechecked.
In addition, you are informed that the company has implemented a Risk Management Manual, compiled
a comprehensive profile of the most major risks facing the organisation, identified the most significant
gaps in managing these risks, and developed preliminary action plans to address them. With this work,
the following aims are achieved.
(a) Meets the Board’s requirement for a more comprehensive understanding of risks and a more robust
strategy for mitigating those risks; provides the means to identify, assess, and respond to business risk;
and integrates an effective internal control and management reporting system with the formalised,
specific requirements for conducting risk assessments on a regular basis.
(b) Through backward integration, the company has grown into coal and iron mines, and through
brownfield expansions, it has constructed a sinter plant, sponge iron plant, coke oven plant, and power
plant from waste head recovery. Additionally, it launched research and development to boost
production capacity and reduce costs.
You discovered that the Company is ISO-140001-2004 certified and strictly adheres to industry-wide
emission norms. In addition, the Company tells you that demand for DI Pipes is likely to increase
significantly and that it is confident of maintaining its market position due to the Indian government’s
emphasis on water and water-related projects, as well as the anticipated increase in water demand.
This year, worker relations have remained stable and friendly despite the expanding number of unions.
The lack of lost man-days over the past eight years is directly attributable to the mutual respect and
cooperation between the two sides. From the company’s perspective, labour relations can only improve
from here. The company additionally provides credit insurance coverage.
Now, the Company’s management has requested you to give a report outlining the most pressing
dangers to the company and the preventative measures that can be taken to mitigate their impact.
Provide a list of at least six tasks for the role of risk management.
(b) The credit portfolio of The Gargi Bank Ltd. (Bank), is approximately ₹ 10 billion. The following are some
of the most important characteristics of the portfolio.
The construction industry accounts for twenty percent of the portfolio’s exposure (other sectors include
cement/steel manufacturers, building material distributors, real estate developers/builders, automotive
manufacturers, tyre makers and investment companies). 30% of revenues are generated by just two
clients (they belong to the construction and building materials sector). The loan portfolio consists
exclusively of Indian debtors. The bank offers a variety of loan terms, ranging from short-term to long-
term, with the latter being 60% of the portfolio. Over 75% of total finance needs were met by short-term
deposits and inter-bank borrowings.
Even though all loans were denominated in Rupees, 45% of all time deposits were held in non-Rupee
currencies. Real estate is the only acceptable form of security. The overall risks that this portfolio
confronts must be discussed. Does this credit portfolio contain any significant undiversified risks?
Include some suggestions for boosting diversity if this is the case.
(6 marks)
Answer 2(a)
The risk manager's responsibilities are as follows:
1. Implement methods, techniques, and systems to identify, assess, measure, manage, monitor,
and report risks, and ensure that they are followed.
2. Need to pick the best methods and tools for spotting risks.
3. Take charge of determining risk rules and procedures, thresholds, and approval levels.
4. Always keep an eye on the most pressing risks as well as the less pressing ones.
5. Oversee the procedure for notifying higher-ups about potential control risks.
6 Reporting on risks, including to higher-ups, is something that needs to be managed.
7. Assist in writing the Project Initiation documents by drafting the project's high-level user
requirements.
8. Collaboration with end-users in the business world in order to draught functional risk standards.
Provide business/reporting/ and system specifications based on a thorough understanding of
business requirements and functional demands. Verify that the requirements of the business as
described in the technical specifications are met.
9 Produce paperwork for the project manager.
10. Conduct User Education for Internally Developed Risk Management Tools.
11. Carry out audits of regulations and potential threats.
12 Perform risk-related compliance audits and record results.
13 Identify and create necessary ret policies, processes, and documentation.
14. Put the plan for handling danger into action Verify that the risk management strategy is
seamlessly included into the product creation and distribution process.
15 Take part in regional and international dialogues aimed at developing and refining methods,
strategies, and standards for managing risk.
Answer 2 (b)
There are substantial portfolio risks, including those listed below.
1. The construction industry accounts for twenty percent of the portfolio at present, making it too heavily
weighted. This percentage should be lowered to, say, five percent. The portfolio could suffer heavy losses
if, for example, the construction industry was to experience a downturn. Banks run on razor-thin margins
and are highly leveraged, so any threat to either of them may be disastrous.
2 Additionally, there is high name concentration, with only two clients making almost 30% of the portfolio.
Again, it's hardly comfortable that the leading companies are in the construction and building materials
industries. It's common knowledge that the construction industry heavily influences the building materials
market. It is important to diversify the portfolio such that no more than five names account for more than
ten percent of the total, while also guaranteeing that all of these names have excellent credit (AAA
category). It is also conceivable to pursue credit assets in industries with which they have a negative
correlation.
3. The liabilities in the form of deposits other than the Indian rupee creates a substantial exposure to
currency risk. Because all assets are denominated in the local currency (in this case, rupees), it is possible
to attempt appropriate hedging.
4. Given that 75% of the deposits and interbank borrowings are short-term, and only 40% of the credit
assets are short-term (i.e., 60% of the portfolio is long-term), maturity concerns are clear. If there is an
event that reduces market liquidity, the significant disparity in maturities could cause problems. It's crucial
to pair people of similar ages.
5. The concentration of collateral is also not recommended
6. As long as the bank's portfolio manager is using his or her brains there's no reason to worry about the
institution going under Systemic risk then becomes the primary concern Companies with well-diversified
portfolios can even weather systematic shock to some extent.
Question 3.
(a) Rule 10MA (2) (i) of FEMA states that the rollback provisions must be applied if the international
transaction covered by the agreement (other than the rollback provision) is identical to the
international transaction covered by the rollback provisions. It is unclear what the phrase
‘‘same’’ means. Also unknown is whether this constraint applies to the FAR analysis of
functions, assets and risks. Explain.
(6 marks)
(b) A meeting of members of Joka Agricultural Equipment’s Limited was convened under the
orders of the Court for the purpose of considering a scheme of compromise and arrangement.
The meeting was attended by 200 members holding 500000 shares. 70 members holding
400000 shares in the aggregate voted for the scheme. 120 members holding 90000 shares in
aggregate voted against the scheme. 10 members holding 10000 shares abstained from
voting. Examine with reference to the relevant provisions of the Companies Act, 2013 whether
the scheme was approved by the requisite majority?
(6 marks)
Answer 3 (a)
If a rollback provision is to be authorised, it must be for the same international transaction that is planned
to be carried out in the foreseeable future and in regards to which an agreement has been reached.
Finalizing a rollback for a transaction that isn't covered by the agreement for subsequent years is not
permitted. In order to qualify as the "same international transaction," the previous year's transaction must
be of the same character and be conducted with the same affiliated enterprises as the transaction that is
planned for future years and for which an agreement has been made.
The limitation would function to ensure that rollback provisions would only apply if the Functions, Asset,
Risk (FAR) analysis of the rollback year does not differ materially from the FAR validated for the purpose
of reaching an agreement in respect of international transactions to be undertaken in future years for which
the agreement applies. In the Advance Pricing Agreements that CBDT is negotiating, "materially" is being
defined in a broad sense. The term "materially" is to be defined in a way consistent with its ordinary meaning
and such that a change in facts and circumstances is to be viewed as a change that may reasonably have
resulted in an agreement with considerably different terms and conditions.
Answer 3 (b)
According to section 230 of the Companies Act, 2013, the scheme of compromise and arrangement must
be approved by a resolution passed with a majority in number representing three-fourths in value of the
creditors, or members, or class of members, as the case may be, present and voting either in person or, by
proxy.
The majority is dual, in number and in value. A simple majority of those voting is sufficient. Whereas the
'three-fourths' requirement relates to value. The three-fourths value is to be computed with reference to
paid-up capital held by members present and voting at the meeting.
In this case 200 members attended the meeting but only 190 members voted at the meeting. As 70
members voted in favour of the scheme the requirement relating to majority in number (i.e., 95) is not
satisfied.
190 members who participated in the meeting held 4,90,000 shares, three-fourth of which works out to
3,67,500 while 70 members who voted for the scheme held 4,00,000 shares. The majority representing
three-fourths in value is satisfied
Thus, in the instant case, the scheme of compromise and arrangement of Joka Agricultural Equipment’s
Limited is not approved as though the value of shares voting in favour is significantly more, the number of
members voting in favour do not exceed the number of members voting against.
Question 4.
(a) The Reserve Bank of India (RBI) began adjusting its liquidity management in February, 2020. How does
the RBI utilises the reverse repo rate or variable reverse repo rate auction as its primary liquidity
management operation?
(b) Examine the following circumstance in light of the Real Estate (Regulation and Development) Act, 2016.
Vivaan booked a 4 BHK apartment in the Flower Valley development for 2 crore. Jiyu is in charge of
directing the project. Before engaging into a written agreement for sale with Vivaan, Jiyu stipulated that an
application fee of ₹ 50 lakh be paid. Determine whether Jiyu’s claim is valid.
(6 marks each)
Answer 4(a)
The rebalancing of liquidity management by the Reserve Bank of India (RBI) began in February 2020, when
the central bank changed its liquidity absorption mechanism from the fixed-rate overnight reverse repo
window to longer duration variable rate reverse repo (VRRR) auctions. To absorb extra system liquidity,
the RBI has announced the implementation of a VRRR programme, which has higher yield prospects than
overnight reverse repo at a fixed rate.
The Reserve Bank of India (RBI) has increased the number of VRRR auctions as it transitions away from
the overnight reverse repo auction with a fixed interest rate and re-establishes VRRR as its primary liquidity
management operation. Accrual returns on very short-term, low-market-risk products such as overnight and
liquid funds may increase as a result of the substantial withdrawal of liquidity from the system, according to
market participants.
The reverse repo rate is the interest rate at which the Reserve Bank of India borrows funds from commercial
banks. Since the Reserve Bank of India is considered the lender of last resort and has minimal need for
funds from other sources, the VRRR appears to be a method to absorb surplus liquidity from the market,
which in turn helps to control inflation in the country. Moreover, through VRRR auctions, the RBI absorbs
the market's excess liquidity. The RBI conducts 1-day, 3-day, 14-day, and 28-day auctions, in which banks
participate. RBI chooses the bank that accepts the lowest VRRR quote for a certain amount of money to
store its reserves. The bank that quotes the lowest rate of interest above the Reverse Repo Rate is deemed
to have won the VRRR auction. As it earns a greater return than the Reverse Repo Rate, it is a good place
for banks to store their money, and the RBI would be able to control the money supply and reduce the
inflation risk in the economy.
Answer 4(b)
Section 13 of the Real Estate (Regulation and Development) Act, 2016 (the Act) provides the provisions
relating to “No deposit or advance to be taken by promoter without first entering into agreement for sale”.
Section 13(1) of the Act states:
A promoter shall not accept a sum more than ten per cent. of the cost of the apartment, plot, or building as
the case may be, as an advance payment or an application fee, from a person without first entering into a
written agreement for sale with such person and register the said agreement for sale, under any law for the
time being in force.
In the given case, the cost of apartment is Rs. 2 Crore, and Jiyu stipulated that an application fee of Rs. 50
Lakhs be paid prior to entering into a signed agreement for sale with Vivaan. This is not valid, as a promoter
is only permitted to accept Rs. 20 lakh (10% of 2 Crore) as an advance or application fee before entering
into a signed agreement for sale.
Question 5.
(a)Forex Dealers Ltd. qualifies as an Authorized Person under the Foreign Exchange Management Act
of 1999. The Reserve Bank of India instructed the aforementioned Authorized Person to file specific
returns, which it failed to do. Specify the penal provisions to which the mentioned Authorized person has
been subjected.
(6 marks)
(b) The Chief Executive Officer of DEF Ltd. an up-and-coming firm with a snappy name, has reached out
to you for your input on a limited range of topics pertaining to their company and a few others within the
Group. He is also a member of the Board of Directors for STU Ltd. (STU), a subsidiary of the Group
involved in the production of table salt that is publicly traded. Huge cash reserves are held by STU.
Directors of STU have been contemplating a possible buy-back of the company’s equity for the past two
board meetings. After analysing the prospective channels, the Board will likely give its approval at the
following meeting. You have established a solid reputation as an expert in investment banking, advising
investors and companies on capital raising, financing strategic acquisitions etc. As a result of your wide
network of venture capitalist and Private Equity providers (PE) connections, you are highly sought after
in the industry for advice regarding return, the optimal combination of investments, investor exit strategies
etc. The Managing Director (MD) of the company has planned a first orientation meeting for you to
become acquainted with DEF Ltd. and the other members of the Group. He provided a complete overview
of firm organisation and discussed probable future prospects. Specifically, he was seeking your input on
the following: He hopes to attract Private Equity (PE) investors or Venture Capitalists (VC) to further grow
DEF Ltd. He is curious in the criteria used by private equity and venture capital firms to select whether or
not a finance a start-up. To effectively raise cash for DEF Ltd. he requires your assistance in selecting
the appropriate course of action and decisions to make. He is contemplating a variety of options for
repurchasing STU shares. He is curious about the Group’s second publicly traded company, Peps Ltd.,
and its aspirations to expand its sugar-producing subsidiary via a follow-on offer. As he is not a financial
specialist, he has heard from his co-workers that term-sheet that PE investors typically provide is
extremely complicated. When he reaches that moment, he expects you to assist him. He is also courious
about the break-fee, as it is commonly utilised in the field of private investing. He learned that a relative
was having difficulty in identifying the suitable exit path for PE investors. He desired your advice on how
he should approach his discussions with investors. The MD is interested in discovering all of his or her
choices for escaping PE. What are some potential exit routes for a PE?
(6 marks)
Answer 5 (a)
Section 11(3) of the Foreign Exchange Management Act, 1999 states that if an Authorised person
contravenes any direction given by the Reserve Bank of India under the said Act or fails to file any return
as directed by the Reserve Bank of India, the Reserve Bank of India may, after giving reasonable
opportunity to be heard, impose on Authorised Person, a penalty which may extend to ten thousand rupees,
and in the case of continuing contraventions, an additional penalty which may extend to two thousand
rupees for every day during which such contravention continues.
Since, according to the facts presented in the inquiry, the Authorized person, Forex Dealers Ltd., has failed
to file the required returns with the Reserve Bank of India. According to the aforementioned requirements,
it has exposed itself to a fine of up to ten thousand rupees and, in the case of ongoing contraventions of
the sort of failure to file the returns, an additional fine of up to two thousand rupees for each day such
infringement persists.
Answer 5 (b)
The various Exits a PE could take are as follows:
When a private equity investor's horizon term ends or they are asked to leave by the company's
management, they have following options:
1. Initial Public Offer (IPO)
With a solid business plan and solid finances in place, going public can be a lucrative exit option. The return
can be immediate if the owner sells their shares soon after the company is listed.
2. Partnership Strategy or Strategic Purchase
A larger company in the same industry as the PE buys out its minority stake. This is one of the most typical
ways out for investors and it benefits everyone involved (the current investor and the company's leadership).
3. Secondary Purchase
Investor PE will sell its stake to another PE in order to quit. A similar transaction occurs when a larger PE
sees potential in the enterprise and offers a more favourable deal to the smaller PE, or when the business
needs more capital than the existing equity fund can provide.
4. Repurchase by current management or the company's founder
There would be a golden handshake with the current PE and the founders would regain control of the
company. Sometimes the term "Management Buy Out" is used to describe this scenario.
5. Liquidation
The investor suffers a net cash loss and must withdraw the money, making this the least desirable exit
option. To put it simply, this occurs when a financier is unable to bear any more losses, overestimated his
or her potential profits, or discovered that the market was not enthusiastic about the venture's central
concept.
Question 6.
Ramanandan Bank was the state’s third largest Bank. It maintained a vast branch and ATM network in
order to serve its broad retail clientele. Despite Ramanandan Bank’s size, that bank’s commercial success
was highly reliant on local economic trends. Two years of economic downturn resulted in two years of
subpar loans, and Ramanandan Bank fell into dire straits. There were numerous layoffs in order to minimise
and cut overhead expenses. A new executive management team anticipated achieving faster, superior
results with fewer assets. Everyone at Ramanandan Bank feared termination, despite that bank’s gradual
return to profitability. There was still pressure to perform or face consequences.
Ramanandan Bank’s six-person Spring Hill Branch was managed by G. Revathi. Spring Hill, complete with
an ATM and a newly renovated lobby, stood in the parking lot of a new suburban shopping centre. The
mall, which was anchored by a store from the largest grocery chain in the region, contained approximately
twenty modest retail shops. In addition, a big hospital was only across the street and a significant
manufacturing factory (with around 3,000 employees) was located in a nearby industrial park. Numerous
customers of the branch worked in these areas.
Revathi was promoted to her current position around one year ago. Prior to that, she had served as
Assistant Manager at another branch in the region. In the past year and a half, Revathi had mastered her
managerial duties. She enjoyed her work and performed well.
In any case, I used to enjoy it, she reflected to herself. She was seated at her desk at 6:00 p.m., observing
the onset of night. ‘‘I wish I could get out of here before 5:30. These layoffs are extremely painful, the strain
is too great, and nobody cares if I’m here or not.’’ Revathi was aware that she was in a foul, depressed
mood.
Six months had passed since the layoffs she was contemplating, but their full impact was just now being
felt. The Spring Hill Branch of Revathi was a popular location, with nine employees previously appointed.
There were now only six positions available, two New Accounts posts (including Revathi’s) and four tellers.
One teller could divide their time between the teller line and the back office.
The issue was that there were an excessive number of consumers. Revathi chuckled at the inconsistency.
Here, the bank wants more customers, but we cannot service the existing ones. On nearly every day and
hour, there were three or four clients waiting in line. The fact that the majority of them simply wanted to
cash a check or make a deposit did not seem to matter: by the time they reached the teller, they were
brusque or harsh, demanding, and occasionally confrontational and aggressive.
Revathi vividly recalled an event that occurred just two days prior. Twenty minutes had passed while a
consumer waited to pay a utility payment. When he finally reached the window, he began criticising the
tellers for their tardiness and the bank for its incompetence. When he finished, the teller was in tears.
Revathi recalled their conversation after he left. The cashier stated: ‘‘We exert so much effort, but no one
seems to appreciate it. I simply cannot work in this state.’’
Revathi began to receive significantly more complaints, seemingly from everyone. Customers were
grumbling about bad services, tellers were moaning about pressure and ‘‘downtown’’ was beginning to
protest about the branch’s high amount of mistakes, errors, and shortages.
Revathi was scheduled to hold one of her monthly ‘‘sales meetings’’ with the team tomorrow. These
conferences were mandated by ‘‘downtown.’’ Revathi despised them because they usually seemed to last
forever and nothing was ever done. Revathi was scheduled to deliver a 15 to 20 minutes presentation on a
product, and she imagined the audience members fidgeting or staring at the floor. There would be no
inquiries, but there would be occasional complaints about ‘‘the consumers yelling at us’’ or ‘‘the need for
extra assistance’’.
Revathi dreaded tomorrow’s meeting and pondered how she could focus on the branch’s actual issues and
generate tangible outcomes. Answer the following questions.
(a) Can Revathi use this meeting to assist in resolving some of the branch’s issues?
(b) (b) What types of broad techniques may Revathi employ to assist in resolving these issues?
(c) (c) Describe the procedure Revathi and her staff can follow to address productivity and quality
issues.
(Each question is of 4 marks = Total 12 marks)
Answer 6(a)
Absolutely, Revathi can use this meeting to assist in resolving some of the branch’s issues. However, it is
likely that a series of staff meetings will be required to find a solution to these issues. The fundamental
issue is that the current setup of workers and consumers is unbalanced: the demand for services exceeds
their capacity to meet customer needs. Reconfiguring the branch's service and customer mix is essential
for enhancing its productivity
Answer 6 (b)
Revathi has the following alternatives to resolving this issue:
She can first request extra personnel from her management. In addition to requesting full-time employees,
she might also recommend part-time positions or staff sharing with another department. Even on her own
initiative, she may pursue the latter choice with the help of friendly branch manager peers.
Secondly, Customers using tellers for transactions that could be done through other, more efficient
channels contributes to the problem with productivity. There are numerous strategies to encourage clients
to use more productive methods, such as direct deposit of payroll cheques and use of automated teller
machines (ATMs). Since her branch is in close proximity to a lot of employers, she may suggest a marketing
campaign to contact these employers in order to set up direct payroll deposit. She could also collaborate
with Marketing to develop branch- based promotional programmes designed to promote ATM usage.
Thirdly, she must collaborate with her workers to discover ways to enhance service. This latter strategy
would include the personnel in identifying reoccurring issues and developing suitable solutions for them.
Answer 6 (c)
Essentially, Revathi should initiate a quality circle or productivity improvement programme with her workers.
Several significant stages are required to implement such an initiative.
She must explain the programme to her employees and convey that this is one means by which they can
attempt to better their condition. She could describe some of the initiatives she is currently pursuing. She
ought to explain that this procedure would be ongoing.
She should acquire training in quality and productivity enhancement measures for herself and her staff.
Additionally, she should acquire the habit of providing performance reports to the workforce. She should
utilise regular meetings to identify issues and generate solutions.
Her measures should include enhancing the training of staff. This can arise in two areas: dealing with
challenging clients and technical aspects of branch operations. She would require training assistance in
these areas.
• Different segment of vehicles (2W, 3W, PVs, CVs) may require different type of
charging standard (& connector), however, the charging infrastructure, at-least
at public places, should be common to the extent possible to reduce the
infrastructure cost.
• Energy companies (like IOCL, HPCL, IGL, NTPC, BHEL, GAIL, etc.) may invest
in providing a charging network, specially the fast charging stations at inter-city
routes like State and national highways. This could also be based on renewable
electricity sources.
Question 2
(a) ABC Limited is an unlisted public Company, is part of ABC group of Companies
with its business ranging from paper to pharmaceutical manufacturing. The
Company’s Pharmaceutical manufacturing division was under scanner of US
Foods and Drug Administration (USFDA) and there were pending investigations
against the said unit.
As a part of its corporate restructuring, the Board of ABC Limited has decided to
demerge its pharmaceutical manufacturing business to a new Company and
merge another paper manufacturing Company with ABC Limited.
A Composite scheme of amalgamation was filed under section 230 of the
Companies Act, 2013 read with the rules thereunder. The National Company
Law Tribunal (NCLT) rejected the Company’s application on the ground that
investigations are pending against the demerged unit.
Is the ground for rejection by NCLT justified ?
(b) An appeal was filed by X, a minority shareholder against M/s XYZ & Sons
Limited alleging oppression and mismanagement by majority shareholders. As
per the shareholding pattern, X and another shareholder held less than 10% and
the rest by shareholders who individually held more than 10%. The National
Company Law Tribunal passed an Order, granting waiver in favour of X under
proviso to Section 244(1) of the Companies Act, 2013 for the petition alleging
oppression and mismanagement in the Company. An appeal was preferred against
the said Order by M/s XYZ & Sons Limited.
Evaluate the validity of the appeal in the background of decided case law, if
any. (6 marks each)
Answer 2(a)
The ground of rejection by NCLT is not justified.
The present case is similar to the Case of Mel Windmills Pvt. Ltd. v. Mineral
Enterprises Limited & Anr [NCLAT] Company Appeal (AT) No. 04 of 2019 [Decided on
27/05/2019] wherein the NCLT Bengaluru Bench declined to sanction the scheme of
demerger on the ground that several issues were pending finalization and certain
investigations were pending in relation to the business of the demerged company.
Reference Section: Section 230 of the Companies Act, 2013
Section 230(1) states that the Tribunal may, on the application of the company,
order a meeting of the creditors or class of creditors, or of the members or class of
members, as the case may be, to be called, held and conducted in such manner as the
Tribunal directs.
As per Section 230 (2), the company or any other person, by whom an application is
made under section 230(1), shall disclose to the Tribunal by affidavit all material facts
relating to the company, such as the latest financial position of the company, the latest
auditor’s report on the accounts of the company and the pendency of any investigation
or proceedings against the company.
Thus, the Tribunal should have first ordered a meeting of creditors /members and if
consent has been accorded in such meeting of creditors/members, then it can go into
the merits of proposed scheme of demerger.
Answer 2(b)
The validity of the appeal can be seen with the decision of Appellate Tribunal in
Cyrus Investment Pvt. Ltd. & Anr. Versus Tata Sons Ltd. & Ors., 2017 SCC OnLine
NCLAT 261. In the said case the Appellate Tribunal held that while considering the
application for waiver under Proviso to Sub-section (1) of Section 244 of the Companies
Act, 2013, the Tribunal may look into the proposed petition under Section 241 and 242
but cannot take into consideration the merit of the said petition to decide the application
for waiver. It is only in application where cases of exceptional circumstances is made
out by one of the member having less than 10% of shareholding, the Tribunal may allow
petition for waiver.
Normally, the following factors are required to be noticed by the Tribunal before
forming its opinion as to whether the application merits ‘waiver’ of all or one or other
requirement as specified in clauses (a) and (b) of sub-section (1) of Section 244:
(i) Whether the applicants are member(s) of the company in question? If the answer
is in negative i.e. the applicant(s) are not member(s), the application is to be
rejected outright, otherwise the Tribunal will look into the next factor.
(ii) Whether (proposed) application under Section 241 pertains to ‘oppression and
mismanagement’? If the Tribunal on perusal of proposed application under
Section 241 forms opinion that the application does not relate to ‘oppression
and mismanagement’ of the company or its members and/or is frivolous, it will
reject the application for ‘waiver’. Otherwise, the Tribunal will proceed to notice
the other factors.
(iii) Whether similar allegation of ‘oppression and mismanagement’, was earlier made
by any other member and stand decided and concluded?
(iv) Whether there is an exceptional circumstance made out to grant ‘waiver’, so as
to enable members to file application under Section 241, etc.
Accordingly, if the X is able to make out some exceptional case for waiver of
requirements of the minimum shareholding, the company may not be able to sustain the
appeal before NCLAT.
Question 3
(a) N was a senior official of Xeta Limited, a listed Company. He was convicted for
involvement in insider trading and manipulation of share price of the Company.
The adjudicating officer levied penalty as provided in the Securities and Exchange
Board of India Act, 1992, for which the recovery officer issued a certificate of
recovery including interest on penalty. N filed an appeal before the Securities
Appellate Tribunal challenging that the interest cannot be levied by the recovery
officer.
Is N’s argument tenable ?
(b) Zom entered into a buyer’s agreement with EMANKI Land Developers Private
Limited in the year 2015. As per the agreement the possession of flat was to be
handed over in January 2018. The Company was deferring the handing over of
flat for almost a year. In January 2019, Zom filed a consumer complaint before
the NCDRC against the Company praying for delivery of possession of the flat,
adjustment of excess payment and compensation for deficiency in service. As
the agreement also provided for an arbitration clause providing for settlement of
disputes between parties under the Arbitration and Conciliation Act, 1996, the
Company filed an application under Section 8 of Act for referring the matter to
arbitration.
Will the Company be successful in having an arbitration in respect of said matter?
(6 marks each)
Answer 3(a)
The present case is similar to the case of PVP Global Ventures Pvt Ltd. v. SEBI
[SAT] Appeal No. 451 of 2018 [Decided on 12/04/2019]. In this case the Securities
Appellate Tribunal (SAT) observed that the object and intention of inserting Section 28A
to the SEBI Act, 1992 was to provide a mechanism for recovery of the amount due to
SEBI. Instead of prescribing an independent mechanism for collection and recovery of
the amounts due to SEBI, the legislature deemed it fit to follow the mechanism provided
under the Income Tax Act, 1961 and accordingly inserted Section 28A to SEBI Act
wherein the provisions of the Income Tax Act, 1961 relating to collection and recovery
have been incorporated. Thus, the legislature by inserting Section 28A to SEBI Act,
1992 has provided that if a person fails to pay the amounts referred in Section 28A, then
the Recovery Officer shall draw up a statement/certificate and proceed to recover the
amounts specified in the certificate by any one or more of the five modes specified
therein.
This Tribunal in Dushyant N. Dalal & Anr. v. SEBI decided on March 10, 2017
(Appeal No. 41 of 2014) in which judgment was affirmed by the Supreme Court reported
in 2017 SCC Online SC 1188, after considering the provision of Section 28A of SEBI
Act, 1992 read with Section 220 of the Income Tax Act, 1961 held that the liability to pay
interest under Section 28A read with Section 220 is automatic and arises by operation of
law.
From the aforesaid, it becomes clear that interest was not only chargeable under
Section 28A read with Section 220(2) of the Income Tax Act, 1961 but the provisions of
the Interest Act, 1978 could also be taken into consideration and interest could be
charged from the date on which the penalty became due.
In the light of the aforesaid, we are of the view that the Recovery Officer was
justified in charging interest from the date of the order passed by the Adjudicating Officer.
In view of the aforesaid, we find no merit in these appeals and are dismissed. In the
circumstances there shall be no order on costs.
Hence, N's argument is not tenable.
Answer 3(b)
The present case is similar to the case of Emaar MGF Land Limited v. Aftab Singh
[SC] Review Petition (C) Nos. 2629-2630 of 2018 in Civil Appeal Nos.23512-23513 of
2017. The Supreme Court in the series of judgments considering the provisions of
Consumer Protection Act, 1986 as well as Arbitration and Conciliation Act, 1996 laid
down that complaint under Consumer Protection Act being a special remedy, despite
there being an arbitration agreement the proceedings before Consumer Forum have to
go on and no error is committed by Consumer Forum on rejecting the application. There
is reason for not interjecting proceedings under Consumer Protection Act on the strength
an arbitration agreement by Arbitration and Conciliation Act, 1996. The remedy under
Consumer Protection Act is a remedy provided to a consumer when there is a defect in
any goods or services. The remedy under the Consumer Protection Act is confined to
complaint by consumer as defined under the Act for defect or deficiencies caused by a
service provider, the cheap and a quick remedy has been provided to the consumer
which is the object and purpose of the Act.
The amendment in Section 8 of the Arbitration and Conciliation Act, 1996 cannot be
given such expansive meaning and intent so as to inundate entire regime of special
legislations where such disputes were held to be not arbitrable. Something which
legislation never intended cannot be accepted as side wind to override the settled law.
The submission of the petitioner that after the amendment the law as laid down by this
Court in National Seeds Corporation Limited is no more a good law cannot be accepted.
The words “notwithstanding any judgment, decree or order of the Supreme Court or any
Court” were meant only to those precedents where it was laid down that the judicial
authority while making reference under Section 8 shall entitle to look into various facets
of the arbitration agreement, subject matter of the arbitration whether the claim is alive or
dead and whether the arbitration agreement is null and void. The words added in Section 8
of the Arbitration and Conciliation Act, 1996 cannot be meant for any other meaning.
In the event a person entitled to seek an additional special remedy provided under
the statutes does not opt for the additional/special remedy and he is a party to an
arbitration agreement, there is no inhibition in disputes being proceeded in arbitration. It
is only the case where specific/ special remedies are provided for and which are opted
by an aggrieved person that judicial authority can refuse to relegate the parties to the
arbitration. Hence, no error has been committed by the NCDRC.
Hence, it can be concluded that the consumer disputes are not arbitrable.
Question 4
(a) Alkaline Private Limited is a chemical manufacturing company, which had availed
many bank loans and other facilities to fund its operations. The company has
not been able to repay the loan and interests thereon to the banks due to its
dwindling sales and other cost/labor issues. Over a period, as the company was
not repaying its loans, its account was classified as Non-Performing Asset
(NPA) by the banks. Various negotiations with the banks did not materialize and
the banks-initiated proceedings under Insolvency and Bankruptcy Code, 2016
(IBC) against the company.
The Company is of the view that IBC does not have constitutional validity and
accordingly, it appealed in court of law. Will the Company succeed ?
(b) ‘Q Cars’ was a radio taxi service provider, which was offering customer discounts
and royalty programmes, etc., M group was a competitor who alleged that owing
to its dominant position, ‘Q Cars’ group has devised certain abusive practices
which inter alia include unreasonable discounts amounting to abysmally low/
predatory pricing to consumers etc., to adversely affect and oust its competitor
from the relevant market. It was also alleged that under its business arrangement,
‘Q Cars’ was giving whole trip amount received from the passengers to the
respective taxi drivers along with additional incentives in order to get them
attached exclusively with the ‘Q Cars’ network. It also alleged that ‘Q Cars’
enters into exclusive contracts with taxi owners in violation of provisions of
Competition Act, 2002, whereby the taxi drivers are restrained from getting
attached on to any other competing ‘radio taxi operator’ network.
Has ‘Q Cars’ contravened the provisions of the Competition Act, 2002 ?
(6 marks each)
Answer 4(a)
The present case is similar to the case of the Swiss Ribbons Pvt. Ltd. v. Union of
India [SC] Writ Petition (Civil) No. 99 of 2018 [Decided on 25/01/2019]. In Swiss Ribbons
Pvt. Ltd. case the Supreme Court observed that ‘the Insolvency and Bankruptcy Code,
2016 (the Code) is a legislation which deals with economic matters and, in the larger
sense, deals with the economy of the country. Earlier experiments, as we have seen, in
terms of legislations having failed, ultimately led to the enactment of the Code. The
experiment contained in the Code, judged by the generality of its provisions and not by
so-called crudities and inequities that have been pointed out by the petitioners, passes
constitutional muster. To stay experimentation in things economic is a grave responsibility,
and denial of the right to experiment is fraught with serious consequences to the nation.
We have also seen that the working of the Code is being monitored by the Central
Government through Expert Committees that have been set-up in this behalf. Amendments
have been made in the short period in which the Code has operated, both to the Code
itself as well as to subordinate legislation made under it. This process is an ongoing
process which involves all stakeholders, including the petitioners.
In the working of the Code, the flow of financial resource to the commercial sector in
India has increased exponentially as a result of financial debts being repaid. Approximately
3300 cases have been disposed of by the Adjudicating Authority based on out-of-court
settlements between corporate debtors and creditors which themselves involved claims
amounting to over INR 1,20,390 crores. Eighty cases have since been resolved by
resolution plans being accepted. Of these eighty cases, the liquidation value of sixty-
three such cases is INR 29,788.07 crores. However, the amount realized from the
resolution process is in the region of INR 60,000 crores, which is over 202% of the
liquidation value. This shows that the experiment conducted in enacting the Code is
proving to be largely successful. The defaulter‘s paradise is lost. In its place, the
economy‘s rightful position has been regained.’
Based on the above ruling of the Apex Court, it can be concluded in the given case
that the constitutional validity of Insolvency and Bankruptcy Code, 2016 cannot be
challenged.
Hence, the company will not succeed.
Answer 4(b)
The present case is similar to the case of Meru Travel Solutions Pvt Ltd v. Uber
India Systems Pvt. Ltd & Ors [CCI] Case No. 96 of 2015 [Decided on 10/02/2016]
wherein the Competition Commission of India held that the definition of relevant geographic
market in the radio taxi services market has been dealt with by the Commission in many
previous cases. The Commission was of the view that the relevant geographic market in
that case would be “Delhi”.
The Commission held – “It has considered the TechSci research report and it is a
matter of fact that Uber Group was not interviewed during the collection of data in the
TechSci report. Evidently, there are glaring differences in the data and results depicted
by the two research reports i.e. research report and TechSci report; casting a serious
doubt on their authenticity and neutrality. The conflicting results indicate that either the
data relied upon in the said reports is not accurate or the data has been selectively
collected and relied upon to reach some predetermined results. Therefore, despite the
Informant’s attempt to discredit the results of the research report, the Commission is
apprehensive in drawing conclusions with regard to the market share of UBER on the
basis of such contradictory research reports. Hence, despite the deficiencies observed
above, a conclusion may be drawn from a combined reading of both these research
reports that there exists stiff competition, at least between OLA and UBER, with regard
to the radio taxi industry in Delhi. Further, both the research reports have acknowledged
the presence of other major players in the market, apart from UBER and OLA.
Further, the fluctuating market share figures of the various players show that the
competitive landscape in the relevant market is quite vibrant and dynamic. Based on
the foregoing discussion, the Commission is of the view that the radio taxi services
market in Delhi is competitive in nature and UBER does not appear to be holding a
dominant position in the relevant market. Since Uber group does not seem to be dominant
in the relevant market, there is no need to go into the examination of its conduct in such
relevant market.
Based on the aforesaid, the Commission is of the view that no case of contravention
is made out against Uber Group.”
Applying the conclusion of the above case, it can be concluded that 'Q Cars' has not
contravened the provisions of Competition Act, 2002.
Question 5
(a) The Statutory Auditor of your Company allegedly got transferred 1000 shares of
the Company in his name. However, the matter was ultimately resolved and
settled between Auditor and the complainant, despite which Disciplinary
Committee of Institute of Chartered Accountants of India (ICAI) took up the
case and ultimately found that the conduct of Statutory Auditor was derogatory
in nature and highly unbecoming and held him guilty of ‘Other misconduct’ under
Section 22 read with Section 21 of the Chartered Accountants Act, 1949.
The Council of ICAI removed the Auditor from the rolls for a period of six months.
The Auditor appealed against the same. Will he succeed ?
(b) A Kerala based company had a cement unit in Salem in the State of Tamil
Nadu. Unit became Sick and the Company was not in position to pay wages to
its labours. The workers approached Labour Court. Labour Court passed an
award in favour of workers. In the meantime, a lender in Kerala attached
Company’s properties and sold in public auction. Workers filed writ before Kerala
High Court seeking deposit of 50% of their dues by the lender. Single Judge
overruled the jurisdiction issue in favour of workers. Lenders preferred an appeal
before Division Bench and the same was allowed by the Bench.
Aggrieved by the decision, workers appealed before Supreme Court. Will they
succeed ? (6 marks each)
Answer 5(a)
The present problem is similar to the case of Council of the Institute of Chartered
Accountant [SC] Civil Appeal No. 11034 of 2018 (Arising out of SLP (C) No. 19564/
2017).
In the case cited above, the Disciplinary Committee has found the Chartered
Accountant guilty of practice (similar to the facts in the question) which was not in his
professional capacity.
The Council of the Institute of Chartered Accountants of India [ICAI], made its
recommendation to the High Court to remove the aforesaid Chartered Accountant for a
period of six months from the rolls.
The Council of ICAI was entitled to do so under Schedule I Part-IV sub-clause (2) of
Chartered Accountant Act, 1949 if, in the opinion of the Council, such act brings disrepute
to the profession whether or not related to his professional work.
However, High Court declined to remove him from the rolls for six months.
Hon’ble Supreme Court held “in the case, it is clear that the impugned judgment is
incorrect and must, therefore, be set aside. The matter be remanded to the High Court to
be decided afresh leaving all contentions open to both parties.”
Applying the rationale of the above decision, it can be decided that the Auditor will
not succeed in his appeal.
Answer 5(b)
The present problem is similar to the case of Cement Workers Mandal v. Global
Cements Ltd. (HMP Cements Ltd) & Ors [SC] Civil Appeal No.5360 of 2010.
The short question, which arises for consideration in this appeal, is whether the
Division Bench was justified in holding that the Special Civil Appeal (SCA) filed by the
appellant was not maintainable for want of territorial jurisdiction of the High Court.
The Supreme Court held that the Division Bench erred in not noticing Article 226(2)
of the Constitution of India while deciding the question arising in this case. In other
words, the question as to whether the High Court has territorial jurisdiction to entertain
the appellants petition (SCA) or not, should have been decided keeping in view the
provisions of Article 226(2) of the Constitution read with Section 20 of the Code of Civil
Procedure, 1908 (for short, “CPC”).
Article 226(2) of the Constitution further empowers a High Court to issue any order,
directions or writ as provided in clause (1) of Article 226 of the Constitution in such writ
petition notwithstanding that seat of such Government or the Authority or the residence
of such person against whom the writ petition is filed does not fall within the territories of
the “A” High Court but falls in the territories of the “B” High Court.
In the light of these three reasons, we are of the view that the part of the cause of
action as contemplated in Article 226 (2) of the Constitution has arisen within the territorial
jurisdiction of the High Court for filing the petition (SCA) to claim appropriate reliefs in
relation to such dispute against respondent No.1Company.
In our considered opinion, the expression “the cause of action, wholly or in part,
arises” occurring in Article 226(2) of the Constitution has to be read in the context of
Section 20(c) of CPC which deals with filing of the suit within the local limits of the
jurisdiction of the Civil Courts.
In the light of the foregoing discussion, we are of the view that the appellants petition
(SCA) was maintainable in the High Court in as much as the part of the cause of action
to file such petition did accrue to the appellant herein (petitioner) within the territorial
jurisdiction of the Gujarat High Court. In these circumstances, the SCA was required to
be decided on merits by the Gujarat High Court.
In view of the foregoing, the appeal will succeed in the given case.
Question 6
AB & CD Limited, a Non-Banking Finance Company (NBFC), was a diversified
Company having a complex group structure with more than 20 subsidiaries. Each
company had its own Finance department which would report to a Central Finance
Team headed by the group CFO. All the Companies and different units of AB & CD
Limited were functioning in silos, wherein each one was unaware of the performance
of other companies. There were inter-corporate loan arrangements between
Companies in the group. The top management consisted of few professionals and
family members. All the top executives were being paid higher remuneration in
comparison with the industry benchmarks including high number of stock options.
AB & CD Limited had a whistle blower policy monitored by the Audit Committee.
Vyom, a qualified Senior Accountant, working in the Company had approached the
Director (Finance) with concerns about the financial statements but he could not get
satisfactory answers and so threatened to inform the press. When his threat came
to the attention of the Board, he was intimidated to keep quiet.
Another employee had written to an independent director stating that the books of
the Company had been manipulated. Although this letter was circulated to the Board,
no action was taken. The audit committee also failed to take any action.
When the group was not able to repay its loan to banks, there were concerns from
bank and forensic audit was initiated. The forensic audit revealed a fraud within the
Company and the share price of the Company plummeted.
Based on the above facts, answer the following :
(a) What is the role of Independent Directors and Audit Committee for effective
oversight of matters pertaining to Whistle blower complaints ?
(b) What are the challenges of effective implementation of a Whistle blower policy
in a company such as AB & CD Limited ? Give your suggestion for devising
better Whistle blower mechanism. (6 marks each)
Answer 6(a)
While the ultimate responsibility of vigil mechanism is with the Board as a whole.
Audit Committee is tasked with principal oversight of whistle blowing systems with the
direct responsibility for anti-fraud efforts generally residing with management including
internal audit. Whistle blowing procedures are a major line of defence against fraud and
audit committee should ensure such procedures are effective. By focusing on whistle
blowing channels and considering it within the context of the organisations overall
approach to enterprise risk management - the audit committee can help strengthen
internal controls, financial reporting and corporate governance.
The audit committee must be properly informed and actively engaged in overseeing
the process while avoiding taking on the role or responsibilities of the Management. To
this end, it should seek input from legal counsel, internal/external audit.
The audit committee should seek to ensure that the management has considered all
risks that are likely to have a significant financial, reputational or regulatory impact on
the organization. For any such risks, a rigorous assessment of the relevant internal
controls including their ability to detect or prevent fraud should be made. Effective
monitoring of these internal controls and periodic re-assessments of their effectiveness
are key elements to stay updated, together with management's active engagement in
the process. The audit committee should consider whether effective fraud awareness
programmes are in place, updated as appropriate and effectively communicated to all
employees.
Answer 6(b)
Some of the challenges of effective implementation of a whistle blower policy are:
Operational : Extent of whistle blowing mechanism within the organization,
awareness about it to staff members and whether the hotlines and reporting lines
actually work.
Emotional and cultural : Whistle blowers are commonly viewed as snitches, sneaks,
grasses and gossips. This perception can make it difficult to blow the whistle even
though individuals recognize that it is good for the company, employees, shareholders
and other stakeholders.
Potential whistle blowers often fear reporting incidents to Management : Areas
such as legal protection, fear of trouble and potential dismissal all play a part when
an individual is considering whistle blowing.
Suggestions for devising better whistle blower mechanism:
• Whistle blowing policies and procedures to be documented and communicated
across the organization.
• Whistle blowing policy should ensure that it is both safe and acceptable for
employees to raise concerns about wrongdoing.
• The whistle blowing procedures should be arrived at through a consultative
process. Management and employees should 'buy into' the process. Success
stories to be publicized.
• Concerns raised by employees are responded to within a reasonable time frame.
• Procedures should be in place to ensure that all reasonable steps are taken to
prevent the victimization of whistle blowers and to keep the identity of whistle
blowers confidential.
• Dedicated person to be identified to whom confidential concerns can be disclosed.
That person should have the authority and statute to act if concerns are not
raised with or properly dealt with, by the line management and other responsible
individuals.
• Management should understand how to act if a concern is raised. They should
understand that employees and others have right to blow the whistle.
• Consideration to be given to the use of an independent advice centre as part of
the whistle blowing procedures.
• In case, issues are not reported to the management through whistle blowing
channel, then management must have a relook on the effectiveness of the
whistle blwowing procedures.
***
— The firms have to intelligently do product positioning.
— Unique molecule should be developed having similar pharmaceutical effect alike
of competitor product.
— The firm have to work upon the new drugs prospects which helps to replace the
revenue from drugs going up patents, especially in the new drugs which helps to
cure the ailments like Alzheimer's, Parkinson's etc.
— On the R&D front, firms usually need to evaluate whether to perform R&D within
the firm or to outsource.
The firm may adopt the following strategies:
Cost Leadership Strategy : The Industry needs to control the price of prescription
drugs as the price controls are already in effect in most of developed nations but it
is yet to be introduced in the United States. Cost leadership is only possible till the
expiration of Patent. Simultaneously, the firms need to do the extensive research
on the new drugs prospects to replace the revenues from drugs going off patent.
Product Differentiation Strategy : Industry can produce the good quality and well
researched drugs which helps in differentiating it with the generic products. Industry
should do the intensive research on the new drugs which helps to cure the most
intractable medical conditions like Alzheimer’s, Parkinson’s disease, Cancer, heart
disease, stroke, depression, and anxiety. Stress and AIDS.
Niche/ Focus Strategy : Industry should also focus on the various studies which
shows that prescribed drugs are associated with serious health diseases like FDA
approved prescription drugs, known as COX-2 inhibitors, were associated with a
greater risk of heart attacks. These drugs or any such drugs should be pulled from
the market on immediate basis.
Question 2
(a) Discuss :
(i) Whether the Companies Act, 2013 bars filing of a joint application for
compounding of offence by a defaulting company along with its officers in
default ?
(ii) Whether the Companies Act, 2013 bars filing of a joint application for
compounding of the same offence committed in different years ?
(iii) Whether an offence punishable under the relevant provisions of the
Companies Act, 2013 with ‘imprisonment or fine’, if repeated within a period
of three years results into a mandatory imprisonment for the defaulters and
whether the same can be compounded or not ? (6 marks)
(b) The legal principle is that coercive recovery proceedings cannot be initiated
against a sick company.
Manmohan and Raj Kumar were guarantors to the loan obtained by a sick
company. Recovery proceedings against them were initiated before the Debt
Recovery Tribunal (DRT). They contended that recovery proceedings under the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993 are to be
treated as a suit and if the principal borrower is declared as a sick company,
proceedings cannot lie or be continued against the guarantors. Will they succeed
in getting protection under section 22A of the Sick Industrial Companies (Special
Provisions) Act, 1985 (SICA) ? Give reasons in support of your answer.
(6 marks)
Answer 2(a)(i)
The Companies Act, 2013 does not provides for any bar on filing of joint application
for compounding of offence by a defaulting company along with its officers in default.
Section 441(1) of the Companies Act, 2013 provides that any offence punishable
under this Act 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
(a) the Tribunal; or
(b) 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.
Answer 2(a)(ii)
In terms of the scheme envisaged section 441 of the Companies Act, 2013, there is
no bar on preferring a single application for compounding the same offence committed
during different financial years by the company and its officers, nor there do any bar on
a joint application being made by a company along with its officers in default. Procedures
are deemed to be permitted unless expressly prohibited. (Rajendra Prasad Gupta vs.
Prakash Chandra Mishra and Ors. AIR 2011 SC 1137).
In absence of any specific bar of joinder of parties or joining of separate cause of

actions in preferring a compounding application, joining of parties for same offence is
permitted. Facts leading to any non-compliance under the Act on part of the company
and its officers in default will be same, any suggestion to the contrary will only lead to
multiplication of proceedings and different findings, which is not desirable.
Answer 2(a)(iii)
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.
However, according to section 441(6) of the Companies Act, 2013 any offence
which is punishable with imprisonment only or with imprisonment and also with fine are
not compoundable, but any offence which is punishable with imprisonment or fine, or
with imprisonment or fine or with both, are compoundable.
Answer 2(b)
Supreme Court in the matter of KSL & Industries Ltd. v. Arkhangelsk Threads Ltd.
& Others (2015) held that provisions of section 22 of the Sick Industrial Companies
(Special Provisions) Act, 1985 (SICA) will prevail over section 34 of the Debts Due to
Banks and Financial Institutions Act, 1993 and had reiterated the legal principle that
coercive recovery proceedings could not be initiated against a sick company.
The problem is based on the decision of Division Bench of Delhi High Court in the
case of Om Prakash Parasrampuria & Others v. Union of India & Others decided on
3.3. 2016.
The Delhi High Court had in the instant case held that the word 'suit 'cannot be
understood in its broad and generic sense to include any action before a legal forum
involving an adjudicatory process. If that were so, the legislature would have made the
necessary provisions in section 22 of the SICA.
The term 'suit' would therefore apply to proceedings in a Civil Court and not actions
for recovery proceedings filed by the banks and financial institutions before a Tribunal
such as the Debt Recovery Tribunal (DRT).
The proceedings against Manmohan and Raj kumar can continue.
Question 3
(a) The elder son of Prem Kumar Biswas was a truck driver with one Bidhan Chander
Roy. He met with an accident while on his way to deliver consignment of the
owner in the truck from Kolkata (West Bengal) to Lucknow (Uttar Pradesh). He
sustained severe injuries on the head and died on the spot.
Prem Kumar Biswas filed for compensation under the Employees State Insurance
Act, 1923 and the Commissioner allowed a compensation of Rs. 15,20,268.
Aggrieved by the order, the Insurance company preferred an appeal before the
High Court in Kolkata. One of the contentions of the insurance company was
that the deceased lost his life as a result of his own negligence and that Prem
Kumar Biswas was not entitled to any compensation.
There was no document on record to prove the exact amount of wages being
earned by the deceased at the time of the accident. But it was proved that the
deceased was a highly skilled workman and was often required to undertake
long journeys outside the State in the line of duty. The vehicle he used to ply
had a registred National Route Permit.
The High Court set aside the order of the Commissioner for workmen’s
compensation and reduced the amount of compensation to Rs. 11,00,000. Prem
Kumar Biswas intends to prefer an appeal before the Supreme Court challenging
the correctness of the impugned judgement of the High Court.
Will he succeed ? Give reasons in support of your answer. (6 marks)
(b) Ramesh Kumar and Jainendra Singh (respondants) had asked following
information from RBI under the Right to Information Act, 2005 :
(i) Details of the reports pertaining to investigation and audit carried out by RBI
and details of past 20 years investigation with respect to cooperative banks.
(ii) Details of the report sent by RBI to the Finance Ministry with respect to
FEMA violations committed by several commercial banks.
(iii) Details of the inspection reports of apex cooperative banks.
(iv) Details of the loans taken by the industrialists that have not been repaid
and about the names of the top defaulters who have not repaid their loans to
public sector banks.
(v) Details of the show cause notices and fines imposed by the RBI on various
banks.
RBI refused to provide the requisite information on the grounds of economic interest,
commercial confidence, fiduciary relationships with other banks and the public
interest.
Is the refusal by the RBI tenable ? Give reasons in support of your answer.
(6 marks)
Answer 3(a)
The present problem is similar to the case of Jaya Biswas & Ors. V Branch Manager,
IFFCO Tokio General Insurance Company Ltd. (SC) – (Civil Appeal No. 869 of
2016(Arising out of S.L.P.(C) No.1903 of 2015 decided on 04/02/2016). In this case
Supreme Court inter-alia observed that the Employees' Compensation Act, 1923 is a
welfare legislation enacted to secure compensation to the poor workmen who suffer
from injuries at their place of work. The Preamble of the Act reads, “An act to provide for
the payment by certain classes of employees to their amount of compensation for injury
by “accident”. By increasing the importance for the employer of adequate safety devices,
it reduces the number of accidents to workmen in a manner that cannot be achieved by
official inspection.
The Act is a social welfare legislation meant to benefit the workers and their
dependents in case of death of workman due to accident caused during and is the cause
of employment. It has to be proved by the employee that
i. There was an accident
ii. The accident had a casual connection with the employment
iii. The accident must have been suffered in the course of employment.
In the instant case, the deceased was on way to deliver the consignment during the
course of employment when he met with the accident. The accident squarely arose out
of and in the course of employment. The contention of the insurance company that the
deceased died as a result of his own negligence, doesn’t hold ground. Section 3 of the
Act, doesn’t create any exception of the kind, which permits the employer to avoid his
liability if there was negligence on the part of workman. The act does not envisage a
situation where the compensation payable to an injured or deceased workman can be
reduced on account of contributory negligence. Mere negligence does not entitle a
workman to compensation.
There was no evidence to prove that there was negligence on the part of the driver.
Even if there was any negligence on his part, it would not entitle his dependents from
claiming compensation under the Act. It can be said that the avail of compensation by
the Commissioner was well reasoned and elaborate. The High Court should not have
reduced the amount of compensation. It appears the judgement of the High Court suffers
from gross infirmity.
In view of the above Prem Kumar Biswas should prefer an appeal before Supreme
Court and should succeed.
Answer 3(b)
In the given case refusal by RBI is not tenable.
The given case is similar to the case of Reserve Bank of India vs. Jayantilal n.
Mistry [SC]Transferred Case (Civil) No. 91 of 2015 (Arising out of Transfer Petition
(Civil) No. 707 of 2012) along with batch of petitions [Decided on 16/12/2015]. In this
case Supreme Court inter-alia held that in the instant case, the RBI does not place itself
in a fiduciary relationship with the Financial institutions (though, in word it puts itself to
be in that position) because, the reports of the inspections, statements of the bank,
information related to the business obtained by the RBI are not under the pretext of
confidence or trust. In this case neither the RBI nor the Banks Act in the interest of each
other. By attaching an additional fiduciary label to the statutory duty, the Regulatory
authorities have intentionally or unintentionally created and in terrorem effect.
RBI is a statutory body set up by the RBI Act as India’s Central Bank. It is a
statutory regulatory authority to oversee the functioning of the banks and the country’s
banking sector. RBI has been given powers to issue any direction to the banks in public
interest, in the interest of banking policy and to secure proper management of a banking
company. It has several other far-reaching statutory powers.
RBI is supposed to uphold public interest and not the interest of individual banks.
RBI is clearly not in any fiduciary relationship with any bank. RBI has no legal duty to
maximize the benefit of any public or private sector bank, and thus there is no relationship
of ‘trust’ between them. RBI has a statutory duty to uphold the interest of the public at
large, the depositors, the country’s economy and the banking sector. Thus, RBI ought
to act with transparency and not hide information that might embarrass individual banks.
It is duty bound to comply with the provisions of the RTI Act, and disclose the information
sought by respondents herein.
In the present case, we have to weigh between the public interest and fiduciary
relationship (which is shared between the RBI and the Banks). Since, RTI Act is enacted
to empower the common people, the test to determine limits of S. 8 of the RTI Act is
whether giving information to the general public would be detrimental to the economic
interests of the country? To what extent should the public be allowed to get information?
In the context of above questions, it had long since come to our attention that the
Public Information Officers (PIO) under the guise of one of the exceptions given under
S. 8 of RTI Act, have evaded the general public from getting their hands on the rightful
information that they are entitled to.
And in this case the RBI and the Banks have sidestepped the general public’s
demand to give the requisite information on the pretext of “fiduciary relationship” and
“economic interest”. This attitude of the RBI will only attract more suspicion and disbelief
in them. RBI is a regulatory authority should work to make the banks accountable to
their actions.
The ideal of ‘Government by people’ makes it necessary that people have access to
information on matters of public concern. The free flow of information about affairs of
Government paves way for debate in public policy and fosters accountability in
Government. It creates a condition for ‘open governance’ which is a foundation of
democracy.
Question 4
(a) A multiproduct company catering to applications in diverse sectors had borrowed
from various financial institutions including Kundan Bank Ltd. A corporate debt
restructure plan (CDR) was framed between 19 lenders and the company in
2014 and a master restructuring agreement (MRA) was made by which funds
were to be infused by the creditors and certain obligations were to be met by the
debtors. The aforesaid restructuring plan was implementable over a period of 2
years.
On 07-12-2016 Kundan Bank Ltd. made an application in which it was stated
that the company being a defaulter within the meaning of the Insolvency and
Bankruptcy Code, 2016, the insolvency resolution process ought to be set in
motion. To this application, a reply was filed by means of an interim application
on behalf of the company by the erstwhile Directors. It was claimed that there
was no debt legally due in as much as vide two notifications issued under the
Maharashtra Relief Undertakings (Special Provision Act), 1958 (hereinafter
referred to as the Maharashtra Act), all liabilities of the appellant and remedies
for enforcement thereof were temporarily suspended for a period up to 18-07-
2017.
The company made a second application on 16-1-2017. It pleaded that owing to
non-release of funds under the MRA, it was unable to pay back its debts.
Will the company succeed in its contentions ? Give reasons in support of your
answer. (6 marks)
(b) CTVN and Channel 10 telecasted Mahabharat TV serial in dubbed form in Bangla
language in the State of West Bengal. The co-ordination committee comprising
film and TV entities in the State banned the telecast of the dubbed version of
the serial contending that it was affecting the TV and film industry of the State.
CTVN and Channel 10 intend to contest the ban before the Competition
Commission of India.
Discuss whether :
(i) Activities in which the co-ordination committee indulged can be treated as
‘agreement’ for the purposes of section 3 of the Competition Act, 2002 and
the Co-ordination Committee would be covered by the definition of ‘person’
under 2(l) of the Act ?
(ii) The act of banning of the TV serial amounts to violation of the provisionsof
section 3(3)(b) of the Competition Act, 2002 ? (4+2=6 marks)
Answer 4(a)
On a bare reading of the judgement of Innovative Industries Ltd. Vs ICICI Bank &
another, it seems that the case involved more adjudication on grounds related to
Constitutional Law than on the Code. This case related to the first-ever application filed
for initiating insolvency proceedings under the new Code. The Court was cognizant of
the fact and hence wanted to settle the law so that all ‘Courts and Tribunals take notice
of the paradigm shift in the Law’.
The case involved contradictory provisions in the Code and a State law of State of
Maharashtra, Maharashtra Relief Undertakings (Special Provisions) Act, 1958. This state
law provided for overtaking of industries by the state by declaring them ‘relief
undertakings’. Such overtaking can be done through government notifications to that
effect under the Act. This is done to protect employment of the people who are working
in such an undertaking.
The Code instead provides for overtaking of an undertaking’s business by an
‘Insolvency Professional’ through a committee of creditors. In the instant case, insolvency
application was filed against Innoventive Industries Ltd. which later claimed to be a
relief undertaking under the Maharashtra Act. This brought the two legislation on a collision
course, for the simple reason that enforcement of one will hinder the enforcement of the
other.
Supreme Court dealt with the constitutional law doctrine of repugnancy. This doctrine
stems from the operation of Article 254 of the Constitution. As per this doctrine, whenever
central and state laws are framed on the same subject and are contradictory to each
other, it is the central law which prevails and the state law is rendered void.
A plain reading of Article 254 gives an impression that if both central and state
governments frame laws on a same entry under the concurrent list, only then the Central
law will prevail. In the instant case, however, the laws even though coming in conflict
with each other, were framed under different entries of the concurrent list. This involved
an adjudication by the Supreme Court on this point. The National Company Law Tribunal
(NCLT) had ruled that Innoventive Industries Ltd. can’t claim any relief under Maharashtra
Act. It also decided that there is no repugnancy between the two laws, as they operate
in different fields.
The appeal to the Supreme Court, hence involved two major questions. One was,
whether the petitioner can seek relief under the Maharashtra Act at the cost of the Code.
The second was, whether both the laws are repugnant to each other.
Invoking a lot of international cases, especially of the Commonwealth countries and
previous Judgments of the Supreme Court, the bench ruled that there is indeed repugnancy
between the two laws. The court held that even if the two legislations are framed on
different entries of the concurrent list, the Central law will always prevail if it comes in
conflict with the State law. The State law, therefore was held inoperable to the extent
that it was in contradiction to the Code.
The court delved into great detail of the provisions of the Code and held it to be
intended as an ‘exhaustive legislation’ by the Parliament, to cover the whole field of its
operation. In such instances involving an exhaustive law, even though the State law
may not be in strict violation of the code, it will even then be rendered inoperative to give
way to implement the exhaustive law on the point.
Answer 4(b)(i)
The given case is similar to the case of Competition Commission of India v. Co-
ordination Committee of Artists and Technicians of W.B. Film and Television & Ors [SC]
Civil Appeal No. 6691 of 2014 [Decided on 07/03/2017].
An agreement referred to in Section 3 of the Competition Act, 2002 has to relate to
an economic activity which is central to the competition law. Economic activity refers
to any activity consisting of offering products in a market regardless of whether the
activities are intended to earn a profit. The “agreement” or “concerned practice” is the
means through which enterprise or association of enterprises or person or association of
persons restrict competition. The functional approach and the corresponding focus on
the activity, rather than the form of the entity may result in an entity being construed an
enterprise when it engages in some activities, but when it engages in others. Non-profit
making organizations or public bodies may of turn operate in their charitable or public
activity but may be construed an undertaking when they engage in commercial activities.
Coordination Committee, which is engaged in activities which are not charitable. It is
engaged in economic activities on behalf of the film and TV artists. In action in banning
the dubbed TV serial amounts to an “infringement” under the Competition Act, 2002.
The Commission Committee, which may be a “person” as per Section 2(l) of the
Competition Act, 2002, is not undertaking any economic activity by itself. But the
Commission Committee is an association of enterprises (constituent members) and
these members are engaged in production, distributions, and exhibition of films. Thus
the Commission Committee amounts to an “enterprise” or the kind of ‘association of
persons’ as per the Section 3 of the Act.
Answer 4(b)(ii)
The act of the Commission Committee deprives the consumers of exercising their
choice. Its act definitely caused harm to consumers by depriving them from watching
the dubbed serial on TV channel. It also hindered competition in the market by barring
dubbed TV serials from exhibition on TV channels in the State. Such acts or conduct
also limit supply of serial clubbed in Bangla which amounts to violation of the provisions
of Section 3(3)(b) of the Competition Act, 2002.
Question 5
(a) Ramakrishnan was employed by the Mukateshwara Silk Company Ltd. at its
registered office in Mumbai in the dyeing section in the year 1988. He was later
on promoted in 1992 and again in 2000 and continued to be located at the
company’s registered office in Mumbai. The company in its orders of transfer
located Ramakrishnan at the company’s establishment in Panjim (Goa) in 2005
and again transferred him at company’s another establishment in Jamnagar
(Gujarat) in 2006. However, Ramakrishnan’s services, were terminated in 2007
due to the closure of the establishment in Jamnagar.
Aggrieved by the order of termination Ramakrishnan intends to institute a suit in
the Labour Court in Mumbai under the Industrial Disputes Act, 1947. Will he
succeed ? Give reasons in support your answer. (6 marks)
(b) Robert Steel Tube Co. Ltd. had applied for allotment of 2500 acres of land on
30-6-1994 and in principle approval of allotment of 2500 acres of land was given
on the terms and conditions laid down in the policy decision of the State
Government as revised on 25-1-1995 for the establishment of the steel plant.
Robert Steel Tube Co. Ltd. deposited Rs. 1.25 crores with the Haryana Industrial
Development Corporation Ltd. (Corp.) on 3-4-1995 and took possession of 1756.29
acres of land in the first phase in 1996. However, the company did not execute
the lease deed with the Corporation. Ultimately, on 25-7-2003 on failure to get
the lease deed executed, the land was resumed and possession letter of 1756.29
acres of land was cancelled by the Corporation. The amount of Rs. 1.25 crores
deposited by the company was forfeited and adjusted towards compensation
for use and occupation of the land and damages.
Out of the resumed land, the Corporation allotted 934.31 acres of land to other
units. Robert Steel Tube Co. Ltd. made unsuccessful representations to the
Corporation for allottment. Thereafter, the company filed a writ petition before
the High Court for allotment of the balance land of 821.98 acres to it.
Will the company succeed in its petition against the Corporation ? Give reasons
in support of your answer. (6 marks)
Answer 5(a)
The fact of the case is similar to the case of Nandram vs. Garware Properties Ltd
(SC) Civil Appel No. 1409 of 2016 (Arising out of SLP (C) No. 33917 of 2011) [Decided
on 16/02/2016].
Ramakrishnan was employed at the office in Mumbai. He was only transferred to its
establishment in Jamnagar. The decision to close down the establishment at Jamnagar
was taken by the company in Mumbai. The decision to terminate the services of
Ramakrishnan was taken in Mumbai. Thus, part of cause of actions has arisen in Mumbai.
No doubt, the Labor Court in Jamnagar has the jurisdiction to consider the case of
Ramakrishnan if he prefers to institute the suit there.
But that does not mean that the Labor Court in Mumbai within whose jurisdiction the
management of the company has taken the decision to close down the establishment in
Jamnagar and pursuant to which services of Ramakrishnan were terminated does not
have the jurisdiction.
Hence, both the Labor Courts in Mumbai and Jamnagar have the jurisdiction to deal
with the matter.
Ramakrishnan can institute the suit in the Labor Court in Mumbai.
Answer 5(b)
The fact of the case is similar to the fact of Orissa Industrial Infrastructure
Development Corporate vs. M/S MESCO Kalinga Steel Limited and Others (With CA
No. 2546 /2017 (@ SLP (C) No. 23759/2007 and CA No.2547/2017 (@ SLP (C) No.2683/
2008)).
In this matter, the possession of land had been enjoyed by the company for around
seven years without execution of the lease deed. No explanation has been placed on
record for inaction on part of the company. In this regard, the company has also not
been able to prove that they were not negligent even after the timely initiation by the
authorities for the execution of the lease dead with the Corporation.
The transfer had become void due to the company’s own lapse and negligence. The
company had forfeited the right to get the lease deed executed, as in the absence of
execution of lease deed, the relationship of lessor and lessee never came into being
under the legal perspectives.
The company waited for years after taking possession. The company is statutory
authority – and it can act on the basis of written lease deed. The execution of the lease
deed is necessary and it is in the public interest to prevent unauthorized leasing out of
property on its behalf.
Lease is required to be executed in a presented format in the shape of formal
development which is a sine quo non as per the law of the land. In the absence thereof,
it would not be permissible to hold the relationship of lessor and the lessee.
The corporation is a statutory body and can act only in the mode prescribed. Further,
one has to be aware of the fact that ignorantia legis neminem excusat, means Ignorance
of Law is no excuse.
In this paradigm, the company should be aware of the legal procedure prost the
allotment of the land and should be ready to accept the consequences for ignoring the
required process of the law to be observed by them
The conduct of the company was not in line with the compliances and responsibilities
required to be adhered under law, as it remained negligent in execute the lease deed.
There was no contract which could have been enforced and it became void due to
inaction of the company itself. The conduct of the company had no justification at any
point of time not to execute the lease deed.
Henceforth, there is no equitable or legal consideration in favor of the company,
wherein they could succeed in its petition against the Corporation.
Question 6
Luke Graves (Luke) is the long-serving Chief Executive Officer (CEO) of Hornbill
plc, a UK listed company. He had a meeting with the newly-appointed Chairman of
the company, Ross Plank (Ross), who is married to Luke’s sister. A number of
different items were on the agenda for discussion. Luke said that he had recently
had a meeting with two institutional shareholders in the company, who together held
5% of the equity shares. He had also discussed the company’s performance over
the past few months with them and they had been pleased by the profit forecasts
that he had given them. The company’s results would be announced to the stock
market within the next two weeks. Luke added that he had also discussed the
company’s main business strategies with these shareholders and had informed
them that he intended to establish a strategy committee within the company,
consisting of the executive directors and other senior executives. Luke and Ross
later on discussed the retirement and re-election of Board of Directors at the next
annual general marketing of the company. Luke said there was an issue with John,
one of the directors, who would be retiring by rotation. John had been an independent
non-executive director for almost nine years. He was very experienced and had
contributed enormously while attending meetings of the Board. He was considered
to be too valuable to lose from the Board, but there was now a problem with his
independent status. Luke felt that he was still as independent now as he was when
he first joined the Board. Luke also informed Ross that he had arranged for additional
training for two Board directors : one of the non-executive directors and also the
marketing director.
(a) On the basis of above-mentioned facts, what weaknesses are discernible in the
corporate governance practices of the company ?
(b) What would be your recommendations and suggestions regarding the appropriate
practices to be followed on the weaknesses identified by you ? (6 marks each)
Answer 6(a)
On the basis of the facts of the case, following weaknesses in corporate governance are
evident in Hornbill plc:
• The newly-appointed Chairman Ross Plank is brother-in-law of the CEO Luke
and therefore has a close family connection with an existing board member.
The Chairman cannot, therefore, be considered independent on appointment.
The fact that the Chairman is non-independent and the relationship of Chairman
and CEO should be disclosed in the annual report of the company.
• Luke, the CEO has disclosed price sensitive information i.e. the company’s
performance over the past few months and profit forecasts with the institutional
shareholders before they have been announced to the stock market. Thus,
Luke has violated stock market regulations by giving financial information to the
shareholders that has not been made publicly available. If the institutional
shareholders trade shares in the company before the announcement of the
annual results, they would be liable for insider trading. Therefore, the institutional
shareholders must be informed that they are insiders and should not deal in
shares of the company until the information becomes public knowledge. The
board should also discuss and consider the breach of rules and discourse of
price sensitive information by Luke.
• The objective of establishing Strategy Committee comprising of executive
directors and senior executives is also not clear. It is the responsibility of the
board of directors to decide business strategy, and the executive management
should implement those strategies decided by the board. Here, it is not clear
what Luke means by establishing a strategy committee, but it should not be for
the purpose of deciding strategies.
• It is also observed that, the CEO is taking on too many roles outside his proper
area of responsibilities and there is a risk that the board of the company will be
dominated by a single individual. This risk is increased because of the family
connection between the CEO and the Chairman.
Answer 6(b)
Some of the recommendations and suggestions regarding the appropriate practices
to be followed are-
• The Chairperson of the board is the individual charged with providing the board
with effective leadership on all aspects of its role and setting its agenda. While
the chairperson is required to retain an objective viewpoint of the affairs of the
company, the CEO is often required to become intimately involved in developing
and executing management plans for the company. CEO’s main responsibilities
include developing and implementing high-level strategies, making major
corporate decisions, managing the overall operations and resources of a
company, and acting as the main point of communication between the board of
directors and the corporate operations. This role clarity should be there among
the Chairman Ross and CEO Luke in this case.
• The independence of the chairman is paramount to the successful implementation
of good corporate governance practices at board level. Therefore, as a good
governance, chairperson of the board should be independent and free of conflicts
of interest at appointment.
• Collective decision making and discussions among the Board is also missing in
the Company. It would have been appropriate for Luke to discuss his intentions
to establish a strategy committee with the board colleagues before announcing
them to a few shareholders. The board as a whole should be responsible for
deciding strategy and for deciding whether any new board committee should be
set up.
• The Nomination and Remuneration Committee should consider the selection
and re-appointment of Directors and makes its recommendation to the Board. It
should assess the current Board’s skills, experience and expertise to identify
the skills that would best increase Board effectiveness.
• The responsibility for selection and appointment of directors should be done by
the Nomination and Remuneration Committee and the CEO Luke should not try
to influence the Chairman of the board regarding appointment or selection of
any particular director.
• The Chairman or the Nomination and Remuneration Committee should make
policy for the induction and training of directors, particularly Non-Executive
Directors, although the task of arranging induction and training may be delegated
to the company secretary. The CEO may arrange technical training for another
executive directors.
***
of not communicating promises which it cannot fulfil. Thus, resources and timescales
needs to be used in such a manner that legitimate expectations are set.
Evaluation and amendment
Consider performing a communications audit to assess the effectiveness of the
organisation’s strategy with both internal and external audiences.
Effective communication is vital for any strategy to be successful. Ashwamedha
Rurdrapeeth Limited’s success is due to how well it communicated its objectives to
consumers to help them consider how yoga is beneficiary in curing the diseases. It
developed different forms of communication to convey the message ‘disease free life’
to all its customers.
The communication strategy employed by Ashwamedha Rurdrapeeth Limited is
multi-pronged and were done through:
• Promoting Ayurveda as part of day to day life-style
• Organizing yoga camps
• Franchisees/open stores across locations including villages
• Be synonymous with Ayurveda and good health
• Promote yoga as part of daily life
• Rudra's youtube videos
Question 2
(a) Pentagon Medical Marketing India Private Limited was incorporated in December
2006. The Company was profitable initially, however in few years there were
internal issues and the Board decided to apply for Striking off with Registrar of
Companies (ROC). An application was made for striking off its name under the
Fast Track Exit Scheme, 2011, which was processed by ROC, Ahmedabad.
The ROC sent a notice to the Company and Income-tax authorities seeking
objections, if any within a stipulated period. Later, ROC struck off the name of
the Company, as no objections were received by it within the stipulated period.
Later, on the Income-Tax Authoritres filed an appeal to the NCLT seeking
restoration of the name of the company on the ground that the tax dues against
the company were not determined.
Comment briefly in background of decided case law(s). (6 marks)
(b) CO2 Technologies Limited provides various fintech and software innovation
solutions. The Company was engaged by Energy Infra Exchange Limited, an
exchange for carbon credits in India. The founder and chairman of CO2
Technologies Limited, Ziruch was convicted of fraud. Upon investigation, it was
found that the fraud committed by Ziruch perpetrated through multiple layers
impacting both the Company and Energy Infra Exchange Limited. Taking into
consideration the provisions of the Companies Act, the Government of India
ordered compulsory amalgamation of the CO2 Technologies Limited and Energy
Infra Exchange Limited.
Evaluate in background of decided case law(s). (6 marks)
Answer 2(a)
The facts of the present case are similar to the case of PR. Commissioner of
Income Tax, Delhi vs. Registrar of Companies, Delhi & Ors. [NCLAT].
In the instant case, the Report-cum-Affidavit filed by ROC and supported by
Annexures - I and II satisfactorily establishes that the procedure laid down for striking
off the name of Company from Register of Companies (ROC) has been observed in
letter and spirit. In the face of the material on record corroborated by contemporary
record, no exception can be taken as regards compliance of the procedural aspect laid
down in the Guidelines governing FTE of the Company.
Though, in terms of the Guidelines, decision of the ROC in respect of striking off the
name of Company from its Register is final, it is open to this Appellate Tribunal to
examine whether the fundamental principles of jurisprudence have been observed in
compliance. Whether the Company resorted to FTE with malafide intention of defrauding
the Creditors would be a consideration having a bearing on the application of FTE
Guidelines for defunct companies but before dwelling upon the question of Revenue
being a Creditor qua the Company on the material date, it would be of primary importance
to find whether the Company was 'defunct company' within the meaning of FTE Guidelines.
Nil asset and liability was a sine-qua-non for a company to fall within the ambit of a
'defunct company'.
It was therefore incumbent upon the Revenue, in the first instance to lay proof
before the Tribunal or even before this Appellate Tribunal that the Company was
possessed of assets besides having liabilities. Unfortunately, the Revenue has not
even made any feeble attempt at disclosing any details of the assets, movable and
immovable, that the Company possessed and liability, if any, on the material date.
Liability to pay Income Tax would necessarily depend on assets besides trade and
business activity culminating in profit or loss. The proof in regard to possession of
assets by the Company and owing of any liabilities by it as also in regard to factum of
any income from legitimate sources assessable to Income Tax being abysmally absent,
no fault can be found in regard to striking off the Company by ROC under FTE which has
been duly notified in the 'Gazette of India'.
Striking off the Company which was a Private Company, from the Register of
Companies, indisputably does not absolve its erstwhile Directors who are liable as provided
under Section 179 of the Income Tax Act, 1961 to pay the amount of Tax leviable in
respect of income of any previous year. Why, in presence of such mechanism within the
legal framework available to Revenue, insistence is on restoration of Company without
laying any proof of its being possessed of any assets and liabilities and without any
evidence of the Company being in operation, is a question that can be best answered,
though has not been answered by the Revenue.
The appeal is dismissed leaving the Revenue to pursue appropriate legal remedy in
the light of observations in this judgment.
Answer 2(b)
The facts of the present case is similar to the case of 63, Moons Technologies Ltd
(formerly Financial Technologies (India) Ltd. v. Union of India & Ors (Bombay High
Court).
There is sufficient material on record on basis of which the Central Government has
subjectively satisfied itself that the amalgamation is essential in public interest to facilitate
recoveries of dues from defaulters from pooling human and financial resources of Financial
Technology India Limited (FTIL) and National Spot Exchange Limited (NSEL). Despite
claims by NSEL that it has the means to and it has been rigorously pursuing recoveries,
the fact remains that the position of recoveries is not very promising and may further
deteriorate if only NSEL has to fend for itself. In such matters, it is not sufficient that
some decrees or attachment orders are obtained. This is also not an issue of mere
recoveries but this is an issue of investor confidence in the very functioning of stock
and commodity exchanges.
If the Central Government, were not to act in a situation of this nature, investor
confidence would certainly be a casualty. Such a situation then, has a cascading effect,
which is by no means conducive to the national economy.
The Central Government, in making the impugned order has balanced the interests
of the two companies, its shareholders, creditors and employees on one hand and the
interests, not only of the investors who may have claims, but also, of the investing
public, which is required to be given the confidence that the Central Government will act
to see that a holding company does not take shelter behind its wholly owned subsidiary
and thereby shirk responsibility in the wake of such an unprecedented payment crisis.
The three grounds or reasons stated in the impugned order, in our opinion, were sufficient
to arrive at the subjective satisfaction that it was essential in public interest to order the
amalgamation of the two companies. This is not a case of exercise of powers for any
extraneous considerations or alien purposes.
Question 3
(a) Swadha Shareholding Limited, is a company incorporated under the Companies
Act and functioned as a clearing house for BSE Ltd. and having its own depository
participant services. SEBI conducted an inspection of the Company’s books of
accounts to examine whether it had put in place systems and processes to
comply with the Circulars issued by SEBI relating to the Anti Money Laundering
(AML) policy to be adopted, amongst others. SEBI issued a Show Cause Notice
to the Company alleging violation of AML policy under the Prevention of Money
Laundering Act, 2002, as to why adjudication proceedings should not be initiated
against the appellant for violation of the said requirements. The Company
submitted that it had belatedly complied with the requirements of AML policy.
Is the Company’s submission valid ? Justify with reasons.
(6 marks)
(b) In the year 2018-19 there were more than 10 Initial Public Offers (IPOs) in the
Indian Stock Market. Certain IPOs were marred by controversies including
irregular allotment of shares. It was brought to the notice of the Securities and
Exchange Board of India (SEBI) that several serious irregularities/illegalities
had been committed by certain High Networth Individuals who manipulated the
business by purchasing large chunk of shares through unscrupulous methods
(benami/fictitious demat account holders) in these Companies to manipulate
the price in the market.
Comment in the background of judicial pronouncements.
(6 marks)
Answer 3(a)
The facts mentioned are similar to a case between BOI Shareholding Limited
(Appellant) and the SEBI (Respondent) filed before the Securities Appellate Tribunal
(SAT).
In the case, an appeal was filed challenging the order of the Adjudicating Officer
(‘AO’) of SEBI whereby a penalty of ` 40 Lakh has been imposed on the appellant under
Section 15HB of the SEBI Act read with Section 19G of the Depositories Act, 1996 for
delayed implementation of the SEBI Circulars / Guidelines relating to anti-money
laundering (AML) policy.
The submission of the SAT was that they have perused the records produced before
it. In the Master Circular on Anti-Money Laundering (AML)/ Combating the Financing of
Terrorism (CFT) dated December 31, 2010 issued by SEBI, it was noted by SAT that all
the registered intermediaries were directed to comply with the requirements contained
therein on an immediate basis. Similarly, subsequent amendments made on January
24, 2013 also required adoption on immediate basis though the Circular dated March 12,
2014 does not specify the implementation time schedule. However, following the spirit
of the basic policy, the SAT was of view that implementation has to be done at the
earliest. From the evidence produced before SAT it was made clear that the appellant
has implemented all the requirements of the AML/CFT policy as specified in the SEBI
Circulars though belatedly. The SAT also noted that for delayed implementation / violation,
the SEBI has imposed varying penalty including no penalty in some cases. However,
under the Section 15HB of the SEBI Act read with Section 19G of the Depositories Act,
1996 the penalty imposable for each violation shall not be less than ` 1 Lakh which may
extend to ` 1 Crore rupees. Accordingly, the minimum penalty imposable in case of six
violations committed by the appellant should be in tune with the statutory provisions
relating to the penalty.
Given the fact that, though belatedly, the appellant has implemented all the required
policies and procedures on AML/CFT policy as stipulated under the various circulars of
SEBI and by the penalty precedent set by SEBI itself, SAT was of the view that the
penalty of `40 Lakh imposed on the appellant is excessive. SAT, therefore, reduced the
amount of penalty imposed on the appellant to ` 6 Lakh.
Keeping in mind the outcome of the SAT in the above case, it can be established
that though the delay in implementation is violation of the provisions of the SEBI Act,
1992, however, on justified submission by Swadha Shareholding Limited to the SEBI,
the quantum of penalty can be reduced or waived-off.
Answer 3(b)
The facts mentioned are similar to a case between the SEBI (Appellant) and Opee
Stock-Link Ltd & Anr (Respondents) filed before the Hon’ble Supreme Court.
Investigations was made by the officials of the SEBI and in pursuance of the said
investigation it was revealed that in the matter of the IPO of the two companies, Jet
Airways Limited and Infrastructure Development Finance Company Limited, shares which
were meant for Retail Individual Investors (RIIs) had been cornered through hundreds of
benami/fictitious demat account holders.
As modus operandi was quite similar in applications for shares made in respect of
both the companies and parties concerned are common. The reference was made to the
issue of Jet Airways India Limited. It was found by the SEBI that respondent in that
case in Appeal No. 20 of 2009 before the SAT had received 12,053 shares out of which
3272 shares were transferred before the day of listing of shares of the company with the
stock exchange, 3598 shares on the day of listing and 5183 shares after the day of
listing. The said shares were purchased through off market transactions from 553 demat
account holders, who had been allotted shares of the said company. The shares of the
company were listed on 14th March, 2005.
The said 553 demat account holders sold the shares to the said respondent at the
rate of ` 1170/- per share, though the market value of the said shares was much more
than ` 1170/ per share. The said shares were thereafter sold by the said respondent at
a higher price. Upon investigation, it was also found that most of those 553 demat
account holders were not genuine persons.
The Whole Time Member (WTM) of the SEBI came to the conclusion that the dealings
of the respondents were not fair and were in violation of the Act as well as the Regulations,
and imposed penalty on the respondents. On appeal, SAT set aside the order of the
WTM. The SEBI thereafter, challenged the order of SAT before the Hon’ble Supreme
Court.
The Hon’ble Supreme Court did not find any substance in the submissions made on
behalf of the respondents to the effect that the price of the shares of Jet Airways India
Ltd. paid by the respondents to the demat account holders was reasonable. Even according
to the submission made by the learned counsel, value of the said shares, during the
said period varied from ` 1172/- to ` 1339/- and in such circumstances, nobody would
believe that all the demat account holders would sell their shares at the same rate, viz.
` 1170/- per share to the respondents. These transactions are, therefore, definitely of
fishy nature.
The submission to the effect that no Retail Individual Investor had made any complaint
to the SEBI is not at all relevant because the SEBI need not act only on the basis of a
complaint received. If from its independent sources, the SEBI, after due enquiry comes
to know about some illegality or irregularity, the SEBI has to act in the manner as it
acted in the instant case. The fact, however, remains that because of the undue advantage
which the respondents got, some small investors or RII must have not got the shares,
which they ought to have been allotted.
In the instant case, not one or a few, but several demat holders had given one
particular address and it is also pertinent to note that upon initiation of an inquiry at the
instance of the SEBI, most of the demat accounts had been closed by the demat
account holders.
The submission was also to the effect that the shares could have been sold before
they were listed with a stock exchange and such a sale cannot be said to be an illegality.
The submission made to the effect that the Tribunal is a final fact-finding authority
cannot be disputed. According to the learned counsel, the facts found by the SAT
should not be disbelieved by this Court. However, for coming to a definite conclusion
contrary to the findings arrived at by the lower authority, the appellate authority, in the
instant case, the SAT, ought to have recorded specific reasons for arriving at a different
conclusion, but the Hon’ble Supreme Court did not find any sound reason for coming to
a different conclusion in the impugned order. On the other hand, the Hon’ble Supreme
Court found detailed discussion for coming to a particular conclusion in the order, which
was passed by the Whole Time Member of the SEBI and therefore, the Hon’ble Supreme
Court did not see any reason for the SAT to disturb the said finding without mentioning
any strong and justifiable reason for coming to a different conclusion.
Keeping in mind the outcome of the judgement of the Hon’ble Supreme Court in the
above case, it can be established that the SEBI can initiate action in the manner as
stated above to know about some illegality or irregularity even if SEBI comes to know
from its independent sources and on the basis of evidence or submission, SEBI can
take necessary steps or actions.
Question 4
(a) Ala Technologies India Limited is engaged in the business of IT consulting,
software development services and sale of proprietary software under its coined
trademark/ tradename “Quickthink” since 2003. It had registered its trademark
‘Quickthink’ in India in 2010 under Class 9.
In the year 2012, Hermaan, a disgruntled employee quit the Company and started
his own software venture and started a domain name ‘Quickthink.in’. In the year
2015, the Company’s management became aware of the domain name registered
by Hermaan, when one of its employees accidentally, noticed the website and
informed the Management. Immediately, Ala Technologies filed a complaint
against Hermaan. Will the Company succeed ? (6 marks)
(b) Surapad was a clerical level employee working with a public sector bank in
Calicut. He was convicted of an offence involving moral turpitude and dismissed
from service. He approached the employee staff union for support. A case was
filed in higher Court by the staff union challenging the dismissal. Evaluate in
background of judicial pronouncement(s). (6 marks)
Answer 4(a)
The facts of the given case are similar to ThoughtworksInc v. Super Software Pvt.
Ltd & Anr [Del]
The Petitioner was able to show that no sooner than he came to know of the above
domain name, it took prompt action by filing a complaint with NIXI. More importantly,
the learned Arbitrator appears to have come to an erroneous conclusion that the trademark
“ThoughtWorks" did not belong to the Petitioner. Again, no opportunity was afforded to
the Petitioner. The impugned domain name contains only the Petitioner's trademark and
yet no finding was returned on whether there was any similarity. The decision in Stephen
Koenig v. Arbitrator, National Internet Exchange of India &Anr 186 (2012) DLT 43, which
was subsequently upheld by the Division Bench of this Court because of the fact that a
mere delay in lodging the complaint would not disentitle the aggrieved party from
proceeding against the 'squatter".
The Court is satisfied that in the present case, the learned Arbitrator failed to apply
his mind to the facts on record. Indeed, a copy of the trademark registration certificate
of the Petitioner was enclosed with the complaint and yet the learned Arbitrator failed to
have noticed this fact. In any event, the complaint itself contained details of its various
registrations. If there was any doubt, the learned Arbitrator ought to have sought a
clarification from the Petitioner on this aspect as well. Importantly, no finding was returned
on whether the use of the domain name by Respondent No. 1 would lead to confusion
and deception. With the domain name taking up the entire name of the Petitioner, there
could be no doubt that the use of such domain name by the Respondent would be
deceptively confusing and erroneously indicate a connection of Respondent No. 1 with
the Petitioner when there is none.
For all of the aforementioned reasons, the Court is satisfied that the impugned
Award is opposed to the fundamental policy of India as it has numerous glaring errors
which appear on the face of the Award. Consequently, the Court sets aside the impugned
Award and allows the petition but, in the circumstances, with no order as to costs.
The situation given is similar to this case mentioned above. Accordingly, Ala
Technologies may succeed in the complaint filed against Hermaan.
Answer 4(b)
The facts of the given case are similar to the State Bank of India & ORS vs. P.
Soupramaniane.
In this case, it was observed by the Supreme Court that we do not agree with the
reasons given by the High Court for setting aside the order of discharge and directing the
reinstatement of the Respondent in service. A show cause notice was issued to the
Respondent in which it was categorically mentioned that the Respondent cannot continue
in service after his conviction in a criminal case involving moral turpitude in view of
Section 10(1) (b) (i) of the Banking Regulation Act, 1949. After considering the explanation
of the Respondent, an order of discharge was passed. The High Court is not right in
holding that no reasons had been given by the bank for discontinuing the Respondent
from service. The High Court committed an error in holding that the order of discharge
should be set aside on the ground that the provision of law under which the Respondent
was discharged was not mentioned in the order. Yet another reason given by the High
Court for interference with the order of discharge is that the criminal court released the
Respondent on probation only to permit him to continue in service. The release under
probation does not entitle an employee to claim a right to continue in service. In fact the
employer is under an obligation to discontinue the services of an employee convicted of
an offence involving moral turpitude. The observations made by a criminal court are not
binding on the employer who has the liberty of dealing with his employees suitably.
Though we do not agree with the reasons given by the High Court for setting aside
the order of discharge of the Respondent from service, it is necessary to examine
whether Section 10 (1) (b) (i) of Banking Regulation Act is applicable to the facts of the
case. Conviction for an offence involving moral turpitude disqualifies a person from
continuing in service in a bank. The conundrum that arises in this case is whether the
conviction of the Respondent under Section 324 IPC can be said to be for an offence
involving moral turpitude.
There can be no matter of doubt about certain offences which can straightaway be
termed as involving moral turpitude e.g. offences under the Prevention of Corruption of
Act, NDPS Act, etc. The question that arises for our consideration in this case is whether
an offence involving bodily injury can be categorized as a crime involving moral turpitude.
In this case, we are concerned with an assault. It is very difficult to state that every
assault is not an offence involving moral turpitude. A simple assault is different from an
aggravated assault. All cases of assault or simple hurt cannot be categorized as crimes
involving moral turpitude. On the other hand, the use of a dangerous weapon which can
cause the death of the victim may result in an offence involving moral turpitude. In the
instant case, there was no motive for the Respondent to cause the death of the victims.
The criminal courts below found that the injuries caused to the victims were simple in
nature. On an overall consideration of the facts of this case, we are of the opinion that
the crime committed by the Respondent does not involve moral turpitude. As the
Respondent is not guilty of an offence involving moral turpitude, he is not liable to be
discharged from service.
For the aforementioned reasons, we affirm the judgment of the High Court. The
Appeal is dismissed accordingly.
In the given situation, there is no doubt that the conviction is for an offence involving
moral turpitude and conviction for an offence involving moral turpitude disqualifies a
person from continuing in service in a bank.
Therefore, the challenge of the staff union may not succeed.
Question 5
(a) Vivardhan Industries Limited (VIL) had taken loan of Rs. 60 Crore from India
Bank Limited. Due to slowdown in the economy and other external factors, the
Company incurred huge losses and could not repay a portion of the loan taken
from the Bank. The Bank filed an application before Debt Recovery Tribunal
(DRT) Trivandrum against the VIL for recovery of dues through the sale of VIL’s
property under SARFAESI Act. The Company preferred an appeal before Debt
Recovery Appellate Tribunal (DRAT) by depositing a sum of Rs. 5 Crore as it is
a prerequisite for filing an appeal before the Appellate Tribunal. Subsequently,
VIL sought to withdraw appeal and sought refund of deposit.
Will VIL succeed in its claim of refund of deposit ? (6 marks)
(b) Kitchenise is an online sale portal which displayed Hypersteel India Private
Limited’s, steel products on its portal at a discounted price. Aggrieved by this
Hypersteel displayed a caution notice on its website (‘Caution Notice’) alleging
that the its products sold by the Kitchenise through its website are without its
authorization and are counterfeit.
Further, the Caution Notice stated that the Hypersteel will not honour warranties
on its products sold through the Kitchenise’s website and any purchase made
from these websites shall be at customers’ own risk. Kitchenise served a legal
notice to Hypersteel for withdrawal of the Caution notice. Comment in the
background of decided case law(s). (6 marks)
Answer 5(a)
The facts of the present case are similar to the case of AXIS Bank V SBS Organics
Pvt. Ltd. & Anr [Supreme Court of India].
An appeal under Section 18 of The Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as
'SARFAESI Act") before the Debt Recovery Appellate Tribunal (hereinafter referred to
as "DRAT') can be entertained only if the borrower deposits 50% of the amount in terms
of the order passed by the Debt Recovery Tribunal (hereinafter referred to as 'DRT)
under Section 17 of the Act or fifty per cent of the amount due from the borrower as
claimed by the secured creditor, whichever is less. The Appellate Tribunal may reduce
the amount to twenty-five per cent. What is the fate of such deposit on the disposal of
the appeal is the question arising for consideration in this case?
Being a pure legal issue, it may not be necessary for us to refer to the factual
position in detail. The first respondent, being a borrower and aggrieved by the steps
taken by the secured creditor, filed Securitization Application No. 152 of 2010 before the
Debt Recovery Tribunal. Ahmedabad. Though, initially an interim relief was granted, the
same was vacated by order dated 20.01.2011. Therefore, the first respondent moved
the Debt Recovery Appellate Tribunal, Mumbai under Section 18 of the SARFAESI Act.
In terms of the proviso under Section 18 the first respondent made a deposit of ? 50
lakhs before the Appellate Tribunal. During the pendency of the appeal before the DRAT,
Securitisation Application itself came to be finally disposed of before the Debt Recovery
Tribunal at Ahmedabad, setting aside the sale. Realising that the appeal did not survive
thereafter, the first respondent sought permission to withdraw the same and also for
refund of the deposit of ? 50 lakhs. Permission was granted, however, making it subject
to the disposal of the appeal. As the appeal itself was being withdrawn, the first respondent
moved the High Court of Gujarat at Ahmedabad by way of Writ Petition (Special Civil
Application). Aggrieved by the observation that the withdrawal would be subject to the
result of the appeal. The same was disposed of by order dated 05.03.2015 by the learned
Single Judge, setting aside the said condition and permitting the first respondent herein
to withdraw the amount unconditionally. Aggrieved, the appellant-Bank filed an intra-
Court appeal. That appeal was dismissed by order dated 01.04.2015 by a Division Bench,
and thus aggrieved, the Bank has come up in appeal before the Supreme Court.
Any person aggrieved by the order of the DRT under Section 17 of the SARFAESI
Act, is entitled to prefer an appeal along with the prescribed fee within the permitted
period of 30 days. For preferring an appeal, a fee is prescribed, whereas for the Tribunal
to 'entertain the appeal, the aggrieved person has to make a deposit of fifty per cent of
the amount of debt due from him as claimed by the secured creditors or determined by
the DRT, whichever is less. This amount can, at the discretion of the Tribunal, in
appropriate cases, for recorded reasons, be reduced to twenty-five per cent of the debt.
In the case before us, the first respondent had in fact sought withdrawal of the
appeal, since the appellant had already proceeded against the secured assets by the
time the appeal came up for consideration on merits. There is neither any order of
appropriation during the pendency of the appeal nor any attachment on the pre-deposit.
Therefore, the deposit made by the first respondent is liable to be returned to the first
respondent. Though for different reasons as well, we endorse the view taken by the High
Court. Thus, there is no merit in the appeal. It is accordingly dismissed. We make it
clear that the dismissal of the appeal is without prejudice to the liberty available to the
appellant to take appropriate steps under Section 13(10) of the SARFAESI Act read with
Rule 11 of the Security Interest (Enforcement) Rules, 2002.
Answer 5(b)
The facts of the present case are similar to the case of [Jasper Infotech Pvt. Ltd.
(Snapdeal) v. Kaff Appliances (India) Pvt. Ltd [CCI].
On a consideration of the aforesaid material, the main issue that arises for
determination by the Commission in the present matter is whether the allegation of the
Informant against the Opposite Party (OP) with regard to imposition of resale price
maintenance, in contravention of the provisions of Section 3(4) (e) read with Section
3(1) of the Act, is established on the basis of the facts and evidence on record.
Upon a bare perusal of the provisions and the material available on record, it is
evident that the Informant's online portal, i.e. Snapdeal, is offering an online distribution
service to various distributors/dealers. It may also be relevant to highlight that the
Commission has earlier held, though not in a case involving similar issues, that online
retail portals are a part of distribution channel. The Commission, in Deepak Verma v.
Clues Network (Case No. 34/2016, order dated 26.07.2016), while determining the
dominance of an online retail portal, held that online and offline are not two different
relevant markets, but are two different channels of distribution to the same relevant
market. Similarly, in the case of Confederation of Real Estate Brokers Association of
India v. Magicbricks.com & Ors.(Case No. 23/2016, order dated 03.05.2016), while
determining the relevant market, the Commission held that online and offline services of
brokers cannot be distinguished. Both are alternative channels of delivering the same
service.
The Commission, therefore, observes that in the instant case also, when the
distributors/ dealers are using the services of Informant while selling the products of the
OP, it ipso facto becomes a part of distribution/vertical chain and thus, it would be
incorrect to state that the Informant is only a market place facilitating interaction of the
buyers and sellers online. It is not necessary in such evolving markets that any entrant
in the downstream level of the value chain should join at the behest of the manufacturer
or with its explicit concurrence. What may be relevant is to examine as to whether such
player provides any active service to the end customer in availing the product or service
involved, which given the facts of the present case can be answered in affirmative.
Based on the material available on record, the Commission is of the view that in the
present case there was no Appreciable Adverse Effect on Competition (AAEC). Further,
the presence of a large number of dealers who were competing with each other suggests
a fair degree of intra-brand competition. The data collected by the DG showed that there
were 1,422 dealers selling OP's kitchen appliances all over India during the relevant
time period who were found to be competing for the turnover linked incentives. Discounts
were variable in nature and linked to the target being achieved. Since incentives were
variable, the net landing price for each dealer was also different. This enabled different
dealers to offer different prices to customers for the same product. Moreover, competition
among distributors was found to be even stiffer as they were exclusively dealing with
the OP's products.
Thus, the Commission is of the view that vis-à-vis the dealers the evidence did not
reveal the existence of any price restriction or minimum Resale Price Maintenance
(RPM). As regards the Informant, though the existence of Caution Notice, Legal Notice
and Email has been established, it has not been conclusively established that they were
used as instruments for imposing a minimum RPM on the Informant. Further, since
vertical agreements falling under Section 3(4) read with Section 3(1) are subjected to
rule of reason analysis, even if there exists a price restriction by the OP, AAEC needs
to be established. As highlighted above, the actual impact of the conduct of OP did not
demonstrate any adverse effect on competition. Furthermore, the existence of intra
brand competition among dealers/distributors negate the anti-competitive impact of the
OP's alleged conduct. Thus, no contravention of the provisions of Section 3(4) (e) of the
Act is found against the OP, in the facts and circumstances of the present case.
For the foregoing reasons, the Commission is of the view that the evidence on
record does not establish a case of contravention against the OP within the provisions
of Section 3(4) (e) read with Section 3(1) of the Act. Hence, the case is hereby directed
to be closed.
Question 6
Amrut is a Director (Finance) of a Mutual Fund Company. The Board had requested
Amrut to work towards introducing effective internal control systems and enhance
inter-departmental and stakeholder relationship. He was given the liberty to choose
his own team for this work. He recruited a deputy, Kalpa, who, was technically
competent but seemed to have attitudinal issues. Some of his team members informed
him, that Kalpa prefers to hold back information and her behavior is at times rude
towards the team. However, no staff has formally complained or yet left the
organization.
As such there was friction between Amrut and Kalpa. She seems to ressent any
suggestions that he provides and is not open to feedback. She has implied, several
times, that she feels she is being unfairly harassed and bullied.
Amrut discussed this situation informally with the Managing Director. Although he
has found Kalpa awkward and defensive, and he knows that another director also
considers her somewhat abrasive, he has identified nothing that would warrant
disciplinary action. Kalpa informs Amrut that she has been shortlisted for a role as
Director (Finance) at another Mutual Fund house. Quietly, Amrut felt elated at the
prospect that she might be leaving. The following day he receives a letter from
Kalpa’s prospective new employer. Kalpa had given his name as referral without
informing him. The letter asks questions concerning the ability of the candidate to
work in team, to motivate volunteers and to accept advice.
For several reasons, Amrut would very much like Kalpa to be offered the position
with the other employer. However, he is concerned that an honest response to the
enquiries would jeopardize his desire of keeping her out of the organization, as such
a response can only be negative.
Based on the above fact, answer the following :
(a) Explain in detail what is the dilemma Amrut is going through.
(b) As a Company Secretary and Compliance Officer what would be your suggestion
to Amrut, for further course of action ? (6 marks each)
Answer 6(a)
Amrut seems to be going through an ethical dilemma.
An ethical dilemma is a moral situation in which a choice has to be made between

two equally desirable or undesirable alternatives. It can be understood as a dilemma
(ethical paradox or moral dilemma) being a problem in the decision-making process
between two possible options, neither of which is absolutely acceptable from an ethical
perspective.
Dilemmas may arise out of various sources of behaviour or attitude, as for instance,
it may arise out of failure of personal character, conflict of personal values and
organizational goals, organizational goals versus social values, etc. A business dilemma
exists when an organizational decision maker faces a choice between two or more
options that will have various impacts on (i) the organization’s profitability and
competitiveness; and (ii) its stakeholders. In situations of this kind, one must act out of
prudence to take a better decision.
The ethical dilemma consideration takes us into the grey zone of business and
professional life, where things are no longer black or white and where ethics has its vital
role today. A dilemma is a situation that requires a choice between equally balanced
arguments or a predicament that seemingly defies a satisfactory solution.
Examples
Some examples of ethical dilemma include:
• Taking credit for others’ work
• Offering a client a worse product for your own profit
• Utilizing inside knowledge for your own profit
Ethical dilemmas are extremely complicated challenges that cannot be easily solved.
Ethical Dilemmas in Business
Ethical dilemmas are especially significant in professional life, as they frequently

occur in the workplace. Some companies and professional organizations adhere to their
own codes of conduct and ethical standards. Violation of the standards may lead to
disciplinary sanctions.
Almost every aspect of business can become a possible ground for ethical dilemmas.
It may include relationships with co-workers, management, clients, and business partners.
People’s inability to determine the optimal solution to such dilemmas in a professional

setting may result in serious consequences for businesses and organizations. The
situation may be common in companies that value results the most.
Fundamental Ethical Issues : In the present case, Amrut is going through

fundamental ethical issue. The most fundamental or essential ethical issues that
businesses must face are integrity and trust. A basic understanding of integrity includes
the idea of conducting business affairs with honesty and a commitment to treating every
customer fairly. When customers think a company is exhibiting an unwavering
commitment to ethical business practices, a high level of trust can develop between the
business and the people it seeks to serve.
In order to solve ethical problems, companies and organizations should develop
strict ethical standards for their employees. Every company must demonstrate its
concerns regarding the ethical norms within the organization. In addition, companies
may provide ethical training for their employees.
Answer 6(b)
A compliance officer, or compliance manager, ensures a company functions in a
legal and ethical manner while meeting its business goals. They are responsible for
developing compliance programs, reviewing company policies, and advising management
on possible risks.
As a Company Secretary / Compliance Officer, the following course of action could
be advised to Amrut to settle the moral / ethical dilemma before him:
• Analyse the available options : List the alternative courses of action available.
• Consider the consequences : Think carefully about the range of positive and
negative consequences associated with each of the different paths of action
available.
– Who/what will be helped by what is done?
– Who/what will be hurt?
– What kinds of benefits and harms are involved and what are their relative
values?
– What are the short-term and long-term implications?
• Analyse the actions : Actions should be analysed in a different perspective i.e.
viewing the action per se disregard the consequences, concentrating instead on
the actions and looking for that option which seems problematic. How do the
options measure up against moral principles like honesty, fairness, equality,
and recognition of social and environmental vulnerability? In the case you are
considering, is there a way to see one principle as more important than the
others?
• Make decision and act with commitment : Now both parts of analysis should
be brought together and a conscious and informed decision should be made.
Once the decision is made, act on the decision assuming responsibility for it.
• Evaluate the system : Think about the circumstances which led to the dilemma
with the intention of identifying and removing the conditions that allowed it to
arise.
In the case study presented, Amrut should set aside his personal desires and provide
an honest and fair feedback to the new organisation which would enable them to take a
proper decision on hiring or non-hiring of Kalpa. In giving the feedback, Amrut should not
allow his personal vendetta to taint his mind, rather he should analyse Kalpa’s attitude
and behaviour in a non-partial manner leaving the choice with Kalpa and the new
organisation to decide where she should work going forward. On the other hand, being
the Director (Finance) and the team head he should discuss the issues he and the other
team members faced while working with Kalpa to afford her the opportunity to present
her side of the facts and take corrective action wherever required.
***
Delhi High Court in the case of Google Inc. and Others v. Competition Commission of
India, W.P. (C) No. 7084/ 2014 petition under Article 226 of the Constitution of India
against an order under Section 26(1) of the Act would lie on the same parameters as
prescribed by the Supreme Court in State of Haryana Vs. Bhajan Lal 1992 Supp (1) SCC
335 i.e. where treating the allegations in the reference/information/complaint to be correct,
still no case of contravention of Section 3(1) or Section 4(1) of the Act would be made
out or where the said allegations are absurd and inherently improbable or where there is
an express legal bar to the institution and continuance of the investigation or where the
information/reference/complaint is manifestly attended with mala fide and has been made/
filed with ulterior motive or the like.
Hon’ble Delhi High Court in the aforesaid case of Google Inc. and Others also relied
upon decision of the Hon’ble Supreme Court in Vinod Kumar Vs. State of Haryana
(2013) 16 SCC 293 where it was held that if a wrong and illegal administrative act can in
the exercise of powers of judicial review be set aside by the Courts, the same mischief
can be undone by the administrative authority by reviewing such an order if found to be
ultra vires and that it is open to the administrative authority to take corrective measure
by annulling the palpably illegal order.
With regards to maintainability of writ petition under Article 226 against the order of
CCI directing investigation, Hon’ble Delhi High Court in the aforesaid case of Google
Inc. and Others observed that “CCI can order/direct investigation only if forms a prima
facie opinion of violation of provisions of the Act having been committed. Our Constitutional
values and judicial principles by no stretch of imagination would permit an investigation
where say CCI orders/directs investigation without forming and expressing a prima facie
opinion or where the prima facie opinion though purportedly is formed and expressed is
palpably unsustainable. The remedy of Article 226 would definitely be available in such
case.”
Question 2
(a) Canara Bank had made an application before the CLB seeking relief against the
Nuclear Power Corporation of Indian Ltd. which had refused in its books in the
name of the Canara Bank bonds of the Nuclear Power Corporation purchased
by the Canara Bank. The Standard Chartered Bank had also claimed ownership
of the said bonds. The Canara Bank alleged that it had acquired the said bonds
from the Andhra Bank Financial Services Ltd. through one of his broker. The
application of the Canara Bank was pending disposal before the CLB when, on
25th January, 1994 the Special Court Act was amended by the Special Court
(Trial of Offences Relating to Transactions in Securities) Amendment Ordinance,
1994 and Section 9(A) was introduced. Canara Bank and Nuclear Power
Corporation took the stand that the application of the CanaraBank stood
transferred to the Special Court by virtue of the provisions of section 9A(2) of
the Special Court Act. The Standard Chartered Bank (Stan Chart) contended
that the CLB retained the jurisdiction to deal with the application. Whether CLB
has jurisdiction? (6 marks)
(b) What is the degree of proof required to hold brokers/sub-brokers liable for
fraudulent/ manipulative practices under the SEBI (Prohibition of Fraudulent
and Unfair Trade Practices Relating to Securities Market) Regulations and/or
liable for violating the code of conduct specified in Schedule II read with
Regulation 9 of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 ?
(Conduct Regulations 1992). (6 marks)
Answer 2(a)
In the present case, the issue whether an application filed by Canara Bank before
Company Law Board (CLB) seeking relief against Nuclear Power Corporation of India
Ltd. (NPCIL) in relation to refusal to recognise in the name of Canara Bank bonds of
NPCIL purchased by Canara Bank stood transferred to the Special Court in view of
section 9A (2) of the Special Courts Act as amended by the Special Court (Trial of
Offences Relating to Transactions in Securities) Amendment Ordinance, 1994.
In the case of Canara Bank vs. Nuclear Power Corporation of India Ltd & Ors (1995
SCC, Supl. (3) 81), Hon’ble Supreme Court of India looked into the scope of Section
9A(1) (b) read with 9A(2) as introduced by Special Court (Trial of Offences Relating to
Transactions in Securities) Amendment Ordinance, 1994.
In the above case. Supreme Court noted the relevant Section 9A(1) which provided
that “On and from the commencement of the Special Court (Trial Offences Relating to
Transactions in Securities) Amendment Ordinance, 1994, the Special Court shall exercise
all such jurisdiction, powers and authority as were exercisable, immediately before such
commencement, by any civil court in relation to any matter of claim -….”(emphasis
supplied)
Supreme Court also noted the relevant Section 9A(2) which provided that “Every
suit, claim or other legal proceedings (other than on appeal) pending before any court
immediately before the commencement of the Special Court (Trial of Offences Relating
to Transactions in Securities) Amendment Ordinance, 1994, being a suit claim or
proceeding, the cause of action whereon it is based is such that it would have been, if it
had arisen after such commencement, within the jurisdiction of the Special Court under
sub-section (1). shall stand transferred on such commencement to the Special Court
and the Special Court may, on receipt of the records of such suit, claim or other legal
proceeding, proceed to deal with it, so far as may be, in the same manner as a suit,
claim or legal proceeding from the stage which was reached before such transfer or from
any earlier stage of de novo as the Special Court may deem fit.” (emphasis supplied)
In the aforesaid case, Hon’ble Supreme Court looked into the issue of whether the
use of the words 'civil court' in subsection (1) excludes the application of Section 9 A to
the CLB?
For the purposes of deciding the aforesaid issue, Hon’ble Supreme Court noted that
“The question to pose, therefore, is: is the CLB a court. If it is, it is divested of the
jurisdiction, powers and authority to entertain matters or claims arising out of transactions
in securities entered into between the stated dates in which a notified person is involved,
by reason of sub-section (3); and, by reason of sub-section (2), such matters or claims
pending before it on the commencement of the Amendment Ordinance stand transferred
to the Special Court.”
Thereafter for the purposes of ascertaining “what are courts and tribunals”, Supreme
Court took note of the leading decision by the Constitution Bench of Hon’ble Supreme
Court in M/s. Harinagar Sugar Mills Ltd. v. Shyam Sundar Jhunjhuwala and Ors., (1962)
2 S.C.R. 339 wherein Supreme Court held that “The authority of the Central Government
to entertain an appeal under Section 111 was an investiture of the judicial power of the
State. As the dispute between the parties related to civil rights and the Companies Act
provided for a right of appeal and made detailed provisions about hearing and disposal
according to law. It was impossible to avoid the inference that a duty was imposed upon
the Central Government in deciding the appeal to act judicially.” Further, it was observed
that “all tribunals were no courts though all courts were tribunals. The word "courts" was
used to designate those tribunals which were set up in an organised State for the
administration of justice. By administration of justice was meant the exercise of the
judicial power of the State to maintain and uphold rights and to punish wrongs.”
Hon’ble Supreme Court also took note of the functions of the Central Government
under section 111 of the Companies Act which were akin to exercise of judicial power. In
this regard, Supreme Court noted that “The Central Government was also empowered to
include in its orders directions as to payment of costs or otherwise. The function of the
Central Government was curial and not executive. There was provision for a hearing and
a decision on evidence, and that was indubitably a curial function. In its functions the
Central Government often reached decisions but all its decisions could not be regarded
as those of a tribunal. Resolutions of Government might affect rights of parties and yet
they might not be in the exercise of judicial power. Resolutions of Government might be
amenable to writs under Articles 32 and 226 in appropriate cases but might not be
subject to a direct appeal under Article 136 as the decisions of a tribunal. The position,
however, changed when Government embarked upon curial functions and proceeded to
exercise judicial power and decide disputes. In these circumstances, it was legitimate
to regard the officer who dealt with the matter and even Government itself as a tribunal.
The word "tribunal" was a word of wide import and the words "court" and "tribunal"
embraced within them the exercise of judicial power in all its forms. The decision of the
Central Government thus fell within the powers of the Supreme Court under Article 136.”
For the purposes of determining the issue in hand in the context of Special Court
(Trial of Offences Relating to Transactions in Securities) Amendment Ordinance, 1994,
Hon’ble Supreme Court held that the word "court" must be read in the context in which it
is used in a statute. “It is permissible, given the context, to read it as comprehending the
courts of civil judicature and courts or some tribunals exercising curial, or judicial, powers.
In the context in which the word "court" is used in Section 9A of the Special Court Act,
it is intended to encompass all curial or judicial bodies which have the jurisdiction to
decide matters or claims, inter alia, arising out of transactions in securities entered into
between the stated dates in which a person notified is involved.”
Supreme Court also held that it is proper to attribute to the word "court" in Section
9A(1) of the Special Court Act, not the narrower meaning of a court of civil judicature which
is part of the ordinary hierarchy of courts, but the broader meaning of a curial body, a body
acting judicially to deal with matters and claims arising out of transactions in securities
entered into between the stated dates in which a person notified is involved. An interpretation
that suppresses the mischief and advances the remedy must, plainly, be given.
Accordingly, Hon’ble Supreme Court held that the application of the Canara Bank
pending before the CLB shall stand transferred to the Special Court constituted under
the provisions of the Special Court (Trial of Offences Relating to Transactions in
Securities) Act, 1992.
In view of the aforesaid judgment of the Hon’ble Supreme Court, it is clear that the
CLB will not have jurisdiction to decide the application filed by Canara Bank seeking
relief against Nuclear Power Corporation of India Ltd. and the pending application before
CLB will stand transferred to the Special Court constituted under Special Court Act.
Hence, the stand of the Canara Bank and Nuclear Power Corporation that the application
of the Canara Bank stood transferred to the Special Court by virtue of the provisions of
section 9A(2) of the Special Courts Act is correct and CLB has no jurisdiction.
Answer 2(b)
It is a fundamental principle of law that proof of an allegation levelled against a
person may be in the form direct of substantive evidence or, as in many cases, such
proof may have to be inferred by a logical process of reasoning from the totality of the
attending facts and circumstances surrounding the allegations/charges made and levelled.
While direct evidence is a more certain basis to come to a conclusion, yet, in the
absence thereof the Courts cannot be helpless. It is the judicial duty to take note of the
immediate and proximate facts and circumstances surrounding the events on which the
charges/allegations are founded and to reach what would appear to the Court to be a
reasonable conclusion therefrom. The test would always be that what inferential process
that a reasonable/prudent man would adopt to arrive at a conclusion.
The degree of proof required to hold brokers/sub-brokers liable for fraudulent/
manipulative practices under the SEBI (Prohibition of Fraudulent and Unfair Trade
Practices Relating to Securities Market) Regulations inter alia includes:
• volume of the trade effected;
• the period of persistence in trading in the particular scrip;
• the particulars of the buy and sell orders, i.e., the volume ;
• the proximity of time between the two and
• such other relevant factors.
In SEBI Vs. Kishore R. Ajmera case, the proved facts are as follows:
(i) Both clients are known to each other and were related entities;
(ii) This fact was also known to the sub-broker the respondent-broker;
(iii) The clients through the sub-broker had engaged in mutual buy and sell trade the
scrip in question, volume of which trade was significant, keeping in mind that
the scrip was an illiquid scrip.
Apart from the above, there is no other material to hold either lack of vigilance or
bona fides on the part of sub-broker so as to make respondent-broker liable. An irresistible
or irreversible inference of negligence/ lack of due care etc., in our considered view, is
not established even on proof of the primary facts alleged so as to make respondent-
broker liable under the Conduct Regulations, 1992 as has been held in the order of the
Whole Time Member, SEBI which, according to us, was rightly reversed in appeal by the
Securities Appellate Tribunal.
Note : Any of the below cases or any other relevant case may be briefly mentioned
• SEBI vs. M/s Ess Ess Intermediaries Pvt. Ltd.;
• SEBI vs. M/s Rajesh N. Jhaveri and M/s Rajendra Jayantilal Shah and;
• SEBI vs. M/s Monarch Networth Capital Limited (earlier known as Networth
Stock Broking Limited).
Question 3
(a) The appellant was arrested on 25th March, 2015 in relation to an offence alleged
to have been committed under Section-3 of the Prevention of Money Laundering
Act 2002. (hereinafter Referred to as ‘‘PMLA’’). The appellant is the Chairman of
XYZ Real Estate Construction Ltd. a public company incorporated in the year
1999 and registered under the Companies Act, 1956. Certain non-convertible
debentures were issued by the XYZ by ‘Private Placement method.’ No
advertisements etc. were issued to the public. The said debentures were issued
to the employees of the company and to their friends and associates after
fulfilling the formalities for private placement of debentures. Thus the appellant
collected money by issuing secured debentures by way of private placement in
compliance with the guidelines issued by the Securities and Exchange Board of
India from time to time. Further the appellant had floated as much as 27
companies and routed the monies collected by his front companies through
these companies. Whether appellant entitled for bail? (6 marks)
(b) The appellant awarded the work order for transportation to Respondent on 28th
July, 1992 and an agreement was entered into between the appellant and
respondent No. 1 on 24th February, 1993 which was to expire on 31st March,
1993. But owing to circumstances, the work was extended several times and
the contract was finally completed on 23rd October, 1997. Issues arose as to
the rate of escalation based on the base year 1992 or 1994. Respondent submitted
final bill having three annexures out of which first two were admitted, however,
the appellant rejected the third one which was as to deciding the base year for
calculating escalation. Analyse the problem. (6 marks)
Answer 3(a)
For the purposes of deciding the issue whether Appellant, Chairman of XYZ Real
Estate Construction Ltd. arrested in relation to offence alleged to have been committed
under section 3 of the Prevention of Money Laundering Act (PMLA), 2002, is entitled for
Bail, following decision of the Hon’ble Supreme Court in Gautam Kundu vs. Manoj Kumar
Assistant Director, DOE, Criminal Appeal No. 1706 of 2015 is relevant. In the aforesaid
case of Gautam Kundu, bail was sought under section 439 of the Criminal Procedure
Code, 1973 on behalf of the Appellant for floating as many as 27 companies and monies
collected through front company was routed through these companies. Hon’ble Supreme
Court dismissed the Appeal and rejected the bail application for the following reasons.
We have heard the learned counsel for the parties. At this stage we refrained
ourselves from deciding the questions tried to be raised at this stage since it is nothing
but a bail application. We cannot forget that this case is relating to "Money Laundering"
which we feel is a serious threat to the national economy and national interest. We
cannot brush aside the fact that the schemes have been prepared in a calculative manner
with a deliberative design and motive of personal gain, regardless of the consequence to
the members of the society.
We note that admittedly the complaint is filed against the appellant on the allegations
of committing the offence punishable under Section 4 of the PMLA. The contention
raised on behalf of the appellant that no offence under Section 24 of the SEBI Act is
made out against the appellant, which is a scheduled offence under the PMLA, needs to
be considered from the materials collected during the investigation by the respondents.
There is no order as yet passed by a competent court of law, holding that no offence is
made out against the appellant under Section 24 of the SEBI Act and it would be
noteworthy that a criminal revision praying for quashing the proceedings initiated against
the appellant under Section 24 of SEBI Act is still pending for hearing before the High
Court. We have noted that Section 45 of the PMLA will have overriding effect on the
general provisions of the Code of Criminal Procedure in case of conflict between them.
As mentioned earlier, Section 45 of the PMLA imposes two conditions for grant of bail,
specified under the said Act. We have not missed the proviso to Section 45 of the said
Act which indicates that the legislature has carved out an exception for grant of bail by
a Special Court when any person is under the age of 16 years or is a woman or is a sick
or infirm. Therefore, there is no doubt that the conditions laid down under Section 45A of
the PMLA, would bind the High Court as the provisions of special law having overriding
effect on the provisions of Section 439 of the Code of Criminal Procedure for grant of
bail to any person accused of committing offence punishable under Section 4 of the
PMLA, even when the application for bail is considered under Section 439 of the Code of
Criminal Procedure.
We cannot brush aside the fact that the appellant floated as many as 27 companies
to allure the investors to invest in their different companies on a promise of high returns
and funds were collected from the public at large which were subsequently laundered in
associated companies of Rose Valley Group and were used for purchasing moveable
and immoveable properties. We have further noted that the High Court at the time of
refusing the bail application, duly considered this fact and further considered the statement
of the Assistant General Manager of RBI, Kolkata, seizure list, statements of directors
of Rose Valley, statements of officer bearers of Rose Valley, statements of debenture
trustees of Rose Valley, statements of debenture holders of Rose Valley, statements of
AGM of Accounts of Rose Valley and statements of Regional Managers of Rose Valley
for formation of opinion whether the appellant is involved in the offence of money
laundering. In these circumstances, we do not find that the High Court has exercised its
discretion capriciously or arbitrarily in the facts and circumstances of this case. We
further note that the High Court has called for all the relevant papers and duly taken note
of that and thereafter after satisfying its conscience, refused the bail. Therefore, we do
not find that the High Court has committed any wrong in refusing bail in the given
circumstances. Accordingly, we do not find any reason to interfere with the impugned
order so passed by the High Court and the bail, as prayed before us, challenging the
said order is refused. Consequently the appeal is dismissed.
Accordingly, in view of the aforesaid decision of the Hon’ble Supreme Court in
Gautam Kundu vs. Manoj Kumar Assistant Director, DOE, it appears that the Appellant
being Chairman of XYZ Real Estate Construction Ltd. will not be entitled for Bail.
Answer 3(b)
For the purposes of analysis of the problem in hand, it is important to take note of
the following decision of the Hon’ble Supreme Court of India in Rashtriya Ispat Nigam
Ltd. vs. M/S. Prathyusha Resources & Infra, Civil Appeal No. 3699 of 2006, wherein
Supreme Court considered settled law on the cause of action and observed that the
cause of action arises when the real dispute arises i.e. when one party asserts and the
other party denied any right. In the said case, Supreme Court noted that the cause of
action was the claim of the respondent/claimant to the determination of base year for
the purposes of escalation and the calculation made thereon, and the refusal of the
appellant to pay as per the calculations.
When disputes arose, the Arbitration Tribunal decided the five issues framed in
favour of the respondent/claimant whereby the base year was adjudged as 1992, the bar
of limitation was negated and the calculations made by the Claimant were upheld.
Thereafter, the appellant challenged the said award under Section 34 of the Arbitration
Act, 1996 before the Ld. District Court which set aside the award as the relief was barred
by limitation. Upon appeal under Section 37 of the Arbitration Act, 1996 by the respondent/
claimant, the High Court set aside the order of the District Judge and upheld the award
of the Arbitrator.
In the aforesaid case, Appellant submitted that the High Court has arrived at a
wrong conclusion by invoking Article 137 of the Limitation Act, 1963, and since the
contract was in the nature of work contract, Article 18 would apply which provided that
the right to sue accrued when the contract was completed i.e. 23.10.1997 and hence
notice for arbitration was beyond the period of limitation. The respondent/claimant also
argued that the dispute as to determination of base year for calculating escalation arose
vide letter dated 15.7.1996 and hence the notice for arbitration was issued beyond the
period of limitation.
Hon’ble Supreme Court held that the view taken by the High Court was correct as to
when the real dispute arose between the parties to be adjudicated by the Arbitrator. In
this regard, Supreme Court noted that the difference on determination of base year first
arose in the letter dated 15.7.1996 and the said letter was already controverted as the
service of the same was seriously contested before in Arbitration. However, the said
letter was there even before completion of the work and prior to that the respondent/
claimant had reserved right to claim money later since the contract was still subsisting
then.
Supreme Court also noted that “In light of the above reservation by the respondent/
claimant, bills were raised in 1998 vide letter dated 4.9.1998, which actually resulted
into exchange of letters which formed the base of dispute between the parties.”
Finally, Hon’ble Supreme Court observed that the findings of the learned Arbitrator
and concurrently affirmed by the High Court were correct on the point that the cause of
action arose on or after 4.9.1998. Hence, the said letter by the respondent claimant to
the appellant to initiate arbitration was not barred by the law of limitation.
Accordingly, claims of the Respondent including the issue relating to the
determination of the base year for calculating escalation can be considered in the light
of aforesaid Supreme Court decision in Rashtriya Ispat Nigam Ltd case.
Question 4
(a) The appellant was the successful bidder in a work contract which was cahllenged
by the respondent. In the proceedings, the appellant filed an affidavit to the
effect that nearly 85% of the work had been completed. However, the High
Court found the statement made in the affidavit to be false after causing an
inspection by an advocate. Then the High Court imposed a cost of `10 lakh on
the appellant for filing a false affidavit.
Analyze the case whether the court was correct in imposing fine on appellant.
(b) A company having registered office at Aurangabad and the workman appointed
in Aurangabad transferred to Pondicherry. Pondicherry establishment was closed
and the workman was terminated. The workman raised dispute and filed complaint
at Aurangabad but it was rejected on the ground of lack of Jurisdiction.
Whether it was correct? (6 marks each)
Answer 4(a)
Hon’ble Supreme Court in M/s Sciemed Overseas Inc vs. Boc India Limited & Ors,
Special Leave Petition (C) No. 29125 of 2008 considered the issue related to imposition
of cost of 10 lakhs on the petitioner by the High Court for filing a false or misleading
affidavit in the Court.
Briefly stated, Supreme Court noted that, in the proceedings relating to works
contracts, which was awarded to the Appellant and which was challenged by the
Respondent, the appellant filed an affidavit to the effect that nearly 85% of the work had
been completed. However, the High court found the statement made in the affidavit to
be false after causing an inspection by an advocate. Then the High court imposed a
cost of 10 lacs on the appellant for filing a false affidavit.
Supreme Court noted as follows. “In our opinion, the imposition of costs, although
somewhat steep, was fully justified given that the High Court also held that the contract
in favour of the petitioner was awarded improperly and was of a commercial nature, the
last two findings not being under challenge.”
Supreme Court also took note of the global developments regarding filing of false
affidavit and observed that a global search of cases pertaining to the filing of a false
affidavit indicates that the number of such cases that are reported has shown an alarming
increase in the last fifteen years as compared to the number of such cases prior to that.
This is illustrative of the malaise that is slowly but surely creeping in. This ‘trend’ is
certainly an unhealthy one that should be strongly discouraged, well before the filing of
false affidavits gets to be treated as a routine and normal affair.
Supreme Court rejected the contention submitted by Sciemed that the statement
made in the affidavit filed in this Court was not a false statement but was bona fide and
not a deliberate attempt to mislead this Court. Supreme Court also rejected the contention
submitted by Sciemed that the allegedly false or misleading statement had no impact
on the decision taken by this Court and should, therefore, be ignored.
Hon’ble Supreme Court observed that the correctness of the statement made by
Sciemed was examined threadbare not only by the learned Single Judge but also by the
Division Bench and it was found that a considerable amount of work had still to be
completed by Sciemed and it was not as if the work was nearing completion as represented
to this Court. Additionally, the Report independently given by the learned advocate
appointed to make an assessment, also clearly indicated that a considerable amount of
work had still to be performed by Sciemed. The Report was not ex parte but was carefully
prepared after an inspection of the site and discussing the matter with Shailendra Prasad
Singh the proprietor of Sciemed and an engineer of Sciemed.
Supreme Court observed that in the first instance, the work order was issued to
Sciemed on 25th July, 2007 but this was not disclosed to the High Court when it disposed
of W.P. (C) No.4203 of 2007 on 31st July, 2007. Had the factual position been disclosed
to the High Court, perhaps the outcome of the writ petition filed by BOC would have been
different and the issue might not have even travelled up to this Court. Furthermore,
apparently to ensure that work order goes through, a false or misleading statement was
made before this Court on affidavit when the matter was taken up on 14th March, 2008
to the effect that the work was nearing completion. It is not possible to accept the view
canvassed by learned counsel that the false or misleading statement had no impact on
the decision rendered by this Court on 14th March, 2008. We cannot hypothesize on
what transpired in the proceedings before this Court nor can we imagine what could or
could not have weighed with this Court when it rendered its decision on 14th March,
2008. The fact of the matter is that a false or misleading statement was made before
this Court and that by itself is enough to invite an adverse reaction.
Hon’ble Supreme Court considered its earlier decision in Muthu Karuppan v. Parithi
Ilamvazhuthi (2001) 5 SCC 289 wherein Supreme Court expressed the view that the
filing of a false affidavit should be effectively curbed with a strong hand. It is true that
the observation was made in the context of contempt of Court proceedings, but the view
expressed must be generally endorsed to preserve the purity of judicial proceedings.
Hon’ble Supreme Court noted following from its earlier judgment in Muthu Karuppan
case “Giving false evidence by filing false affidavit is an evil which must be effectively
curbed with a strong hand. Prosecution should be ordered when it is considered expedient
in the interest of justice to punish the delinquent, but there must be a prima facie case
of “deliberate falsehood” on a matter of substance and the court should be satisfied that
there is a reasonable foundation for the charge.”
Accordingly, Hon’ble Supreme Court held that on the material before us and the
material considered by the High Court, we are satisfied that the imposition of costs by
the High Court was justified.
In view of the aforesaid decision of the Hon’ble Supreme Court in the M/s Sciemed
Overseas Inc, it can be stated that the High Court was correct in imposing fine on the
Appellant.
Answer 4(b)
Hon’ble Supreme Court in Nandram vs. Garware Polyster Ltd., Civil Appeal No.
1409 of 2016 considered the issue of jurisdiction of Labour Court in almost same facts.
Briefly stated, in this case, a workman raised industrial dispute and filed the complaint
before Labour Court at Aurangabad i.e. where the registered office of the Company was
situated. It may be noted that in the aforesaid case, the appointment of the workman
was initially made at Aurangabad and later he was transferred to Pondicherry. Thereafter,
owing to closure of Pondicherry establishment, services of workman was terminated.
Hon’ble Supreme Court after considering all the material and contention of the parties
observed that “In the background of the factual matrix, the undisputed position is that
the appellant was employed by the Company in Aurangabad, he was only transferred to
Pondicherry, the decision to close down the unit at Pondicherry was taken by the Company
at Aurangabad and consequent upon that decision only the appellant was terminated.
Therefore, it cannot be said that there is no cause of action at all in Aurangabad. The
decision to terminate the appellant having been taken at Aurangabad necessarily part of
the cause of action has arisen at Aurangabad. We have no quarrel that Labour Court,
Pondicherry is within its jurisdiction to consider the case of the appellant, since he has
been terminated while he was working at Pondicherry. But that does not mean that
Labour Court in Aurangabad within whose jurisdiction the Management is situated and
where the Management has taken the decision to close down the unit at Pondicherry
and pursuant to which the appellant was terminated from service also does not have the
jurisdiction. In the facts of this case both the Labour Courts have the jurisdiction to deal
with the matter. Hence, the Labour Court at Aurangabad is well within its jurisdiction to
consider the complaint filed by the appellant. Therefore, we set aside the order passed
by the High Court and the Industrial Court at Aurangabad and restore the order passed
by the Labour Court, Aurangabad though for different reasons.”
In view of the aforesaid decision of Hon’ble Supreme Court in Nandram vs. Garware
Polyster Ltd, it can be stated that both the Labour Courts at Aurangabad and Pondicherry
will have jurisdiction to entertain the complaint by the workman.
It can be stated that as part of the cause of action has arisen at Aurangabad (since
appellant was employed by the Company in Aurangabad; he was only transferred to
Pondicherry; the decision to close down the unit at Pondicherry was taken by the Company
at Aurangabad and consequent upon that decision only the appellant was terminated.),
hence, hence it was not correct to reject the complaint on the ground of lack of jurisdiction.
Question 5
(a) ‘No recovery under section 31, sub-section (10) of the SARFAESI Act shall be
enforced by an other of the Bank authorised in this behalf certifying that the
person in default has failed to pay the recoverable sum.’ Explain the non-
applicability of the provisions of SARFAESI Act,
(b) Every company including its holding or subsidiary and a foreign company defined
under clause (42) of section 2 of the Companies (Corporate Social Responsibility
Policy), Rules, 2014 shall comply with the provisions of section 135 of this Act.
Describe the various activities to be undertaken by a company under this Act.
(c) ‘Corporate Governance failures manifested in Ranbaxy Laboratories Board’s
failure to Check fraud, absence of the adequate risk management system and
unethical practices.’ Discuss how the above factors have affected company’s
status.
(d) A Bank clerk fraudulently withdraws money from customer’s account. The
management dismisses the employee from services of Bank and withholds
retirement benefits and adjusts agaisnt the loss caused. Net amount is paid to
the employee after adjustment. Examine whether Bank’s action is correct.
(3 marks each)
Answer 5(a)
Section 30D of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI) relates to recovery of penalties.
Section 30D (10) of the SARFAESI provides that the Reserve Bank may enforce
recovery of recoverable sum through the principal civil court having jurisdiction in the
area where the registered office or the head office or the principal place of business of
the person in default or the usual place of residence of such person is situated as if the
notice issued by the Reserve Bank were a decree of the Court.
Further, Section 30D (11) of the SARFAESI provides that no recovery under sub-
section (10) shall be enforced, except on an application made to the principal civil court
by an officer of the Reserve Bank authorised in this behalf certifying that the person in
default has failed to pay the recoverable sum.
However, Section 31 of the SARFAESI provides that provisions of this Act not to
apply in certain cases. In terms of Section 31 of the SARFAESI, the provisions of this
Act shall not apply to—
(i) a lien on any goods, money or security given by or under the Indian Contract
Act, 1872 or the Sale of Goods Act, 1930 or any other law for the time being in
force;
(ii) a pledge of movables within the meaning of section 172 of the Indian Contract
Act, 1872;
(iii) creation of any security in any aircraft as defined in clause (1) of section 2 of the
Aircraft Act, 1934;
(iv) creation of security interest in any vessel as defined in clause (55) of section 3
of the Merchant Shipping Act, 1958 ;
(v) any rights of unpaid seller under section 47 of the Sale of Goods Act, 1930 ;
(vi) any properties not liable to attachment (excluding the properties specifically
charged with the debt recoverable under this Act)]or sale under the first proviso
to sub-section (1) of section 60 of the Code of Civil Procedure, 1908 ;
(vii) any security interest for securing repayment of any financial asset not exceeding
one lakh rupees;
(viii) any security interest created in agricultural land;
(ix) any case in which the amount due is less than twenty per cent of the principal
amount and interest thereon.
Answer 5(b)
Rule 3 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 relates
to Corporate Social Responsibility Policy. In terms of Rule 3 (1) of the Companies
(Corporate Social Responsibility Policy) Rules, 2014, every company including its holding
or subsidiary, and a foreign company defined under clause (42) of section 2 of the Act
having its branch office or project office in India, which fulfils the criteria specified in
sub-section (1) of section 135 of the Act shall comply with the provisions of section 135
of the Act and Companies (Corporate Social Responsibility Policy) Rules, 2014.
In terms of Rule 4 (1) of the Companies (Corporate Social Responsibility Policy)
Rules, 2014 , the CSR activities shall be undertaken by the company, as per its stated
CSR Policy, as projects or programs or activities (either new or ongoing), excluding
activities undertaken in pursuance of its normal course of business.
Further, in terms of Section 135 of the Companies Act, 2013, a Corporate Social
Responsibility Policy which shall indicate the activities to be undertaken by the company
as specified in Schedule VII.
Accordingly, it may be noted that Schedule VII to the Companies Act, 2013 provides
following Activities which may be included by companies in their Corporate Social
Responsibility Policies Activities relating to:—
(i) Eradicating hunger, poverty and malnutrition, ‘‘promoting health care including
preventive health care’’ and sanitation including contribution to the Swach Bharat
Kosh set-up by the Central Government for the promotion of sanitation] and
making available safe drinking water.
(ii) promoting education, including special education and employment enhancing
vocation skills especially among children, women, elderly and the differently
abled and livelihood enhancement projects.
(iii) promoting gender equality, empowering women, setting up homes and hostels
for women and orphans; setting up old age homes, day care centres and such
other facilities for senior citizens and measures for reducing inequalities faced
by socially and economically backward groups.
(iv) ensuring environmental sustainability, ecological balance, protection of flora
and fauna, animal welfare, agroforestry, conservation of natural resources and
maintaining quality of soil, air and water including contribution to the Clean
Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.
(v) protection of national heritage, art and culture including restoration of buildings
and sites of historical importance and works of art; setting up public libraries;
promotion and development of traditional art and handicrafts;
(vi) measures for the benefit of armed forces veterans, war widows and their
dependents, Central Armed Police Forces (CAPF) and Central Para Military
Forces (CPMF) veterans, and their dependents including widows;
(vii) training to promote rural sports, nationally recognised sports, paralympic sports
and olympic sports
(viii) contribution to the prime minister's national relief fund or Prime Minister’s Citizen
Assistance and Relief in Emergency Situations Fund (PM CARES Fund) or any
other fund set up by the central govt. for socio economic development and relief
and welfare of the schedule caste, tribes, other backward classes, minorities
and women;
(ix) (a) Contribution to incubators or research and development projects in the field
of science, technology, engineering and medicine, funded by the Central
Government or State Government or Public Sector Undertaking or any agency
of the Central Government or State Government; and (b) Contributions to public
funded Universities; Indian Institute of Technology (IITs); National Laboratories
and autonomous bodies established under Department of Atomic Energy (DAE);
Department of Biotechnology (DBT); Department of Science and Technology
(DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and
Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics
and Information Technology and other bodies, namely Defense Research and
Development Organisation (DRDO); Indian Council of Agricultural Research
(ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific
and Industrial Research (CSIR), engaged in conducting research in science,
technology, engineering and medicine aimed at promoting Sustainable
Development Goals (SDGs).
(x) rural development projects.
(xi) slum area development.
(xii) disaster management, including relief, rehabilitation and reconstruction activities.
Further, in terms of Rule 4 (5) of the Companies (Corporate Social Responsibility
Policy) Rules, 2014, the CSR projects or programs or activities that benefit only the
employees of the company and their families shall not be considered as CSR activities
in accordance with section 135 of the Act.
That said, in terms of proviso to Section 135 of the Companies Act, company shall
give preference to the local area and areas around it where it operates, for spending the
amount earmarked for Corporate Social Responsibility activities.
Answer 5(c)
Ranbaxy Laboratories (Ranbaxy), had gone from a rising star to troubled company
as a result of corporate governance failure manifested in its Board’s failure to check
fraud, absence of risk management system and unethical practices.
As per reports, “Ranbaxy had been on a fast track when it started supplying generic
drugs to the developed countries. Issues with FDA in the U.S. came to light in 2006, but
Ranbaxy’s compliance and quality problems had remained under the surface for several
years.”
As per reports, “Ranbaxy also perpetrated fraud on shareholders by exposing their
investment to huge reputation and compliance risks by fuzzing data submitted to
regulators.” Further, as reported, “Ranbaxy, also committed fraud on consumers, hospitals,
value chain partners and common people who took pride that Ranbaxy had emerged as
the first Indian multinational in the pharmaceutical sector. “
If reports are to be believed, “disputes flared between the company and the US Food
and Drug Administration, and evidence emerged that Ranbaxy had been systematically
gaming tests and failing to meet health standards.” Thereafter, in 2013, the Ranbaxy
settled with the US Justice Department and pled guilty to felony charges and had to
shell out $500 million in fines.”
In one of the article, an author noted following important facts, “Everyone expected
corporate governance of highest order with the illustrious Board and significant foreign
and institutional shareholding, however the reality was different. The company was fined
$500 million. The US department of justice said the company had “pleaded guilty today
to felony charges relating to the manufacture of certain adulterated drugs”. Felony is a
serious criminal charge. By accepting to pay a criminal fine and forfeiture and agreeing
to settle civil claims, Ranbaxy may have succeeded in effecting damage control. That
does not, however, mitigate the seriousness of its actions.”
In 2008, Japanese pharmaceutical giant, Daiichi Sankyo, bought the jewel of India’s
generic medicines industry, Ranbaxy Laboratories. However, as per reports, in 2013,
“Daiichi Sankyo declared that information about the US investigations had been withheld
from it when it bought the company and took the Singh brothers to arbitration in Singapore”.
Later in 2014, Daiichi Sankyo sold Ranbaxy to Sun Pharmaceuticals.
It has been stated that adverse ruling by Courts, compounded the problems, resulting
in severe liquidity pressures, triggered unanticipated defaults with banks and lenders.
As reported in news reports, Bottle of Lies by Katherine Eban, reveals, Ranbaxy’s
“success” was based on deceit. “In its race for profit, Ranbaxy had lied to regulators,
falsified data and endangered patient safety in every country where it sold drugs”.
In one of the reports, an author stated that there is a “similarity in the fraud at
Satyam and the same at Ranbaxy. In both cases, the top management overrode the
internal control system.” Highlighting the role of Independent Directors, it has been noted
that “Independent director's responsibility is limited to ensuring that he/she understands
the business model, best corporate governances practices (e.g. board process, risk
management system, internal audit and statutory audit, whistle-blower policy, and
transparency within and outside the Board) are in place and operating effectively,
analysing information available through the Board processes or otherwise and acting
proactively based on that analysis for the benefit of the company as a whole. If
independent directors are held responsible for frauds perpetrated by or with the support
of the top management, which has the ability to override internal controls, it will be
difficult to induce professionals to join Boards of companies as independent directors.”
Answer 5(d)
For the purposes of examining Bank’s action of dismissal of Bank Clerk (employee)
from the services of Bank, withholding retirement benefits and payment of net amount
to the employee after adjustment against loss caused for fraudulent withdrawal of money
from customer account following decision of Hon’ble Supreme Court in Canara Bank &
Anr vs. Lalit Popli (Through LRs), Civil Appeal No. 9666 of 2010 may be looked into.
In this case, Respondent who was a clerk, and two other persons i.e. manager and
special assistant, all bank employees, were found guilty of fraudulently withdrawing an
amount of 1,07,000/- from the saving account of a customer. The manager and special
assistant were censured for their negligence and some recovery were made from them
while the respondent was dismissed from service.
Supreme Court noted that vide judgment dated 18.02.2003 a categorical finding that
it was the respondent who committed forgery which ultimately led to the loss caused to
the bank.
Supreme Court further noted that the Respondent case stood on a different footing
from the other three employees. Since the amount recovered from the other three
employees, who were imposed penalty of ‘censure’, is refunded to them, the bank had
to recover the amount of loss caused to it from the person who was the author of the
forgery.
Looking to the material on record, Supreme Court found that the other three officials
were held to be negligent in their duty and as held by this Court in its judgment dated
18.02.2003, that it was the respondent, who committed forgery of the signature of the
account holder, consequent upon which the bank had suffered loss to the tune of
`1,07,000/- .Accordingly, Supreme court observed that “Therefore, the bank has taken
an equitable decision to recover the entire amount from the respondent and to refund the
amount already recovered from the other three officials, because they were only found
to be negligent in their duty.”
Hon’ble Supreme Court also noted that Rule 12 of the Canara Bank Employees’
Gratuity Fund Rules (for short, ‘Gratuity Rules’), Clause 19 of the Canara Bank Staff
Provident Fund Regulations, 1994 (for short, Provident Fund Regulations) and Rule 3(4)
of Chapter VIII of the General Conduct Rules, governing the services of the employees
fully support the action taken by the bank against the respondent in withholding the
amount of gratuity and employer’s contribution towards provident fund.
Hon’ble Supreme Court further noted that Special Rules relating to gratuity, makes
it amply clear that the employee who has been dismissed for his misconduct and if such
misconduct has caused financial loss to the bank, he shall not be eligible to receive the
gratuity to the extent of financial loss caused to the bank. So also, Clause 19 of the
Provident Fund Regulations permits the bank to deduct the payment of provident fund to
the extent of financial loss caused to the bank from the bank’s contribution. Both the
aforementioned Clauses are plain and simple. They are unambiguous. Since Rule 12 of
the Gratuity Rules and Clause 19 of the Provident Fund Regulations permit the bank to
withhold gratuity and deduct the bank’s contribution towards provident fund, in such
matters, the bank was justified in recovering the amount of financial loss sustained by
it, which was caused by the respondent, from out of the gratuity and employer’s contribution
towards provident fund payable to the respondent/employee.
Accordingly, in view of the aforesaid decision of the Hon’ble Supreme Court in
Canara Bank & Anr vs. Lalit Popli, if fraudulent withdrawal of money from Customer’s
account also includes act of forgery on behalf of Bank Clerk which led to the loss
caused to the bank then Bank’s action needs to be judged in terms of Employees’
Gratuity Fund Rules of the Bank, Provident Fund Regulations of the Bank, General
Conduct Rules of the Bank governing the services of the employees. Also, a proper
departmental enquiry needs to be conducted for ascertaining the role of Bank Clerk and
any other person involved including their role etc. Accordingly, in case, Bank Clerk role
does not relate to forgery of customer signature etc., then he may be censured for
negligence and the amount may be recovered as penalty subject to aforesaid Conduct
rules, Provident Fund and Gratuity Rules.
Question 6
For preparing a strategy for success a business needs to be clear about what it
wants to achieve. Kellogg also prepared successful strategy by setting aims and
objectives. Among these aims and objectives Kellogg’s objective was to sponsors
swimming programmes, involve in community programmes and have effective
external communication.
Analyze the Kellogg’s strategic focus behind it and long-term benefit to be achieved
by implementing this strategy. (12 marks)
Answer 6
Kellogg’s prepared a successful strategy by setting aims and objectives linked to
its unique brand. Aims and objectives have been used to create a strategy which gives
Kellogg’s a unique position in the minds of its consumers.
Developing an Aim for business :
Research undertaken for Kellogg’s, as well as comprehensive news coverage and
growing public awareness, helped its decision-takers to understand the concerns of its
consumers. In order to meet these concerns, managers realised it was essential that
Kellogg’s was part of the debate about health and lifestyle. It needed to promote the
message ‘Get the Balance Right’.
Decision-takers also wanted to demonstrate Corporate Responsibility (CR). This
means that they wanted to develop the business responsibly and in a way that was
sensitive to all of Kellogg’s consumers’ needs, particularly with regard to health issues.
This is more than the law relating to food issues requires. It shows how Kellogg’s informs
and supports its consumers fully about lifestyle issues.
An aim also helps those outside the organisation to understand the beliefs and
principles of that business. Kellogg’s aim was to reinforce the importance of a balanced
lifestyle so its consumers understand how a balanced diet and exercise can improve
their lives.
Setting business objectives :
Kellogg’s objectives were to: Encourage and support physical activity among all
sectors of the population; Use resources to sponsor activities and run physical activity
focused community programmes for its consumers and the public in general; Increase
the association between Kellogg’s and physical activity.
Each of the objectives set by Kellogg’s was clear, specific and measurable. This
meant Kellogg’s would know whether each objective had been achieved. By setting
these objectives Kellogg’s set a direction that would take the business to where it wanted
to be three years into the future.
Having created an aim and set objectives, Kellogg’s put in place a process of planning
to develop a strategy and a series of actions. These activities were designed to meet
the stated aim and range of business objectives.
Sponsoring swimming programmes :
For many years Kellogg’s has been working to encourage people to take part in
more physical activity. The company started working with the Amateur Swimming
Association (ASA) as far back as 1997, with whom it set some longer term objectives.
More than twelve million people in the UK swim regularly.
Swimming is inclusive as it is something that whole families can do together and it
is also a life-long skill. The ASA tries to ensure that ‘everyone has the opportunity to
enjoy swimming as part of a healthy lifestyle’. As a lead body for swimming, the ASA
has been a good organisation for Kellogg’s to work with, as its objectives match closely
those of the company. Kellogg’s became the main sponsor of swimming in Britain. This
ensured that Kellogg’s sponsorship reached all swimming associations so that swimmers
receive the best possible support.
Kellogg’s sponsors the ASA Awards Scheme with more than 1.8 million awards
presented to swimmers each year. This relationship with the ASA has helped Kellogg’s
contribute in a recognisable way to how individuals achieve an active healthy balanced
lifestyle. This reinforces its brand position.
Kellogg’s in the community :
Kellogg’s has also delivered a wide range of community programmes over the last
20 years. For example, the Kellogg’s Active Living Fund encourages voluntary groups
to run physical activity projects for their members. The fund helps organisations like the
St John’s Centre in Old Trafford which runs keep-fit classes, badminton and table tennis.
Since 1998 Kellogg’s has invested more than £500,000 to help national learning
charity ContinYou to develop nationwide breakfast club initiatives. These include start-
up grants for new clubs, the Breakfast Club Plus website, the Kellogg’s National Breakfast
Club Awards and the Breakfast Movers essential guide.
Breakfast clubs are important in schools because they improve attendance and
punctuality. They help to ensure that children are fed and ready to learn when the bell
goes. Kellogg’s promotes breakfast via these clubs, not Kellogg’s breakfast cereals.
Together Kellogg’s and ContinYou have set up hundreds of breakfast clubs across the
UK, serving well over 500,000 breakfasts each year.
Communicating the strategy :
Kellogg’s success is due to how well it communicated its objectives to consumers
to help them consider how to ‘Get the Balance Right’. It developed One of the most
important means of communication adopted by Kellogs’s was effective external
communication to convey the message ‘eat to be fit’ to all its customers.
External communication takes place between an organisation and the outside world.
As a large organisation, Kellogg’s uses many different forms of communication with its
customers.
For example, it uses the cartoon characters of Jack & Aimee to communicate a
message that emphasises the need to ‘Get the Balance Right’. By using Jack & Aimee,
Kellogg’s is able to advise parents and children about the importance of exercise. These
characters can be found on the back of cereal packets. The company has also produced
a series of leaflets for its customers on topics such as eating for health and calcium for
strong bones. These are available on its website.
***
for the payment of equal remuneration to men and women workers and for the prevention
of discrimination, on the ground of sex, against women in the matter of employment and
for matters connected therewith or incidental thereto.
In view of the above, An employer cannot differentiate the pay scales for same work
or work of a similar nature on the ground of sex or nomenclature of employment but can
do so when there is vast difference in the nature of general duties performed and
particularly in light of above judgement, the pay scales of persons employed in public
sector undertaking is governed by Pay Commission, can’t be objected at later stage by
security guards.
Question 2
(a) Lala Karori Mal held 5,35,30,960 equity shares of face value of `10 each in
Sarvodya Agrotech Ltd., a listed company. The holding amounted to 39.88% of
the company. The present market value of the share is `368/- per share. He
died on 29.03.2020 without filing any nomination. However, he executed a will 3
months prior to his death in favour of Mrs. Jamuna Devi, his wife. Two witnesses
duly attested the will in the prescribed manner and same was registered with the
Registrar. The shares were held in dematerialization form with Karvy Stock
Broker (Depository Participant). Due to violation of various laws, rules and
regulations, SEBI banned the depository participant and instructed it to transfer
the shares with new Depository Participant within 3 months. Accordingly, Karvy
as well as CDSL (Depository) sent the Notice through email as well as courier to
all investors.
Sampat Kumar, son of late Lala Karori Mal, filed a partition suit in High Court
claiming entitlement to one-fourth of the estate of his father including the
deceased’s shareholdings in the said company. The High Court passed an interim
order maintaining status quo concerning shares and other immoveable property.
While the suit was pending in the High Court, Sampat Kumar filed Company
Petition alleging oppression and mismanagement under sections 241 and 242
of the Companies Act, 2013 against his mother and others. He claimed eligibility
to maintain the petition on the ground of being a holder of 0.03% shareholding
and claiming entitlement and legitimate expectation to 9.97% shareholding of
Sarvodya Agrotech Ltd. by virtue of his being the son of deceased Lala Karori
Mal. Mrs. Jamuna Devi challenged the maintainability of the petition on the
ground that Sampat Kumar was not the holder of the required number of shares
to file the petition.
Question :
Whether the dispute raised as to the inheritance of the estate of the deceased is
a civil dispute or could it be said to be an act of oppression and mismanagement
in the affairs of the Company ? Whether such a dispute could be adjudicated in
a company petition filed during the pendency of the civil suit ? (6 marks)
(b) Hari Vinayak was the Director (Finance) of Engineers Techno India Limited, a
BSE Listed Company. After completing 4 years in the company, he resigned
from the post of Director (Finance) w.e.f. 20.12.2020 citing some personal reasons.
His resignation was accepted in the ensuing meeting of Board of directors held
on 20.01.2021. Form DIR 12 was also filed in Registrar of Companies.
Godawari Construction Pvt. Ltd. filed a complaint against Hari Vinayak. It was
alleged that the accused had issued cheques dated 15.02.2021 and 28.02.2021,
which were dishonoured upon presentation. There was, however, no allegation
that the cheques were post-dated. Accordingly, summons were issued against
Hari Vinayak. On the other hand, Hari Vinayak preferred a miscellaneous writ
petition for quashing the same. He took the defence that he had already resigned
from the Company on 20.12.2020, which was accepted by the Board of directors
on 20.01.2021. The High Court dismissed the petition without considering his
contention that he had resigned from the Director of the company prior to the
issuance of the cheques. Hari Vinayak then preferred a fresh application under
section 482 Cr.P.C. to quash the summons. It was dismissed by the High Court
opining that since the earlier miscellaneous application for the same relief had
already been dismissed, the second application was not maintainable.
Hari Vinayak intends to file a special leave petition against the order of the High
Court. Will he succeed ? Give reasons in support of your answer and refer to
case law, if any. (6 marks)
Answer 2(a)
The facts of the given case are similar to the case of Aruna Oswal vs. Pankaj Oswal
& Ors. Civil Appeal No. 9340 of 2019 with connected appeals judgement dated 06/07/
2020. In this case Supreme Court observed that respondent as pleaded by him, had
nothing to do with the affairs of the company and he is not a registered owner. The rights
in estate/ shares, if any, of respondent no.1 are protected in the civil suit. Thus, Supreme
Court satisfied that respondent does not represent the body of shareholders holding
requisite percentage of shares in the company, necessary in order to maintain such a
petition.
It is also not disputed that the High Court in the pending civil suit passed an order
maintaining the status quo concerning shareholding and other properties. Because of
the status quo order, shares have to be held in the name of Mrs. Jamuna Devi until the
suit is finally decided. It would not be appropriate, given the order passed by the civil
Court to treat the shareholding in the name of Respondent by NCLT before ownership
rights are finally decided in the civil suit, and propriety also demands it. The question of
right, title, and interest is essentially adjudication of civil rights between the parties, as
to the effect of the nomination decision in a civil suit is going to govern the parties’
rights. It would not be appropriate to entertain these parallel proceedings and give waiver
as claimed under section 244 of the Companies Act, 2013 (the Act)before the civil suit’s
decision. Respondent had himself chosen to avail the remedy of civil suit, as such filing
of an application under sections 241 and 242 the Act after that is nothing but an
afterthought.
Supreme Court refrain to decide the question finally in these proceedings concerning
the effect of nomination, as it being a civil dispute, cannot be decided in these proceedings
and the decision may jeopardise parties’ rights and interest in the civil suit. With regard
to the dispute as to right, title, and interest in the securities, the finding of the civil Court
is going to be final and conclusive and binding on parties. The decision of such a question
has to be eschewed in instant proceedings. It would not be appropriate, in the facts and
circumstances of the case, to grant a waiver to the respondent of the requirement under
the proviso to section 244 of the Act, as ordered by the NCLAT. It prima facie does not
appear to be a case of oppression and mismanagement. Our attention was drawn by the
learned senior counsel appearing for Respondent to certain company transactions. From
transactions simpliciter, it cannot be inferred that it is a case of oppression and
mismanagement. We are of the opinion that the proceedings before the NCLT filed under
sections 241 and 242 of the Act should not be entertained because of the pending civil
dispute and considering the minuscule extent of holding of 0.03%, that too, acquired
after filing a civil suit in company securities, of respondent no. 1. In the facts and
circumstances of the instant case, in order to maintain the proceedings, the respondent
should have waited for the decision of the right, title and interest, in the civil suit concerning
shares in question. The entitlement of respondent No.1 is under a cloud of pending civil
dispute. We deem it appropriate to direct the dropping of the proceedings filed before the
NCLT regarding oppression and mismanagement under sections 241 and 242 of the Act
with the liberty to file afresh, on all the questions, in case of necessity, if the suit is
decreed in favour of respondent No.1 and shareholding of Respondent increases to the
extent of 10% required under section 244 of the Act.
Supreme Court reiterate that we have left all the questions to be decided in the
pending civil suit. Impugned orders passed by the NCLT as well as NCLAT are set
aside, and the appeals are allowed to the aforesaid extent. Supreme Court request that
the civil suit be decided as expeditiously as possible, subject to cooperation by
Respondent Parties to bear their costs as incurred.
Answer 2(b)
The given case is similar to a case decided by Supreme Court in Anil Khadkiwala
vs. The State Govt. of NCT of Delhi.
Facts of the case Anil Khadkiwala vs.The State Govt. of NCT of Delhi are that the
application preferred by the appellant under Section 482 of the Code of Criminal Procedure,
1973 to quash the summons issued in complaint case no.3403/1/2015 was dismissed
by the High Court opining that since the earlier Crl. M.C. No.877 of 2005 for the same
relief had already been dismissed, the second application was not maintainable.
Respondent no.2 filed a complaint against the appellant who was the Director of M/s.
ETI Projects Ltd., the Company in question. It was alleged that the accused person had
issued cheques dated 15.02.2001 and 28.02.2001, which were dishonoured upon
presentation. The appellant had preferred Crl.M.P. No.1459 of 2005 for quashing the
same. He took the defence, without any proof that he had already resigned from the
Company on 20.12.2000, which was accepted by the Board of Directors on 20.01.2001.
The application was dismissed on 18.09.2007 after noticing the plea of resignation,
solely on the ground that the cheques were issued under the signature of the appellant.
The appellant then preferred a fresh application under Section 482 giving rise to the
present proceedings. The High Court noticing the reliance on Form 32 issued by the
Registrar of Companies, under the Companies Act, 1956, in proof of resignation by the
appellant prior to the issuance of the cheques, issued notice, leading to the impugned
order of dismissal subsequently.
In the said case, Hon'ble Supreme Court allowed the Petition. Learned counsel for
the appellant submitted that there was no bar to the maintainability of a second application
under Section 482 of the Code of Criminal Procedure, 1973 in the peculiar facts and
circumstances of the case, relying on Superintendent and Remembrancer of Legal Affairs,
West Bengal vs. Mohan Singh and Ors., AIR 1975 SC 1002. Learned counsel for
respondent no.2 relied upon order dated 06.05.2019 of this Court in Atul Shukla vs. The
State of Madhya Pradesh and another (Criminal Appeal No.837 of 2019) to contend that
such an application was not maintainable. The cheques being post-dated, the appellant
cannot escape its answerability.
We have considered the respective submissions on behalf of the parties and are of
the opinion that the appeal deserves to be allowed for the reasons enumerated hereinafter.
The complaint filed by respondent no.2 alleges issuance of the cheques by the
appellant as Director on 15.02.2001 and 28.02.2001. The appellant in his reply dated
31.08.2001, to the statutory notice, had denied answerability in view of his resignation
on 20.01.2001. This fact does not find mention in the complaint. There is no allegation in
the complaint that the cheques were post-dated. Even otherwise, the appellant had
taken a specific objection in his earlier application under Section 482 of the Code of
Criminal Procedure, 1973 that he had resigned from the Company on 20.01.2001 and it
had been accepted. From the tenor of the order of the High Court on the earlier occasion
it does not appear that Form 32 issued to the Registrar of Companies was brought on
record in support of the resignation. The High Court dismissed the quashing application
without considering the contention of the appellant that he had resigned from the post of
the Director of the Company prior to the issuance of the cheques. The High Court in the
fresh application under Section 482 of the Code of Criminal Procedure, 1973, initially
was therefore satisfied to issue notice in the matter after noticing the Form 32 certificate.
Naturally there was a difference between the earlier application and the subsequent one,
inasmuch as the statutory Form 32 did not fall for consideration by the Court earlier. The
factum of resignation is not in dispute between the parties. The subsequent application,
strictly speaking, therefore cannot be said to a repeat application squarely on the same
facts and circumstances.
The Company, of which the appellant was a Director, is a party respondent in the
complaint. The interests of the complainant are therefore adequately protected. In the
entirety of the facts and circumstances of the case, we are unable to hold that the
second application for quashing of the complaint was not maintainable merely because
of the dismissal of the earlier application. The impugned order of the High Court is set
aside. The appeal is allowed and the proceeding.
In view of the above mentioned case, Hari Vinayak may succeed in a special leave
petition against the order of the High Court.
Question 3
(a) Michael E. Porter’s Five Forces Analysis model provides valuable information
to support strategic management, especially in addressing relevant issues in
the external environment of the business. These issues are based on external
factors that represent the degree of competitive revalry in the industry, the
bargaining power of customers or buyers, the bargaining power of suppliers, the
threat of substitution, and the threat of new entrants.
Super Foods Ltd., a fast food company operating in South India, intends to
apply the said model to survive and grow. Explain how can the company prioritize
the strategic issues related to competition, consumers and substitutes.
(6 marks)
(b) Competition Commission of India received complaints against Karisma
Broadcasting Ltd. for abusing its dominant position. Accordingly, Director General
started investigations and a raid was carried out. In the course of raid, some
documents and property were seized.
Karisma Broadcasting Ltd. filed the writ against such search and seizure. The
main averments of the writ petition were that the Director General had no power
to seize the property. Explain whether the petition filed by the company is
maintainable in the court of law. Give reasons in support of your answer and
refer to case law, if any. (6 marks)
Answer 3(a)
Considering the combination of market conditions, Porter's Five Forces analysis of
Super Foods Ltd. establishes the following intensities of the five forces:
1. Competitive rivalry or competition - High
2. Bargaining power of buyers or customers - High
3. Bargaining power of suppliers - Low
4. Threat of substitutes or substitution - High
5. Threat of new entrants or new entry - Moderate
Competitive Rivalry or Competition with Super Foods Ltd. (High)
Super Foods Ltd. faces tough competition because the fast food restaurant market
is saturated. This element of the Porter's Five Forces analysis model tackles the effects
of competing firms in the industry environment. In Super Foods Ltd. case, the strong
force of competitive rivalry is based on the following external factors:
• High number of firms - Strong Force
• High aggressiveness of firms - Strong Force
• Low switching costs - Strong Force.
The fast food restaurant industry has many firms of various sizes, such as global
chains like Super Foods Ltd. and local mom-and-pop fast food restaurants. This external
factor strengthens the force of rivalry in the industry. Also, the Five Forces analysis
model considers firm aggressiveness a factor that influences competition. In this business
case, most medium and large firms aggressively market their products. This factor
increases the intensity of competitive rivalry that Super Foods Ltd. Corporation
experiences. In addition, low switching costs make it easy for consumers to transfer to
other restaurants, such as Wendy's and Burger King. This external factor adds to the
force of competition. Thus, this element of the Five Forces analysis of Super Foods Ltd.
shows that competition is among the most significant external forces for consideration
in the strategic management of the business.
Bargaining Power of Super Foods Ltd. Customers/Buyers (Strong Force)
Super Foods Ltd. must address the power of customers on business performance.
This element of the Five Forces analysis deals with the influence and demands of
consumers, and how their decisions impact businesses. In Super Foods Ltd. case, the
following are the external factors that contribute to the strong bargaining power of buyers:
• Low switching costs – Strong Force
• Large number of providers – Strong Force
• High availability of substitutes – Strong Force
The ease of changing from one restaurant to another (low switching costs) enables
consumers to easily impose their demands on Super Foods Ltd.. In the Five Forces
analysis model, this external factor strengthens the bargaining power of customers. In
relation, because of market saturation, consumers can choose from many fast food
restaurants other than Super Foods Ltd.. This condition makes the bargaining power of
buyers a strong force in affecting the company’s external environment. Moreover, the
availability of substitutes is relevant in this external analysis. In this case, the availability
of many substitutes adds to the bargaining power of customers. For example, substitutes
include food kiosks and outlets, and artisanal bakeries, as well as microwave meals and
foods that one could cook at home. Based on this element of Porter’s Five Forces
analysis, it is crucial to develop strategies to increase customer loyalty, especially in
the face of the socio cultural trends.
Bargaining Power of Super Foods Ltd. Suppliers (Weak Force)
Suppliers influence Super Foods Ltd. in terms of the company’s production capacity
based on the availability of raw materials. This element of the Five Forces analysis
model shows the impact of suppliers on firms and the fast food restaurant industry
environment. In Super Foods Ltd. case, the weak bargaining power of suppliers is based
on the following external factors:
• Large number of suppliers – Weak Force
• Low forward vertical integration of suppliers – Weak Force
• High overall supply – Weak Force
The large population of suppliers weakens the effect of individual suppliers on Super
Foods Ltd. Corporation. This weakness is partly based on the lack of strong regional
and global alliances among suppliers. In relation, most of Super Foods Ltd. suppliers
are not vertically integrated. This means that they do not control the distribution network
that transports their products to firms like Super Foods Ltd. In Porter’s Five Forces
analysis model, such low vertical integration weakens the bargaining power of suppliers.
Also, the relative abundance of materials like flour and meat reduces individual suppliers’
influence on the company. Thus, this element of the Five Forces analysis shows that
external factors combine to create the weak supplier power, which is a minimal issue in
strategic management.
Threat of Substitutes or Substitution (Strong Force)
Substitutes are a significant concern for Super Foods Ltd. Corporation. This element
of Porter’s Five Forces analysis model deals with the potential effects of substitutes on
firm growth. In Super Foods Ltd. case, the following external factors make the threat of
substitution a strong force:
• High substitute availability – Strong Force
• High performance-to-cost ratio of substitutes – Strong Force
There are many substitutes to Super Foods Ltd. products, such as products from
artisanal food producers and local bakeries. Also, consumers can cook their food at
home. In the Five Forces analysis model, this external factor contributes to the strength
of the threat of substitution in the fast food service industry. In addition, it is easy to
shift from Super Foods Ltd. to substitutes because of the low switching costs. For
example, shifting from the company to substitutes typically involves insignificant or
minimal disadvantages, such as slightly higher costs per meal in some cases, or
additional time consumption for food preparation. Moreover, substitutes are competitive
in terms of quality and customer satisfaction (high performance-to-cost ratio). In this
element of the Five Forces analysis of Super Foods Ltd. Corporation, external factors
make substitutes a major strategic issue that requires approaches like product quality
improvement. In relation, the company’s efforts include encouraging people to eat in
fast food restaurants instead of resorting to substitutes.
Threat of New Entrants or New Entry (Moderate)
New entrants can impact Super Foods Ltd. market share and financial performance.
This element of the Five Forces analysis refers to the effects of new players on existing
firms. In Super Foods Ltd. case, the moderate threat of new entry is based on the
following external factors:
• Highly variable capital cost – Moderate Force
• High cost of brand development - Weak Force
The low switching costs allow consumers to easily move from Super Foods Ltd.
toward new fast food restaurant companies. In Porter's Five Forces analysis model, this
external factor strengthens the threat of new entrants. Also, variable capital costs of
establishing a new restaurant empowers new businesses to enter the global fast food
restaurant industry. For example, small restaurant businesses involve low capital costs
compared to major corporations in the market. This external factor leads to the moderate
threat of new entry against Super Foods Ltd. On the other hand, it is expensive to build
a strong brand in the industry. Many small and medium businesses lack the resources
to create a strong brand to match the Super Foods Ltd. brand. Thus, the external factors
in this element of the Five Forces analysis shows that the threat of new entrants is
considerable but not the most important strategic issue.
Answer 3 (b)
Section 41 of the Competition Act, 2002 states that:
(1) The Director General shall, when so directed by the Commission, assist the
Commission in investigating into any contravention of the provisions of this Act
or any rules or regulations made thereunder.
(2) The Director General shall have all the powers as are conferred upon the
Commission under subsection of section 36.
(3) Without prejudice to the provisions of sub-section (2), sections 240 and 240A of
the Companies Act, 195), so far as may be, shall apply to an investigation
made by the Director General or any other person investigating under his authority,
as they apply to an inspector appointed under that Act.
The facts of the present case is similar to the case of Competition Commission of
India vs. JCB India Ltd. and Ors, Supreme Court dt 15.01.2019. In this case, CCI ordered
an investigation into an alleged abuse of dominant position by JCB. Pursuant to the
same, dawn raid was carried out by the DG in the JCB premises and all incriminating
documents, hard drives and laptops found by the inspecting team during the course of
the “dawn raid” were seized. A writ petition before the Delhi High Court was filed for
setting aside of the search and seizure conducted by the DG. The Single Judge Bench
of Delhi High Court, vide order dated 02nd June 2016 stayed the investigation restraining
DG from acting on the seized material for any purpose whatsoever till the next date of
hearing. CCI filed an SLP in the Supreme Court against the order of the Delhi High Court.
The Supreme Court in its judgment dated 15th Janaury 2019 in CCI vs JCB observed
that the provisions of Section 240A of the Companies Act, 1956 do not merely relate to
an authorization for a search but extend to the authorization of a seizure as well. Unless
the seizure were to be authorized, a mere search by itself will not be sufficient for the
purposes of investigation. By virtue of Section 240A read with Section 41(3) of the
Competition Act, DG was authorised to conduct search and seizures.
The Apex court vacated the stay stating that the blanket restraint which had been
imposed by the Delhi High Court on the DG from acting on the seized material for any
purpose whatsoever was not warranted. The appeal was allowed and the transferred
matters were remitted back to the Delhi High Court to be decided in the writ petitions
pending before Delhi High Court.
Therefore, writ petition filed by the Company is not maintainable.
Question 4
(a) A Public Interest Litigation (PIL) was filed in the Supreme Court of India under
Article 32 of the Constitution of India by a society registered under the Societies
Registration Act, 1860.
In the petition, it was mentioned that as per the WHO India guidelines and
recommendations, 50% of the victims die in the first 15 minutes due to serious
cardiovascular or nervous system injuries and the rest can be saved by providing
basic life support during the ‘Golden Hour’. Right to life is enshrined under Article
21 which includes right to safety of persons while travelling on the road and the
immediate medical assistance as a necessary corollary is required to be provided
and also adequate legal protection and prevention from harassment to good
Samaritans. The petition further stated that the honourable court issue guidelines
and directions including a command for compliance of guidelines and Standard
Operating Procedure (SOP) to be issued by the Government of India, Ministry
of Road Transport and Highways under Article 32 read with Article 142 of the
Constitution of India till such time as the legislature steps into substitute them
by proper legislation.
Explain whether such types of petitions are maintainable by the Court.
(6 marks)
(b) On the evening of August 7, 2020, Air India Express Flight 1344 crashed with
190 people on board during a botched landing attempt at Kozhikode Calicut
International Airport. Eighteen people were killed in the Air India crash and more
than 150 others sustained injuries.
The weather was bad and there was low visibility. The pilot circled the airport
before asking Air Traffic Controllers to switch runways.
ATC granted the request and cleared the flight to land on a tabletop runway with
a sudden drop-off at the end. Passengers recalled that the Boeing 737 swayed
violently before touching down. They alleged that pilot never gave a warning
sign to passengers or indicated that something was wrong.
The legal heirs of two passengers Chandran and Lalitha (Wife of Chandran) filed
two separate claim applications before the Tribunal. By a common Award, the
Tribunal allowed the applications. For the death of both, the Tribunal awarded a
total sum of `4,36,95,740 to the claimants.
The Insurance Company challenged the award before the High Court. The
claimants also challenged the award before the High Court for enhancement of
compensation amount awarded to them by the Tribunal. By impugned common
judgment, the High Court reduced the compensation to ` 3,75,00,000.
Challenging the said judgement of the High Court, the Insurance Company
appealed before the Supreme Court seeking further reduction in the award of
compensation. On the other hand, the claimants appealed seeking enhancement
in the compensation.
Analyse, referring to decided case law, whether the appeal is admissible ?
(6 marks)
Answer 4(a)
The present case is similar to case decide by Supreme Court in Savelife Foundation
& Another (Appellant) vs. Union of India & Another.
The facts of the case Savelife Foundation & Another (Appellant) vs. Union of India
& Another are as under:
The petition has been filed under Article 32 of the Constitution of India in public
interest for the development of supportive legal framework to protect Samaritans i.e.
bystanders and passers-by who render the help to the victims of road accidents. These
individuals can play a significant role in order to save lives of the victims by either
immediately rushing them to the hospital or providing immediate lifesaving first aid.
The people have the notion that touching the body could lend them liable for police
interrogation. Passer-by plays safe and chose to wait for the police to arrive whereas
injured gradually bleeds to death. People are reluctant to come forward for help despite,
desperate attempts to get help from passer-by, by and large they turn blind eyes to the
person in distress. Sometimes those who help are rebuked due to ignorance by the
others on touching the scene. In the case of a convoy even when there are several
vehicles in the convoy, people wait for the ambulance to arrive and also for the concerned
police help. There are several desisting factors which are required to be taken care of
such as fear of legal consequences if once action is ineffective or harmful to victim, fear
of involvement in subsequent prolonged investigation and visit to the police station.
There is need to evolve the system by promptly providing effective care system with
certain ethical and legal principles. It is absolutely necessary that Good Samaritans feel
empowered to act without fear of adverse consequence. There is need to provide certain
incentives to Good Samaritans. There is also dire need to enact a Good Samaritan Law
in the country since there is a felt need of legislation for affording protection to Good
Samaritans. The Ministry of Road Transport and Highways has issued a notification
containing guidelines on 12.5.2015 for protection of good Samaritans and a further
Notification has been issued on 21.1.2016 framing standard operating procedures. It
has been mentioned in the affidavit filed by Ministry of Road Transport and Highways,
Government of India that in the absence of any statutory backing, it is felt that it will be
difficult to enforce these guidelines issued on 12.5.2015 and standard operating
procedures as notified on 21.1.2016.
Prayer has been made on the part of the Ministry of Road Transport and Highways
of Government of India that the guidelines notified on 12.5.2015 and the standard operating
procedure notified on 21.1.2016 may be declared to be enforceable by this Court so that
it is binding on all the States and Union Territories until the Union Government enacts a
law to this effect.
In this case, Hon'ble Supreme Court allowed the petition.
The Apex Court held that after referring to various judgements and elaborately
discussing on the power of the judiciary to lay down laws the Supreme Court held as
under:
In view of the aforesaid discussion, it is apparent that guidelines and directions can
be issued by this Court including a command for compliance of guidelines and standard
operating procedure issued by Government of India, Ministry of Road Transport and
Highways, till such time as the legislature steps in to substitute them by proper legislation.
This Court can issue such directions under Article 32 read with Article 142 to implement
and enforce the guidelines which are necessary for protection of rights under Article 21
read with Article 14 of the Constitution of India so as to provide immediate help to the
victims of the accident and at the same time to provide protection to Good Samaritans.
The guidelines will have the force of law under Article 141. By virtue of Article 144, it is
the duty of all authorities - judicial and civil – in the territory of India to act in aid of this
Court by implementing them.
We have carefully gone through the notification dated 12.5.2015. However, as per
the guidelines contained in para 13, the ‘acknowledgement’ if so desired by Good
Samaritans, has to be issued as may be prescribed in a standard format by the State
Government. In our opinion, till such time the format is prescribed, there should be no
vacuum hence we direct that acknowledgement be issued on official letter-pad etc. and
in the interregnum period, if so desired by Good Samaritan, mentioning the name of
Samaritan, address, time, date, place of occurrence and confirming that the injured
person was brought by the said Samaritan.
We have also gone through the notification dated 21.1.2016 with respect to the
examination of Good Samaritan by the Police as contained in para 2(vii) which we
modify and be read in the following manner :
"The affidavit of Good Samaritan if filed, shall be treated as complete statement by
the Police office while conducting the investigation. In case statement is to be recorded,
complete statement shall be recorded in a single examination." Remaining guidelines in
the notifications dated 12.5.2015 and 21.1.2016 are approved and it is ordered that
guidelines with aforesaid modifications made by us be complied with by the Union
Territories and all the functionaries of the State Governments as law laid down by this
Court under Article 32 read with Article 142 of the Constitution of India and the same be
treated as binding as per the mandate of Article 141.
We also direct that the court should not normally insist on appearance of Good
Samaritans as that causes delay, expenses and inconvenience. The concerned court
should exercise the power to appoint the Commission for examination of Good Samaritans
in accordance with the provisions contained in section 284 of the Code of Criminal
Procedure, 1973 suo motu or on an application moved for that purpose, unless for the
reasons to be recorded personal presence of Good Samaritan in court is considered
necessary.
In view of the above decided case, such type of petitions may be maintained/
entertained by the courts.
Answer 4(b)
The given case is similar to the case decided by Supreme Court in the case of D.M.
Oriental Insurance Co. Ltd. v. Swapna Nayak & Ors.
The facts of the case D.M. Oriental Insurance Co. Ltd. v. Swapna Nayak & Ors are
that Mathurananda Nayak, a resident of U.S.A., and his mother Jita Nayak along with
two others while coming from Cuttack collided with a truck. As a result of the said
accident, Mathurananda Nayak, Jita Nayak along with driver of the car sustained injuries
and later succumbed to the injuries on the same day. The legal heirs of Mathurananda
Nayak and Jita Naik filed two separate claim applications before the Tribunal. By a
common Award the Tribunal allowed the applications. For the death of Mathurananda
Naik the Tribunal awarded a total sum of Rs.4,36,95,740/- to the claimants and for the
death of Jita Naik awarded a sum of Rs.1,29,500/- with interest at the rate of 7.5% p.a.
The Insurance Company challenged the award before the High Court and the claimants
also challenged the award before the High Court for enhancement of compensation
amount awarded to them by the Tribunal. By impugned common judgment, the High
Court reduced the compensation to Rs.3,75,00,000/-. Challenging the said judgment of
the High Court, the Insurance Company has filed C.A. No. 3862 of 2013 seeking further
reduction in the award of compensation whereas the claimants have filed C.A. Nos.
3863-3864 of 2013 seeking enhancement in the compensation.
The Hon'ble Supreme Court dismissed the application.
The Apex Court held that having heard the learned counsel for the appellant (Insurance
Company) and on perusal of the entire record of the case, we have formed an opinion to
dismiss both the appeals and, in consequence, are inclined to uphold the order of the
High Court which, in our view, does not call for any interference.
On perusal of the decisions cited at the bar and further having regard to the totality
of the facts and circumstances of the case and the concurrent findings of two courts
and on material issues such as the determination of annual income of the deceased, his
age, the number of dependents etc., we do not find any good ground to interfere in the
impugned order. In our view, such findings, apart from being concurrent, cannot be said
to be, in any way, arbitrary and nor they result in awarding a bonanza or a windfall to the
claimants so as to call for further reduction in the compensation awarded by the High
Court.
In other words, in our view, what has been eventually awarded to the claimants by
the High Court appears to be just and reasonable compensation within the meaning of
Section 166 of the Act and there does not appear any good ground for further enhancement
under any of the heads including under the head of future prospects as claimed by the
claimants in their appeal and nor any case is made out for further reduction by applying
the lesser multiplier or to make further deduction in the salary component of the deceased
as claimed by the Insurance Company. When we find that under one head, reasonable
amount has been awarded and under another head, nothing has been awarded though it
should have been so awarded and at the same time, we notice that eventual figure of the
award of compensation payable to the claimants appears to be just and reasonable then
in such eventuality, we do not consider it proper to interfere in such award in our appellate
jurisdiction under Article 136 of the Constitution. In other words, if by applying the tests
and guidelines, we find that overall award of compensation is just and fair, then, in our
view, such award deserves to be upheld in claimants' favour. We find it to be so in the
facts of this case having taken note of all relevant facts and circumstances of the case.
In the light of foregoing discussion, we find no merit in the appeals, i.e., the appeal
filed by the Insurance Company seeking further reduction in the compensation and the
appeals filed by the claimants seeking enhancement in the compensation and accordingly
dismiss the appeals and, in consequence, uphold the order of the High Court calling no
interference therein.
In view of the above decided case, the appeal may not be admissible.
Question 5
(a) A company XYZ Ltd. had been mis-reporting its financial statements since
more than 10 years which none of the stakeholders noticed for years. When the
situation of the Company went from bad to worse and it had no option but to
declare it bankrupt, the company issued a press statement that there is a disparity
between actual and reported results due to accounting errors. The first question
from shareholders of the Company was as to why the auditors had not spotted
and corrected the fundamental accounting errors ? The auditors of the Company
(one of the largest audit firms in the country) had compromised its independence
by charging a huge audit fee and also consultancy income worth several times
the audit fee. It had knowingly signed off inaccurate accounts in order to protect
the management of the Company. The investigation also found a number of
significant internal control deficiencies, external reporting processes, and a
disregard of the relevant accounting standards. Based on the above facts, answer
the following :
(i) Does the case highlight importance of independence of auditors ? Explain
provisions under the Companies Act, 2013 which promote independence
and rotation of auditors.
(ii) NFRA constituted under the Companies Act, 2013 has been vested with
powers for action against the auditors. Explain powers and functions of
NFRA. (3 + 3 = 6 marks)
(b) ABC Ltd. and XYZ Ltd. had executed an agreement. As per the contract, XYZ
Ltd. was to provide manufacturing, civil and manpower services at project site
of ABC Ltd. There were certain timelines for each activity, on failure of which,
there was provision for imposing liquidated damages. As per liquidated damages
clause, the specified amount of damages was to be paid by the breaching party
(XYZ Ltd.) if it failed to perform specified obligations. The validity of the contract
was 5 years.
Due to strike by various labour unions and industrial unrest, the project got
delayed and ABC Ltd. imposed liquidated damages to the tune of ` 10 Crores.
XYZ Ltd. protested the said penalty and raised the dispute as per provisions of
the contract. As per Arbitration Clause, the Chairman and Managing Director of
ABC Ltd. was the competent authority to appoint the Arbitrator and accordingly
he nominated one Roshan as the sole arbitrator. XYZ Ltd. challenged such
nomination and cited the judgment of Supreme Court in matter of TRF Ltd. Vs.
Energo Engineering Projects Ltd.
Whether the appeal of XYZ Ltd. is admissible? Give reasons in support of your
answer. (6 marks)
Answer 5(a)
(i) Yes, the given case definitely brings out the importance of independence of
auditors which has been re-iterated at various places and through various
provisions in the Companies Act, 2013. If the Auditors had exercised independent
judgement and not under the influence of the client they would have performed
their duties diligently as was expected of them rather than signing inaccurate
financial statements.
Some of the Provisions of Companies Act, 2013 which promote independence
of Auditors are discussed below:
1. Eligibility for appointment as Auditor - Section 141 of the Companies
Act 2013 provides that the following cannot be appointed as Auditors –
1. a body corporate other than a limited liability partnership registered under
the Limited Liability Partnership Act, 2008;
2. an officer or employee of the company;
3. a person who is a partner, or who is in the employment, of an officer or
employee of the company;
4. a person who, or his relative or partner—
(i) is holding any security of or interest in the company or its subsidiary,
or of its holding or associate company or a subsidiary of such holding
company:
Provided that the relative may hold security or interest in the
company of face value not exceeding one thousand rupees or such
sum as may be prescribed;
(ii) is indebted to the company, or its subsidiary, or its holding or
associate company or a subsidiary of such holding company, in
excess of such amount as may be prescribed; or
(iii) has given a guarantee or provided any security in connection with
the indebtedness of any third person to the company, or its
subsidiary, or its holding or associate company or a subsidiary of
such holding company, for such amount as may be prescribed;
5. a person or a firm who, whether directly or indirectly, has business
relationship with the company, or its subsidiary, or its holding or
associate company or subsidiary of such holding company or associate
company of such nature as may be prescribed;
6. a person whose relative is a director or is in the employment of the
company as a director or key managerial personnel;
7. a person who is in full time employment elsewhere or a person or a
partner of a firm holding appointment as its auditor, if such persons or
partner is at the date of such appointment or reappointment holding
appointment as auditor of more than twenty companies;
8. a person who has been convicted by a court of an offence involving
fraud and a period of ten years has not elapsed from the date of such
conviction;
9. any person whose subsidiary or associate company or any other form
of entity is engaged as on the date of appointment in consulting and
specialized services as provided in Section 144 (auditors not to render
certain services).
2. Rendering of Non - Audit Services by Auditors : The rendering of following
services by Auditor of the Company are prohibited under Section 144:
(i) accounting and book keeping services;
(ii) internal audit;
(iii) design and implementation of any financial information system;
(iv) actuarial services;
(v) investment advisory services;
(vi) investment banking services;
(vii) rendering of outsourced financial services;
(viii) management services; and
(ix) any other kind of services as may be prescribed.
3. Oversight of Auditors : To ensure independence and effectiveness of
statutory auditors, the audit committee is required to review and monitor the
auditor's independence, the audit scope and process, and performance of
the audit team and accordingly recommend appointment, remuneration and
terms of appointment of auditors of the company.
4. Appointment and Mandatory presence of Auditors at general meetings
of the Company : In terms of Section 139, the appointment of auditors is
done by the members of the Company who are independent of its
management. This ensures that the selection of Auditors is done in an
impartial manner. Further, the Auditors are mandatorily required to attend
all general meetings of the Company which enables the shareholders to
raise queries to the auditors concerning the accounts of the Company.
5. Duty to Report about Fraud : Section 143(12) imposes duty on the auditors
by prescribing that if an auditor of a company in the course of the performance
of his duties as auditor, has reason to believe that an offence of fraud
involving such amount or amounts as may be prescribed, is being or has
been committed in the company by its officers or employees, the auditor
shall report the matter to the Central Government and in case of a fraud
involving lesser than the specified amount, the auditor shall report the matter
to the audit committee constituted under section 177 or to the Board in
other cases.
6. Mandatory Rotation of Auditors : Companies Act, 2013 for the first time
introduced the concept of mandatory rotation of auditors. Section 139(2)
read with Rule 5 of the Companies (Audit and Auditors) Rules, 2014 provides
that no listed company or a company belonging to the following classes of
companies excluding one person companies and small companies:
(a) all unlisted public companies having paid up share capital of rupees 10
crore or more;
(b) all private limited companies having paid up share capital of rupees 50
crore or more;
(c) all companies having paid up share capital of below threshold limit
mentioned in (a) and (b) above, but having public borrowings from
financial institutions, banks or public deposits of rupees 50 crore or
more shall appoint or re-appoint –
o An individual as auditor for more than one term of five consecutive
years; and
o an audit firm as auditor for more than two terms of five consecutive
years
Also, an individual auditor who has completed his term of five consecutive
years shall not be eligible for re-appointment as auditor in the same company
for five years from the completion of his term. An audit firm which has completed
two terms of five consecutive years shall not be eligible for re-appointment as
auditor in the same company for five years from the completion of such term.
Provided further that as on the date of appointment no audit firm having a common
partner or partners to the other audit firm, whose tenure has expired in a company
immediately preceding the financial year, shall be appointed as auditor of the
same company for a period of five years.
(ii) The National Financial Reporting Authority (NFRA) is an independent regulator
established under Section 132 of the Companies Act, 2013 to oversee the
auditing profession. It is similar to the Public Company Accounting Oversight
Body set by in the USA by the Sarbanes Oxley Act 2002. NFRA has the
investigative and disciplinary powers.
NFRA can:
1) Investigate either suo moto or on the reference made to it by Central Government
into the matters of professional or other misconduct, committed by any member
or firm of chartered accountants, registered under the Chartered Accountants
Act, 1949.
2) Impose penalties of not less than 1 lakh which may extend to five times of the
fees received, in case of individuals professionals and of not less than 10 lakhs
which may extend to ten times of the fees received, in case of professional
firms; if the misconduct is proved.
3) Debarring the member or the firm from engaging himself or itself from practice
as the member of the Institute of Chartered Accountant of India for a minimum
period of six months which may extend to a period of 10 years. INFRA has also
been vested with the same powers as are vested in civil courts under the Code
of Civil Procedure, 1908 while trying a suit, relating to:
• discovery and production of books of account and other documents, as
may be specified by the National Financial Reporting Authority;
• summoning, enforcing the attendance of persons and examination them on
oath;
• issuing commissions for the examination of witnesses or documents;
• inspection of any books, registers and other documents of any person to
whom NFRA has summoned, enforced the attendance and examined on
oath;
It is also being provided in section 132 of the Companies Act, 2013 that no other
institute or body shall initiate or continue any proceedings in such matters of misconduct
where the NFRA has initiated an investigation under this section. However, any person
aggrieved by any order of the NFRA may appeal before the Appellate Authority constituted
for this purpose.
Answer 5(b)
The Supreme Court, by its judgment in TRF Ltd. v. Energo Engineering Projects
Ltd., (2017) 8 SCC 377 (rendered on 03.07.2017), held that since a Managing Director of
a company which was one of the parties to the arbitration, was himself ineligible to act
as arbitrator, such ineligible person could not appoint an arbitrator, and any such
appointment would have to be held to be null and void.
The facts of the case referred by XYZ limited do not correspond to TRF Limited and
hence same case cannot be relied upon in the given question.
Section 7 of the Arbitration and Conciliation Act, 1996 defines arbitration agreement
as under:
(1) In this Part, “arbitration agreement” means an agreement by the parties to submit
to arbitration all or certain disputes which have arisen or which may arise between
them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract
or in the form of a separate agreement.
Section 11 of the Arbitration and Conciliation Act, 1996 provides for appointment of
arbitrators.—
(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the
parties.
(2) Subject to sub-section (6), the parties are free to agree on a procedure for
appointing the arbitrator or arbitrators.
Therefore, arbitrator must be appointed in according to the procedure agreed between
the parties.
In the given case, as per the Arbitration clause, the Chairman and Managing Director
of ABC Ltd. was the competent authority to appoint the arbitrator and accordingly he
nominated one Roshan as the sole arbitrator.
As arbitrator in the question is appointed according to arbitration agreement, therefore,
the same cannot be challenged.
Question 6
(a) Paras Pharma Ltd. had accepted deposits since 2002 and regularly paid maturity
amounts till 28.02.2013. In 2013, the company started facing liquidity problems
and incurred losses.
The company filed application before the Company Law Board and obtained
relief under section 58 AA read with section 58A (9) of the erstwhile Companies
Act, 1956 and get instalments fixed to repay deposits. Whether the said company,
which has already got relaxation from CLB under Section 58AA read with Section
58A (9) the erstwhile Companies Act, 1956 and got instalments fixed to repay
deposits, can again apply for re-fixing of periods, instalments and rate of interest
for repayment of deposits accepted before commencement of the Companies
Act, 2013.
Give reasons in support of your answer. (6 marks)
(b) You are the company secretary of a listed food manufacturing company. Your
Chairman informs you that he has been asked to meet with two major shareholders
of the company. They are institutional investors who together own about 6% of
the company’s equity shares. Both of them have stated publicly their policy of
socially responsible investment and the purpose of the meeting is to discuss
social and environmental issues and the company’s policy on corporate social
responsibility.
As a company secretary you are required to write a brief note for the Chairman
on the following issues :
(i) Role of institutional investors in good corporate governance.
(ii) The socially responsible investment principles for institutional investors
and the ways in which institutional investors may pursue a socially
responsible investment strategy. (6 marks)
Answer 6(a)
The facts of the present case is similar to the case of M/s Ind-Swift Limited (Appellant)
vs. Registrar of Companies (Punjab & Chandigarh) (Respondent). In this case NCLAT
observed that the NCLT considered that the Appellant had at the time of first grant of
time got relief of huge extension and that there was no reason to accept the plea for
further extension. The NCLT appears to have found that when big relief had already
been granted to the Company, further extension was not justified.
Section 76(2) read with Sections 73 and 74 of the Companies Act, 2013 would apply
to acceptance of deposits from public by eligible Companies but it saves the Company
which had accepted or invited public deposits under the relevant provisions of the
Companies Act, 1956 and Rules there under and has been repaying such deposits and
interests thereon in accordance with such provisions, then the provisions of Clause (b)
of Sub-Section (1) of Section 74 of the Companies Act, 2013 shall be deemed to have
been complied with. This is, however, subject to the fact that the Company complies
with the requirements under the Companies Act, 2013 and the Rules and continues to
repay such deposits and interest due thereon on due dates for the remaining period" as
per the terms and conditions.
Considering these provisions, it appears that Section 74(1)(b) the Companies Act,
2013 was attracted and when it appears from record that the Appellant defaulted, the
penal provisions would get attracted.
Thus, when once a scheme had been got settled, from Company Law Board, default
on the part of the Appellant would attract penal provisions as the earlier scheme itself
laid down. Hence, present appeal for further extension is dismissed.
Answer 6(b)
(i) Institutional investors are those financial institutions which accept funds from
other parties for investment by the institution in its own name but on their clients/
beneficiaries behalf. The different kinds of institutional investors are banks,
development financial institutions, insurance companies, mutual funds, foreign
institutional investor, provident funds and proposed private fund managers.
They are now significant players in the global economy. Institutional investors are
entrusted with funds from the public and most of the household income is with
these institutional investors. They are safe keepers of public money and act in a
fiduciary capacity. They are obligated to take decisions which best serve the
company’s' interests and steer the company to function in an ethical manner.
There is a mutual relationship between institutional investors and the good
corporate governance of a company. The corporate governance practices followed
by a company are very important to determine the number of institutional investors
who would like to invest in the firm and the extent to which they would like to
invest. Institutional investors, being shareholders with large concentrated
shareholding have the power to get involved with good corporate governance
practices.
Institutional investors are major contributories of companies in India. The recent
government policies have led to an increase in the flow of Foreign Direct
Investment and Foreign Institutional Investment in India. Institutional investors
are becoming important components of companies. Though institutional investor
activism is not prevalent to such a great extent in India, but it is gaining importance.
Institutional investors play a proactive role in the corporate governance of
companies in the United State and U.K. They monitor the decisions of the
Board and help in building effective corporate governance practices in the firm.
Most governance sensitive institutional investors would like to invest in firms
which already have their governance mechanisms in place. Institutions with
corporate governance mechanisms in place are better to invest in as this would
mean decreased monitoring costs. The institutional investors would not have to
play a proactive role in monitoring the practices followed by the company.
(ii) The Institutional investors generally follow the given six Principles for Responsible
Investment
o Principle 1: We will incorporate ESG issues into investment analysis and
decision-making processes.
o Principle 2: We will be active owners and incorporate ESG issues into
ownership policies and practices.
o Principle 3: We will seek appropriate disclosure on ESG issues by the entities
in which they invest.
o Principle 4: We will promote acceptance and implementation of the Principles
within the investment industry.
o Principle 5: We will work together to enhance effectiveness in implementing
the Principles.
o Principle 6: We will each report on their activities and progress towards
implementing the Principles.
Institutional Investors activities may include:
o Monitoring and engaging with companies on matters such as strategy,
performance, risk, capital structure, and corporate governance, including culture
and remuneration.
o Engagement in purposeful dialogue with companies on major issues.
o Decision-making on matters such as allocating assets, awarding investment
mandates, designing investment strategies, and buying or selling specific
securities.
o They set the tone for stewardship and may influence behavioural changes that
lead to better stewardship by asset managers and companies.
o Asset managers, with day-to-day responsibility for managing investments, are
well positioned to influence companies' long-term performance through
stewardship.
***

Mcs Ans 2-6

Uploaded by

Copyright:

Available Formats

Mcs Ans 2-6

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Mcs Ans 2-6

Uploaded by

Copyright:

Available Formats

27 PP–MCS–June 2022

The following additional points may be considered regarding control system:

Decision : Petition allowed.

In Ambica Industries v. Commissioner of Central Exercise (2007) 6 SCC 769, the

(b) Apna Dhan Ltd., is a Public Sector Undertaking, manufacturing various

Financial Year Amount in USD

had circulated a number of messages on watsapp to various other people containing

(2) A transaction shall be considered undervalued where the corporate debtor-

contrast, Environmental, Social and Governance (ESG) are criteria used to

d. To periodically review the risk management policy, at least once in two

The various Exits a PE could take are as follows:

1. Initial Public Offer (IPO)

2. Partnership Strategy or Strategic Purchase

4. Repurchase by current management or the company's founder

In absence of any specific bar of joinder of parties or joining of separate cause of

Based on the above fact, answer the following :

(a) Explain in detail what is the dilemma Amrut is going through.

Amrut seems to be going through an ethical dilemma.

An ethical dilemma is a moral situation in which a choice has to be made between

Some examples of ethical dilemma include:

• Taking credit for others’ work

• Offering a client a worse product for your own profit

• Utilizing inside knowledge for your own profit

Ethical Dilemmas in Business

Ethical dilemmas are especially significant in professional life, as they frequently

People’s inability to determine the optimal solution to such dilemmas in a professional

Fundamental Ethical Issues : In the present case, Amrut is going through

In this case, Hon'ble Supreme Court allowed the petition.

You might also like