E NOTES

Class :B.A.LL.B-V(A+B+C);BB.A.LL.B-V(A+B)

Paper Code : LLB-305

Subject :Corporate Law

Unit4

Corporate Social Responsibility and Corporate Liquidation

Corporate Social Responsibility-Corporate Social Responsibility (‘CSR’)was introduced

in the Companies Act, 2013. It requires that every company having net worth of rupees five
hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of
rupees five crore or more during any financial year shall constitute a Corporate Social
Responsibility Committee of the Board consisting of three or more directors, out of which at
least one director shall be an independent director. The Board’s report shall disclose the
composition of the Corporate Social Responsibility Committee.

The Corporate Social Responsibility Committee shall formulate and recommend to the Board a
Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the
company as specified in Schedule VII of the Companies Act, 2013, it shall recommend the
expenditure to be in cured on the activities referred to above and monitor the Corporate Social
Responsibility Policy of the company from time-to-time.

The Board of every company shall after taking into account the recommendations made by the
Corporate Social Responsibility Committee, approve of the Corporate Social Responsibility Policy for
the company and disclose contents of such Policy in its report and also place it on the company’s
website, if any, in such manner as may be prescribed and ensure that the activities as are included in
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Corporate Social Responsibility Policy of the company are15
undertaken by the company.
The Board of every company shall ensure that the company spends, in every financial year, at
least two per cent of the average net profits of the company made during the three immediately
preceding financial years, in pursuance of its Corporate Social Responsibility Policy:

(a) Provided that the company shall give preference to the local area and areas around it where
it operates, for spending the amounted marked for Corporate Social Responsibility.

(b) Provided further at if the company fails to spend such amount, the Board shall, In its report
made specify the reasons for not spending the amount.

Average net profit shall be calculated in accordance with the provisions of Section 198 of the
Companies Act, 2013.

In this context, the ICAI has issued a guidance note on accounting for expenditure on corporate
social responsibility (CSR) activities. It provides guidance on the recognition, measurement,
presentation and disclosure of expenditure on activities relating to CSR activities.

Corporate Criminal Liability

In layman’s terms, the doctrine of corporate criminal liability is essentially the doctrine of
responded at superior, which has been imported into criminal law from to rt law. This doctrine
states that a corporation can be made criminally liable and convicted for the unlawful acts of any
of its agents, provided those agents were acting within the scope of their actual or apparent
authority. Apparent authority is that authority which an agent can be inferred to have by an
average reasonable person, whereas actual authority is authority that a corporation knowingly
entrusts to its agent or employee. To simplify matters, if a rational relationship can be established
between an employee’s criminal conduct and his corporate duties, the corporation will be held
criminally liable for the employee’s conduct.

Throughout the ages, the evolution of the doctrine of corporate criminal liability faced many
major issues, the main ones being:

The failure to identify or prove criminal intent of a juristic, fictional being. As corporations are
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intangible legal entities, finding the mens- rea necessary for the commission of a criminal act
proved to be quite the obstacle.

Sanctions were the second problem. A corporation cannot be imprisoned or put to death and
hence the threat of imprisonment, which plays a major role in criminal law, could not be applied
here. This lead to speculation that criminal law was not appropriate for the enforcement of this
doctrine.

Courts required the accused in a criminal case to be physically brought before them for
proceedings to take place. This was obviously not possible in the case of corporations.

Prior to the twentieth century, it was believed that a corporation lacked the mens-rea required for
the commission of a criminal act and hence to attain a criminal conviction. The idea that “A
corporation has no soul to damn, and nobody to kick” was widely prevalent at that time.

At present, the directors, employees and officers are all liable for criminal acts committed by
them, which they have actual authority to perform or appear to have authority to perform as
observed by an average reasonable man. Further, directors and officers may also be subject to
criminal liability under the “accomplice theory” which states that they either encouraged or
instructed a subordinate to commit a criminal act or failed to exercise due care and supervision of
their subordinates which in turn led to the commission of the crime. This theory states that a
person is criminally liable by virtue of his “responsible relation” to the misconduct regardless of
whether or the possesses any knowledge regarding the criminal activity.

Today, for the doctrine of corporate criminal liability to be applicable, the criminal act of the

employee must Be committed with the intention of benefiting the corporation in some manner, or

Be committed with the intention of increasing his own personal gain and this conduct ultimately
end sup benefiting the corporation as well.

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 Winding up of Company
Winding up of a company is the process through which life of a company comes to an end and its
property is administered for the benefit of its members &creditors. An Administrator, called a
liquidator is appointed and he takes control of the company, collects its assets, pays its debts and
finally distributes any surplus among the members in accordance with the rights.

As per section 270 of the Companies Act 2013, the procedure for winding up of a company can
be initiated either–

a) By the tribunal or,

b) Voluntary.

Winding up of a Company by a Tribunal-

As per new Companies Act 2013, a company can be wound up by a tribunal in the below
mentioned circumstances:

1. When the company is unable to pay its debts

2. If the company has by special resolution resolved that the company is wound up by the tribunal.
3. If the company has acted against the interest of the integrity or morality of India, security of the
state, or has spoiled any kind of friendly relations with foreign or neighboring countries.

4. If the company has not filled its financial statements or annual returns for preceding consecutive
financial years.

5. If the tribunal by any means finds that it is just & equitable that the company should be wound
up.

6. If the company in any way is indulged in fraudulent activities or any other unlawful business, or
any person or management connected with the formation of company is found guilty of fraud,
or any kind of misconduct.
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Filing of Winding up Petition- Section 272 provides that a winding up petition is to be
filed in the prescribed form no 1, 2 or 3 whichever is applicable and it is to be submitted in 3
sets. The following persons can present the petition for compulsory winding up:

1. The company

2. The creditors; or

3. Any contributory or contributories

4. By the central or state govt.

5. By the registrar of any person authorized by central govt. for that purpose

At the time of filing petition, it shall be accompanied with the statement of Affairs in form no
4.That petition shall state the facts up to a specific date which shall not more than 15 days prior
to the date of making the statement. After preparing the statement it shall be certified by a
Practicing Chartered Accountant. This petition shall be advertised in not less than 14 days before
the date fixed for hearing in both of there ws papers English and any other regional language.

Final Order and Its Content- The tribunal after hearing the petition has the power to
dismiss it or to make an interim order as it think appropriate or it can appoint the provisional
liquidator of the company till the passing of winding up order. An order for winding up is given
informs.

Voluntary Winding up of a Company- The company can be wound up voluntarily by

the mutual decision of members of the company, if: The company passes a Special Resolution
stating about the winding up of the company. The company in its general meeting passes are
solution for winding up as a result of expiry of the period of its duration as fixed by its Articles
of Association or at the occurrence of any such event where the articles provide for dissolution of
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company.
 Procedure for Voluntary Winding Up

1. Conduct a board meeting with 2 Directors and thereby pass a resolution with a declaration
given by directors that they are of the opinion that company has no debt or it will be able to pay
its debt fertilizing all the proceeds from sale of its assets.

2. Issues notices in writing for calling of a General Meeting proposing the resolution along with
the explanatory statement.

3. In General Meeting pass the ordinary resolution for the purpose of winding up by ordinary
majority or special resolution by 3/4th majority. The winding up shall be started from the date of
passing there solution.

4. Conduct a meeting of creditors after passing the resolution, if majority creditors are of the
opinion that winding up of the company is beneficial for all parties then company can be wound
up voluntarily.

5. Within 10 days of passing the resolution, file a notice with the registrar for appointment of
liquidator.

6. Within 14 days of passing such resolution, give a notice of the resolution in the official
gazette and also advertise in a newspaper.

7. Within 30 days of General meeting, file certified copies of ordinary or special resolution
passeding eneral meeting.

8. Wind up the affairs of the company and prepare the liquidators account and get the same
audited.

9. Conduct a General Meeting of the company.

In that General Meeting pass a special resolution for disposal of books and all necessary documents of
the company, when the affairs of the company are totally wound up and
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1. it is about to dissolve.

2. Within 15 days of final General Meeting of the company, submit a copy of accounts and file
an application to the tribunal for passing an order for dissolution.

3. If the tribunal is of the opinion that the accounts are in order and all the necessary
compliances have been fulfilled; the tribunal shall pass an order for dissolving the company
within 60 days of receiving such application.

4. The appointed liquid at or would then file a copy of order with the registrar.

5. After receiving the order passed by tribunal, the registrar then publish a notice in the official
Gazette declaring that the company is dissolved.

The Companies Act, 2013(2013Act)has seen the light of day and replaced the 1956 Act with some
sweeping changes including those in relation to mergers and acquisitions (M&A).

Merger and Acquisition of Company

The new Act has been lauded by corporate organizations for its business-friendly corporate
regulations, enhanced disclosure norms and providing protection to investors and minorities,
among other factors, thereby making M&A smooth and efficient. Its recognition of intersesh are
holder rights takes the law one step forward to an investor-friendly regime. The 2013 Act seeks
to simplify the overall process of acquisitions mergers and restructuring, facilitate domestic and
cross- border mergers and acquisitions, and thereby, make Indian firms relatively more attractive
to PE investors. The term ‘merger’ is not defined under the Companies Act,1956, and under
Income Tax Act, 1961. However, the Companies Act, 2013 without strictly defining the term
explains the concept. A ‘merger’ is a combination of two or more entities into one; the desired
effect being not just the accumulation of assets and liabilities of the distinct entities, but
organization of such entity into one business.

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Who can file the application for Merger & Amalgamation propose: Section
230(1)

An application for Merger & Amalgamation can be file with Tribunal (NCLT). Both the

transferor and the transferee company shall make an application in the form of petition to the

Tribunal under section 230-232 of the Companies Act, 2013 for the purpose of sanctioning the

scheme of amalgamation.

Joint Application: Rule3 (2)

Where more than one company is involved in a scheme, such application may, at the discretion

of such companies, be filed as a joint-application.

However, where the registered office of the Companies are in different states, there will be two

Tribunals having the jurisdiction over those, companies, hence separate petition will have to be

filed.

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 Cross Border Mergers &Takeovers: Role of SEBI

In recent times, corporate leaders are grabbing the foreign corporations or going for partnership
deeds if not capable of buying them and this is nothing but the magical change in our corporate
world because of which we now dare to go for acquisitions of foreign companies or they are
themselves agertocombinewithus.ThisisthelatesttrenddevelopingbetweenIndianIncorporations to
grow faster by the way of Takeovers or Merger with other big players. There is not a single
company but a list of companies, which are really looking forward to get their goals. There are
several factors working behind this change and in this essay we are trying to bring out some of
the most important driving factors of the recent trend of the Indian companies becoming global
leaders and this time they have chosen the path of Mergers and Takeovers outside the border.

Amalgamations can primarily be of two types, Mergers and Acquisitions. A merger can be
defined as an amalgamation of two or more companies into one, wherein the merging entities
lose their identities. No fresh investment is made through this process. However , an exchange of
shares takes place between the entities involved in such a process. Generally, the company that
survives is the buyer that retains its identity and these company is extinguished.

On the other hand, an acquisition or takeover is aimed at gaining a controlling interest in the
share capital of acquired company. It can be enforced through an agreement with the persons
holding a majority interest in the company's management or through purchasing shares in the
open market or purchasing new shares by private treaty or by making a take-over offer to the
general body of shareholders. In this process only one company loses its identity that is the seller
company.

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A finer appreciation of this point need be emphasized. A takeover, which is essentially an
acquisition, differs from a merger in its approach to business combinations. In the process of
takeover, the acquiring company decides the maximum price that is to be offered to the acquired
firm and hence takes lesser time in completing a transaction than in mergers, provided the top
management of the acquired company is co-operative. In merger transactions, the consideration
is paid for in shares whereas in a takeover, the consideration is in the form of cash. In a merger, a
new entity may be formed subsuming the merging firms, whereas in an acquisition the acquired
firm becomes the subsidiary of the acquirer firm. However, mergers and takeovers can be treated
as similar processes, since in both cases at least one set of shareholders loses executive control
over a corporation, which they otherwise held.

There have been a series of merger waves, witnessed in many of the market- oriented economies.
There have been three major merger waves in the United States during the periods 1887-
1905,1916-1929, and post-world war II. Inconstant dollar terms, the mergers during 1988
increased almost four to six times more than the value of mergers in the early seventies. The
other developed countries such as the UK, Canada, France, Germany and Japan have also
witnessed periods of a sharp rise in merger activity, although the US has been the most active
mergers market.
The trend in India has been that mergers between large business firms have been negotiated and
concluded right through the post-Independence period in India but they have been very rare and
exceptional. In 70’s a number of changes were effected in the government’s policies and these
changes were heralded, inter alia, through the abolition of the managing agency system, the
passage of the MRTP Act 1969, the nationalization of the banking system in 1969 and the
announcement of new provisions granting tax relief in the Finance Bill for 1967. All these
initiatives were aimed at curtailing the power of the big business houses and dealing with the
adverse consequences of the absence of price competition among the established business groups.
They therefore affected the process of growth through mergers as well
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.
As a result of this, mergers and acquisitions were very rare in India during 70’s and 80’s. Only15
takeovers among MRTP companies were done during1980-81to 1984-85 and then in 1985-86 to
1989-90 this figure was 91. The reason for this low rate of mergers and acquisitions was the
Government’s view of non-allowance of monopolization and as a result it passed MRTP Act,
1969 whose Chapter III placed a bar on mergers and acquisitions, within and out side India.

But the picture changed in 1991 when the Indian government changed its view and entered into
the era of liberalization and dissolved the whole chapter III of the MRTP Act and liberalized the
other rules relating to the mergers and acquisitions present in the Companies Act, 1956 and that
of RBI. And thus the removal of institutional barriers encouraged a few more Indian companies
and foreign firm store define their portfolios and reformulate their corporate and business
strategies through the merger and takeover process. And it was from here on that the trend of
cross border mergers and takeovers gradually started taking its shape. But in 90’s a few large
corporations do minated the merger movement.

All this was a motivation and encouragement for the foreign firms to set up and build their
operations in India. In fact, it has been argued that one of the reasons for the increase in mergers
during the 1990s was the keenness of international firms to exploit this opportunity, which in
some instances is furthered through mergers with existing operators rather than through these
establishment of Green field projects. The 1990 shave been years in which foreign direct
investment flows into India have risen from less than half a billion dollars to more than 3 billion
dollars a year. Interestingly, one aspect of it has been the role of rising cross-border merger sand

High Court Approvals

The company must take approval of the High Court of that state in which the registered office of
the company is present.

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Reserve Bank of India Approval

According to the current RBI regulations, companies cannot bid for an overseas acquisition
under the automatic route, if the total funds required for the acquisition exceed 200percent of the
Indian company's net worth. There are several other aspects, which need to be looked at to
determine if the proposed acquisition falls within the 200 percent limit

Role of SEBI

SEBI’s Takeover Code for substantial acquisition sofshares listed in Listed

Companies

On 4th November 1994, SEBI announced a take-over code for the regulation of substantial
acquisition of shares, aimed at ensuring better transparency and minimizing the occurrence of
clandestine deals. In accordance with the regulations prescribed in the code, on any acquisition in
a company, which makes acquirer’s aggregate shareholding exceed 15%, the acquirer is required
to make a public offer. The take-over code covers three types of takeovers-negotiated takeovers,
open market takeovers and bail-out takeovers. With the beginning of 21st century we have
witnessed a new era of development and liberalization, as there is a remarkable and consistent
growth in Indian economy. All this has le significant growth in the structure of Indian
Companies with further eagerness to grow faster to compete with others, whether within India or
outside our borders and hence the companies have switched over to some new methods of
expansion and restructuring, and takeover or merger is the latest method chosen by our
companies to be parallel with foreign companies. We can say it as a new era of liberalization
after early 90s when we have started our economic reforms. To see the real picture we have to
look at few remarkable takeovers and mergers by our companies, which lead to the beginning of
anewera.
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These acquisitions have grown tremendously in last five-six years; the research of FICCI has
shown that in between 2000 to 2006 there have been 307 acquisitions amounting to more than
Rs90, 000crores. And the reality is that the number of these deals is increasing and similarly
there are several mergers also taking place with the foreign companies in various fields. The size
of the companies is also increasing with a great velocity and we can say that no one can stop
India because now we are also capable of grabbing others and ready to take risks.

Indian companies had spent $20 billion to fund the 147 mergers and acquisitions deals abroad
in2006, according to Dialogic. In comparison, such deals in 2005 accounted for less than
$5billion,with 45M&Adeals.

The biggest contributor to 2006’s deals was the Tata - Corus deal which was valued at about
$9.8billion. This was followed by ONGC's $1.4 billion takeover of
CamposBasinOilsFieldsand50percentstakeinOmimexdeColombiaranked
Second and third biggest deals. United Breweries $0.75 billion offer for UK-based distiller
Whyte& Mackay and the takeover of Daewoo Electronics by Videocon for $0.72 billion formed
the top five deals. Among other publicized deals, Tata Motors bought South Korean company
Daewoo’s truck plant in that country. Reliance In foci took over Flag International, a major
telecom network, for US$211 million. The deal gives Reliance access to 50,000 kilometers
officer optic network worldwide. Software giant Wipro Ltd has acquired US-based consulting
company Nerve Wire for $18.7 million even as it’s contemporary, Infosys Technologies,
snapped up Australian software firm Expert Information Services Pty Ltd for $23 million. Mean
while Sun dram Fasteners Ltd, an auto ancillary manufacturer based in south India, has acquired
Dana Splicer Europe, the British arm of a global multinational corporation (MNC) that supplies
leading automotive giants like Volvo and Scania. Pharma major Ranbaxy has purchased RPG
Aventis, the French generic wing of multinational Aventis. Cadilla Healthcare has bought the
formulations business of another French company, Alpharma. Mahindra Group has picked upa
majority stake in California-based technology consulting and services firm Bristlecone. And
Hindalco, a flagship company of the $6 billion Aditya Birla Group, has acquired two
Coppermine sin Australia for $68 million.
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In the last five years, industry leaders like Wipro, TCS, Ranbaxy, Bharat Forge, Mahindra &
Mahindra and Enact, have acquired companies abroad at a regular intervals in a bid to get market
access, technological know-how or acquire new skills. And now it’s not only the mid-rung
companies with strong domestic market share, solid cash flows, and good management that have
joined the outward-bound group, but even those without a hefty bank balance are looking out.
“Today everybody is looking at international markets. Even the smaller companies are asking
themselves the question, ‘Why am I defining my market as only India,’” says Abhijit Bhaumik,
director, Opus Advisory, a boutique eadvisory firm. And this is not the limit because we are
going to see a new era, an era of Indian companies being global with new goals to defeat others
anyhow. And this is the reason why cross border mergers and takeovers are started to be called
as recent trend.

There are several tie ups also taking place where Indian and foreign companies are coming up
with joint ventures like Ranbaxy and other pharma companies are doing, but the recent and most
re-mark able deal is between Mahindra and Mahindra of India coming together with Renault, a
big player in world of automobiles.

This is the real picture of changing face of Indian corporate world because the conditions
arereallyfavourableforfulfillingtheirgoalsofexpansionandrestructuring.

With all these changes the views about Indian economy are also getting changed because we not
only have consistent high GDP growth but we have also got approval as a big player in world
economy. Foreign investors are now eager to enter in Indian market with lot of funds because
they are sure about the growth and this is been shown by our high speed of growth in the share
market. Due to the confidence in India the whole globe is looking towards us and they are now
turning out in large numbers which makes our foreign currency stocks big and strong as never,
this enables us for looking at new goals and hence our public sector companies are also going for
mergers and acquisitions as private ones.

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Along with these new achievements we come across some challenges as to run the acquired
companies properly, which is not an easy task, because these mergers and acquisitions may
affect the working of these companies adversely. There are financial problems also because we
are acquiring companies bigger in the size and capital; everyone is not quite capable as TATA to
get funds from market that much easily because for that one has to prove its capability in
handling these kinds of business deals.

There is one another problem in west, they never want any Indian or Asian company to grab their
market and hence they generally oppose such deals, as evident from Arcellor-Mittal deal. Hence
we also have to acquire their faith and support along with acquisition of their companies.

The conclusion of the essay is that we had several adverse situations in the past in emerging as a
global leader in economic sector because we hadn’t gone for liberalization and afterwards when
we opened our doors for outer world they entered slowly due to hesitation about our policies and
growth in our market because we were progressing at very low rate. Our companies were also
bound by several obligations while entering outer world but when the situations got favor able
then they choose to grow and expand beyond the borders. Though it had started with a low pace
but now we have got the right pace and environment to grow ourselves according to the desires
and hence our corporate world has chosen the magical formula of merger and acquisition, which
enables them to mark their global presence with comparatively easy way.

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