1.

Offer document for IPO discloses information which is

confusing & hides what is material. Do you agree? And also
discuss 3 important disclosure.
2. Disclosure w.r.t Risk Factors in the offer document.
Disclosure 1 : Capital structure
SEBI guidelines:
(a) The authorised, issued, subscribed and paid up capital.
(b) Size of the present issue, giving separately the promoters
contribution, reservation for specified categories and net offer to public
(number of securities, description, aggregate nominal value and issue
amount, names of the group companies if reservation has been made for
shareholders of the group companies and applicable percentages may be
given in case of a book built issue)
(c) Paid up capital: (i) After the issue. (ii) After conversion of convertible
instruments (if applicable).
(d) Share premium account (before and after the issue).
Disclosure 2 : Risk Factors:
The risk factors shall be classified as those which are specific to the
project and internal to the issuer and those which are external and beyond
the control of the issuer. The proposals to address risks shall not contain
any speculative statement on the positive outcome of any litigation.
It is generally advised that the investors should go through all the risk
factors of the company before making an investment decision. Risk
factors are an important part of a companys disclosure documents. They
caution potential and existing investors about specific, material risks that
should be considered when making an investment decision.
Disclosure 3 : Dividend Policy:
The company needs to disclose its dividend policies. Following disclosures
are expected:
a. Dividend policy of the Company
b. Rate of Dividend and Amount of Dividend paid for the last five
financial years.
c. Information about changes, if any, in dividends announced and
dividends paid and time gap between the dividends announced and
dividends paid.
d. Information about Dividend Yield.
e. Taxation aspects of dividend distribution.

3. Book building process in IPO.

Book Building is basically a process used in Initial Public Offer (IPO) for
efficient price discovery. It is a mechanism where, during the period for
which the IPO is open, bids are collected from investors at various prices,
which are above or equal to the floor price. The offer price is determined
after the bid closing date.
As per SEBI guidelines, an issuer company can issue securities to the
public though prospectus in the following manner:

100% of the net offer to the public through book building process

75% of the net offer to the public through book building process and
25% at the price determined through book building. The Fixed Price
portion is conducted like a normal public issue after the Book Built
portion, during which the issue price is determined.

4. Discuss the provisions of FEMA w.r.t. Import & Export of

Goods.
Definition of Trade Credit : Credit extended for imports of goods directly by
the overseas supplier, bank and financial institution for original maturity
of less than three years from the date of shipment is referred to as trade
credit for imports.
Depending on the source of finance, such trade credit will include
supplier's credit or buyers credit , Supplier 's credit relates to credit for
imports into India extended by the overseas supplier , while Buyers credit
refers to loans for payment of imports in to India arranged by the importer
from a bank or financial institution outside India for maturity of less than
three years.
It may be noted that buyers credit and suppliers credit for three years and
above come under the category of External Commercial Borrowing (ECB),
which are governed by ECB guidelines. Trade credit can be availed for
import of goods only therefore interest and other charges will not be a
part of trade credit at any point of time.

5. Capital Account Transactions

Capital account transaction is defined as a transaction which:-

a. Alters the assets or liabilities, including contingent liabilities, outside

India of persons resident in India. In other words, it includes those
transactions which are undertaken by a resident of India such that
his/her assets or liabilities outside India are altered (either increased
or decreased).
Eg :- (i) a resident of India acquire an immovable property outside India or
acquires shares of a foreign company. This way his/her overseas assets
are increased.
(ii) a resident of India borrows from a non-resident through External
commercial Borrowings (ECBs). This way he/she has created a liability
outside India.
b. Alters the assets or liabilities in India of persons resident outside
India. In other words, it includes those transactions which are
undertaken by a non-resident such that his/her assets or liabilities in
India are altered (either increased or decreased).
Eg :- (i) a non-resident acquire immovable property in India or acquire
shares of an Indian company or invest in a Wholly Owned Subsidiary or a
Joint Venture with a resident of India. This way his/her assets in India are
increased.
(ii) a non-resident borrows from Indian housing finance institute for
acquiring a house in India. This way he/she has created a liability in India.

6. Current Account Transactions

The Act defines the term 'current account transaction' as a transaction
other than a capital account transaction such transaction includes,

Payments due in connection with

Foreign trade,

Other current business

Services, and

Short-term banking and credit facilities in the ordinary course of

business;

Payments due as

Interest on loans and

Net income from investments,

Remittances for living expenses of parents, spouse and children

residing abroad, and

Expenses in connection with

Foreign travel,

Education and

Medical care of parents, spouse and children.

7. Capital Account Convertibility

There is no formal definition of capital account convertibility (CAC). The
Tarapore committee set up by the Reserve Bank of India (RBI) in 1997 to
go into the issue of CAC defined it as the freedom to convert local
financial assets into foreign financial assets and vice versa at market
determined rates of exchange.
In simple language what this means is that CAC allows anyone to freely
move from local currency into foreign currency and back.

8. Automatic route FEMA

The automatic route stands for less restricted or more liberalized
regulation. Under the Automatic Route, the foreign investor or the Indian
company does not require any approval from the Reserve Bank or
Government of India for the investment. The approval route FDI is
allowable in all sectors and activities specified under the consolidated FDI
policy.

9. Provisions w.r.t. Multi Brand Retail under FEMA.

Multi Brand Retail Trading

51% Government

FDI in multi brand retail trading, in all products, is permitted, subject to

the following conditions:
(i) Fresh agricultural produce, including fruits, vegetables, flowers, grains,
pulses, fresh poultry, fishery and meat products, may be unbranded.
(ii) Minimum amount to be brought in, as FDI, by the foreign investor,
would be US $ 100 million.

(iii) At least 50% of total FDI brought in the first tranche of US $ 100
million, shall be invested in 'back-end infrastructure' within three years.
(iv) At least 30% of the value of procurement of manufactured/processed
products purchased shall be sourced from Indian micro, small and medium
industries.
(vi) Retail sales outlets may be set up only in cities with a population of
more than 10 lakh
(vii) Government will have the first right to procurement of agricultural
products.

10.

Provisions w.r.t Nostro & Vostro accounts under FEMA.

Nostro Account is a Current account maintained by a domestic

bank/dealer with a foreign bank in foreign currency.
For example, Current Account of SBI Bank (an Indian bank) with Swiss
Bank in Swiss Franc (CHF) currency is a Nostro A/C.
Vostro A/C is a Current account maintained by a foreign bank with
domestic bank in Rupee currency.
For example: Account of Swiss bank in India with SBI in Rupee ()
Currency
Loro Account is a Current Account Maintained by one Domestic Bank on
behalf of other domestic bank in foreign bank in foreign currency. In other
word Loro Account is a Nostro Account for one bank who opened the bank
and Loro Account for other bank who refers first one account.
For Example: SBI opened Current Account with Swiss bank. If PNB refers
that account of SBI for its correspondence, then it is called Loro Account
for PNB and it is Nostro Account for SBI.

11.
12.
13.
14.

Any two types of mergers with examples.

Vertical Merger with example.
Horizontal Merger.
Con-generic merger.

i. Horizontal Mergers
Also referred to as a horizontal integration, this kind of merger takes
place between entities engaged in competing businesses which are at the
same stage of the industrial process. A horizontal merger takes a
company a step closer towards monopoly by eliminating a competitor and
establishing a stronger presence in the market. The other benefits of this
form of merger are the advantages of economies of scale and economies

of scope. These forms of merger are heavily scrutinized by the

competition commission.
Example 1) Lipton India and Brooke bond 2) Bank of Madura with ICICI
Bank.
ii. Vertical Mergers
Vertical mergers refer to the combination of two entities at different
stages of the industrial or production process. For example, the merger of
a company engaged in the construction business with a company
engaged in production of brick or steel would lead to vertical integration.
Companies stand to gain on account of lower transaction costs and
synchronization of demand and supply. Moreover, vertical integration
helps a company move towards greater independence and self-sufficiency.
Example 1) Reliance and FLAG telecom group 2) Pixar-Disney Merger
iii. Congeneric Mergers
These are mergers between entities engaged in the same general industry
and somewhat interrelated, but having no common customer-supplier
relationship. A company uses this type of merger in order to use the
resulting ability to use the same sales and distribution channels to reach
the customers of both businesses.

15.

Any 3 defence strategies in M&A.

16.

Macroni Defence as a defence strategy in M&A.

Macaroni Defense
An approach taken by a company that does not want to be taken over. The
company issues a large number of bonds with the condition they must be
redeemed at a high price if the company is taken over.
A poison pill is a tactic utilized by companies to prevent or discourage
hostile takeovers. A company targeted for a takeover uses a poison pill
strategy to make shares of the companys stock look unattractive or less
desirable to the acquiring firm.
There are two types of poison pills:
1. A flip-in permits shareholders, except for the acquirer, to purchase
additional shares at a discount. This provides investors with instantaneous
profits. Using this type of poison pill also dilutes shares held by the
acquiring company, making the takeover attempt more expensive and
more difficult.
2. A flip-over enables stockholders to purchase the acquirers shares
after the merger at a discounted rate. For example, a shareholder may

gain the right to buy the stock of its acquirer, in subsequent mergers, at a
two-for-one rate.
The crown jewel defence is a strategy in which the target company sells
off its most attractive assets to a friendly third party or spin off the
valuable assets in a separate entity. Consequently, the unfriendly bidder is
less attracted to the company assets. Other effects include dilution of
holdings of the acquirer, making the takeover uneconomical to third
parties, and adverse influence of current share prices.

17.

Importance of due diligence in M&A with caselet.

Due diligence is a vital activity in M&A transactions, and may consume

several months of intense analysis if the target firm is a large business
with a global presence. Using a variety of methods and accepted
principles M&A due diligence activities typically focus on four areas at a
target firm:

Strategic Position
Financial Data
Operational Assets
Legal Matters

Each of these four areas can be further sub-divided into business, legal,
and functional areas each receiving the appropriate level of attention and
analysis based upon the category and nature of the deal.

18.

Silent features of SEBI takeover code.

1. Initial threshold limit for triggering of an open offer

Under the Takeover Code of 1997, an acquirer was mandated to make an
open offer if he, alone or through persons acting in concert, were
acquiring 15% or more of voting right in the target company. This
threshold of 15% has been increased to 25% under the Takeover Code of
2011.
2. Creeping acquisition
The Takeover Code of 1997 recognized creeping acquisition at two levels
from 15% to 55% and from 55% to the maximum permissible limit of
75%. Acquirers holding from 15% to 55% shares were allowed to purchase
additional shares or voting rights of up to 5% per financial year without
making a public announcement of an open offer. Acquirers holding from
55% to 75% shares were required to make such public announcement for
any additional purchase of shares. However, in the latter case, up to 5%

additional shares could be purchased without making a public

announcement.
3.

Indirect acquisition

The Takeover Code of 2011 clearly lays down a structure to deal with
indirect acquisition, an issue which was not adequately dealt with in the
earlier version of the Takeover Code. Simplistically put, it states that any
acquisition of share or control over a company that would enable a person
and persons acting in concert with him to exercise such percentage of
voting rights or control over the company which would have otherwise
necessitated a public announcement for open offer, shall be considered an
indirect acquisition of voting rights or control of the company.
4.

Voluntary offer

A concept of voluntary offer has been introduced in the Takeover Code of

2011, by which an acquirer who holds more than 25% but less than the
maximum permissible limit, shall be entitled to voluntarily make a public
announcement of an open offer for acquiring additional shares
5.

Size of the open offer

The Takeover Code of 2011 now mandates an acquirer to place an offer for
at least 26% of the total shares of the target company, as on the 10th
working day from the closure of the tendering period.

19.

Independent Director under CG

Independent Director' means

a) Who, in the opinion of the Board, is a person of integrity and possesses
relevant expertise and experience;
b) Who is or was not a promoter of the company,
2. Who is not related to promoters or directors in the company.
c) Who has or had no pecuniary relationship with the company
d) None of whose relative has or had pecuniary relationship or transaction
with the company.
e) Who, neither himself nor any of his relative
i. Holds or has held the position of a key managerial personnel

ii. Is or has been an employee or proprietor or a partner, in any of the

three financial years preceeding.
iii. Holds together with his relative two per cent or more of the total voting
power of the company;
iv. Is a Chief Executive or director, of any non profit organization, or who
possesses such other qualifications as may be prescribed.

20.

Role of Audit Committee under CG.

To call for the comments of the auditors about internal control systems,
the scope of audit, including the observations of the auditors and review
of financial statement before their submission to the Board
To discuss any related issues with the internal and statutory auditors and
the management of the company.
To investigate into any matter in relation to the items or referred to it by
the Board
To obtain professional advice from external sources
To have full access to information contained in the records of the
company.

21.

Anti Competitive agreements under CA 2002

(1) No enterprise or association of enterprises or person or association of

persons shall enter into any agreement in respect of production, supply,
distribution, storage, acquisition or control of goods or provision of
services, which causes or is likely to cause an appreciable adverse effect
on competition within India.
(2) Any agreement entered into between enterprises or associations of
enterprises or persons or associations of persons or between any person
and enterprise or practice carried on, or decision taken by, any association
of enterprises or association of persons, including cartels, engaged in
identical or similar trade of goods or provision of services, which
(a) directly or indirectly determines purchase or sale prices;
(b) limits or controls production, supply, markets, technical development,
investment or provision of services;
(c) shares the market or source of production or provision of services by
way of allocation of geographical area of market.
(d) directly or indirectly results in bid rigging or collusive bidding.

(4) Any agreement amongst enterprises or persons at different stages or

levels of the production chain in different markets, in respect of
production, supply, distribution, storage, sale or price of, or trade in goods
or provision of services, including
(a) tie-in arrangement;
(b) exclusive supply agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance.

22.
(i)
(ii)
(iii)
(iv)
(v)
(vi)

(vii)

Abuse of Dominance CA 2002

directly or indirectly imposing unfair or discriminatory condition
in purchase or sale of goods or service;
directly or indirectly imposing unfair or discriminatory price in
purchase or sale (including predatory price) of goods or service;
limiting or restricting production of goods or provision of services
or market;
limiting or restricting technical or scientific development relating
to goods or services to the prejudice of consumers;
denying market access in any manner;
making conclusion of contracts subject to acceptance by other
parties of supplementary obligations which, by their nature or
according to commercial usage, have no connection with the
subject of such contracts;
using its dominant position in one relevant market to enter into,
or protect, other relevant market.

23.
Views on recent relaxation made by the Govt. in FDI
provisions.
100% foreign direct investment (FDI) in defence through the approval
route.
new norms have done away with the condition of access to state-of-art
technology in the country for FDI more than 49%.
100% FDI in food product e-commerce
100% FDI in greenfield pharma via the automatic route
100% in brow field pharma - of which 74% will be through automatic route

100% FDI in scheduled airlines, and up to 49% FDI in airlines through

automatic route.
The government has also decided to relax local sourcing norms up to
three years and a relaxed sourcing regime for another five years for
entities undertaking single brand retail trading of products having stateof-art and cutting edge technology, which will likely make it easier for
companies like Apple to set up manufacturing units in India
FDI inflows for the financial year ending March 2016 stood at $55.46
billion, up from $36.04 billion in the previous fiscal.

24.

Pradhan Mantri Jan Dhan Yojana under Micro finance.

What is Pradhan Mantri Jan DhanYojana?

The Pradhan Mantri Jan DhanYojana (PMJDY) is a scheme that aims to
provide all the citizens of India especially the poor masses a bank
account, credit facility, insurance cover and debit card.. In the long run,
the scheme will also allow the poorer sections to avail themselves of
subsidies and overdraft facilities through their bank accounts, which are
intended to eliminate money-lenders, commission agents and corruption.
Why is this scheme important?
In India, about 42 percent of the population lacks access to a formal
financial institution such as a bank and is not part of the countrys banking
system. This population depends on local money lenders for loans which
are often given at exorbitant interest rates and unfair terms. Without
access to a basic bank account, facilities such as insurance cover and
debit cards remain a far cry to this section of the population. The PM Jan
DhanYojana is set to change this scenario. In the long term, this scheme
will also provide the backdrop for a cashless economy.
Benefits of the PMJDY
According to the terms of the PMJDY, the account holders will be provided
a zero-balance savings account with a RuPay debit card. The account
holder will also be provided life insurance cover of INR 30,000 and an
accidental insurance cover of INR 1 lakh. By 2018, it is likely that all
account holders under the PMJDY scheme will have access to an Aadhaarlinked bank account with overdraft facility up to INR 5,000. By allowing
direct money transfer into bank accounts, the scheme is likely to cut down
on corruption.

25.

Whistle Blower.

A whistle blower is anyone who has and reports insider knowledge of

illegal activities occurring in an organization. Whistle blowers can be
employees, suppliers, contractors, clients or any individual who somehow
becomes aware of illegal activities taking place in a business either
through witnessing the behaviour or being told about it.

26.

Powers of Directors (Board)

Powers to be exercise in Board Meeting

The Board shall exercise following powers only by means of resolution
passed in its meeting:
(a) to make calls on shareholders in respect of money unpaid on their
shares;
(b) to authorise buy-back of securities.
(c) to issue securities, including debentures, whether in or outside India;
(d) to borrow monies;
(e) to invest the funds of the company;
(f) to grant loans or give guarantee or provide security in respect of loans;
(g) to approve financial statement and the Boards report;
(h) to diversify the business of the company;
(i) to approve amalgamation, merger or reconstruction;
(j) to take over a company or acquire a controlling or substantial stake in
another company;
(k) any other matter which may be prescribed.

27.

Shelf prospectus.

Shelf prospectus means a prospectus in respect of which the securities or

class of securities included therein are issued for subscription in one or
more issues over a certain period without the issue of a further
prospectus.
The shelf prospectus shall indicate that validate period of the shelf
prospectus is a period not exceeding one year from the date of first offer
of securities under that prospectus. Once, a shelf prospectus has been
issued, there will be no requirement of any further prospectus for any
subsequent offer of these securities issued during this validity period.

For any subsequent issue, company shall file an Information

Memorandum. This information memorandum shall contain all material
facts relating to (i) new charges created; and (ii) changes in financial
position of the company from first/previous offer to this
second/subsequent offer under this Shelf Prospectus.

28.

Ponzi scheme

A Ponzi scheme is a fraudulent investing scam promising high rates of

return with little risk to investors. The Ponzi scheme generates returns for
older investors by acquiring new investors. This is similar to a pyramid
scheme in that both are based on using new investors' funds to pay the
earlier backers. For both Ponzi schemes and pyramid schemes, eventually
there isn't enough money to go around, and the schemes unravel.

29.
SEBI guidelines are inadequate to regulate Ponzi
Schemes comment with your justification.
Ponzi schemes do not fall under the regulatory purview of SEBI. The
same is banned under the Prize Chit and Money Circulation (Banning)
Act, 1978 and the State government concerned is the enforcement
agency. Though it is a Central Act, the respective State governments
are the enforcement agency of this law, SEBI submitted in an affidavit.
But SEBI expressed its helplessness in regulating banned activities
unless made aware of their existence. If informed, the regulator would
stop these activities. Besides, it said, the CIS was not a banned activity.
A CIS was authorised if it was registered with SEBI or got prior
permission from the regulator.

30.

Discuss disclosure requirements in directors report.

Directors Responsibility Statement containing the following disclosures:

- That in the preparation of the annual accounts, the applicable
accounting standards had been followed along with proper explanation
relating to material departures;
- That the directors had selected such accounting policies and applied
them consistently and made judgments and estimates that are reasonable
and prudent so as to give a true and fair view of the state of affairs of the
company at the end of the financial year and of the profit and loss of the
company for that period;
- That the directors had taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the

provisions of this Act for safeguarding the assets of the company and for
preventing and detecting fraud and other irregularities;
- That the directors, in the case of a listed company, had laid down
internal financial controls to be followed by the company and that such
internal financial controls are adequate and were operating effectively.
-That the directors ha d devise d proper systems to ensure compliance
with the provisions of all applicable laws and that such systems were
adequate and operating effectively.
-Number of meetings of Board.
-The details of directors or key managerial a personnel who were
appointed or have resigned during the year.

Cases
1. Reliance Infra case w.r.t. FEMA
The Reserve Bank of India (RBI) has asked the Anil Dhirubhai Ambani
Group firm, Reliance Infrastructure (earlier, Reliance Energy), to pay just
under Rs 125 crore as compounding fees for parking its foreign loan
proceeds worth $300 million with its mutual fund in India for 315 days,
and then repatriating the money abroad to a joint venture company. These
actions, according to an RBI order, violated various provisions of the
Foreign Exchange Management Act (FEMA).
In its order, RBI said Reliance Energy raised a $360-million ECB on July 25,
2006, for investment in infrastructure projects in India. The ECB proceeds
were drawn down on November 15, 2006, and temporarily parked
overseas in liquid assets. On April 26, 2007, Reliance Energy repatriated
the ECB proceeds worth $300 million to India while the balance remained
abroad in liquid assets.
It then invested these funds in Reliance Mutual Fund Growth Option and
Reliance Floating Rate Fund Growth Option on April 26, 2007. On the
following day, i.e., on April 27 2007, the entire money was withdrawn and
invested in Reliance Fixed Horizon Fund III Annual Plan series V. On March
5, 2008, Reliance Energy repatriated $500 million (which included the ECB
proceeds repatriated on April 26, 2007, and invested in capital market
instruments) for investment in capital of an overseas joint venture called
Gourock Ventures based in British Virgin Islands.
RBI said, under FEMA guidelines issued in 2000, a borrower is required to
keep ECB funds parked abroad till the actual requirement in India. Further,
the central bank said a borrower cannot utilize the funds for any other
purpose.

The company said due to unforeseen circumstances, its Dadri power

project was delayed. Therefore, the ECB proceeds of $300 million were
bought to India and was parked in liquid debt mutual fund schemes, it
added.
RBI said it took the company 315 days to realize that the ECB proceeds
are not required for its intended purpose and to repatriate the same for
alternate use of investment in an overseas joint venture on March 5, 2008.
RBIs order said as the company has made additional income of Rs 124
crore, it is liable to pay a fine of Rs 124.68 crore.

2. ITC Money laundering scam under FERA.

In 1989, ITC started the Bukhara chain of restaurants in the US, jointly
with its subsidiary ITC International and some Non-Resident Indian (NRI)
doctors. Though the venture ran into huge losses, ITC decided to make
good the losses and honour its commitment of providing a 25% return on
the investments to the NRI doctors. ITC sought Chitalias help for this.
According to the deal, the Chitalias later bought the Bukhara venture in
1990 for around $1 million. Investors were paid off through the Chitalias
New-Jersey based company, ETS Fibers, which supplied waste paper to ITC
Bhadrachalam. To compensate the Chitalias, the Indian Leaf Tobacco
Division (ILTD) of ITC transferred $4 million to a Swiss bank account, from
where the money was transferred to Lokman Establishments, another
Chitalia company. Lokman Establishments made the payment to the
Chitalias. This deal marked the beginning of a series of events that
eventually resulted in the company being charged for contravention of
FERA regulations.
There were a host of other such dubious transactions, especially in ITCs
various export deals in the Asian markets. The company, following the
Bukhara deal, had set up various front companies (shell or bogus
companies) with the help of the Chitalias.
In 1991, ITC asked all its overseas buyers to route their orders through the
Chitalias. The Chitalias over-invoiced the export orders, which meant they
paid ITC more than what they received from overseas buyers. For
instance, in an export deal to Sri Lanka, ITC claimed to have sold rice at
$350 per ton but according to ED, the rice was actually sold for just $175
per ton. ITC compensated the difference in amount to the Chitalias
through various means including under invoicing other exports to them,
direct payments to Chitalia companies and through ITC Global Holdings
Pte Ltd. (ITC Global), a Singapore-based subsidiary of ITC. ITC Global was
involved in a number majority of the money laundering deals between ITC
and Chitalias.

The Chitalias filed a lawsuit against ITC in US courts to recover their dues.
They alleged that ITC used them to float front companies in foreign
countries in order to route its exports through them. They also alleged ITC
of various wrongdoings in the Bukhara deal. These events attracted EDs
attention to the ongoings at ITC and it began probing into the companys
operations. ED began collecting documents to prove that ITC had violated
various FERA norms to pay the NRI Doctors.

3. Salomon Vs A. Salomon & Co. Ltd.

Salomon v. Salomon involved the Salomon family, who owned the majority
of shares in a leather company, according to The National Archives of the
United Kingdom. After a strike, the business lost profits and went
bankrupt. The value of the corporation at the time of insolvency was
below the value of the debts. Creditors sued the individual shareholders
for the rest of the funds. Even though the majority owner of the company
was one family, the House of Lords held that a corporation is separate
from the individuals. Only the corporation held the debt; the individual
shareholders did not hold the debt. As part of a legal incorporation, the
liability was more minimal than that of a partnership or sole
proprietorship, according to Examination Preparation Services.
Judgment of higher court:
The higher court i.e. is the house of the lords held that the company is
distinct for its owner and it has separate legal entity once it is registered
and comes into existence it has no minority period neither it has any
incapacity. They held that shareholders and the company are two different
entities and the shareholders cannot be held responsible for the acts of
the company even when the shareholders hold virtually the majority of
the shares.

4. Ashbury Railway Carriage and Iron Co Ltd v Riche

In Ashbury Railway Carriage and Iron Company Ltd v. Riche, (1875) the
objects of the company as stated in the objects clause of its
memorandum, were to make and sell, or lend on hire railway carriages
and wagons, and all kinds of railway plaint, fittings, machinery and rolling
stock to carry on the business of mechanical engineers and general
contractors to purchase and sell as merchants timber, coal, metal or other
materials; and to buy and sell any materials on commissions or as
agents.

The directors of the company entered into a contract with Riches for
financing a construction of a railway line in Belgium. The contract was
ratified by all the members of the company, but later on it was repudiated
by the company. Riche sued the company for breach of contract.

5. Lee v Lee's Air Farming

The case of Lee v Lee's Air Farming concerns the veil of incorporation and
separate legal personality. the appellant's husband held 99% of the
company's shares. he was killed while on the job, due to a plane crash.
Mrs Lee then claimed for compensation under the Workmen's
compensation Act 1922. The Court of Appeal held that since the deceased
was the governing director and had full control of the company, he could
not also be an employee of the company.
After appealing the case, it was ruled that an owner can also qualify to be
an employee of the same business. the company was considered to be a
separate legal person.
It is an agreeable analysis on separating a company and its owners or
shareholders. It is necessary, especially in cases where entrepreneurs are
also solely dependent on the business which they have invested in. Just as
in any business, you need to be able to claim such things as insurance, all
employees should be able to receive these benefits regardless of how
much they have invested in the business.

6. Satyam saga of CG debacle.

# The scam came to light on January 7, 2009 when Ramalinga Raju
confessed that the companys account books and profits were inflated
over many years to the tune of several crores of rupees.
# The police arrested him two days later on a complaint by some
shareholders.
# The CBI, which took up investigations in February 2009, put the loss to
the shareholders at Rs.14,000 crore. The investigating agency also
charged Raju with gaining Rs.2,500 crore by selling his family shares in
Satyam.
Also read: EOW court gives Raju 6 months in jail
# Raju was charged with floating several front companies to buy land with
the scam money. He was arrested by the Andhra Pradesh Police on
January 9, 2009.

# The CBI, which later took up the investigation, filed three chargesheets
against Raju and the other accused, charging them with cheating, criminal
conspiracy, forgery, falsification of accounts and breach of trust.
# Raju, who was released on bail in 2011, later retracted his confession
and contended that all the charges levelled against him were false.
# After the scam, Tech Mahindra took over Satyam Computers in a
government sponsored auction. Mahindra Satyam later merged with Tech
Mahindra.
# An economic offences court on December 8 last year sentenced
Ramalinga Raju and three others to six months imprisonment in six of the
seven cases filed by the Serious Fraud Investigation Office (SFIO).

7. Sahara OFCD controversy.

Sahara decided to issue OFCDs by floating two companies Sahara India
Real Estate Corporation (SIREC) and Sahara Housing Investment
Corporation (SHIC). It was the Registrar of Companies (ROC) that needed
to clear these investment vehicles.
3ROCs role in the entire episode is critical since it cleared the proposal
without raising the most basic questions. Consider these facts. Both the
companies had negligible net worth. SIREC had an equity capital of only
Rs 10 lakh and a negative net worth at the time of issuance while the net
worth of SHIC was around Rs 10 lakh. But both the companies planned to
raise Rs 20,000 crore each. ROC allowed the Sahara Group companies to
go ahead with the proposal. More than one law was flouted by Sahara in
issuing these OFCDs, which it calls private placement.
Firstly, the sheer size of the issue makes it a public issue. Any company
seeking money from more than 50 persons has to take the approval of
Sebi in doing so, in which case the company would have to make all the
disclosures required as per Sebi norms. The Sahara group had sought
money from nearly 30 million investors. Apart from the size and number of
investors, another deliberate error was keeping the issue open ended;
ideally such issues should be closed within six weeks. In fact a Sahara
group company kept an issue of Rs 17,250 crore open for 10 years.

8. Speak Asia Scam

2.4 million Indians who fell prey to SpeakAsia Online Limited scheme, only
to be duped later after the promoters disappeared with their booty.
The company had asked investors or panellists to fill in online survey
forms every week to earn Rs 52,000 a year. To sign up, they said, you had

to invest Rs 11,000 annually; you would recover that cost in less than
three months, they promised.
SAOL promised additional commissions if you enrolled more members.
In reality, the consumer surveys had no end-user; SAOL had no businesslinked revenue stream.