PREFACE

Hello Students,

This book of “DRAFTING, PLEADING AND

APPERANCES” is prepared from the study
material provided by the Institute of
Company Secretaries of India (ICSI). This is
to inform you, that I have covered the
entire syllabus as provided by the institute
but with a better presentation so as to
make learning for you more interesting. I
personally believe that this subject’s paper
expects detailed answers which is why a
good amount of content has been included
in your notes.

Best wishes,

CS Somya Kataria
 INDEX
S.NO TITTLE PAGE NO.

1.
Compliance Framework
1.1 – 1.32

2.
Documentation & Maintenance of Records
2.1 – 2.27

3.
Signing and Certification
3.1 – 3.26

4.
Legal Framework Governing Company Secretaries
4.1 – 4.21

5.
Values, Ethics and Professional Conduct
5.1 – 5.18

6.
Non-Compliances, Penalties and Adjudications
6.1 – 6.85
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Lesson 1- Compliance Framework

CORPORATE COMPLIANCE FRAMEWORK

It is the responsibility of the board of directors of the company to recognize scope and
implications of applicable laws and regulations on the company.

It serves as a supporting system of risk management system as it reduces risk associated

with non- compliance. However, to ensure an effective approach to compliance, the
following steps are to be undertaken by the Board of Directors:

• The participation of senior management in the development and maintenance of a

compliance program.

• Reviewing the effectiveness of compliance management system at periodic intervals.

• To ensure that it remains updated and relevant in terms of modifications/ changes in

regulatory regime including acts, rules, regulations etc. and business environment.

Compliance Framework is to be in built into the corporate system to avoid non-compliances

and the secretarial audit is carried out on periodical basis by an independent professional to

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check the effectiveness of the controls within the organization and report that how the
organization is complying with the statutory requirements.

Corporate compliance management involves a full process of research and analysis as

well as investigation and evaluation.

Compliance Management -Maruti Suzuki Limited

To ensure compliance with increasing regulatory requirements and enforcement, the

Company has established systems and controls to continually ensure zero non-
compliance with the law. A compliance certificate is submitted to the Board on a quarterly
basis. During the reporting period, over 3,500 applicable compliances were monitored
through an electronic system and 78 compliance health checks were done covering all
facilities. The tracking mechanism was enhanced to manage compliances more efficiently
and productively. There was no significant non-compliance with applicable laws and
regulations during the year. The Company observes an annual ‘Compliance Month’
reinforcing its commitment to doing business

Emerging concept of 21st century: The GRC

The Governance, Risk management, and Compliance (GRC) is a relatively new

corporate management system that integrates these three crucial functions into the
processes of every department within an organization. The overall purpose of GRC is
to reduce risks and costs as well as duplication of effort. It is a strategy that requires
company-wide cooperation to achieve results that meet internal guidelines and
processes established for each of the three key functions.

The three elements of GRC are:

Governance, or corporate governance, is the overall system of rules, practices, and
standards that guide a business. Governance is the combination of processes
established and executed by the directors (or the board of directors) that are

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reflected in the organization’s structure and how it is managed and led toward
achieving goals.

Risk, or enterprise risk management, is the process of identifying potential hazards

to the business and acting to reduce or eliminate their financial impact.

Risk management is predicting and managing risks that could hinder the organization
from reliably achieving its objectives under uncertainty. Risk management is the set
of processes through which management identifies, analyzes, and, where necessary,
responds appropriately to risks that might adversely affect realization of the
organization’s business objectives. The response to risks typically depends on their
perceived gravity, and involves controlling, avoiding, accepting or transferring them to a
third party, whereas organizations routinely manage a wide range of risks (e.g.
technological risks, commercial/financial risks, information security risks etc.)

Compliance, or corporate compliance, is the set of processes and procedures that a

company has in place in order to make certain that the company and its employees are
conducting business in a legal and ethical manner.

CASE STUDIES
Tata Motors has implemented a comprehensive GRC program that covers all aspects
of its operations, including legal compliance, risk management, and ethical practices.
The company has established a risk management framework that enables it to
identify and mitigate potential risks and ensure compliance with all applicable laws
and regulations.

Mahindra & Mahindra has implemented a GRC framework that encompasses all
aspects of its operations, including risk management, compliance, and ethical
practices. The company has established a risk management committee that oversees
the identification and mitigation of potential risks and ensures compliance with all
applicable laws and regulations.

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COMPONENTS OF CORPORATE COMPLIANCE FRAMEWORK

The corporate compliance framework consists of three key components:

COMPLIANCE COMPLIANCE COMPLIANCE

CHART ADVISORY SCORECARD

Compliance Chart:

The Chart provides an overview of the applicable local, state, central and international
laws, regulations and standards relating to a business’ operations. The compliance chart
help business in meeting its compliance obligations towards the customers, regulators,
shareholders and employees because it provides a centralize compliance information of
the company on a single chart. The compliance chart also reflects the key activities and
compliance calendar which is to be followed and performed by a business unit to manage
its compliance risks.

Compliance Advisory:

It advices on compliances of applicable laws and effect of non-compliances. Compliance

advisory helps organisation to evaluate their compliance finctions, prevent compliance
breaches and respond quickly and effectively when a breach occured.

Compliance Scorecard:
It is a tool to analyse the position of an organisation in compliance. A compliance
scorecard must be set up by organizations. The scorecard is not to be used as a mere
reporting but as a compliance management tool. It enables the reported compliance
breaches’ immediate remediation by informing a predefined responsible person in the

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case of a violation. Thus, this employee can directly start remediation activities. The
tracking of the remediation activities’ status is again included into the scorecard.

COMPLIANCE CHART
the compliance chart is prepared by considering the following activities:
• Identification of compliances under applicable Laws, Rules and Regulations;

• Risk Assessment;

• Risk Mitigation (includes Training);

• Compliance Monitoring (includes Action Tracking);

• Compliance Reporting (includes Incident Management).

CONTENTS OF COMPLIANCE CHART

The Compliance Chart of any company must contain the complete information on
compliance dashboard, which provide a detailed compliance procedure to the compliance
executor, this information includes:

Reference to the key compliance related laws, regulations,

industry standards and compliance related policies and
standards of the company

Concise statements that capture the relevant internal and

external compliance obligations and the risks arising from
those obligations

Inherent and managed risk level (critical, high, medium,

low) of the identified obligations

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The business processes or people to which the

compliance obligations are linked or on which they have
an impact

Specific compliance risk mitigation activities and

compliance risk tracking and monitoring for managing
the compliance obligations

To whom and how frequently compliance related

results and findings are reported

Clear ownership of the processes, activities and

obligations outlined in the chart

Role of Company Secretary in creation of Compliance Chart:

Compliance Risk
Mitigation

Compliance
Risk Assessment
Monitoring

Identification of Role of
Compliance
applicable law, rules Company Reporting
and regulations Secretary

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A well-designed compliance framework has abilities to perform the following key

functions across every type of businessplia
organisation:

Compliance Dashboard:

The compliance program must provide a single enterprise-wide dashboard for all users
to track and trend compliance events. All the auditors can use the dashboards to make
decisions on the compliance status of the organization.

Compliance Policy and Procedure:

A well-designed document management system shall ensure that the policies and
procedures are in conformity with the ever-changing rules and regulations is a critical
requirement. The creation, review, approval and release process of the policy documents
and SOPs (Standard Operating Procedures) should be carefully done.

Access to Rules and Regulations:

When there are regulatory changes, various departments should be notified proactively
through “email based” collaboration. This process critically enables the organization to
dynamically change their policies and procedures in adherence to the revised rules and
regulations. While tracking a single regulation may be manually feasible, it becomes an
error-prone task to track all local, state, and central regulations including those taking
place across the globe.

Compliance Audit:

Audits are no more an annual activity and corporations offer appropriate audit
capabilities. Appropriate evidence of Compliance audits becomes critical in defending
compliance to regulations.

Quality Management:

Most organizations have internal operational, plant-level or departmental quality

initiatives to industry mandates like Six-sigma or ISO 9000 as compliance and quality are

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two sides of the same coin. Therefore, it is critical to ensure that compliance management
solution offers support for enterprise-wide quality initiatives.

Compliance Training:

Sometimes lack of knowledge and in complete procedure lead to fines and penalties to
the director and officers of the company. The compliance office has to work closely with
the legal team of the organization to facilitate employee training.

Compliance Task Management:

The company must create plan to manage and report status of all compliance related
activities from a centralized data base. Automated updates should provide for up-to-the-
date status reporting.

However, the compliance framework in summary form consists of the following

Process for Setting up of Compliance Framework

Applicability of the various Act, Rules,

Stage -1 Identification of Regulations, Policies and Procedures
Compliance covering Industry Specific Sector Specific,
Obligations Specific Activity, Specific Entity, Specific State
Law, Local Laws.

Setting-up role and responsibilities of senior

Stage - 2 Preparation of Management, Legal Department, and
Compliance Chart Compliance Executor

Assessment of Assessment of File/ Report/Return

Stage - 3 Historical Compliance Statements/ Internal Auditor / Independent
Status agency/ Regulator

Assessment of Identification of possible situations of non-

Stage - 4 Compliance Risk compliance and development of strategy for

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Risk Mitigation/Risk Monitoring/Risk

Reporting.

Compliance/ Action Report of Internal Auditor/ Independent

Stage - 5 Reporting agency/Regulator with the possible
consequence such as disqualification
/suspension/ lock out/ license cancellation

Process of Corporate Compliance Framework

Various steps are involved in the process of Corporate Compliance Framework which are
as follows:

Compliance Compliance
Identification Awareness

Compliance Compliance
Ownership Reporting

• Step 1:

Compliance Identification: The legal team has to identify the legislations applicable
to the company and identify the compliances that are required under each legislation
or rules and regulations made there under.

• Step 2:

Compliance Ownership: Definition: Compliance owner is the person who is

responsible for the compliances. Compliance Ownership of the various compliances
identified has to be described function wise and individual wise. Clear description of
primary and secondary ownership is also very important. While the primary owner is
mainly responsible for the compliance the secondary owner (usually the supervisor of
the primary owner) has to supervise the compliance.

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• Step 3:

Compliance Awareness: Sometimes the compliances are handled by persons who are
not fully aware of the laws therefore, creating appropriate awareness amongst the
owners is very important. This could be done in the form of meetings/ trainings
explaining various compliances or some manual containing the details of compliances.

• Step 4:

Compliance Reporting: In the process of the Compliance Reporting status of

compliances or non-compliances should be communicated to the concerned. This is
done annually by the compliance officer so that necessary action is taken.

Such compliance should be reported periodically in MIS (Management information

system).

Identification and
evaluation of compliance
obligations

Managing the non-

compliance and Mitigating the
working on continuous compliance risks
improvements

Evaluating the
performance and
reporting the needs

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How Compliance Management Works in Legal Department

• It monitors compliances across all entities, locations & various departments.
• It tracks the expiry dates of all executed contracts which needs to be renewed.
• Easy management of Litigation dates, documents and orders.
• Complying with documents policies and processes.

IDENTIFICATION OF APPLICABLE LAWS AND REGULATIONS

For preparation of compliance framework by a company secretary and to identify the
compliances & other requirements, it is necessary for him to get familiar with the business
model of the company.

The compliance chart covering above applicable laws must be kept up to date.

CASE STUDIES
In Re Siddarth Gupta (Appellant) v. The Delhi Golf Club Limited & Anr (Respondent)
[DEL] I.A. No. 19355/2015 in C.S (OS) No. 2805/2015, in this matter the Appellant
had acquired membership in the Delhi Golf Club Ltd after paying the requisite fees
and was enjoying the rights and privileges guaranteed to the members of the Club.
Meanwhile, the Appellant got to know that a resolution had been passed in the AGM
of the Club wherein the Appellant’s membership was cancelled. Consequently, the
Appellant filed a Petition against the said resolution in the Delhi High Court. The
honourable court observed that the membership of a person can be cancelled only
after following the related provisions of the Memorandum of Association and
Articles of Association of the Club and also the Principles of Natural justice. In this
scenario neither any notice was given to the appellant nor any opportunity of being heard
was provided to Appellant.

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Further, the provisions related to expulsion of members as mentioned in the

Memorandum of Association and Articles of Association were not followed. Therefore,
the resolution could not be sustained. The Court directed the club to reverse the
Resolutions and refrained from cancelling the membership of the appellant.

The sources for the identification of compliance obligations include:

• Engagement with management and other key staff in Divisions.

• Laws and regulations. = Permits, licences or other forms of Authorisation.

• Orders, rules or guidance issues by regulatory agencies.

• Judgements of courts or administrative tribunals.

• Treaties, conventions and protocols.

• Internal policies and procedures.

• Voluntary principals or codes of practice.

• Commentary sourced from the public domain.

• Membership of professional groups.

• Subscriptions to relevant information services.

• Attending industry forums and seminars.

• Monitoring regulators (websites, mailing lists, meetings, media).

Depending on the nature of the business of the organisation, it is required to comply with
following laws and regulations:

• Labour Laws;

• Fiscal/ Tax Laws;

• Pollution/Environment related Laws;

• Securities Laws;

• Commercial Laws including Intellectual Property Rights Laws;

• Industry Specified Laws;

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• Corporate and Economic Laws;

• Cyber Laws which is also known as ‘The Information Technology Laws’;

• All other laws affecting the company concerned depending upon the type of
industry/activity.

CASE STUDIES
Non-Compliance of mandatory standards prescribed as per the Domestic
Pressure Cooker (Quality Control) Order, 2020

CCPA fines Cloudtail with Rs 1 Lakh for not complying with BIS standards.

The Central Consumer Protection Authority (CCPA) has imposed a fine of Rs 1

Lakh on Cloudtail India for violating the Quality Control Orders and consumer
rights.

The company has also been asked for the price reimbursement of 1,033 pressure
cookers to the consumers and is directed to submit the compliance report within
45 days.

Cloudtail, a retail company selling pressure cookers on an e-commerce platform,

was issued an order for unfair trade practice by selling domestic pressure cookers
in violation of mandatory standards prescribed as per the Domestic Pressure
Cooker (Quality Control) Order, 2020.

The company was also directed to pay a penalty of Rs 100,000 for selling domestic
pressure cookers to consumers in violation of mandatory standards prescribed
under the QCO and violating the rights of consumers.

COMPLIANCE RISK ASSESSMENT: BASIS FOR COMPLIANCE

MANAGEMENT
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Risk assessments includes

Identification areas of potential non

Compliances

Rating the risks

Assessing the outcomes to find the need for

training, monitoring, internal controls, detailed
reviews and corrective steps

An organisation assesses risks for identification of different types of organisation risks.

While identifying inherent risks it need to consider the following risks drivers which can
be categorized in the following:

Legal Effect: Non compliances by the organisation can leads to various penalties, fines,
imprisonment, debarment, and seizing the products etc. against the organisation and its
officers.

Financial Effect: Low share prices of the securities of the organisation, financial losses
and low revenues and lowering the trust of the investors are some of its negative effects.

Business Effect: Shutdown of the factories can affect the business operations of the
organisation.

Reputational Effect: Loss in customers’ confidence in the brand of the organisation, bad
media or social discussion can tarnish the reputation of the organisation.

There are two types of risk assessments that can be performed by the company, i.e.,

• High Level Risk Assessment

• Detailed Risk Assessments

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In the High Level Risk Assessment, the risk identification procedures and its assessment
and the detailed risk assessment results are required as inputs for high level risk
assessment which are facilitated by representatives of Risk Management team. The
current and anticipated critical and high compliance risks must be included in the high
level risk assessment process. The outcome of the risk assessment is the high level risk
assessment report.

Reports from the detailed and high level risk assessments must include key compliance
risks, with existing and approved risk mitigation activities. Assessment Reports must be
discussed and signed off in accordance with the risk management procedure of the
company. Risk assessment techniques can be a combination of desk assessments,
interviews and/or workshops; however they should be aligned with risk management
standards of the company.

COMPLIANCE MONITORING AND RESPONSIBILITY CENTRE

MAPPING /ALLOCATION
Compliance monitoring, as the most effective tool of compliance framework, concisely
means the “oversight” of the company’s operations and activities, both in light of local
and binding cross-border regulations and the company’s local and global policies,
procedures, and ethical rules.

Aspects:

1. the effectiveness of risk assessment and monitoring should be reviewed periodically

to ensure compliance framework remain relevant in changing business conditions.

2. The ownership of the various compliances has to be described function wise and
individual wise. Clear description of primary and secondary ownership is also very
important. While the primary owner is mainly responsible for the compliance,
secondary owner (usually the supervisor of the primary owner) has to supervise the
compliance.
Ex: Secretarial Officer /Asst. Company Secretary may be primarily responsible and
Group Company Secretary’s responsibility is secondary. The role of the various level
of management for compliance ownership is illustrated as under:

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COMPLIANCE REPORTING
Compliance reporting allows Management and the Compliance function to assess
whether Compliance Risks exceed the risk appetite of Company.

there can be two primary types of reporting: Cyclical Reporting and Incident Reporting.

CYCLICAL REPORTING INCIDENT REPORTING

• At least quarterly basis, the • The material compliance incidents
Compliance officer works with are reported, which need to be
management and other risk handled through the risk
functions to provide non-financial management process.
risk reporting

EFFECTIVE COMPLIANCE REPORTING REQUIREMENTS

 Language must be cleared = Language to be concise

 Must contain an executive summary

 Listing actions to be taken

 Timelines for improving non compliance

 Necessary actions to be taken by the management of the organization.

CASE STUDY

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ABC Limited, A BSE limited company has made following cyclical reporting
arrangements for compliance activities which includes:

Audit & Risk Management Committee: Quarterly reports on the performance of the
compliance programme will be submitted to the Audit and Risk Management
Committee. These reports will include a high-level summary of activities by all functions
undertaking significant compliance related activities.

Separate reports will also be submitted to the Audit and Risk Committee for major
noncompliance incidents or emerging compliance issues.

Annual Certifications: At the end of each financial year Responsible Officers will be
required to provide an assurance that to the best of their knowledge, the ABC Limited
has complied with the obligations relevant to their area of responsibility.

Assurance Maps: To facilitate quarterly and annual reporting requirements an

assurance mapping approach that is consistent with the model.

Regulatory Reporting: The regulatory reporting arrangements for compliance

activities shall be accounted. The reporting of significant compliance issues which are
required by law must be undertaken in accordance with the procedures.

CREATION OF COMPLIANCE REPORTING SYSTEM

Reporting by the functional heads for which they have the compliance ownership. For
instance, the Chief Financial Officer (CFO) will report on the various finance, accounting and
taxation laws, the head of the personnel department could report the compliance of labour
and industrial laws.

Each of the functional heads may collect and classify the relevant information from the
various units/ locations pertaining to their department and consolidate them in the form of a
report.

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The report shall carry an affirmation from the functional heads that the said report has been
prepared based on the inputs received from the various units/offices and then list out the
specific compliances/ non-compliances, as already circulated to the functional heads.

Each of the functional heads will forward their respective compliance reports to the company
secretary/ managing director.

The company secretary would then brief the managing director. Upon receipt of suitable
inputs from the company secretary, the Managing Director would consolidate and present,
under his signature, a comprehensive compliance report to the Board for its information,
advice and noting.

The whole process of compliance reporting is contingent on the creation and implementation
of comprehensive legal Management Information System (MIS).

COMPLIANCE RISK - REVIEW AND UPDATION

Compliance risk monitoring is to test if risk mitigation activities are working properly and
to identify new or changed risks.

The purpose of the review is to determine:

if the plan should be

if the plan is still if the plan is up to
combined with
necessary and date with current laws
another plan or if it
accurate and regulations
should be rescinded

if changes are
required to improve
the effectiveness or
clarity of the plan

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Contents of compliance risk monitoring plan :

• Critical and high Compliance Risks, focusing on inherent and managed risk levels;
• Key Compliance Risk mitigation activities;
• Routine business transactions to which compliance obligations or risks are associated;
• The implementation/embedding of the Framework and all policies issued by the
corporate compliance department;
• Compliance with the laws, regulations and standards included in the chart, including
the company values; and
• The obligations that have been delegated to the compliance function (e.g. complaints
handling, privacy related obligations).

The plan for monitoring must include:

✓ Concise statements that capture the relevant internal and external compliance
obligations and the risks arising from those obligations;

✓ The business processes to which the compliance obligations are linked or on which
they have an impact

✓ Specific Compliance Risk mitigation activities for managing the compliance

obligations;

✓ The first line tracking (ongoing tracking as part of the normal course of business
activities), second line monitoring (health check performed by the Compliance
Function) and third line assurance (independent review performed by internal audit)
for efficiency and / or effectiveness of first- and second-line activities);

✓ Brief description of how tracking and monitoring activities are performed;

✓ Frequency of tracking and monitoring activities;

✓ Recipient(s) of the tracking and monitoring reports.

The following methodology may be adopted for accessing the compliance mechanism of
the company:

Risk/Cultural Assessment: Through employee surveys, interviews, and document reviews,

a company’s culture of ethics and compliance at all levels of the organization is validated.

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The basis of this assessment is to identify gaps between company’s current practices and
the regulatory requirements.

Program Design/Update: In this approach the review of the guideline documents that
outline the reporting structure, communications methods, and other key components of
the code of ethics and compliance program is accessed. This encompasses review of all
aspects of the compliance program, from grass root policies to structuring board
committees that oversee the program.

Policies and Procedures: In this approach of compliance assessment, the company

should review, develop or enhance the detailed policies of the program, including issues
of financial reporting, anti-trust, conflicts of interest, gifts and entertainment, records
accuracy and retention, employment, the environment, global business, fraud, political
activities, securities, and sexual harassment etc.

Communication, Training, and Implementation: In this stage of compliance

assessment, the Company focuses on the articulation, communication and reinforcement
of the various policies and procedure of the company along with the philosophy behind
such policies. Further training program on such policies help in the adoption of such
policies in day-to-day realities and helps inculcation the same incorporate it into the
attitudes and behaviors of the employees of the company.

Ongoing self-Assessment, Monitoring, and Reporting: The true test of a company’s

ethics and compliance program comes over time. How does one know in one year or five
years that both the intent and letter of the law are still being observed throughout
organization? The cultural assessment and processes put in place including employee
surveys, internal controls, and monitoring and auditing programs, help organisations
achieve sustained success.

TRAINING AND IMPLEMENTATION

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A strong Compliance training and education programme reinforces the company

compliance culture. It builds awareness and understanding of compliance standards,
procedures, guidelines and issues. Specifically, it should build awareness and
understanding of:

 Company Framework, including the four conduct-related integrity risk areas;

 Roles and responsibilities outlined in the policies and framework;

 Critical and high compliance obligations identified in the Compliance Chart;

 The process for addressing compliance issues and reporting concerns; and

 Consequences of failing to meet compliance obligations.

FIVE ESSENTIAL THINGS TO CREATE COMPLIANCE TRAINING PROGRAM:

Make it personal

Make it interesting

Make it understandable

Make it accesible

Make it ongoing

Plans for Compliance Training and Education Program may include:

 Concise statements that capture the relevant internal and external compliance
obligations and the risks arising from those obligations;

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 The business processes to which the compliance obligations are linked or on which
they have an impact;

 Brief description of the training or education activity;

 Target audience (refresher for existing Employees, induction for new Employees, or
Adhoc when required);

 Frequency of training or education activity.

COMPLIANCE AUDIT
As per CAG Auditing Standards, the Compliance audit is the independent assessment of
whether a given subject matter is in compliance with applicable authorities identified as
criteria. Compliance audits are carried out by assessing whether activities, financial
transactions and information comply in all material respects, with the authorities who
govern the audited entity. Compliance auditing may be concerned with:

• Regulatory - adherence of the subject matter to the formal criteria emanating from
relevant laws, regulations and agreements applicable to the entity.

• Propriety - observance of the general principles governing sound financial

management and the ethical conduct of public officials.

BENEFITS OF CORPORATE COMPLIANCE MANAGEMENT

• Better compliance of the law;

• Real time status of legal/statutory compliances;

• Improved operations and higher productivity;

• Go to the extra mile and lays the foundation for the control environment; Compliance
Framework.
• Real time status on the progress of pending litigation before the judicial/quasi-judicial
authority;

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• Likely to avoid stiff personal penalties, both monetary and imprisonment;

• Companies that embed positive ethics and effective compliance management

program deep within their culture often enjoy healthy returns through employees and
customers loyalty and public respect for their brand, both of which can translate into
stronger market capitalization and shareholder returns

• Safety valve against unintended non compliances/ prosecutions, etc.;

• Cost savings by avoiding penalties/fines and minimizing litigation;

• Better employee engagement and retained talent;

• Better brand image and positioning of the company in the market;

• Enhanced credibility/creditworthiness that only a law abiding company can command;

• Goodwill among the shareholders, investors, and stakeholders and regulators;

• Recognition as Good corporate citizen.

SECRETARIAL AUDIT + COMPLIANCE MANAGEMENT SYSTEM

Factors affecting applicability of CMS:

1. Nature of business(es).

2. Geographical domain of its area of operation(s).

3. Size of the company both in terms of operations as well as investments, technology,

multiplicity of business activities and manpower employed.

4. Jurisdictions in which it operates. E. Whether the company is a listed company or not.

5. Regulatory authority(ies) in respect of its business operations.

6. Nature of the company viz., private, public, government company, etc.

Based on the above the Secretarial Auditor can constitute a broad idea about the desired
system and process to be adopted by a company.

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DIRECTORS RESPONSIBILITY STATEMENT

Section 134(5) of the Companies Act, 2013 casts responsibility on each and every director
to apply their judgment in preparation of annual accounts according to applicable
accounting standards and accounting policies, preparing accounting records on going
concern basis.

The Directors’ Responsibility Statement is required under Section 134(5) of the Act to state
as under:

• In preparing the annual accounts, the applicable accounting standards and proper
explanations relating to material departures were followed.

• The directors had selected such accounting policies and applied them consistently and
made judgments and estimates that were reasonable and prudent 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.

• The directors had taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the Act’s provisions for safeguarding the
Company’s assets and for preventing and detecting fraud and other irregularities.

• The directors had prepared the annual accounts on a going concern basis.

• In the case of a listed company, the directors had laid down internal financial controls
to be followed by the Company and that such internal financial controls are adequate
and operating effectively.

• The directors had devised a proper system to ensure compliance with all applicable
laws and that such systems are adequate and operating effectively.

CASE LAW

Director carrying competing business breaches fiduciary duty, imposes restriction,

interprets Section 166 of the Companies Act, 2013 In the matter of Rajeev Saumitra Vs
Neetu Singh (I.A. NO. 17545 OF 2015. CS (OS) NO. 2528 OF 2015 JANUARY 27, 2016,

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the honourable Court held that director has breached fiduciary duty u/s 166 of
Companies Act, 2013 by initiating competing business as the director was involved in
the situation in which there was a direct interest that conflicted with company’s interest,
in order to gain advantage by director and its relatives. In case a Director violates the
duties prescribed in Section 166, the cause of action accrues in favour of Company.

CERTAIN IMPORTANT COMPLIANCE REQUIREMENTS UNDER

COMPANIES ACT, 2013

1. Disclosures by a Director of his interest: Form MBP-1.

2. Disqualification of Directors: Form DIR-8
No person who is or has been a director of a company which:
a) has not filed financial statements/ annual returns for any continuous period of
three financial years; or
b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem
any debentures on the due date or pay interest due thereon or pay any dividend
declared and such failure to pay or redeem continues for one year or more,

shall be eligible to be re-appointed as a director of that company or appointed in

other company for a period of five years from the date on which the said company
fails to do so.

3. Annual Return: Form MGT-7.

4. Filing Financial Statements: Form AOC-4 & AOC-4 CFS.

If annual general meeting is not held for any year, the financial statements along with
the documents required to be attached under section 137(1) duly signed along with
the statement of facts and reasons for not holding the annual general meeting shall
be with the Registrar within 30 days of the last date before which the annual general
meeting should have been held in such manner, with such fees or additional fees as
may be prescribed.

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5. Certification of Return: Form MGT -8.

The annual return filed by a listed company or a company having paid up share capital
of Rs. 10 Crores or more or turnover of Rs. 50 crores or more shall be certified by a
Company Secretary in Practice.

6. Circulation of Financial Statement & other relevant Documents.

7. Notice of AGM.

8. Board Meetings.

9. Notice of Board Meeting

10. Appointment of Auditor: Form ADT-1

Auditor shall be appointed for 5 years in the AGM. Company shall inform the auditor
concerned of its appointment and also file a notice of such appointment with the
Registrar within 15 days of the meeting in which the auditor is appointed in E-form
ADT-1.
In case of Specified IFSC Private Company- notice of auditor’s appointment shall be
filed with the Registrar within 30 days of the meeting in which the auditor is appointed.

[Vide Notification No. G.S.R. 9 (E) Dated 4th January, 2017].

11. Appointment of Company Secretary

Private Company having paid up share capital of Rs. 10 crores or more is required to
appoint a whole time Company Secretary (Vide notification dated January 03, 2019)
12. Register of members
Company shall keep & maintain the following mandatory Registers viz:
• Register of Members residing in or outside India,

• Register of debenture-holders, and

• Register of any other security holders

Illustration:
What if the company secretary is not appointed in ABC Pvt. Ltd., where required under
Companies Act, 2013?

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Solution:
Such company shall be liable to a penalty of five lakh rupees and every director and key
managerial personnel of the company who is in default shall be liable to a penalty of
fifty thousand rupees and where the default is a continuing one, with a further penalty
of one thousand rupees for each day after the first during which such default continues
but not exceeding five lakh rupees.

CASE LAW

In this matter of Economy Hotels India Services (Appellant) Private Limited Vs. Registrar
of Companies & Anr.(Respondent) (NCLAT) Company Appeal (AT) No. 97 of 2020, the
Appellant Company had filed a petition under Section 66 of the Companies Act praying
for confirming the reduction of share capital against the NCLT order for rejection of
application for reduction of share capital because in the extract of the minutes
submitted to NCLT, the case is, it was written that the ‘unanimous ordinary resolution’
required for reduction has been obtained. The case is it was a mere typographical error
in the minutes characterising the ‘special resolution’ as ‘unanimous ordinary resolution’
and the Appellant had filed the special resolution with ROC and fulfilled all the statutory
requirements prescribed in the Companies Act, 2013.

The honourable NCLAT observed that ‘Reduction of Capital’ under Section 66 of the
Companies Act, 2013 is a ‘Domestic Affair’ of a particular Company in which, ordinarily,
a Tribunal will not interfere because of the reason that it is a ‘majority decision’ which
prevails. As the Appellant has admitted its typographical error in the extract of the
Minutes of the Meeting characterizing the ‘special resolution’ as ‘unanimous ordinary
resolution’ and also taking into consideration of the fact that the Appellant had filed
the special resolution with ROC, which satisfies the requirement of Section 66 of the
Companies Act, 2013. NCLAT allowed the Appeal, thereby confirming the reduction of
share capital of the Appellant Company.

The Registrar Of Companies, West Bengal (Appellant) V. Karan Kishore Samtani

(Respondent)(NCLAT) Company Appeal (AT) No. 13 of 2019, in this matter the
Respondent was the Director, for more than 20 Companies. Till 31.03.2015. On

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27.01.2016 the Registrar of Companies, West Bengal sent show cause notice on the
ground that he was the Director of more than 20.Companies at once. The Respondent
admitted the guilty and sent representation to the Registrar with a request to
compound the offence under Section.441(1) of the Companies Act, 2013. After hearing
the parties the NCLT Kolkata Bench (Tribunal) allowed the compounding application
subject to payment of compounding. Fees of Rs. 50,000/-.

Being aggrieved with this order ROC has filed this Appeal saying that the minimum fine
prescribed for the offence is more than 50,000,. Hence the compounding fees of 50,000
is not appropriate. The issue for consideration is, whether Tribunal can impose the
compounding fees, less than minimum fine prescribed for the offence under the Act.

Provision Involved: Section 165(6) of Companies Act, 2013 states - If a person

accepts an appointment as a director in contravention of sub-section (1), he shall
be punishable with fine which shall not be less than five thousand rupees but
which may extend to twenty-five thousand rupees for every day after the first
during which the contravention continues.

The NCLAT held that the NCLT, Kolkata Bench has failed to notice the minimum fine
prescribed under Section 165 of the Companies Act, 2013 which was applicable at
relevant time. Accordingly, NCLAT imposed minimum fine at the rate of 5000 rupees
for every day for the period 01.04.2015 to 21.02.2016 i.e. 272 days, which came to Rs.
13,60,000. Further, the court held that the compounding fees has to be more than or
equal to the minimum fine prescribed under the Act.

COMPLIANCE MANAGEMENT TOOL

Compliance Management tools are software products that automate or facilitate

processes and procedures that businesses must have in place to be compliant with
industry, legal, security and regulatory requirements. Compliance Management tool is
a software which facilitates your compliance management by bundling all important
workflows on a digital platform.

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Illustration:
NSE has introduced NEAPS (NSE Electronic Application Processing System) which is a
web-based application facilitates online filing of SEBI Disclosures, Clarifications and
Compliance Filings, Corporate Governance Report, the Shareholding Pattern by
companies, Results and other disclosures.

The objectives of Compliance Management Tool with respect to digitization, automation

and compliances are:

• Robust compliance tool replaces spreadsheets and manual

Digitization processes.

• Enhances visibility & accountability.

• Reduces the information & knowledge gap

• Provides automated legal updates

Automation • Helps in automated compliance tracker with reminders and
escalations.
• Showcase automated workflows, dashboards & reports.

• Monitor the activities of the organisation

Compliances
• Ensures compliance with all applicable laws

• Helps to avoid penalties, prosecutions & litigation

• Helps in Audit Management

• Helps implement better processes and controls enabled by

technology.
• Helps in Audit Documentation

KINDS OF COMPLIANCE MANAGEMENT TOOL

I. All-Purpose Compliance Management
Platforms These compliance Management Platforms can be used in any kind of the
organisation but with low level of organisation focused at providing:

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• Risk remedy
• Solving Technical issues
• Corporate Governance.

II. Industry-Specific Compliance Management Tools

These tools focus on the compliance of laws and regulations applicable to specific
industry like health care industry, manufacturing, financial, etc. It is structured in
specialised frameworks that complies with particular regulations and laws.

III. GRC Software

This software is a general compliance tool which focuses on the following: =
Managing the risks
• Monitoring the compliance risks
• Handling corporate governance tasks
• Streamline the compliance workflows and initiatives.

BENEFITS OF COMPLAINCE MANAGEMETN TOOLS

• Reduction in Manual Work: Compliance management tools helps in the growth of
the business and highlights where the improvements are required. It helps in easy task
management and documenting the corrective steps.

• Streamlining implementation: With streamlining the implementation of various

relevant frameworks, it reduces the compliance efforts. It facilitates the compliance
audits and corrective steps.

• Simplification in Monitoring and reporting: It helps the responsible persons to ask

their subordinates to update the metrics in compliance with regulations and laws.

• Risk in human errors reduced: It generates the human error reports quickly with
detection of compliance failures.

• Builds Organisation Reputation: A Compliant company can maintain its

organisational reputation with its customer base and with its employees.

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• Creates a Roadmap for Business: It tells everything Essentially, this “compliance

calendar” helps you prioritize what needs to be fixed/resolved and when. This way, it
can effectively map out your compliance activities to best drive compliance in the
organization.

CASE STUDIES
Project Eagle: Infosys Regulatory Compliance Program

Infosys compliance program, known as Project Eagle, is intended to track, detect,

prevent and remediate any violations of applicable laws and regulations and to
encourage a culture of compliance to protect our organizations value and guides
our interactions with governments, regulators, shareholders, employees. Infosys
regularly assesses and enhances the compliance mechanisms to meet its
evolving compliance needs and obligations, in collaboration with Functional
Heads and external consultants. Project Eagle covers the applicable regulations
emanating from, for example, Global Immigration, Health, Safety, HR &
Employment Law, Tax, Anti Bribery, Export Control, Information Security,
Intellectual Property etc.

Project Eagle is supported by the implementation of software tool-based systems

(“Compliance Manager Tool”) to effectively track and monitor such applicable
compliances under various regulations and enable compliance with the same.
Infosys use the Compliance Manager Tool to implement an enterprise-wide
regulatory compliance management to oversee and track regulatory compliance
for applicable regulations globally. The company also have a contractual
arrangement with external consultant to add more countries in the tool as and
when required.

Any changes in applicable regulations are also being updated on the tool on a
regular basis, in collaboration with external consultant. An inter-functional team
of designated users and checkers oversee implementation and its functioning.

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Further, respective Functional Heads also supervise and certify continued adherence of
applicable regulations as well as any risk of non-compliance with mitigation plan to the
Board on a quarterly basis. Infosys culture of compliance and the compliance tracking
tools are reviewed by Audit Committee of the Board and Management at regular
intervals. It further undergoes independent assessment internally and with the help of
external auditors.

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Documentation & Maintenance of Records

INTRODUCTION-
Document means:
Lesson 2
A document is a part and parcel of written, printed, or electronic matter that provides
certain information. The information may be in a structured or unstructured format.

Record means:

A record is a matter of evidence about the past. Not every record is a document. For
instance, a taped conversation between two persons may be used as a record to conclude
that they were framing a conspiracy. Some examples of records may include final reports,
emails confirming actions or decisions, photographs, spreadsheets, business contracts,
etc.

1- The primary responsibility of a Company Secretary is to prepare and maintain the

secretarial and other records, which are required to be kept by the company.

2- At the next level of the documentation, it is the duty of the CS to ensure the
confidentiality of the documents and check whether or not the document requires
any further action,

3- To check whether it is consistent with prior records (in both substance and form),
or if it conflicts with corporate policies.

CASE LAW

Consequences of non-maintenance of record (updated Register of Members)

In the matter of M/s. SDU Holdings Private Limited, the Registrar of Companies,
Bangalore, has passed an adjudication order by imposing of penalty, for violation of

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provisions of section 88 of the Companies Act, 2013. As per the provisions of the
Companies Act, 2013, every company limited by shares shall from the date of its
registration, maintain a register of its members in form no. MGT-1.

During the course of enquiry pursuant to section 206 of the Companies Act 2013, the
inspection officer persuaded the statutory registers maintained by the company and
noticed that the register Form No. MGT-1 maintained by the company is incomplete.
Taking on account of default, the adjudication officer gave reasonable opportunity to
being heard to the company and every officer in default by way of giving personal
hearing notice.

Consequently, the Adjudicating Officer, after having considered the facts and
circumstances of the case and also the submissions made by the company and its
director during the personal hearing, decided to impose the penalty on the company
and its directors for non-compliance of section 88 of the Companies Act, 2013.

1- The Company Secretary is also responsible for storing, maintaining, retrieving,

certifying, and explaining corporate documents.
2- A Company Secretary is often responsible for documents relating to subsidiaries,
joint ventures, consortiums, and other entities also

CASE LAW

In the matter of Welspun Project Ltd. V. National Company Law Tribunal, Ahmedabad
Bench (T.P. NO. 149/621A/ NCLT/AHM/2016), it was observed that the Register of
directors’ shareholding of the petitioner company did not disclose the complete
particulars as required under section 307 of the Companies Act, 1956 (now section 170
of the Companies Act, 2013). ROC’s report observed that this violation was committed
for about 8 years. Petitioners admitted such violation and filed petition under section
621A (now section 441) for compounding violation. The offence committed was
compounded on payment of fine.

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PURPOSE OF DOCUMENTATION
Client Service: Documentation is a tool for professionals to serve better to their clients
in a timely and effective manner.

Communication: Clear, complete, accurate and factual documentation provides a reliable

permanent record of client.

Accountability: Documentation demonstrates professional accountability and

records the work of the professional.

Professional Responsibility: Documentation is an integral part of professional practice

and forms the basis for evidence of professional conduct.

Legal Requirement: Professionals are required to make and keep records of their
professional work in accordance with practice standards.

Quality: Documentation may be used to evaluate professional practice in terms of Peer

reviews, Quality reviews, audits and accreditation processes, Regulatory inspections or
critical incident reviews.

Research: Documentation is a valuable source of data for researchers. It provides

information to professional, evaluates client outcomes and is a concise record, essential
for accurate research data and evidence based practice.

Resource Management: Accurate and comprehensive documentation is a valuable

source of evidence and provide basis for resource management.

Guiding Principles of Good Documentation

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What is Good Documentation Practice?

Good documentation practices is a set of best practices for documentation and

recordkeeping. It aims to preserve the data integrity of important documents and records
and can also serve as guidelines for how to record information and store data
appropriately.

Examples of Poor Documentation Practices (include the chart below)

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Examples of Poor Documentation Practices

Compliance Management -Maruti Suzuki Limited

To ensure compliance with increasing regulatory requirements and enforcement, the

Company has established systems and controls to continually ensure zero non-
compliance with the law. A compliance certificate is submitted to the Board on a quarterly
basis. During the reporting period, over 3,500 applicable compliances were monitored
through an electronic system and 78 compliance health checks were done covering all
facilities. The tracking mechanism was enhanced to manage compliances more efficiently
and productively. There was no significant non-compliance with applicable laws and
regulations during the year. The Company observes an annual ‘Compliance Month’
reinforcing its commitment to doing business

CASE LAW

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In the matter of M/s Indiabulls Real Estate Limited, the Registrar of Companies, NCT of
Delhi & Haryana, has passed an Adjudication order for non-compliance of the
provisions of sub-section (10) of section 118 (mandatory observance of Secretarial
Standards with respect of general and board meetings) of the Companies Act 2013 read
with Secretarial Standards – 1 & 2.

As per section 206(5) of the Companies Act 2013, the Central Government carried out
the inspection of the books of accounts of the company and after going through the
records / documents of the company, the inspector, upon completion of the inspection
observed that the company has not complied with the provisions of section 118 (10)
read with Secretarial Standards. The inspector while submitting the report pointed out
that the company has not serially numbered their “Attendance Register” of board
meetings and other meetings and also the “Attendance Register” maintained in loose-
leaf form, not bound periodically, which is not in compliance with section 118 of the
Companies Act 2013 read with Secretarial Standards issued by the Institute of Company
Secretaries of India.

The Registrar of Companies, based on the report submitted by the inspector, issued a
show cause notice to the company. The company in a reply to show cause notice stated
that the company and its directors / officers accept that there has been an inadvertent
mistakes and these have been rectified subsequent to the issue of the show cause
notice. The company stated that there was no deliberate intention and no mens-rea
with read to the offences and therefore the company, its directors / officers deserve to
be excused.

The Registrar of Companies / Adjudicating Officer came to the conclusion after going
through the application and also based on the oral and written submission made by
the company at the time of the personal hearing and imposed penalty on the company
and its officers.

Good Documentation Do’s and Don’ts

Do’s Don’t’s

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Do record the data/document as soon as Don’t delay in data/document recording

it is generated

Do add the reference notes (if possible) to Don’t make the data confusing, vague and
provide the context unreadable

Do validate your computerised system or Don’t encourage handwritten

document software. documentation

Do limit document access to authorised Don’t intentionally falsify the

personnel record/document

Do specify when the data/document was Don’t pre-date or back-date the

recorded, reviewed and approved data/document

Do keep data back-up, either Don’t archive data/documents unless

automatically or by storing the true copy explicitly authorised to do so
in separate location.

ELECTRONIC REPOSITORY OF DOCUMENTS

Document management refer the process of managing and tracking of the documents
and records through an electronic or physical source of documents.

In an electronic repository, Document Management Systems (DMS) works by using a

computer system and software to store, manage and track electronic documents and
electronic images of paper-based information captured through the use of a scanner.

Advantages of the Electronic Records

• Cost Effective: digital storage costs a 1000th of what it cost just a few decades
ago, so the storage costs are continually dropping for electronic images.

• Ease of use: It’s very easy to locate and share electronic documents through
Computers aid searching now a days the process of filing doesn’t exist anymore.

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• Labor savings: The labor required to locate, manage and dispose of electronic
documents is almost nil and minimum.

• Search ability: Electronic documents can be made searchable by doing OCR of a

document and make the whole text keyword searchable. That is not possible with
paper documents.

• Portability: It’s very easy to transport electronic documents. No more boxes of

records and trucks and semi-trucks to haul records archives.

• Version tracking: In case of the version tracking it is very easy with electronic
documents, making it easy to see who has made changes to a document, when
they made those and what the document looked like before the change.

CASE LAW

A Case Regarding Admissibility of Electronic Evidence

In the matter of Arjun Panditrao Khotkar vs. Kailash Kushanrao Gorantayal and Ors. civil
appl no. 20825- 20826 of 2017, Civil Appeals were referred to a Bench of Judges of
Supreme Court by a Division Bench, dealing with the interpretation of Section 65B of
the Indian Evidence Act, 1872 by two judgments. It was found by the court that a
Division Bench judgment in Shafhi Mohammad v. State of Himachal Pradesh (2018) 2
SCC 801 may need reconsideration by a Supreme Court Bench of a larger strength. In
the case of Shafhi Mohammad (supra). it was observed by Supreme Court that it can be
safely held that electronic evidence is admissible and provisions under Sections 65-A
and 65-B of the Evidence Act are by way of a clarification and are procedural provisions.
If the electronic evidence is authentic and relevant the same can certainly be admitted
subject to the Court being satisfied about its authenticity and procedure for its
admissibility may depend on fact situation such as whether the person producing such
evidence is in a position to furnish certificate under Section 65-B(4).

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The Supreme Court observed that the major premise of Shafhi Mohammad (supra) that
the certificate under section 65-B(4) cannot be secured by persons who are not in
possession of an electronic device is incorrect. An application can always be made to a
Judge for production of such a certificate from the requisite person under Section
65B(4) in cases in which such person refuses to give it.

Disadvantage of Electronic records

• Software risk: we have a risk that the system being no longer supported by the
software company; that the company will cease to exist; and that the documents
will be locked in an unsupported system and have to pay conversion costs to
recover them.
• Format risk

• Reliability

• Portability

MAINTENANCE AND INSPECTION OF DOCUMENTS IN ELECTRONIC

FORM UNDER COMPANIES ACT,2013
Section 120 of the Companies Act, 2013 (the Act) read with Rule 27 & 28 of the Companies
(Management and Administration) Rule, 2014 provides for maintenance of documents in
electronic form.

Rule 27 provides that every listed company or a company having not less than one
thousand shareholders, debenture holders and other security holders, may maintain its
records in electronic form.

The records in electronic form shall be maintained in such manner as the Board of
directors of the company may think fit, provided that -

a) the records are maintained in the same formats and in accordance with all other
requirements provided in the Act or the rules made there under;

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b) the information as required under the provisions of the Act or the rules made there
under should be adequately recorded for future reference;

c) the records must be capable of being readable, retrievable and reproducible in printed
form;

d) the records are capable of being dated and signed digitally wherever it is required
under the provisions of the Act or the rules made there under;

e) the records, once dated and signed digitally, shall not be capable of being edited or
altered;

f) the records shall be capable of being updated, according to the provisions of the Act
or the rules made there under, and the date of updating shall be capable of being
recorded on every updating.

Security of Records Maintained in Electronic Form- Rule 28

(1) The Managing Director, Company Secretary or any other director or officer of the
company as the Board may decide shall be responsible for the maintenance and security
of electronic records.

(2) The person who is responsible for the maintenance and security of electronic
records shall-

a) provide adequate protection against unauthorized access, alteration or tampering

of records;

b) ensure against loss of the records as a result of damage to, or failure of the media
on which the records are maintained;

c) ensure that the signatory of electronic records does not repudiate the signed
record as not genuine;

d) ensure that computer systems, software and hardware are adequately secured and
validated to ensure their accuracy, reliability and consistent intended performance;

e) ensure that the computer systems can discern invalid and altered records;

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f) ensure that records are accurate, accessible, and capable of being reproduced for
reference later;

g) ensure that the records are at all times capable of being retrieved to a readable
and printable form;

h) ensure that records are kept in a non-rewriteable and non-erasable format like pdf.
version or some other version which cannot be altered or tampered;

i) ensure that at least one backup, taken at a periodicity of not exceeding one day,
are kept of the updated records kept in electronic form, every backup is
authenticated and dated and such backups shall be securely kept at such places as
may be decided by the Board;

j) limit the access to the records to the managing director, company secretary or any
other director or officer or persons performing work of the company as may be
authorized by the Board in this behalf;

k) ensure that any reproduction of non-electronic original records in electronic form

is complete, authentic, true and legible when retrieved;

l) arrange and index the records in a way that permits easy location, access and
retrieval of any particular record; and

m) take necessary steps to ensure security, integrity and confidentiality of records.

CASE LAW

In the matter of M/s. Michelin India Pvt Ltd, the Registrar of Companies, Tamil Nadu on
18th October, 2022, has passed an adjudication order by imposing of penalty for violation
of provisions of section 134(3)(f ) of the Companies Act, 2013. Pursuant to Section 134(3)(f)
of the Companies Act, 20l3, there shall be attached to statements laid before a company
in general meeting, a report by its Board of Directors, Which shall include explanations or
comments by the Board on every qualification, reservation or adverse remark or disclaimer
made by the auditor in auditors report or by company secretary in his secretarial audit
report.

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The Regional Director, Southern Region Chennai has observed that while examining, that
the statutory Auditor’s in their audit report have reported deficiencies in the internal
financial control and they were unable to obtain sufficient and appropriate audit evidence.
It is clearly evident from the said statement that the company did not have proper internal
financial control and also did not maintain appropriate records. Further, auditors report
also mentioned non-maintenance of back up of books of accounts maintained in
electronic mode in servers physically located in India. However, the Board of Director in
their Boards report have not offered any explanation for the observations of auditors.

The Regional Director, Ministry of Corporate Affairs, had issued directions to take action
against the company, every director and key managerial personnel of the company who
is in default and to penalize the defaulter(s) ibid adjudication order.

PHYSICAL REPOSITORY
The term Physical repository refers to a central place where data is stored and maintained.
A repository can be a place where multiple databases or files are located for distribution
over a network, or a repository can be a location that is directly accessible to the user
without having to travel across a network.

VIRTUAL AND PHYSICAL DATA ROOM - A COMPARISON

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CODING AND NOMENCLATURE

The Descriptive file names are useful for small, well-defined projects with existing
identification schemes that link the digital object to the source material. However,
inconsistent application of terms or typos will increase to indexing and sorting errors.

Non-descriptive file names are usually system-generated sequential numerical string or

the system based, such as a digital ID number, combination of Date and time, name of
original file and are often linked to meta data stored elsewhere. Non-descriptive file
names are often created for large scale digitization projects and may employ a digital ID
number and numerical sequences to indicate batch or parent-child relationships. The
advantage of non-descriptive names is that there is less chance of repeated or non-unique
file names within a data structure.

• The File names should:

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• Be unique and consistently structured;

• Be persistent and not tied to anything that changes over time or location;

• Limit the character length to no more than 25-35 characters;

• Use leading 0s to facilitate sorting in numerical order if following a numeric

scheme “001, 002, 010, 011 … 100, 101, etc.” instead of “1, 2, …10, 11 … 100,
101, etc.”;

• Contain a file format extension;

• Use a period followed by a file extension (for example, .tif, .jpg, .gif, .pdf, .wav,
.mpg);

• Use lowercase letters. However, when a name has more than one word, start
each word with an uppercase letter for example,
“File_Name_Convention_001.doc”;

• Use numbers and/or letters but not characters such as symbols or spaces that
could cause complications across operating platforms;

• Use hyphens or underscores instead of spaces;

• Use standard date notation (YYYY-MM-DD or YYYYMMDD);

• Avoid blank spaces anywhere within the character string; and

• Not use an overly complex or lengthy naming scheme that is susceptible to

human error during manual input, such as
“filenameconventionjoesfinalversioneditedfinal.doc”.

The ten basic rules that could serve as a general guideline in structuring folder and file
naming are:

Sr.no. Particulars Do’s Don’ts Reason

1 Avoid extra- D:\ABC\FY\16-17\ D:/Alfa Botanicals Complex hierarchical

long folder AR\MGT-7.doc Private\Financial folder structures
names and Year\2016-2017\ require extra browsing
complex at time of storage and

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hierarchical Annual Return\ at the time of file

structures but Form MGT-7.doc retrieval. By having all
use the essential
information- information concisely
rich filenames in the file name itself,
instead. both the search and
identification of the file
is streamlined and
more precise.
2 Put sufficient ABC_Search ABC Report_ Precision targeted
elements in the Report_ Invoice Invoice.pdf retrieval requires
structure for 20.07.2018. pdf sufficient elements to
easy retrieval avoid ambiguous
and search results but too
identification much information
but do not adds undue effort at
overdo it. file naming time with
little or no returns at
retrieval time.
3 Use the SMITH-J_ SMITH-J AXA The underscore (_) is a
underscore (_) AXA_7654-6_ 7654-6 POLICY quasi standard for field
as element POLICY_20120915. 20120915.pdf || delimiting and is the
delimiter. Do pdf || FUJITSU_ FUJITSU $S1500$ most visually
not use spaces S1500_SPEC_ SPEC$Scanner.pdf ergonomic character.
or other Scanner.pdf Some search tools do
characters not work with spaces
such as: ! # $ % and should be
&‘@^`~+ especially avoided for
,.;=)( internet files. Other
characters may be
interesting but visually
confusing and
awkward.

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4 Use the Smith-John_AIG Smith John AIG Spaces are poor visual
hyphen (-) to _7654-6_POLI- 7654 6 POLICY delimiters and some
delimit words CY_2009-09-15. 2009 09 15.pdf search tools do not
within an pdf || WhitePaper_ || White Paper work with spaces. The
element or Structured File Structured file hyphen (-) is a
capitalize the Naming Strategy. naming common word
first letter of Doc strategy.doc delimiter. Alternatively,
each word capitalizing the words
within an within an element is an
element. efficient method of
differentiating words
but is harder to read.
5 Elements FY2009_Acme- TrialBal _ In general the
should be Corp _Q3_ Q3_20091015_ elements should be
ordered from TrialBal_20091015_ Acme-Corp_V02_ ordered logically, in
general to V02.xls || FY2009.xls || the same sequence
specific detail Production_ Paint-Shop_775-2_ that you would
of importance Paint-Shop_ WorkOrder_ normally search for a
as much as WorkOrder_775-2. Production.xls targeted file.
possible. Xls
6 The order of RFQ375_Cables- RFQ375_Cables- To ensure that files are
importance Unlimited Unlimited _ sorted in proper
rule holds true _BID_20091015- BID_10152009- chronological order
when elements 1655.pdf || 2009- 1655. pdf || Nov- the most significant
include date 11-20_AMATProj_ 20-2009_ date and time
and time Phase1_Report.doc AMATProj_ components should
stamps. Dates Phase1_ appear first followed
should be Report.doc with the least
ordered: YEAR, significant
MONTH, DAY. components.
(e.g.
YYYYMMDD, Y
YYYMMDD

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,
YYYYMM).Time
should be
ordered:
HOUR,
MINUTES,
SECONDS
(HHMMSS).
7 Personal Tate-Peter_SunLife Peter-Tate_SunLife The family name is the
names within _1-7566-2_ _1-7566-2_POLI- standard reference for
an element POLICY_10YrTerm. CY_10 Year retrieving records.
should have pdf || SmithJ_ Term.pdf Having the family
family name ID3567_ADMIN_ || JSmith_ ID3567_ name first will ensure
first followed WageReview.xls ADMIN_Wage that files are sorted in
by first names Review.xls proper alphabetical
or initials order.
8 Abbreviate the RevQC _QST_2009- Minister of Abbreviating helps
content of Q2.xls || MCIM_ Revenue Quebec create concise file
elements 27643 _POD. doc _Quebec- Sales- names that are easier
whenever Tax_2009- to read and recognize.
possible. 2ndQuarter.
xls || MultiCIM-
Technologies-
Inc_27643_Proof-
Of-Delivery.pdf
9 An element for MCIM_Proposal_ MCIM_Proposal_9. The “V” helps denote
version V09.doc || eXadox_ doc || eXadox_ that the element
control UserManual_V1- UserManual_ pertains to a version
should start 02. doc V2FinalDraft.doc number. A minimum of
with V 2 digits with a leading
followed by at zero is required to
least ensure that search
2 digits and results are properly
should be sorted. The intent is to

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placed as the avoid the situation

last most where for example, a
element. To filename with a “V1-
distinguish 13” will wrongly
between appear before an
working drafts identical filename with
(i.e. minor a “V1-2” version
revisions) use number when sorted
Vx-01->Vx-99 in ascending
range and for alphabetical/numerical
final draft (i.e. order. To distinguish
major version between working,
release) use review and final draft a
V1-00-> V9-xx. single digit prefix
(where x =0-9) followed by hyphen “-”
is preferred to facilitate
proper sorting; using
words in the file name
such Final, Draft or
Review in the filename
affect the order and
should be avoided.
10 Prefix the Prod_PS_AssL7_ W WO_Suzuki_J3688- Attached files and files
names of the O _ Suzuki _ J3688- 20090725.xls || Q3_ shared through
pertinent sub- 20090725. TrialBal_20091015_ portable devices
folders to the xls || FY2009_ V02.xls include only the file
file name of Acme-Corp _Q3_ name and can be
files that are TrialBal_20091015_ totally devoid of the
being shared V02.xls context that is
via email or generally provided by
portable the folder structure of
storage origin. To compensate
devices. and avoid confusion it
is sometimes essential

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to prefix the name of

the subfolder(s) to
such file names.

SAFETY AND RETRIEVAL OF RECORDS

Records should be identifiable and retrievable and should consistent with applicable
regulatory requirements. The company should comply with requirements concerning
record retention, such as duration, location, and assigned responsibility.

The care of records and archives is governed by three key concepts.

1-Keeping together

The records must be kept together according to the department / Section responsible for
their creation or accumulation, in the original order established at the time of their
creation. This gives them their ‘evidential’ nature and distinguishes them from other kinds
of information.

2-Ensure life cycle

Every record pass through three main phases, i.e. current phase, semi-current phase and
non-current phase. In the current phase, they are used regularly in the conduct of current
business and maintained in their place of origin or in the file store of an associated records
office or registry.

In the semi-current phase, they are used infrequently in the conduct of current business
and are maintained in a records center.

In the non-current phase they are destroyed unless they have a continuing value which
merits their preservation as archives in an archival institution. The effective management
of records throughout this life-cycle is a key issue in civil service reform.

3-Record Preservation

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The care of records and archives is that the care should be managed through a coherent
and consistent range of actions from the development of record-keeping systems,
through the creation and preservation of records to their use as archives.

PRESERVATION OF RECORDS
The provisions of Regulation 9 and 30(8) of SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015 state the provisions of preservations of records as under:

Preservation of Documents :-

Regulation 9 of SEBI (LODR) provides that the listed entity shall have a policy for
preservation of documents, approved by its board of directors, classifying them in at least
two categories as follows-

(a) documents whose preservation shall be permanent in nature ;

(b) documents with preservation period of not less than eight years after completion of
the relevant transactions:

Regulation 30(8) provides that the listed entity shall disclose on its website all such events
or information which has been disclosed to stock exchange(s) under-regulation
30(Disclosure of events or information by listed entities), and such disclosures shall be
hosted on the website of the listed entity for a minimum period of five years and
thereafter as per the archival policy of the listed entity, as disclosed on its website.

Accordingly, the companies are required to prepare a policy statement relating to the
preservation of its documents and archival of documents in the website. The following
factors need to be considered in the preparation of the preservation and archival policy
of the company.

1-Analysis and Restructuring Existing Systems

• reviewing and revising legislation and policies

• reviewing and revising organizational policies and structures

• determining resource requirements, such as facilities and staffing

• developing strategic and business plans.

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2- Organizing and Controlling Records.

• building sound record-keeping systems

• managing the creation, maintenance, and use of files.

3-Providing Physical Protection for Records

▪ implementing and maintaining preservation measures

▪ developing emergency plans to protect records
▪ identifying and protecting vital records.

4-Managing Records in Records Centers

• developing and maintaining records center facilities

• transferring, storing and retrieving records according to disposal schedules
• disposing of records as indicated by the schedules.

5-Managing Archives

• acquiring and receiving archives

• arranging and describing archives according to archival principles
• providing public access to the archives.

6-Supporting and Sustaining the Program

• promoting records services to the government and the public

• promoting education for records and archives personnel
• developing and expanding the records and archives professions.

Preservation of Litigation Documents

Documents arising out of various litigation wherein a company is a party in any manner,
shall need to be preserved as per the directions/orders of the
court(s)/tribunal(s)/judicial/other authority(ies) as may be applicable, in absence of which
the documents shall be preserved for a period of not less than eight consecutive calendar
years after conclusion of the litigation.

Deviation from the Policy

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Any court(s)/tribunal(s)/judicial/other authority(ies) shall have the power to direct a

company to produce / preserve and/or destroy any document(s), however, if any
document(s) has/have been destroyed pursuant to the Policy followed as per the SEBI
Regulations, herein, it may not be possible for the company to produce such document(s),
therefore, necessary permission to that effect has to be taken by the company and/or a
statement to that effect shall be given by the company from/to the relevant authorities.
Any other action(s) shall need to be taken as may be advised by these authorities.

Model Policy

The model policy on preservation of Documents and archival of documents is as under:

POLICY ON PRESERVATION OF DOCUMENTS AND ARCHIVAL OF DOCUMENTS IN THE

WEBSITE

[Under Regulation 9 and 30(8) of SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015]

1) Purpose and Scope

The purpose of this document is to present a policy statement for (Company)
regarding preservation of its documents and archival of documents on the website
in accordance with the provisions of the Companies Act, 2013 and Regulation 9
and 30(8) of SEBI (Listing Obligations and Disclosure Requirements) Regulations,
2015 (“LODR”).

The policy is framed for the purpose of systematic identification, categorization,

maintenance, review, retention and destruction of documents received or created
in the course of business. The policy gives guidelines on how to identify documents
that need to be maintained, how long certain documents should be retained, how
and when those documents should be disposed of, if no longer needed and how
the documents should be accessed and retrieved when they are needed.

2) Classification of Documents to be Preserved / Retained

The Company’s physical and electronic documents shall be classified for the
purpose of preservation as follows:

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A- Documents whose preservation shall be permanent in nature;

B- Documents whose preservation period shall not be less than eight years
after completion of the relevant transactions;
C- Documents whose preservation shall be for a minimum period of three
years after completion of the event.
The details of documents for the above three categories are given in the Annexure.

3) Principle of Responsibility of Employees for Preservation of Documents

All the Employees in the permanent rolls of the Company are responsible for taking
into account the potential impacts on preservation of the documents in their work
area and their decision to retain/ preserve or destroy documents pertaining to their
area.

4) Periodical Review of the Policy

The Chief Executive Officer/ Managing Director/ Whole-time Director of the
Company is authorised to periodically review the policy and make such changes as
considered necessary.

5) Suspension of Record Disposal in the Event of Litigation or Claims

In case the Company is served with any notice for request of documents or any
employee becomes aware of a governmental investigation or audit concerning the
Company or commencement of any litigation against the Company, any further
disposal of documents connected with the matter shall be suspended until such
time the investigation / litigation ends.

6) Statutory Requirements
If as per any other law of land including Information Technology Act, a physical or
electronic record should be preserved for a longer period than what has been
stipulated in this policy, then the document shall be preserved as per the applicable
statutory stipulations.

7) Web Archival Policy

The Company shall disclose on its website all events or information which has been
disclosed to stock exchange(s). <<Not required>> We should be specific.

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Such disclosures shall be retained on the website of the Company for a minimum
period of five years.

Place:………
Date:………
ANNEXURE

A. Documents whose preservation shall be permanent in nature:

1. Property records including purchase and sale deeds, licences, copyrights, patents
& trademarks;
2. Corporate Records including Certificate of Incorporation, Common Seal, Minutes
of Board, Committee and Shareholders’ Meetings, Register of Members and other
Statutory Records;
3. Personal files of all live employees;
4. Any other record as may be decided by the Chief Executive Officer/ Managing
Director/ Whole-time Director of the Company from time to time.

B. Documents whose preservation period shall not be less than eight years after
completion of the relevant transactions:

1. Books of Account, Bank Statements and vouchers;

2. Filings with Stock Exchanges, Registrar of Companies and other statutory
authorities;
3. Payroll Records, Employee deduction authorisations, attendance records,
employee medical records, leave records, Pension and retiral related Records, etc.
4. Corporate Social Responsibility Records;
5. Sponsorship Projects Records;
6. Correspondence and Internal Memoranda;
7. Any other record as may be decided by the Chief Executive Officer of the Company
from time to time.

C. Documents whose preservation shall be for a minimum period of three years after
completion of the event:

1. Tender Documents;

2. Lease Deeds and Contracts

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3. Legal files;

4. Insurance Records including policies and claims;

5. All e-mail correspondence, internal & external <<Where it is coming from>>

6. Documents under Secretarial Standards:Proof of sending Notice of the meetings

of the Board / Committee and General meetings and its delivery. Proof of sending
Agenda and Notes on Agenda and their delivery.

Proof of sending and delivery of the draft of the Resolution.

Proof of sending draft Minutes of the Board / Committee and its delivery. Proof of
sending signed Minutes of the Board / Committee and its delivery.

7. Any other record as may be decided by the Chief Executive Officer/ Managing
Director/ Whole-time Director of the Company from time to time.

SETTING UP OF A RECORD ROOM

The best conditions for conservation of Physical Records are a neat environment, free of
dust, with controlled light, humidity and temperature. The following factors should be
considered while setting up the Data Room:

Humidity: It’s a very important factor. An excess of humidity creates fungus and produces
a proliferation of corrosive insects. The lack of humidity, on the other hand, produces
brittle and fragile sheets of paper. A controlled humidity between 30% and 40% is the
best standard for preservation. With the less possible variation, and the maximum of
stability, because variations of humidity provoke more damages than a stable low or
medium range.

Temperature: The lower is the temperature, the better is for preservation of Records.
However, it is suggested to maintain normal temperature in the record room, which is
required for comfortable standard for human beings in public places.

Light: Light has a considerable impact on document’s preservation. Not only the visible
light to the human eye, but the infrared or ultraviolet radiation, could cause damages. At
the environments exposed to the daylight, should be installed curtains with UV filters.

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Documents exposed to more luminance, should be stored in dark places until its public
exposition.

Fire extinguisher, particular paint to be used in the room, security checks etc. need to be
mentioned here.

PRIVACY OF RECORD AND ITS CONTROL

(i) Customer’s & Employees’ Information

Safe guarding of the personal data is information about an individual that can be used to
identify him/her. Information like Aadhar number, Mobile numbers, Residential addresses,
Name, credit card numbers, etc. can all be considered personal information.

In India, by the majority of the business, the strong mechanism for safe guarding the
personal information is not yet adopted. Even when the documents or data cease to be
useful to the organisation, this doesn’t mean that the information is no longer
confidential. In such cases the data needs to be disposed of securely and cannot be placed
freely on the public platform or mixed with other kinds of data in the office. In such cases
the business should work with a trusted information destruction agency to physically
destroy both electronic and physical data.

The Customer’s & Employees Confidential Information includes discussions about

employee relations issues, disciplinary actions, impending layoffs/reductions-in-force,
terminations, workplace investigations of employee misconduct, etc.

(ii) Office Plans, Office IDs and Internal Procedure Manuals

For every organisation internal planning & procedures is the key aspect for controlling
business and the organisation should ensure the protection of the same. It is important
to place the documents with detailed office layouts throughout offices to identify key exits
in case of emergency but the other documents and forms related to internal processes
and procedures should be kept electronically on secure network drives and encourage
employees to limit print-outs.

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(iii) Contracts and Commercial Documents and Trade Secretes

If a contract has a confidentiality agreement, it could be rendered obsolete if an

unauthorised person got their hands on the physical copy of the contract. The contracts
are full of commercially sensitive information such as the nature of the arrangement, the
value of the services offered/received in the agreement, the names of the main
contracting parties, etc.

The confidential business information as “proprietary information” or “trade secrets.”

Which is not generally known to the public and would not ordinarily be available to
competitors except via illegal or improper means.

SUGGESTIVE STEPS FOR PROTECTING CONFIDENTIAL INFORMATION

• All confidential documents should be stored in locked file cabinets or rooms

accessible only to those who are authorized.
• All electronic confidential information should be protected via firewalls, encryption
and passwords.
• Employees should clear their desks of any confidential information before going
home at the end of the day.
• Employees should refrain from leaving confidential information visible on their
computer monitors when they leave their work stations.
• All confidential information, whether contained on written documents or
electronically, should be marked as “confidential.”
• All confidential information should be disposed of properly (e.g., employees should
not print out a confidential document and then throw it away without shredding it
first.)
• Employees should refrain from discussing confidential information in public places.
• Employees should avoid using e-mail to transmit certain sensitive or controversial
information.
• Limit the acquisition of confidential client data (e.g., social security numbers, bank
accounts, or driver’s license numbers) unless it is integral to the business
transaction and restrict access on a “need-to- know’ basis.
• Before disposing of an old computer, use software programs to wipe out the data
contained on the computer or have the hard drive destroyed.

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Signing and Certification

VARIOUS CERTIFICATIONS BY COMPANY SECRETARY IN
PRACTICE
Lesson 2
CERTIFICATION BY PRACTICING
COMPANY SECRETARY

COMPANIES ACT 2013 SEBI REGULATIONS OTHER ACTS

PRE-CERTIFICATION UNDER SEBI REGULATIONS

Sr.no. Regulation Purpose
1 Regulation 40(9) (Listing The listed entity shall ensure that the
Obligations and Disclosure Share transfer agent and/or the in-house
Requirements) Regulations, 2015 share transfer facility, as the case may be,
produces a certificate from a practicing
company secretary within thirty days
from the end of the financial year,
certifying that all certificates have been
issued within thirty days of the date of
lodgement for transfer, sub-division,
consolidation, renewal, exchange or
endorsement of calls/ allotment monies.

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2 Regulation 24A (Listing Obligations Secretarial audit report given by a

and Disclosure Requirements) company secretary in practice
Regulations, 2015

3 Regulation 55A SEBI (Depositories Every issuer shall submit to the Stock
and Participants) Regulations, 2018 Exchanges, audit report by a practicing
company secretary on a quarterly basis,
for the purposes of reconciliation of the
total issued capital.
4 Regulation on 76 SEBI (Depositories Reconciliation of Share Capital Audit
and Participants) Regulations, 2018. Report

Other Certifications:

• Certificate regarding Compliance of Conditions of Corporate Governance

(Schedule V, Clause E).

• Certificate under Schedule V (10)(i) pertaining to directors’ disqualification.

[Regulation 34(3)].

• Certification by PCS in case of Offer/allotment of securities to more than 49 to up

to 200 investors (SEBI Circular No. CFD/DIL3/CIR/P/2016/53 dated May 03, 2016).

• To issue certificate of compliance to an investment adviser under SEBI (Investment

Advisers) Regulations, 2013.

• To conduct annual audit of Research analyst or research entity in respect of

Compliance with SEBI (Research Analysts) Regulations, 2014.

• Certification of shareholding pattern for registration as authorised person & Board

Resolution in case the applicant is a Corporate body/ Sharing Pattern of Profit/loss
in case the applicant is Partnership Firm / LLP.

• Certifications required during IPO’s - certifying basis of allotment, allotment of

shares from employees quota, etc.

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• Certifying that the SEBI (ICDR) Regulations, 2018 for bonus issue has been
complied with.

• Certificate for receipt of money specifically certifying that the company has
received the application/ allotment monies from the applicants of these shares.

• Quarterly certificate specifically certifying that the company has received the
application/ allotment monies from the applicants of these shares.

• Certifying that the floor price for the proposed placement to QIBs is based on the
pricing formula prescribed under Chapter VI of SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2018.

• Certifying that debenture holders have provided their consent for changing the
terms of the Debentures whereby mentioning the existing as well as revised terms.

• Listing of units of REITs-Certifying that:

a. Allotment of units has been made as per the basis of allotment approved by
designated Stock Exchange.
b. All the funds have been received before the allotment of units of REITs.

• The certificates corresponding to Securities under lock in have been enfaced with
non-transferability condition.

CASE LAW

In Re Securities and Exchange Board of India Vs. Shankar Civil Appeal No. 527 OF 2023,
Supreme Court of India dated 08.02.2023, in this matter the SAT came to conclusion that
role of compliance officer, was limited to redressing grievances of investors and he was
nowhere responsible for false or misleading open offer made by company. The Apex court
held that, crucial point which had been missed by SAT was that compliance officer was
also required to ensure compliance with Buyback Regulations as expressly stipulated by
regulation 19(3) of SEBI (Buyback of Securities) Regulations, 1998, decision of SAT was to
be set aside and proceeding were to be remitted back.

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PRE-CERTIFICATION UNDER LIMITED LIABILTY ACT,2008

Sr.no. Form/Web Form Purpose
1. Form- 3 Information with regard to Limited Liability
Partnership Agreement and changes, if any, made
therein
2. Form- 4 In case of change in designated partners or
partners in the LLP (i.e. appointment or cessation)
3. Form- 11 Annual Return of Limited Liability Partnership
4. Form- 15 Shifting of registered office of Limited Liability
Partnership

PREPARTAIONS BEFORE PRE-CERTIFICATION

Professional in Practice before undertaking the work relating to Pre-certification should
thoroughly read the:

• requirements of the provisions of the Companies Act 2013 and Rules made
thereunder; and
• Familiarize himself with the actual practices that are followed in this regard.

Further he should particularly ensure the following:

➢ Ensure that letter of engagement/Board Resolution authorizing the professional

for the assignment

➢ by the company to be obtained.

➢ Maintain a physical/scanned of all documents verified (subject to confidentiality

requirement).

➢ Ensure that all relevant documents and attachments are legible & visible.

➢ Verification of the documents from the original records of the company.

➢ Correctness of the records and the material departure from the facts.

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➢ the form is signed by the authorised person of the company.

COMMON ERRORS IN E-FILLING

• Digital signature is not registered / expired;

• Payment of challan not done before the expiry date;

• Duplicate Payments have been made;

• The size of the form is in excess of the size requirements;

• The e-forms are not verified before filing;

• Incorrect particulars in the e-form;

• Using older versions of Adobe and Java.

CONSIDERATIONS IN FILLING E-FORMS

• Before filling of e-forms, the professional should go through the instruction kit of
the respective e-form provided by the MCA on MCA-21 portal;
• DIN is mandatory for e-filing of documents. Therefore, the professional should
ensure that the details related to DIN of the Directors has been updated on the
MCA Portal;
• Digital Signature (DSC) is mandatory and same shall be registered on the MCA
Portal before it first use;
• Check Master Data of the company before filing any documents;
• The attachments to the e-forms should be complete and all pages of the
attachment should be page numbers and shall be attached in order;
• It would be advisable to file the forms early, without waiting for the last days or the
due date of the filing of e-forms;
• Adequate care shall be taken in filing the forms, ensure that the all the entries in
the forms are correct and as per the supporting documents to be attached;
• Option for revision/cancellation of e-forms is not available on MCA Portal once it
is taken on Record;

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• If the pay later option is selected, ensure that the filing fees is paid before the expiry
date of the challan as non-payment of fees liable for cancellation of transaction;
• As a trusted advisor of the Company, keep track of various reportable events and
advise the Company regularly to file requisite forms to avoid penalties and
regulatory actions;
• Attach the required documents duly scanned or converted into PDF with minimum
size as possible;
• Use various inbuilt utilities like “PREFILL” and complete the form by clicking on
“CHECK” and “PRE- SCRUTINY” options;
• Check the date of resolution and minute book, which authorizes the
Director/Secretary before filling the date of resolution in the form;
• DSC used by Director/ Secretary/Signatory should be same as per authority
delegation by the Board etc., as the case may be.

REGISTER OF CERTIFICATION
1) Signing of Annual Return (MGT-7);

2) Certification of Annual Return (MGT-8);

3) Issue of Secretarial Audit Report (MR-3);

4) Certification of E forms of MCA under Companies Act, 2013 / LLP Act, 2008;

5) Internal Audit of Depository Participants/ portfolio Manager/ Stock Broker;

6) Annual Compliance auditor under SEBI (Research Analyst) Regulations, 2014;

7) Issue of certificate of Securities Transfers in compliance with the Listing Agreement

with Stock Exchanges;

8) Certificate of reconciliation of capital, updation of Register of Members, etc. as per

the SEBI Circular D&CC/ FITTC/Cir-16/2002 dated December 31, 2002;

9) Conduct of Internal Audit of Operations of the Depository Participants;

10) Corporate Governance Certification under SEBI (LODR) Regulations, 2015;

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11) Information relation to E-forms certified and signed; 12. Register of various reports

issued.

CERTIFICATION OF ANNUAL RETURN

Under sub-section (2) of section 92 of the Act every company shall file its annual return
in Form MGT- 7, except One Person Company (OPC) & Small Company. OPC & Small
Company shall file annual return from the financial year 2020- 2021 onwards in Form
MGT-7A.

The Annual Return of a listed company or of a company having a paid up share capital of
Rs. 10 Crore or more or turnover of Rs. 50 Crore or more shall be certified by a company
secretary in whole time practice in the Form No. MGT-8.

Return certification-threshold:

Annual Return certification by Company Secretary in practice:

• Every listed company ;

• Every company having paid-up capital of Rs. 10 crore or more;
• Every company having turnover of 50 crore rupees or more.

While certifying the Form No. MGT 8, the PCS shall certify that:

A. The Annual Return discloses the facts as at the close of the financial year correctly and
adequately; and

B. The Company has complied with the provisions of the Act & Rules made there under
during the financial year in respect of:

1) Its status under the Act;

2) Maintenance of registers/records & making entries therein within the time
prescribed therefore;
3) Filing of forms and returns as stated in the Annual Return, with the Registrar of
Companies, Regional Director, Central Government, the Tribunal, Court or other
authorities within / beyond the prescribed time;
4) Calling/ convening/ holding meetings of Board of directors or its committees if
any, and the meetings of the members of the company on due dates as stated in

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the annual return in respect of which meetings, proper notices were given and the
proceedings including the circular resolutions and resolutions passed by postal
ballot, if any, have been properly recorded in the Minute Book / registers
maintained for the purpose and the same have been signed;
5) Closure of Register of Members / Security holders, as the case may be;
6) Advances/loans to its directors and/or persons or firms or companies referred in
section 185 of the Act;
7) Contracts/arrangements with related parties as specified in section 188 of the Act;
8) Issue or allotment or transfer or transmission or buy back of securities/ redemption
of preference shares or debentures/ alteration or reduction of share capital/
conversion of shares/ securities and issue of security certificates in all instances;
9) Keeping in abeyance the rights to dividend, rights shares and bonus shares
pending registration of transfer in compliance with the provisions of the Act;
10) Declaration/ payment of dividend; transfer of unpaid/ unclaimed dividend/ other
amounts as applicable to the IEPF in accordance with section 125 of the Act;
11) Signing of audited financial statement and report of directors is as per section 134
of the Act;
12) Constitution/ appointment/ re-appointments/ retirement/ filling up casual
vacancies/ disclosures of the Directors, Key Managerial Personnel and the
remuneration paid to them;

CASE LAW

In Re Deep Himanshu Desai (petitioners) Vs. Union of Indian (Respondents) Civil Writ
Petition No.9564 of 2020 High Court of Rajasthan dated 02.09.2020, in this matter it was
held that the petitioners who were treated as disqualified directors under section 164(2)(a)
sought direction to use their Director Identification Number (DIN) and Digital Signature
Certificate for purpose of filing annual return. As per the decision of court the respondents
were directed to reactivate Director Identification Number (DIN) of petitioner(s) and
Digital Signature Certificate to enable petitioner(s) to file necessary annual return and also
to discharge their statutory obligations.

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While signing the Form MGT-7 (Annual Return) Company Secretary/ Company
Secretary in Practice and Director certifies that:
1. The return state the facts, as they stood on the date of the closure of the financial
year aforesaid correctly and adequately.
2. Unless otherwise expressly stated to the contrary elsewhere in this return, the
company has complied with applicable provisions of the Act during the financial
year.

In Case of the Private Company, the Company Secretary/Company Secretary in Practice

and Director also certifies that:
3. The company has not, since the date of the closure of the last financial year,
issued any invitation to the public to subscribe for any securities of the company.
4. Where the annual return discloses the fact that the number of members, (except
in case of a one person company) of the company exceed two hundred, the
excess consists of wholly of persons who are not to be included in reckoning the
number of two hundred.

Further, Company Secretary/Company Secretary in Practice and Authorised Director

declares that -
i. Whatever is stated in this form and in the attachments thereto is true, correct
and complete
ii. All the required attachments have been completely and legibly attached to this
form.
When a company secretary or company secretary in practice signs the annual return, he
certifies that the facts stated and the material furnished as attachment to the form are
duly and fully (correctly and adequately) stated and given.
Further, he has to state that the company has made compliances as well as disclosures
in respect of applicable provisions of the Companies Act during the year, also he should
give reasons or observations in respect of non- compliances.

Scope and extent of work for PCS:

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Documents to be Obtained/Verified before Certification of Annual Return by Company

Secretary in Practice

1-Memorandum and Articles of Association;

2-Forms & receipts filed with the Registrar of Companies;

3-Statutory Registers;

• Record of Private Placement PAS-5 (Section 42)

• Register of Members MGT-1 (Section 88)

• Register of Debenture holder MGT-2

• Register of Directors & their Shareholding (Section 170)

• Register of Key Managerial Personnel (Section 170)

• Register of Related Party Contracts MBP-4 (Section 188)

• Register of Loan and Investment SH-12 (Section 186)

• Register of deposit- Section 73 and 76 read with rule 14

• Register of Charge CHG-10 (Section 85)

• Register of Securities

• Register of Employee Stock Option Under SH-6 (Section 62)

• Register of Buyback under SH-10 (Section 68)

• Register of Sweat Equity shares under SH-3 (Section 62).

4-Minutes of the Meetings;

• Board Meeting

• General Meeting

• Committee Meeting

• Creditors Meeting

• Debenture holders Meeting.

• Court convened Meetings for the purpose of restructuring and amalgamation

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• Postal ballot minutes.

5-Notices and agenda papers for convening meetings of the Board and Committees
thereof;

6-Attendance Registers of all Meetings;

7-Copy of Latest Financial Statements along with the Board’s Report and Auditors
Reports;

8-Copy of Notice of Annual General Meeting/Extraordinary General Meetings/Postal

Ballots/Court convened meetings/Creditors meetings and debenture holders meeting;

9-Shareholder List in Compact Disc (CD) in PDF Format, details of Share Transfers taken
place between close of the previous financial year and close of the financial year to which
Annual Return relates, Controls of the Data as on the Date of Annual General Meeting of
the company or the Beneficial Positions as on close of financial year downloaded from
the records of the Depository participants by Registrar Transfer Agent (RTA) of the
company on record/book closure date prior to AGM;

10-Certificate from RTA stating the number of shareholders as on the close of the financial
year;

11-Indebtedness Certificate signed by Company Secretary/CFO/ Statutory Auditors of the

company;

12-Change of name of the company, change in the face value of the shares of the
company, new ISIN No of the company in respect of the allotment or as a result of any
change in capital structure due to any corporate action taken by the company during the
Financial year;

13-Board Resolution for any type of corporate actions taken by the company;

14-Corporate Action Forms filed by the company with Depositories;

15-Shareholding pattern and its break up;

16-Any orders received by the company, Director or officer from the High court or from
any other regulatory body under any act;

17-Other Statutory Registers and Records;

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18-List of Promoters;

19-Listing and Trading Approval(s) from Stock Exchanges, Credit Confirmation from
Depositories namely NSDL and CDSL respectively/confirmation from both depositories in
respect of allotment of equity shares of the company during the period between the
previous AGM date and current AGM date. Intimation to Stock Exchanges, Confirmation
from National Securities Depository Limited (NSDL) and Central Depository Services
(India) Limited (CDSL) for change of the name of the company, change in the face value
of equity shares, change in ISIN of the company and the Scrip Code/Symbol of the
company, etc.

Consequences of not filing Annual Return

For the Director:

• Penalty for default: penalty of Rs.10,000 and in case of continuing failure, with
further penalty of Rs.100 for each day during which such failure continues, subject
to a maximum of Rs.2 lakh incase of a company and Rs.50,000 incase of officer in
default. (Section 92)

• Disqualification: If the company has not filed its financial statement or Annual
Return for continuous period of three financial years, then every person who is or
has been director of that company shall not be eligible for re-appointment as
Director of that company or appointed in any other company for a period of five
years from the date on which the said company fails to do so. [Section 164(2)]

• Penalty for Misstatement: If in Annual Return, any Director or any Person makes a
statement (a) which is false in any material particulars, knowing it to be false; or (b)
which omits any material fact, knowing it to be material, he shall be punishable
with imprisonment for a term which shall not be less than 6 months but which may
extend to 10 years and shall also be liable to fine which shall not be less than the
amount involved in the fraud, but which may extend to three times the amount
involved in the fraud. (Section 448)

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• Class action suits: Under section 245, the class of shareholders or depositors may
file an application with the Tribunal alleging that the management or conduct of
the affairs of any company are being conducted in a manner prejudicial to the
interest of the company, its members or depositors. Such class action may include
suite against the company, its directors, officers, experts or any other person for
wrongful or fraudulent act. The order passed by the Tribunal shall be binding on
the Company, its directors and officers.

For the Company:

• Penalty: If the company has not filed its Annual Return from the date by which it
should have been filed with fee and additional fees, every officer who is in default
shall be liable to a penalty of Rs.10,000 and in case of continuing failure, with
further penalty of Rs.100 for each day during which such failure continues, subject
to a maximum of Rs.2 lakh in case of a company and Rs.50,000 incase of officer in
default. (Section 92)

• Winding up: If the Company has defaulted in filing Annual Returns for the
immediately preceding five financial years, the Company may be wound up by the
Tribunal. (Section 271)

• Inactive status: If the Company has not filed its Annual Return for last two financial
years, it will be termed as “inactive company” [Section 455(1)].

CASE LAWS

In Re AVS Enterprises (P.) Ltd. Vs. Registrar of Companies, Delhi, Company Appeal (AT) no.
47 of 2021, NCLAT New Delhi dated 05.04.2022, in this matter the appellant company had
not filed annual returns with Registrar of Companies from year 2006-07 onwards and, its
name was ‘struck-off’ from Register of Companies. Further, in view of fact that company
was carrying on business operation and right to seek restoration of name of company was
not extinguished, name of company was to be restored in register of companies subject
to filing of all pending statutory documents along with late fee.

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• Dormant status: If the Company has not filed its Annual Return for two financial
years consecutively, the Registrar shall issue notice to the Company and enter its
name in the Register of Dormant Companies. [Section 455(4)]
• Compounding of Offences: Provisions and procedure for compounding of
offences, which are punishable under Companies Act, 2013 are stipulated under
Section 441.

Consequences of Wrong Certification of Annual Return

If a company secretary in practice certifies the annual return otherwise than in conformity
with the requirements of this section or the rules made thereunder, he shall be liable to a
penalty of 2,00,000 rupees. A practicing company secretary will be liable for disciplinary
actions by the Disciplinary Committee of the ICSI.

Filing Annual Return when Annual General Meeting is not held

Where no AGM is held in a particular year, the Annual Return has to be filed within 60
days from the last day on which the meeting should have been held together with the
statement specifying the reasons for not holding the annual general meeting, with such
fees or additional fees as may be prescribed, within the time as specified, under section
403. [Section 92(4)]

The following guiding principles can be adopted while deciding about the extent of
checking that is required.

i. Internal Controls: The PCS shall perform a detailed review of the internal controls,
checks and balances built into the systems and procedures of the Company. If
appropriate internal controls exist, and operate effectively, the need for detailed
checking is reduced to a large extent. The system could also provide for inherent
checks, particularly in cases where the process is automated/computerized.

ii. Materiality: Similar to any audits, the principle of materiality is another important
and relevant concept. The sample chosen for detailed checking should be

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representative of the whole, or the ‘population’, in statistical parlance. For example,

in share transfers, instances of transfer of large blocks of shares could be chosen
for detailed scrutiny. Or, the ‘busy’ period for transfer of shares in the year could
be identified and selected for sample checking.

iii. Risk assessment: The PCS shall have an overall understanding of the Company,
the industry in which the it operates, corporate governance practices, etc., and
perform risk assessment to identify the ‘high risk’ areas. These ‘High risk’ areas
shall be subjected to more extensive verifications. For instance, in the case of
shares on which there are restrictions on transfer statutory or otherwise, a more
extensive examination is warranted.

CORPORATE GOVERNANCE CERTIFICATION BY PRACTICING

COMPANY SECRETARY
This certificate on the compliance of conditions of Corporate Governance by the
Company, is issued under the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015. The certificate can be issued either by the statutory auditors or PCS
and shall be annexed to the director’s report.

Further, Regulation 27(2) of SEBI(LODR), specifies that the listed entity shall submit
quarterly compliance report on corporate governance in the format specified by the Board
from time to time to recognized Stock Exchange(s) within twenty one days from close of
the quarter.

The format for compliance report on Corporate Governance shall be as under:

i. Annex - I - on quarterly basis;

ii. Annex - II - at the end of a financial year;

iii. Annex - III - at the end of 6 months from the close of financial year;

iv. Annex - IV - on a half yearly basis (w.e.f. first half year of the FY 21-22);

However, the compliance with the corporate governance provisions shall not apply, in
respect of following 1-The listed entity having:

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• paid up equity share capital not exceeding rupees 10 crore; and

• net worth not exceeding rupees 25 crore, as on the last day of the previous financial
year.

2-The listed entity which has listed its specified securities on the SME Exchange.

IMPORTANT POINTS RELATING TO CORPORATE

GOVERNANCE COMPLIANCE CERTIFICATE (CGCC)
• The Company should provide the PCS access to the registers, books of accounts,
papers, documents, reports and records of the Company wherever kept.

• The CGCC from the PCS should relate to the financial year of the listed Company under
Report.

• When a PCS is assigned the compliance certification work of the Company for the first
time, he should communicate his appointment to the earlier incumbent, if a PCS, by
registered post.

• The PCS who has issued the CGCC should make himself available at the Annual General
Meeting to provide clarifications, on CGCC, if required.

• Any failure or lapse on the part of a PCS in issuing a CGCC, may not only attract
disciplinary action for professional or other misconduct under the provisions of the
Company Secretaries Act, 1980, but also make him liable for any injury caused to any
person due to his negligence in issuing the CGCC.

MODE OF ISSUING CORPORATE GOVERNANCE COMPLIANCE

CERTIFICATE (CGCC)
For issuing CGCC a three-step procedure needs to be followed:

1. The PCS would first obtain from the listed entity its draft report on Corporate

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2. Governance.

3. PCS would examine relevant records relating to Corporate Governance and obtain
necessary information and explanation from the management. An illustrative list of
compliance inputs and checklists has been indicated in each paragraph in this
Guidance Note. The list is however, not exhaustive.

4. PCS on the basis of the report and verification of such other records as well as
information and explanation so obtained, would certify the compliance of the
conditions of Corporate Governance and give his certification to the Board to be
annexed to the Board’s Report.

5. Where a Company has adopted the Voluntary Guidelines, the PCS would also
certify the compliance thereof.

TYPES OF CERTIFICATIONS
The certification may be unqualified or qualified:

(a) Unqualified certificate: An unqualified certificate should be issued when the PCS
forms the opinion that the conditions of Corporate Governance have been duly complied
with by the Company

(b) Qualified certificate: A qualified certificate should be issued when the PCS concludes
that there are certain specific non-compliances or inadequacies. A qualified certificate
should contain a brief description of non-compliances or inadequacies in compliances
and the extent thereof.

• It is recommended that the qualifications, if any, should be stated in bold type or

in italics in the CGCC.

• If the PCS is unable to form any opinion with regard to any specific matter, the PCS
shall state clearly the fact that he is unable to form an opinion with regard to that
matter and the reasons therefor.

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• If the scope of work required to be performed is restricted on account of limitations

imposed by the client, or on account of other limitations (such as certain books or
papers being in custody of another person or Government Authority), the
certificate may indicate such limitations.

• If such limitations are so material that the PCS is unable to express any opinion,
the PCS should state that “in the absence of necessary information and records, he
is unable to certify compliance or otherwise of the conditions of Corporate
Governance by the Company”.

PENALTY FOR FALSE CGCC

Section 448 of the Companies Act provides that if, any person makes a statement which
is false in any material particular, knowing it to be false or which omits material fact,
knowing it to be material, he shall be punishable under section 447 (Punishment for
Fraud).

Section 449 of the Companies Act further provides penalty of imprisonment for a
minimum period of 3 years and a term which may extend to seven years, and fine which
may extend to ten lakhs rupees, if any person intentionally gives false evidence upon any
examination on oath or solemn affirmation

Section 23H of the Securities Contracts (Regulation) Act, 1956 (“SCRA”), provides that,
whoever fails to comply with any provision of SCRA, the rules or articles or bye-laws or
the regulations of a recognized stock exchange or directions issued by the Securities and
Exchange Board of India for which no separate penalty has been provided, shall be liable
to a penalty which may extend to one crore rupees.

Further Section 23M of the SCRA provides that, without prejudice to any award of penalty
by the adjudicating officer under SCRA, if any person contravenes or attempts to
contravene or abets the contravention of, the provisions of SCRA or of any rules or
regulations or bye-laws made there under, for which no punishment is provided
elsewhere in SCRA, he shall be punishable with imprisonment for a term which may extend
to ten years, or with fine, which may extend to twenty-five crore rupees or with both. If
any person fails to pay the penalty imposed by the adjudicating officer or fails to comply

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with any of his directions or orders, he shall be punishable with imprisonment for a term,
which shall not be less than one month, but which may extend to ten years, or with fine,
which may extend to twenty-five crore rupees, or with both.

CORPORATE GOVERNANCE AND SEBI (LISTING OBLIGATIONS

AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015
CORPORATE GOVERNANCE PRINCIPLES UNDER LISTING REGULATIONS :

The listed entity which has listed its specified securities shall comply with the corporate
governance principles under following broad headings as specified in Regulation 4 :

(a) The rights of shareholders: The listed entity shall seek to protect and facilitate the
exercise of the following rights of shareholders:

i. right to participate in, and to be sufficiently informed of, decisions concerning

fundamental corporate changes.
ii. opportunity to participate effectively and vote in general shareholder meetings.
iii. being informed of the rules, including voting procedures that govern general
shareholder meetings.
iv. opportunity to ask questions to the board of directors, to place items on the
agenda of general meetings, and to propose resolutions, subject to reasonable
limitations.
v. Effective shareholder participation in key corporate governance decisions, such as
the nomination and election of members of board of directors.
vi. exercise of ownership rights by all shareholders, including institutional investors.
vii. adequate mechanism to address the grievances of the shareholders.
viii. protection of minority shareholders from abusive actions by, or in the interest of,
controlling shareholders acting either directly or indirectly, and effective means of
redress.

(b) Timely information: The listed entity shall provide adequate and timely information
to shareholders, including but not limited to the following:

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i. sufficient and timely information concerning the date, location and agenda of
general meetings, as well as full and timely information regarding the issues to be
discussed at the meeting.
ii. Capital structures and arrangements that enable certain shareholders to obtain a
degree of control disproportionate to their equity ownership.
iii. rights attached to all series and classes of shares, which shall be disclosed to
investors before they acquire shares.

(c)Equitable treatment: The listed entity shall ensure equitable treatment of all
shareholders, including minority and foreign shareholders, in the following manner:

i. All shareholders of the same series of a class shall be treated equally.

ii. Effective shareholder participation in key corporate governance decisions, such as
the nomination and election of members of board of directors, shall be facilitated.
iii. Exercise of voting rights by foreign shareholders shall be facilitated.
iv. The listed entity shall devise a framework to avoid insider trading and abusive self-
dealing.
v. Processes and procedures for general shareholder meetings shall allow for
equitable treatment of all shareholders.
vi. Procedures of listed entity shall not make it unduly difficult or expensive to cast
vote.

(d) Role of stakeholders in corporate governance: The listed entity shall recognise the
rights of its stakeholders and encourage co-operation between listed entity and the
stakeholders, in the following manner:

i. The listed entity shall respect the rights of stakeholders that are established by law
or through mutual agreements.
ii. Stakeholders shall have the opportunity to obtain effective redress for violation of
their rights.
iii. Stakeholders shall have access to relevant, sufficient and reliable information
iv. The listed entity shall devise an effective vigil mechanism/whistle blower policy

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(e) Disclosure and transparency: The listed entity shall ensure timely and accurate
disclosure on all material matters including the financial situation, performance,
ownership, and governance of the listed entity, in the following manner:

i. Information shall be prepared and disclosed in accordance with the prescribed

standards of accounting, financial and non-financial disclosure.
ii. Channels for disseminating information shall provide for equal, timely and cost
efficient access to relevant information by users.
iii. Minutes of the meeting shall be maintained explicitly recording dissenting
opinions, if any.

(f) Responsibilities of the board of directors: The board of directors of the listed entity
shall have the following responsibilities:

1-Disclosure of information:

i. Members of board of directors and key managerial personnel shall disclose to the
board of directors whether they, directly, indirectly, or on behalf of third parties,
have a material interest in any transaction or matter directly affecting the listed
entity.
ii. The board of directors and senior management shall conduct themselves so as to
meet the expectations of operational transparency to stakeholders while at the
same time maintaining confidentiality of information in order to foster a culture of
good decision- making.

2- Key functions of the board of directors:

i. Reviewing and guiding corporate strategy, major plans of action, risk policy, annual
budgets and business plans, setting performance objectives, monitoring
implementation and corporate performance, and overseeing major capital
expenditures, acquisitions and divestments.
ii. Monitoring the effectiveness of the listed entity’s governance practices and making
changes as needed.
iii. Selecting, compensating, monitoring and, when necessary, replacing key
managerial personnel and overseeing succession planning.

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iv. Aligning key managerial personnel and remuneration of board of directors with
the longer term interests of the listed entity and its shareholders.
v. Ensuring a transparent nomination process to the board of directors with the
diversity of thought, experience, knowledge, perspective and gender in the board
of directors.

3-Other responsibilities:

i. The board of directors shall provide strategic guidance to the listed entity, ensure
effective monitoring of the management and shall be accountable to the listed
entity and the shareholders.
ii. The board of directors shall set a corporate culture and the values by which
executives throughout a group shall behave.
iii. Members of the board of directors shall act on a fully informed basis, in good faith,
with due diligence and care, and in the best interest of the listed entity and the
shareholders.
iv. The board of directors shall encourage continuing directors training to ensure that
the members of board of directors are kept up to date.
v. Where decisions of the board of directors may affect different shareholder groups
differently, the board of directors shall treat all shareholders fairly.

SIGNING OF FINANCIAL STATEMENTS

As per the provisions of Section 134(1) of Companies Act, 2013, the financial statement,
including consolidated financial statement, if any, shall be approved by the Board of
Directors before they are signed on behalf of the Board and the Financial Statement will
be signed by the following:

i. Chairperson of the Company (if he is authorized by the board of directors); OR

ii. Two Directors (out of which one shall be Managing Director); AND

iii. Chief Executive Officer/ Company Secretary/ Chief Financial Officer of the

Company (on the basis of their appointment in the Company.

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However, Financial Statement of One Person Company shall be signed by only one
director.

CASE LAW

In Re HIFFCO Farming Ltd. Vs. Registrar of Companies, NCLAT New Delhi, Company
Appeal (AT) no. 51 of 2022, dated 21.04.2022, in this matter the appellant company had
not filed financial statement with Registrar of Companies from year 2006-07 onwards and
its name was ‘struck-off’ from Register of Companies, in view of fact that company was
carrying on business operation and right to seek restoration of name of company was not
extinguished, name of company was to be restored in register of companies subject to
filing of all pending statutory documents along with late fees.

OBLIGATION & PENAL PROVISIONS

A wrong signing/pre-certification leads to the following threat to the company, its
authorised person and to the certifying professional.

To the company:

• The provisions of the Companies Act, 2013 provides for the actions/ fine/ penalty
to be imposed on the companies in case of the default made by the company/its
officers.

To the Certifying professional:

i. Risk on Reputation:

⮞ Wrong certifications will not only lead to penal provisions but also will affect the
reputation of a Company Secretary’s firm and also in his individual capacity.

⮞ It may lead to possibility to lose the practice also. Apart from this there is bad rift to
ICSI. So, a PCS has to keep this in mind while certifying or attesting the forms.

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ii. Under the Company Secretaries Act 1980:

⮞ The Second Schedule to the Company Secretaries Act, 1980 in clause 2 provides that
“where a Company Secretary in Practice certifies or submits in his name, or in the name
of his firm, a report of an examination of the matters relating to company secretarial
practice and related statements unless the examination of such statements has been
made by him or by a partner or an employee in his firm or by another Company Secretary
in Practice,” he shall be deemed to be guilty of professional misconduct.

⮞ Further, clauses 5, 6, 7 and 8 provide that “where a Company Secretary in Practice while
pre- certifying any e-Form or document fails to disclose a material fact known to him in
his report or statement but the disclosure of which is necessary in making such report or
statement, or fails to report a material mis-statement known to him or does not exercise
due diligence, or is grossly negligent in the conduct of his professional duties or fails to
obtain sufficient information which is necessary for expression of an opinion or its
exceptions are sufficiently material to negate the expression of an opinion,” he would be
deemed to be guilty of professional or other misconduct under the provisions of the
Company Secretaries Act, 1980.

⮞ In case there is any false statement in any material particular or omission of any material
fact in the form certified as correct by a Practicing Company Secretary, he would be liable
for disciplinary action for professional or other misconduct under the provisions of the
Company Secretaries Act, 1980.

⮞ In view of section 21B(3) of the Company Secretaries Act, 1980, in case he is found
guilty of professional or other misconduct mentioned in the second schedule to the
Company Secretaries Act, 1980, he will be liable for the following actions

a) Reprimand,
b) Removal of name from the registrar of members permanently or for such period
as may be thought fit by the disciplinary committee,
c) Fine which may extend to five lakh rupees.

iii. Under the Companies Act 2013

⮞ With a view to ensure that the Company Secretary in practice carries out his work with
due diligence, the Registrar may carry out scrutiny of Forms on random basis. As per rule

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8(9) of the Companies (Registration Officers and Fees) Rules, 2014, where any instance of
filing document, application or return etc. containing a false or misleading information or
omission of material fact, requiring action under section 448 or section 449 is observed,
the person shall be liable under section 448 and 449 of the Act. Section 448 of Companies
Act, 2013 deals with penalty for false statements.

⮞ The section provide that if in any return, report, certificate, financial statement,
prospectus, statement or other document required by, or for the purposes of any of the
provisions of this Act or the rules made thereunder, any person makes a statement, –

a) which is false in any material particulars, knowing it to be false; or

b) which omits any material fact, knowing it to be material, he shall be liable under
section 447.

⮞ Section 447 deals with punishment for fraud which provides that any person who is
found to be guilty of fraud, shall be punishable with imprisonment for a term which shall
not be less than six months but which may extend to ten years and shall also be liable to
fine which shall not be less than the amount involved in the fraud, but which may extend
to three times the amount involved in the fraud. In case, the fraud in question involves
public interest, the term of imprisonment shall not be less than three years.

⮞ In view of this, a Company Secretary in Practice will be attracting the penal provisions
of section 448, for any false statement in any material particular or omission of any
material fact in the e forms. However, a person will be penalized under section 448 in case
he makes a statement, which is false in any material particular, knowing it to be false, or
which omits any material fact knowing it to be material.

⮞ It is pertinent to note that section 448 applies to “any person”. In view of this, a company
secretary in practice, who is an independent professional, will be attracting the penalty,
as prescribed in section 448 in case his observations in the secretarial audit report turns
out to be false or he omits any material fact, knowing it to be false or material.

iv. Action by Regulator

In case of certification of any form, document, application or return containing wrong or

false or misleading information or omission of material fact, the Digital Signature

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Certificate shall be de-activated by the central government till a final decision is taken in
this regard.

Also, The Regional Director or the Registrar as the case may be, shall conduct a quick
inquiry against the professionals who certified the form and signatory thereof including
an officer in default who appears prima facie responsible for submitting false or
misleading or incorrect information pursuant to requirement of above said Rules, 15 days’
notice may be given for the purpose. The Regional Director or the Registrar will submit
his/her report in respect of the inquiry initiated, irrespective of the outcome, to the E-
Governance cell of the Ministry within 15 days of the expiry of period given for submission
of an explanation with recommendation in initiating action under section 447 and 448 of
the Act wherever applicable and also regarding referral of the matter to the concerned
professional Institute for initiating disciplinary proceedings.

The E-Governance cell of the Ministry shall process each case so referred and issue
necessary instructions to the Regional Director/ Registrar of Companies for initiating
action under section 448 and 449 of the Act wherever prima facie cases have been made
out. The E-Governance cell will thereafter refer such cases to the concerned Institute for
conducting disciplinary proceedings against the errant member as well as debar the
concerned professional from filing any document on the MCA portal in future.

The Registrar shall forward a fortnightly report to the concerned Regional Director as well
as to the E-Governance Division. Thereafter, the Regional Director shall forward a
consolidated report to the Joint Secretary E-Governance Division on or before 7thof every
month.

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Legal Framework Governing Company Secretaries

INTRODUCTION-
Lesson 2
Recognition of Company Secretary Profession-A fascinating journey

In 1887, Lord Justice Esher made the remarks on the duties of the Company Secretary
while writing out his judgment in The Court of Appeal in Barnett Hoares & Co. v South
London Tramways Co. (18 QBD 1887) that, company secretaries could not be assumed to
have authority for anything. A Secretary is a mere servant, his position is that he is to do
what he is told.

It took 90 years for the Judiciary to take note of the emergence of the Company Secretary
in the Corporate World. The remarks made by the celebrated Lord Denning, in Panorama
Developments (Gilford) Ltd v. Fidelis Furnishing Fabrics Limited (1971) (3 All ER 16) (CA)
observed as under:

Functions and Duties of Company Secretaries

Corporate Insolvency & Treasury Function

Restructuring Investor Relations •Due Diligence
•Corporate Affairs

Corporate Governance &

Business Ethics
Gloabl Busines
•Treasury Function

Human Resources Management

•Foreign Collaborations & Joint
Ventures

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According to the section 205 of the Companies Act, 2013 read with rule 10 of the
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the
Company Secretary must perform the following functions and duties:

• To report to the Board about compliance with the provisions of this Act, the rules
made thereunder and other laws applicable to the company;

• To ensure that the company complies with the applicable secretarial standards;

• To provide to the directors of the company, collectively and individually, such

guidance as they may require, with regard to their duties, responsibilities and
powers;

• To facilitate the convening of meetings and attend Board, committee and general
meetings and maintain the minutes of these meetings;

• To obtain approvals from the Board, general meeting, the government and such
other authorities as required under the provisions of the Act;

• To represent before various regulators, and other authorities under the Act in
connection with discharge of various duties under the Act;

• To assist the Board in the conduct of the affairs of the company;

• To assist and advise the Board in ensuring good corporate governance and in
complying with the corporate governance requirements and best practices; and

• To discharge such other duties as have been specified under the Act or rules; and

• Such other duties as may be assigned by the Board from time to time.

CASE LAW

Mayank Agarwal (Applicant) VS. M/s. Technology Frontiers (India) Private Limited
(Respondent Company) National Company Law Tribunal (Chennai Bench) IA/2/2021 in
CP/75/CHE/2021

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The Company Secretary can represent before various regulators and other authorities
in connection with discharge of various duties under the Act. The NCLT being a quasi-
judicial authority the Company Secretary can very well do the same.

In this case, the Company Secretary of the respondent company had sent the notice to
the applicant under Section 90(5), (who is nominee director of the Respondent
Company) on May 3rd, 2021 along with the form to disclose their Ultimate Beneficial
Ownership of the shares held.

However, the applicant alleged that the company alone is empowered to apply to NCLT
under Section-90(7) of the Companies Act, 2013 and Company Secretary has not taken
approval from Board of directors to file the present petition.

The Company Secretary of Respondent Company in his written submission stated that
he has the locus standi as per the board resolution passed for his appointment which
clearly states that “he can perform any duties as required under Companies Act, 2013”
and have the authority to enter into pleadings on behalf of company even in absence
of formal board authorization. Further, he referred to the provisions of section 205 of
the Companies Act 2013, under which he is authorized to represent and that it is his
duty to do so.

Order: The usage of the words “Company shall give notice” under Section 90(5) makes
it amply clear that the Key Managerial Personnel have to do this activity of seeking
information; in order to find out the Ultimate Beneficial Owners. The Company Secretary
has acted diligently and promptly to ensure compliance of the mandatory provisions.
Hence, the application stand dismissed.

Further, as per regulation 6(2) of the SEBI (LODR) Regulations, 2015, a listed company is
required to appoint a qualified company secretary as the compliance officer. The
compliance officer of the Company is responsible for:

a) ensuring conformity with the regulatory provisions applicable to the listed entity in
letter and spirit;

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b) co-ordination with and reporting to the Board, recognised stock exchange(s) and
depositories with respect to compliance with rules, regulations and other directives of
these authorities in the manner as specified from time to time;

c) ensuring that the correct procedures have been followed that would result in the
correctness, authenticity and comprehensiveness of the information, statements and
reports filed by the listed entity under these regulations;

d) monitoring email address of grievance redressal division as designated by the listed

entity for the purpose of registering complaints by investors:

Company Secretary as a part of Senior Management

The Regulation 16(d) of the SEBI (LODR) Regulations, 2015 provides that the senior
management shall mean the officers and personnel of the listed entity who are members
of its core management team, excluding the Board of Directors, and shall also comprise
all the members of the management one level below the Chief Executive Officer or
Managing Director or Whole-Time Director or Manager (including Chief Executive Officer
and Manager, in case they are not part of the Board of Directors) and shall specifically
include the functional heads, by whatever name called and the Company Secretary and
the Chief Financial Officer.

Company Secretary is having the opportunities in the following two domains:

• Company Secretary in Employment

• Company Secretary in Practice

“key managerial personnel”, in relation to a company, means—

• the Chief Executive Officer or the managing director or the manager;

• the company secretary;

• the whole-time director;

• the Chief Financial Officer;

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• such other officer, not more than one level below the directors who is in whole-

time employment, designated as key managerial personnel by the Board; and

• such other officer as may be prescribed.

ASSOCIATES AND FELLOWS

Associate Members
No person shall be entitled to have his name entered in the Register of Members as an Associate,
unless he, –

a) has passed examinations conducted by the dissolved company and has completed

practical training

b) has passed the qualifying examinations and completed the practical training as prescribed

c) has passed such other examination and completed such other training outside India as is

recognised by the Central Government or the Council as being equivalent to the

examination and training prescribed in these regulations; or

d) had registered himself as a student with the Institute of Chartered Secretaries and

Administrators, London on or before 31st December, 1972 and had passed the Final

Examination or Professional Programme Examination of that Institute and had either

possessed the required practical experience

e) is an Indian citizen who is a “person resident outside India” under FEMA, 1999 and has

become a member of the Institute of Chartered Secretaries and Administrators, London

Fellow Members

“Fellow” means a Fellow Member of the Institute.

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As per section 5 of the Company Secretaries Act, 1980, A person, being an Associate
who has been in continuous practice in India as a Company Secretary for at least five
years and a person who has been an Associate for a continuous period of not less than
five years and who possesses such qualifications or practical experience as the Council
may prescribe with a view to ensuring that he has experience equivalent to the
experience normally acquired as a result of continuous practice for a period of five years
as a Company Secretary shall, on payment of such fees, as may be determined, by
notification, by the Council, and on application made and granted in the prescribed
manner, be entered in the Register of members as a Fellow.

• No person shall be entitled to have his name entered in the Register of Members as a Fellow
unless He, -

a) was a Fellow including Honorary Fellow of the dissolved company immediately before the
commencement of the Act; or

b) was admitted as a Fellow under the earlier regulations; or

c) is an Associate and has been in continuous practice in India as a Company Secretary for at
least five years; or

d) is an Associate for a continuous period of not less than five years and possesses such
qualifications or practical experience as may be determined by the Council.

• No Associate member shall be admitted as a fellow member of the Institute, if; -

a) he has been found guilty of any professional or other misconduct and his name has been

removed from the Register at any time during the preceding five years on the date of

application; or

b) he has not completed such minimum numbers of Professional Development Credit Hours

as may be determined by the Council.

Certificate of practice
A member is entitled to continue the practice of Company Secretary, whether in India or
elsewhere, only after obtaining a Certificate of Practice.

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Deemed “to be in practice”

a) engages himself in the practice of the profession of Company Secretaries to, or in relation to,
any company; or

b) offers to perform or performs services in relation to the promotion, forming, incorporation,

amalgamation, reconstruction, reorganization or winding up of companies; or

c) offers to perform or performs such services as may be performed by –

1. unauthorized representative of a company with respect to filing, registering,
presenting, attesting or verifying any documents (including forms, applications and
returns) by or on behalf of the company,

2. a share transfer agent,

3. an issue house,
4. a share and stock broker,
5. a secretarial auditor or consultant,
6. an adviser to a company on management, including any legal or procedural matters,
7. issuing certificates on behalf of, or for the purposes of, a company, or

d) holds himself out to the public as a Company Secretary in practice; or

e) renders professional services or assistance with respect to matters of principle or detail relating
to the practice of the profession of Company Secretaries; or

f) renders such other services as, in the opinion of the Council, are or may be rendered by a
Company Secretary in practice.

REGISTER OF MEMBERS
Institute shall maintain a Register of Members his full name, date of birth, domicile,
residential and professional addresses;

a) membership number and the date on which his name is entered in the Register;

b) his qualifications;

c) whether he holds a certificate of practice;

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d) email-id, mobile number, telephone number if any, and such other particulars as
may be determined by the Council.

The member shall communicate to the Institute any change of his details entered in the
Register, within thirty days of such change.

Removal from the Register of Members

a) who is dead; or

b) from whom a request has been received to that effect; or

c) who has not paid any prescribed fee required to be paid by him; or

d) who is found to have been subject at the time when his name was entered in the
Register of members, or who at any time thereafter has become subject, to any of
the disabilities mentioned in section 8, or who for any other reason has ceased to
be entitled to have his name borne on the Register of members.

Disciplinary Mechanism

Board of Disciplinary Disciplinary

Discipline (BOD) Committee (DC) Directorate (DD)

Disciplinary Directorate
Section 21 of the Act provides for the establishment of a Disciplinary Directorate headed
by an officer of the Institute designated as Director (Discipline) and such other employees
for making investigations in respect of any information or complaint received by it. On
receipt of any information or complaint along with the prescribed fee, the Director

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(Discipline) shall arrive at a prima facie opinion on the occurrence of the alleged
misconduct.

1. Where the Director (Discipline) is of the opinion that a member is guilty of any
professional or other misconduct mentioned in the First Schedule, the matter shall be
placed before the Board of Discipline and take any one or more of the following
actions, namely:—

(a) reprimand the member;

(b) remove the name of the member from the Register up to a period of three months;

(c) impose such fine as it may think fit which may extend to rupees one lakh.

2. Where the Director (Discipline) is of the opinion that a member is guilty of any
professional or other misconduct mentioned in the Second Schedule or in both the
Schedules, the matter shall be placed the Disciplinary Committee and take any one or
more of the following actions, namely:—
(a) Reprimand the member;
(b) Remove the name of the member from the Register permanently or for such
period, as it thinks fit;
(c) impose such fine as it may think fit, which may extend to rupees five lakhs.

Board of Discipline

Authority, Disciplinary Committee, Board of Discipline and Director (Discipline) to

have Powers of Civil Court

Section 21C of the Company Secretaries Act, 1980 provides that for the purposes of an
inquiry under the provisions of this Act, the Authority, the Disciplinary Committee, Board
of Discipline and the Director (Discipline) shall have the same powers as are vested in a
civil court under the Code of Civil Procedure, 1908, in respect of the following matters,
namely:—

(a) summoning and enforcing the attendance of any person and examining him on
oath;

(b) the discovery and production of any document; and

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(c) receiving evidence on affidavit.

APPEAL TO AUTHORITY
Section 22A: any member of the Institute aggrieved by any order of the Board of Discipline
or the Disciplinary Committee may within ninety days from the date on which the order
is communicated to him, prefer an appeal to the Authority.

Appellant authority may –

(a) confirm, modify or set aside the order;

(b) impose any penalty or set aside, reduce, or enhance the penalty imposed by the
order;
(c) remit the case to the Board of Discipline or Disciplinary Committee for such further
enquiry as the Authority considers proper in the circumstances of the case;

CERTAIN PROVISIONS RELATING TO MISCONDUCT UNDER

THE COMPANY SECRETARIES ACT, 1980

OBLIGATIONS AND PENAL PROVISIONS

Company Secretaries must take care while certifying the Annual Return. Any failure or
lapse on the part of PCS may attract penalty under-

Companies Act, 2013:

• As per sub-section (6) of section 92 of the Act, If a company secretary in practice
certifies the Annual Return otherwise than in conformity with the requirements of this
section or the rules made there under, he shall be punishable with fine which shall not
be less than fifty thousand rupees but which may extend to five lakh rupees.

• Further, company secretary in practice may also attract the provisions of

Section 447, sections 448and 449 of Companies Act, 2013. Section 447 deals with
punishment for fraud which provides that any person who is found to be guilty of fraud

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involving an amount of at least ten lakh rupees or one per cent. of the turnover of the
company, whichever is lower shall be punishable with imprisonment for a term which shall
not be less than six months but which may extend to ten years and shall also be liable to
fine which shall not be less than the amount involved in the fraud, but which may extend
to three times the amount involved in the fraud: Provided that where the fraud in question
involves public interest, the term of imprisonment shall not be less than three years.

Provided further that where the fraud involves an amount less than ten lakh rupees or one
per cent. of the turnover of the company, whichever is lower, and does not involve public
interest, any person guilty of such fraud shall be punishable with imprisonment for a term
which may extend to five years or with fine which may extend to fifty lakh rupees or with
both.

Section 448 provides that if in any return, report, certificate, financial statement,
prospectus, statement or other document required by, or for, the purposes of any of the
provisions of this Act or the rules made thereunder, any person makes a statement, –

a) Which is false in any material particulars, knowing it to be false; or

b) Which omits any material fact, knowing it to be material,

He shall be liable under section 447 of the Act.

In view of this, a professional will be penalised under section 448 in case he makes the
statement, which is false in any material particulars, knowing it to be false, or which omits
any material fact knowing it to be material.

Authority to initiate action against Professionals

Company Secretaries Act, 1980

(a) Reprimand the member

(b) Remove the name of the member from the Register up to a period of three months;

(c) Impose such fine as it may think fit which may extend to rupees one lakh.

In the matters, which are placed before the Disciplinary Committee, and Where the
Disciplinary Committee is of the opinion that a member is guilty of a professional or other

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misconduct mentioned in the Second Schedule or both the First Schedule and the Second
Schedule, it afford to the member an opportunity of being heard before making any order
against him and may thereafter take any one or more of the following actions, namely:—
(a) Reprimand the member;

(b) Remove the name of the member from the Register permanently or for such period,
as it thinksfit;

(c) Impose such fine as it may think fit, which may extend to rupees five lakhs

PROFESSIONAL MISCONDUCT COVERED UNDER THE FIRST SCHEDULE

PART I: Professional misconduct in relation to Company Secretaries in Practice A

Company Secretary in Practice shall be deemed to be guilty of professional
misconduct, if he–

1. Allows any person to practice in his name as a Company Secretary unless such person
is also a Company Secretary in practice and is in partnership with or employed by him;

2. pays or allows or agrees to pay or allow, directly or indirectly, any share, commission
or brokerage in the fees or profits of his professional business, to any person other
than member of the Institute or a partner or a retired partner or the legal
representative of a deceased partner, or a member of any other professional body or
with such other persons having such qualifications as may be prescribed for the
purpose of rendering such professional services from time to time in or outside India.

3. accepts or agrees to accept any part of the profits of the professional work of a person
who isnot a member of the Institute: Provided that nothing herein contained shall be
construed as prohibiting a member from entering into profit sharing or other similar
arrangements, including receiving any share commission or brokerage in the fees,
witha member of such professional body or other person having qualifications, as is
referred to in item (2) of this part;

4. enters into partnership, in or outside India, with any person other than a Company
Secretary in practice or such other person who is a member of any other professional
body having such qualifications as may be prescribed, including a resident who but

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for his residence abroad would be entitled to be registered as a member under clause
(e) of sub-section (1) of section 4 or whose qualifications are recognized by the Central
Government or the Council for the purpose of permitting such partnerships;

5. Solicits clients or professional work, either directly or indirectly, by circular,

advertisement, personal communication or interview or by any other means.

6. advertises his professional attainments or services.

7. Accepts a position as a Company Secretary in practice previously held by another

Company Secretary in practice without first communicating with him in writing;

8. charges or offers to charge, accepts or offers to accept, in respect of any professional

employment, fees which are based on a percentage of profits or which are contingent
upon the findings, or result of such employment, except as permitted under any
regulation made under this Act;

9. engages in any business or occupation other than the profession of Company

Secretary unless permitted by the Council so to engage, etc.

PART II - Professional misconduct in relation to members of the Institute

in service

A member of the Institute (other than a member in practice) shall be deemed to be

guilty of professional misconduct, if he, being an employee of any company, firm or
person–

• Pays or allows or agrees to pay, directly or indirectly, to any person any share in
the emoluments of the employment undertaken by him;

• accepts or agrees to accept any part of fees, profits or gains from a lawyer, a
Company Secretary or broker engaged by such company, firm or person or agent
or customer of such company, firm or person by way of commission or
gratification.

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PART III - Professional misconduct in relation to members of the Institute

generally

A member of the Institute, whether in practice or not, shall be deemed to be guilty of

professional misconduct, if he –

• Not being a Fellow of the Institute, acts as a Fellow of the Institute;

• does not supply the information called for, or does not comply with the requirements
asked for, by the Institute, Council or any of its Committees, Director (Discipline), Board
of Discipline, Disciplinary Committee, Quality Review Board or the Appellate Authority;

• while inviting professional work from another Company Secretary or while responding
to tenders or enquiries or while advertising through a write up, or anything as provided
for in items (6) and (7) of Part I of this Schedule, gives information knowing it to be
false.

PART IV - Other misconduct in relation to members of the Institute

generally

A member of the Institute, whether in practice or not, shall be deemed to be guilty of

other misconduct, if–

• he is held guilty by any civil or criminal court for an offence which is punishable with
imprisonment for a term not exceeding six months;

• in the opinion of the Council, he brings disrepute to the profession or the institute as
a result of his action whether or not related to his professional work.

PROFESSIONAL MISCONDUCT COVERED UNDER THE SECOND

SCHEDULE

PART I - Professional misconduct in relation to Company Secretaries in Practice

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A Company Secretary in practice shall be deemed to be guilty of professional misconduct,

if he—

• discloses information acquired in the course of his professional engagement to any

person other than his client so engaging him, without the consent of his client, or
otherwise than as required by any law for the time being in force;

• certifies or submits in his name, or in the name of his firm, a report of an examination
of the matters relating to company secretarial practice and related statements unless
the examination of such statements has been made by him or by a partner or an
employee in his firm or by another Company Secretary in practice;

• permits his name or the name of his firm to be used in connection with any report or
statement contingent upon future transactions in a manner which may lead to the
belief that he vouches for the accuracy of the forecast;

• Expresses his opinion on any report or statement given to any business or enterprise
in which he, his firm, or a partner in his firm has a substantial interest;

• Fails to disclose a material fact known to him in his report or statement but the
disclosure of which is necessary in making such report or statement, where he is
concerned with such report or statement in a professional capacity;

• Fails to report a material mis-statement known to him and with which he is concerned
in a professional capacity;

• Does not exercise due diligence, or is grossly negligent in the conduct of his
professional duties;

PART II - Professional misconduct in relation to members of the Institute

generally

A member of the Institute, whether in practice or not, shall be deemed to be guilty of

professional misconduct, if he—

• contravenes any of the provisions of this Act or the regulations made thereunder or
any guidelines issued by the Council;

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• being an employee of any company, firm or person, discloses confidential information

acquired in the course of his employment, except as and when required by any law for
the time being in force or except as permitted by the employer;’’’

• includes in any information, statement, return or form to be submitted to the Institute,

Council or any of its Committees, Director (Discipline), Board of Discipline, Disciplinary
Committee, Quality Review Board or the Appellate Authority any particulars knowing
them to be false;

• defalcates or embezzles moneys received in his professional capacity.

PART III- Other misconduct in relation to members of the Institute generally

A member of the Institute, whether in practice or not, shall be deemed to be guilty of

other misconduct, if he is held guilty by any civil or criminal court for an offence which is
punishable with imprisonment for a term exceeding six months. Further, with a view to
ensure that the Company Secretary in practice carries out his work with due diligence, the
Registrar may carry out scrutiny of Forms on random basis.

Procedure in a hearing before the Council- Regulation 19 of the Company

Secretaries Regulation, 1982

1) The Council shall consider the report of the Disciplinary Committee and if in its

opinion, a further enquiry is necessary, may cause such further enquiry to be made

and a further report submitted by the Disciplinary Committee.

2) After considering such report or further report of the Disciplinary Committee, as

the case may be, where the Council finds that the respondent is not guilty of any

professional or other misconduct, it shall record its findings accordingly and direct

that the proceedings shall be filed or the complaint shall be dismissed as the case

may be.

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3) After considering such report or further report of the Disciplinary Committee, as

the case may be, where the Council finds that the respondent has been guilty of a

professional or other misconduct, it shall record its findings accordingly and shall

proceed in the manner as laid down in the succeeding sub- regulations.

4) Where the finding is that the member of the Institute has been guilty of a professional or

other misconduct, the Council shall afford to the member an opportunity of being heard

before orders are passed against him in the case. The Council after hearing the respondent,

if he appears in person or after considering the representations, if any, made by him, pass

such orders as it may think fit, as provided under Subsection (4) of Section 21.

5) The orders passed by the Council shall be communicated to the complainant and the

respondent.

Multidisciplinary Firm – According to Regulation 165A of the Company Secretaries

Regulations, 1982 inserted by the Company Secretaries (Amendment) Regulations, 2020-
A member in practice may form multi- disciplinary firm with the member of other
professional bodies as prescribed under regulations 168A and 168B of the Company
Secretaries Regulations, 1982, in accordance with the regulating guidelines of the Council
for functioning and regulation of such multidisciplinary firm.

UDIN

The Unique Document Identification Number as governed by the UDIN Guidelines shall
verify the authenticity of various documents signed or certified by Company Secretaries
in Practice. As per the UDIN Guidelines, a unique number for the identification of
documents attested by Company Secretaries in Practice shall be generated at the time of
signing the Certificate/ Report which shall mandatorily be mentioned in the Certificate /
Report along with the CoP number.

What is Unique Document Identification Number (UDIN)?

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UDIN is a 17-digit system generated number which is used to verify the authenticity of
documents attested / certified by a Company Secretary in Practice. Quoting UDIN on
certifications, w.r.t the professional services has been made mandatory w.e.f 1st October,
2019.

The UDIN Guidelines have been issued by the Institute of Company Secretaries of India
(“ICSI”) in order to-

• Enable the stakeholders to verify the authenticity of various documents certified

by Company Secretaries in Practice;
• Prevent counterfeiting of various attestations / certifications;
• Provide ease of maintaining the Register of Attestation /Certification services
rendered by practicing members;
• Ensure compliance of the Guidelines issued by the Institute w.r.t ceilings on the
number of the various certification / attestation services that may be rendered by
the practitioners;
• Auto-prefill details of Certification / Attestation services rendered by practicing
members in of the form for renewal of Certificate of Practice.

It is mandatory to mention UDIN in the Reports, Returns, Certificates and Other

documents along with the Certificate of Practice number.

eCSIN

eCSIN is a system- generated unique number for identification of the Company

Secretaries employed in a particular company which shall be generated by the Company
Secretary at the time of employment as a Company Secretary (KMP or otherwise), as well
as at the time of demitting office in any manner. The members in employment with an
active membership shall register at the designated website. The eCSIN shall be an
eighteen-digit system generated random unique alphanumeric number.

ICSI (Guidelines for Advertisement by Company Secretaries), 2020

The following activities are permitted for a Company Secretary in Practice as means to
advertise:

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(i) Display the scope of work on his/her own website.

(ii) Use of Individual Logo issued by the Council of ICSI.

(iii) Display of Location and décor of the workplace, meeting rooms, etc.

(iv) Display of Firm name, Logo or any other identity on Uniform, Office/s, office

stationary& equipments/ material and providing Training to Staff.

(v) Professional Updates and Write ups in any mode.

(vi) Appearing on local radio or television.

(vii) Giving speeches/lectures at any platform including Seminars, Conferences, training

programmes, Workshops, Conventions, etc so organised by any forum.

(viii) Holding professional seminars, conferences and workshops.

(ix) Sponsoring any event (cultural, professional or otherwise) or helping with

community programmes or doing voluntary work as a professional for charitable

organizations.

(x) Use of social media like Facebook, Instagram, Linkedin, Twitter, Youtube, WeChat,

Telegram and Whatsapp or and other media of similar nature.

Advertisement Restrictions

The Advertisement shall:

(i) not be in violation of provisions of Company Secretaries Act, 1980;

(ii) not be false or misleading;

(iii) not claim superiority over any or all other Company Secretaries;

(iv) not be indecent, sensational or otherwise of such nature which may bring disrepute
to the profession or the Institute (ICSI);
(v) not contain fabricated or false testimonials or endorsements concerning the

Company Secretary;

(vi) not refer the Company Secretaries in the terms such as “specialists” or “experts”;

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Explanation: The advertisements shall not be self-laudatory and not include the

words such as “best,” “better” or “cheapest;”

(vii) not represent that the quality of the professional services to be performed is

greater than the quality of other professionals.

(viii) not constitute a guarantee, warranty, or prediction regarding the outcome of any

professional assignment;

(ix) in no way indicate that the charging of a fee is contingent on outcome, or that no

fee will be charged in the absence of the desired outcome;

(x) not contain any reference to past successes or results

(xi) not be designed for “pleasing customers,” which might mislead or eventually harm

customers or third parties;

(xii) not contain any humorous slogans. E.g. Save Rs. Xxxx Come to us, we will tell you

how.

PROFESSIONAL LIABILITIES

Professional liabilities in context of Company Secretary means the Company Secretary

shall be liable as the officer in default in context of the non-compliances with the
provisions of statutes to which he/she is entrusted with.

For instance, default in filing annual return of company within sixty days from the date on
which the annual general meeting is held, then every officer who is in default shall be
liable to a penalty of ten thousand rupees and in case of continuing failure, with further
penalty of one hundred rupees for each day during which such failure continues, subject
to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case
of an officer who is in default. Further, if a company secretary in practice certifies the
annual return otherwise than in conformity with the requirements of this section or the
rules made thereunder, he shall be liable to a penalty of two lakh rupees.

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Statutory Liabilities
Professional Liabilities
of a Company secretary
may be divided ito two
catgories
Contractual Liabilities

Statutory Liabilities

Statutory liabilities of the Company Secretary refer to those that the Company Secretary
is legally bound to obey. The followings are some of the statutory liability of Company
Secretaries:

(i) Maintenance of all records and documents of the company;

(ii) Arranging a statutory meeting of the company;

(iii) Issuing share certificates, dividend warrants, and bonus share certificates to the

shareholders;

(iv) Preparation of minutes of various meetings and maintaining minute books, etc.

Contractual Liabilities

(i) Liable for breaching or exceeding its authority;

(ii) Liable for disclosing secret information of the company to outsiders;

(iii) Liable for frauds etc.;

(iv) Liable to abide by all terms and conditions of the service contract;

(v) Protect the interest of the company.

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Values, Ethics and Professional Conduct

INTRODUCTION
The term “ethics” is derived from the Greek word “ethos” which refers to character or
Lesson 2
customs or accepted behaviours. The Oxford Dictionary states ethics as “the moral
principle that governs a person’s behaviour or how an activity is conducted”. The
synonyms of ethics as per Collins Thesaurus are – conscience, moral code, morality, moral
philosophy, moral values, principles, rules of conduct, standards.

TYPES/BRANCHES OF ETHICS

Descriptive Ethics Descriptive Ethics is also called comparative ethics because it compares
the ethics or past and present;ethics of one society and other.

Meta-Ethics or “analytical ethics” It deals with the origin of the ethical concepts
themselves. It does not consider whether an action is good or bad, right or wrong. Rather,
it questions – what goodness or rightness or morality itself is. It is basically a highly
abstract way of thinking about ethics. It’s a study of “ethical action” and sets out the
rightness or wrongness of the actions. It is also called prescriptive ethics because it rests
on the principles which determine whether an action is right or wrong.

Applied Ethics It deals with the philosophical examination, from a moral standpoint, of
particular issues in private and public life which are matters of moral judgment. This
branch of ethics is most important for professionals in different walks of life including
doctors, teachers, administrators, rulers and so on. There are six key domains of applied
ethics viz. Decision ethics {ethical decision making process}, Professional ethics for good
professionalism}, Clinical Ethics {good clinical practices}, Business Ethics{good business
practices}, Organizational ethics {ethics within and among organizations} and social ethics.

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KEY DIFFERENCES BETWEEN ETHICS AND VALUES

• Ethics refers to the guidelines for conduct, that address question about morality.
Value is defined as the principles and ideals, which helps them in making the
judgement of what is more important.

• Ethics is a system of moral principles. In contrast to values, which is the stimuli of

our thinking.

• Values strongly influence the emotional state of mind. Therefore it acts as a

motivator. On the other hand, ethics compels to follow a particular course of action.

• Ethics are consistent, whereas values are different for different persons, i.e. what is
important for one person, may not be important for another person.

• Values tell us what we want to do or achieve in our life, whereas ethics helps us in
deciding what is morally correct or incorrect, in the given situation.

• Ethics determines to what extent our options are right or wrong. As opposed to
values, this defines our priorities for life.

ETHICAL PRACTICES

• Beneficence: The principle of beneficence guides the decision maker to do what is

right and good. This is also related to the principle of utility, which states that one
should attempt to generate the largest ratio of good over evil possibility.

• Least Harm: This theory deals with situations in which no choice appears beneficial. In
such cases, decision makers seek to choose to do the least harm possible and to do
harm to the fewest people. This principle is mainly associated with the utilitarian ethical
theory discussed below.

• Utilitarian: This is a normative ethical theory that places the locus of right and wrong
solely on the outcome or consequences of choosing one action/policy over other.

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• Autonomy: This principle states that decision making should focus on allowing people
to be autonomous; that is, to be able to make decisions that apply to their own
workplace or lives. In other words, people should have control over their own selves
as much as possible because they are the only people who completely understand
their chosen type of work/life style.

• Justice: The justice ethical principle states that decision makers should focus on actions
that are fair to all those involved. This means that ethical decisions should be
consistent with the ethical circumstances that can be justified and exist in the case.

PROFESSIONAL ETHICS

Ethics arises from three main factors, moral attitudes as a result of consciousness or
awareness-raising, culture as a result of education and the use of know-how and the
application of standards as a result of learning and training.

Parameters for professional ethics:

 Complying with the laws of land where business is conducted and engaging in fair
practices in the light of social ethics.

 Aiming to become a sensible corporate citizen, and striving for harmony with local
society.

 Disclosing information in a timely manner, and engaging in honest and transparent

communications mode.

 Protecting the irreplaceable earth and contributing to the preservation of the

environment.

 Respecting fundamental human rights and individuality, and building up a corporate

culture with a broad vision which fosters the spirit of corporate ethics.

MODEL ETHICAL PRINCIPLES FOR COMPANY SECRETARIES

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• Strive for excellence: This is the first step to achieving greatness in whatever
endeavor one undertakes; it is the quality that marks one’s work to stand-out.
Excellence is a quality of service which is remarkably good and so it surpasses ordinary
standards, it should be made a habit to make a good impression on clients and
colleagues.

• Be trustworthy: In today’s society trust is an issue and one who exhibits

trustworthiness is on a fast track to professionalism. It is all about fulfilling an assigned
task, not letting down the client’s expectations.

• Be accountable: It implies that one should be able to stand tall and be counted upon
for all actions undertaken; this is also construed as a quality of being credible and
responsible for actions performed and their consequences - good or bad Be courteous
and respectful: Courteousness is more than being friendly, polite and well- mannered
with a gracious consideration towards others.

• Be honest, open and transparent: Honesty is a facet of moral character that connotes
positive and virtuous attributes such as truthfulness, straightforwardness, good
conduct, loyalty, fairness, sincerity and openness in communication.

• Be competent and improve continually: Competence is the core ability of a

professional to do a job properly. It is a combination of quality of knowledge, skill,
acumen and behaviour used to perform.

• Be ethical: Ethical behavior is acting within certain moral codes in accordance with
the generally accepted code of conduct or rules. It is always safe for a professional to
“play by the rules” where the rule book is inadequate; and acting with a clear moral
conscience is the right way to adopt.

• High Integrity: Honorable action is behaving in a way that portrays “nobility of soul,
magnanimity of person” derived from virtuous conduct and integrity in adherence to
the dictum of “wholeness or completeness” of character in line with certain values,
beliefs and principles with consistency in action and outcome.

• Be respectful of confidentiality: Confidentiality is respecting the set of rules or

promises that restricts one from further or unauthorized dissemination of information.

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One gains trust and respect of those confiding and enhances professional credibility
within the organization.

• Set Good Examples: Applying the foregoing rules helps one to improve traits of
professionalism by imparting knowledge to those around and below the rank and file.

ICSA UK code:
Integrity

Integrity is the quality of being honest and having strong moral principles. The term has
been described judicially as connoting “moral soundness, rectitude, and steady adherence
to an ethical code”.

It requires that members are impartial, independent and informed. Displaying integrity
includes:

• acting professionally in your business dealings;

• displaying a proper understanding and appreciation of your role and

responsibilities;

• being respectful of others at all times;

• not accepting or offering improper gifts, hospitality or other inducements;

• avoiding conflicts of interest, or, where a conflict arises, making sure that everyone

involved is awareof the interest.

High standard of service/professional competence

A high standard of service or professional competence should be delivered throughout

one’s working life. This involves an understanding of relevant technical, professional and
business developments. Professional competence also takes account of the wider
implications and expectations of our members.

This includes:

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• maintaining professional knowledge and skills which are required to perform the
role which you are employed to carry out;
• completing CPD as required by the UKRIAT Committee (this does not apply to
students);
• communicating effectively and promptly with your clients, colleagues and
stakeholders to ensure thatthey are able to make informed decisions;

Professional behavior

Disciplinary proceedings for unprofessional behaviour:

• becoming bankrupt or insolvent;

• being convicted of an offence which might bring discredit on the Institute or the

profession;

• failing to uphold the code of professional conduct and ethics;

• behaving, by doing something or not doing something, in a way considered by the

Disciplinary Tribunal to bring the Institute or the profession into disrepute;

• disobeying any decisions of the Council or of one of its Divisional Committees;

• breaking any of the Institute’s byelaws or Charter or Regulations;

• failing to comply or co-operate with a disciplinary investigation; or

• failing to comply with a decision or any conditions made by a Disciplinary or Appeal

Tribunal.

The Singapore association of the Institute of Chartered Secretaries and Administrators

(ICSA) requires members to observe the highest standards of professional conduct:

 Members are required to uphold the Institute's Charter and comply with the Bye-
laws.

 Members shall at all times be cognizant of their responsibilities as professional

people toward the wider community.

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 Members shall at all times safeguard the interests of their employers, colleagues
or clients provided that Members shall not knowingly be a party to any illegal or
unethical activity.

 Members shall not enter into any agreement or undertake any activity which may
be in conflict with the legitimate interest of their employer or client or which would
prejudice the performance of their professional duties.

 Members shall not use any confidential information obtained in the performance
of their duties for personal gain nor in a manner which would be detrimental to
their employer, client or any other party.

 Members shall ensure the currency of their knowledge, skills and technical
competencies in relation to their professional activities.

 Members shall refrain from conduct or action which detracts from the reputation
of the Institute.

ICSI CODE OF CONDUCT

Fundamental duties of Professional

(i) Fair Dealing

A professional must also:

 act in the best interests of a client in any matter in which he represents the client;

 be honest and courteous in all dealings in the course of legal practice;

 deliver legal services competently, diligently and as promptly as reasonably

possible;

 avoid any compromise to their integrity and professional independence; and

 comply with applicable Rules and the law.

Professional Opportunity

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The professional should not exploit for their own personal gain, opportunities that are
discovered through third party, information or position unless the opportunity is disclosed
fully in writing and permits to pursue such opportunity.

Mistakes of other solicitor

A professional must not take unfair advantage of the obvious error of another
professional or other person, if to do so would obtain for a client a benefit which has no
supportable foundation in law or fact.

Confidentiality

A professional must not disclose any information which is confidential to a client and
acquired by him during the client’s engagement to any person who is not:

 A partner, promoter, director, or employee of the firn of the professional; or

 a professional or an employee of, or person otherwise engaged by, the firm of
professional or by an associated entity for the purposes of delivering or administering
legal services in relation to the client, except the following:
1. The client expressly or impliedly authorizes disclosure;

2. the professional is permitted or is compelled by law to disclose;

3. the professional discloses the information in a confidential setting, for the sole
purpose of obtaining advice in connection with the solicitor’s legal or ethical
obligations; serious criminal offence;

Inadvertent disclosure

A professional who reads part or all of the confidential material before becoming aware
of its confidential status must:

 notify the same or the other person immediately; and not read any more of the
material.

 If a professional is instructed by a client to read confidential material received in

error, the solicitor must refuse to do so.

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Conflicts

Any situation that involves or may involve a conflict of interest must be promptly
disclosed. A professional must not act for a client where there is a conflict between the
duty to serve the best interests of a client and the interests of the professional or an
associate of the professional, except as permitted.

A professional must not exercise any undue influence intended to dispose the client to
benefit the professional in excess of the professional fair remuneration for legal services
provided to the client.

Dealing with other persons

A professional must not in any action or communication associated with representing a

client:

• make any statement which grossly exceeds the legitimate assertion of the rights or
entitlements of the client, and which misleads or intimidates the other person;

• threaten the institution of criminal or disciplinary proceedings against the other

person if a civil liability to the client is not satisfied; or

• use tactics that go beyond legitimate advocacy and which are primarily designed to
embarrass or frustrate another person.

Anti- discrimination and Harassment

A professional must not in the course of practice, engage in conduct which constitutes:

 discrimination;

 sexual harassment

 workplace bullying – “bully by proxy”

Dealing with the Media

A professional must not publish or take steps towards the publication of any material
concerning current proceedings which may prejudice a fair trial or the administration of

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justice. Ethical Dilemma Ethical Dilemma is the situation where a person’s view regarding
selecting an object or the alternative includes series of outcomes, which is very confusing.
Each outcome has a serious overlapping outcome, which cannot be at a time wrong for
one person but the same may be ethically wrong for the other. An “absolute” or “pure”
ethical dilemma only occurs when two (or more) ethical standards apply to a situation but
are in conflict with each other. In ethical dilemma if we obey one decision then it would
bring about disobeying another. Ethical dilemma is also known as moral dilemma. Ethical
dilemmas make the situations too difficult. A person has to choose only one way from
two of them - a moral or an immoral way.

Some examples of ethical dilemmas include:

 A secretary discovers her boss has been laundering money, and she must decide
whether or not to turn him in

 A doctor refuses to give a terminal patient morphine, but the nurse can see the patient
is in agony • While responding to a domestic violence call, a police officer finds out
that the attacker is the brother of the police chief, and the police chief tells the officer
to “make it go away”

 A government contractor discovers that intelligence agencies have been spying on its
citizens illegally, but is bound by contract and legalities to keep his confidentiality
about the discovery

Common Causes of Loss of Ethics and Values

1. Unclear Policies in some cases, managers and employees exhibit poor ethical
behaviour because the company does not offer a clear model of ethics. Some
businesses have no formal ethical policy documents and offer no guidance at all.
Others have policies that are unclear, vague, inconsistent or not consistently enforced.

2. Conflict between Organizational & Individual Goal: When the Organizational &
Individual Goals overlap, it becomes difficult to balance things. The problem arises
when one thing has to be sacrificed for the sake of others. To achieve Organizational
goal, Individual goal, has to be compromised and vice versa so this leads to Ethical
Dilemma.

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3. Cultural Value & Background: Every individual decision is based on background. For
some people it may be ethical to give priority for self and then decide about others
but for some others it may be other way round. Thus background & value system
creates the ethical Dilemma.

4. Situation when a decision is taken by a manager, it may be so that situation demands

him to decide on certain things which dealing with Ethical Dilemmas Each Company’s
culture is different, but some companies stress profits and results above all. In these
environments, management may turn a blind eyeto ethical breaches if a worker
produces results, given the firm’s mentality of “the end justifies the means.” are not
beneficial for all but will benefit the company alone. Example - Automation of a plant.

5. Dynamic & Different Human Nature: Ethical Dilemma arises due to difference of the
opinion among the group of people. Whatever is ethical for one person may be
unethical for another.

6. Ambition and Discrimination Individual workers may be under financial pressure or

simply hunger for recognition. If they can’t get the rewards they seek through
accepted channels, they may be desperate enough to do something unethical, such
as falsifying numbers or taking credit for another person’s work to get ahead.

7. Pressure from Management: Each company’s culture is different, but some companies
stress profits and results above all. In these environments, management may turn a
blind eye to ethical breaches if a worker produces results, given the firm’s mentality of
“the end justifies the means.” Whistle-blowers may be reluctant to come forward for
fear of being regarded as untrustworthy and not a team player. Therefore, ethical
dilemmas can arise when people feel pressurized to do immoral things to please their
bosses or when they feel that they can’t point out their co-workers’ or superiors’ bad
behaviors.

8. Negotiation Skills: While these factors can cause ethical dilemmas for workers within
their own companies, doing business with other firms can also present opportunities
for breaches. Pressure to get the very best deal or price from another business can
cause some workers to negotiate in bad faith or lieto get a concession.

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9. Conflicting Values: Ethical dilemmas may occur because of conflicting values between
two or more people in an organization. One manager may value product quality over
quantity while another may value thriftiness. These managers may discuss changing
to a cheaper supplier for a material used in production because of the potential to
save money. However, the first manager may object because he knows the cheaper
material will produce a product of lesser quality, which is not good for customers.
Without a culture of shared values, the least ethical choice may be approved.

HOW TO RESOLVE ETHICAL DILEMMA

Think about outcomes if you find yourself in a situation when this approach doesn’t work,
you can resolve a right versus right dilemma by finding the highest “right.” Kidder wrote
that there are three ways to make the bestchoice when faced with these types of
dilemmas:

⌂ Ends-based: Select the option that generates the most good for the most people.

⌂ Rule-based: Choose as if you’re creating a universal standard. Follow the standard

that you want others to follow.

⌂ Care-based: Choose as if you were the one most affected by your decision. Once
you’ve identified an ethical right versus right dilemma, lay out your options
according to these three principles. One approach will immediately present itself
as the “most right”.

STRATEGY FOR OVERCOMING FROM THE EVILS

The human traits and characteristics shape human behavior and a few probable solutions
are explained below:

1. Satisfaction
To achieve happiness it is essential that the culture of ‘being satisfied’ is developed.
However, the most challenging and unanswerable question on satisfaction is “How
much is Enough” The issue is very difficult to resolve especially in the corporate field
where expansion is the prime direction in which it is supposed to move.

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2. Ends not to justify the means

It is essential to note that however worth the cause may be, the means to achieve the
same should also be equally valid. An irregular or an unethical action leading to a good
outcome may not necessarily justify the method of achieving the goal.

3. Ethical Leadership
The Professional should lead the organisation like Krishna as he led Pandvas to success
by guiding them to fight morally. It is the duty of the leader driving the organization
to ensure use of proper and ethical means in his conduct.

4. Character
Professional should always consider the old idiom: If Character Is Lost Everything Is
Lost. The idiom amply highlights the importance of good character. Character is
generally built or earned by virtues like courage, honesty, values and ethics. Great
leaders and eminent personalities are judged by their character. A good character is
synonymous to reliability.

United Drags a Bloodied Passenger Off a Flight

United Airlines felt the fallout worldwide when two security officers forcibly removed
a bloodied passenger off an overbooked United flight Consumers worldwide reacted
with horror and quickly called for a boycott. Making matters worse: United CEO Oscar
Munoz apologized for the incident in rather sanitized corporate speak, saying“this is
an upsetting event to all of us here at United” — underestimating just how viscerally
disturbing the video had been, and how dissatisfied fliers were with the airline industry.
Adding salt to the open wound, media reports revealed that Munoz had called Dao
“disruptive and belligerent” in a letter to employees. While the incident wasn’t
expected to hurt profits, the debacle struck a chord among consumers who have dealt
with years of flagging service standards aboard flights. Even after Dao and United
settled out of court, the frustrations unleashed upon airlines would not stop, with
complaints against airlines up 13% in the six months following the incident, according
to data from the U.S. Department of Transportation.

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21st Century Fox and Bill O’Reilly

Sexual harassment allegations plagued many companies in 2017, including the

entertainment giant 21st Century Fox. Fox’s woes started in 2016, with former anchor
Gretchen Carlson filing a lawsuit against Fox News Channel’s news chief Roger Ailes,
alleging sexual harassment. But it didn’t stop there. it was reported that star commentator
Bill O’Reilly had paid five millions to keep allegations of sexual harassment in the dark.
Upon hearing the news, advertisers hastily suspended their segments during the O’Reilly
Factor. By April, O’Reilly was out. Still, the news was upsetting to shareholders who
considered the multiple allegations a sign of a company culture that allowed for sexual
harassment. Adding fuel to the fire: Fox reportedly knew of the claims against O’Reilly
when it decided to give him a new contract in January. Thus in November, Fox agreed to
pay $90 million to settle shareholder claims related to the O’Reilly and Ailes scandal, and
create a council focused on creating a proper workplace environment.

Alphabet and Face book

The year following the presidential election became one for Congress and internet titans
to rethink their role in the democratic process. Amid speculation that fake news spread
on social media may have influenced the 2016 elections, giants such as Facebook and
Google appeared to dismiss the possibility. But that changed in 2017, with Facebook and
Google which derive a major chunk of their revenue from ad placements both saying that
they had found accounts tied to the Russian government. Facebook reported some 3,000
Kremlin-linked ads aimed at dividing the country that had been bought on its platform.
Google, meanwhile, found tensof thousands of ads bought by Russia-linked entities on
YouTube and Gmail. Twitter also revealed that a news outlet paid for by the Russian
government, Russia Today, had spent $274,000 in ads on the platform in 2016.There’s no
indication that the questions will stop any time soon. Twitter, Facebook, and Google are
still investigating how much Russian activity there had been on their platforms. Adding to
big tech’s big problems: Congress appears to be taking a harder stance against the sector,
with some on Capitol Hill questioning theway they are getting users to keep coming back.

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Samsung’s Bribery Charges

In 2016, Samsung dealt with exploding Note 7 batteries. In 2017, it was imploding
corporate ranks. Originally planning to put their Lee Jae-yong at the head of the empire,
the family-run Samsung conglomerate is now facing questions of succession after Lee
was caught in a sprawling political scandal that took down former South Korean President
Park Guen-hye. Lee Jae-yong is now facing five years (and potentially 12) in jail for offering
allegedly offering bribes to Park, embezzlement, and hiding assets overseas. Samsung
Electronics co-CEO Kwon Oh-hyun meanwhile also resigned in October, citing Samsung’s
leadership woes. “As we are confronted with unprecedented crisis inside out, I believe that
time has now come for the company [to] start anew, with a new spirit and young
leadership to better respond to challenges arising from the rapidly changingIT industry,”
he said in a statement. While Samsung’s long-term health is still on shaky ground, the
company’s near-term outlook belies those worries. The company posted record-breaking
profits in the third quarter of $12.8 billion, almost triple the number it posted a year earlier.

Apple’s Slowed Down iPhones

The tech giant’s year ended with a bang, after reports that Apple had purposely slowed
down older iPhones to compensate for decaying batteries. It appeared to feed into a long-
time conspiracy theory among some Apple users: that the company had been purposely
slowing down old models when a new version came out in a bid to force consumers to
upgrade. Now, the company is facing lawsuits for allegedly slowing down the devices
without first warning consumers. In response, Apple has apologized for slowing down the
iPhones, calling it a “misunderstanding,” and offered to sell battery replacements for $29
instead of the usual $79. Apple has saidthat once the battery is replaced, the iPhone’s
speed will pick up again.

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Ethical Decision Worksheet

This worksheet is designed for assisting in making ethically responsible decision:

1. Analyse the situation?

Analyse the situation?

Check whether you have choices?

What is at stake?

2. Understand the facts

What are the facts?

Is anything required to be done?

3. Understand the options available

What al options are available?

Do any Rule/regulation/laws/professional ethics influence your options?

4. Understand the consequences of the options

What are the consequences of each available option?

Who will be affected by each available option?

How will the parties be affected by these option?

5. Test the option you plan to take

Identify the best option.

Review the difficulty level of preferred option:

Is the option difficult for others to understand?

Can I justify my actions on that option?

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How to implement the decision?

6. Explain the option you have decided upon

Explain the actions – you should be able to justify them in a logical manner
You should have

kept records of your decision.

7. Act on the chosen option

Make a plan to implement your decision?

8. Reflect on the outcome

How did my decision turn out? Who was affected and how?

Organisation for Economic Co-operation and Development (OECD) has also described
various principles on “Corporate Governance” one of these Principle includes Disclosure
and Transparency, which states “The Corporate Governance framework should ensure that
timely and accurate disclosure is made on all material matters regarding the corporation,
including the financial situation, performance, ownership, and governance of the
company.”

An Organization Transparency checklist includes the below mentioned traits:

• Board meetings (Dates, times and locations of Board meetings are conveyed at

least one week in advance of the meetings)

• Financial disclosure statements (Non-profits should consider posting their audited

financial statements on their website)

• Freedom of information legislation (Rules that guarantee access to data held by

the state; they establish a “right-to-know” legal process where requests can be

made for government-held information)

• Budgetary reviews

• Annual audits

• Annual Reports (Posted on the organization’s website for easy access)

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• Strategic plans and priorities

• Board of Directors and names of key staff as well as their contact information

(Posted on the organization’s website)

• Straight talking leadership

• Open culture and operations (many voices on behalf of the organization)

• Disclosed partnerships
• Frank, open communications including the good and bad.
• Core Values & Code of Conduct.

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Non-Compliances, Penalties and Adjudications

INTRODUCTION-
Particulars Civil Law Criminal Law

Deals With Lesson 2

Private disputes or defaults. Offences that are committed
against the society.

Objective To resolve or redress and to To punish the offender and is

make good the loss or damages reflection of the public policy of a
suffered by one party on country.
account of any act or omission
by other party.
Power of The court in such cases can only In these cases the court is
Court pass judgement to compensate empowered to charge a fine,
for damage done to the imprison the guilty of a crime, or
aggrieved party. discharge the defendant.

NON-COMPLIANCES UNDER COMPANIES ACT, 2013

Difference between Fine & Penalty

FINE PENALTY

A fine is a penalty of money that a court of Penalty is “a punishment imposed for

law or other authority decides has to be breaking a law, rule, or contract.” In
paid as punishment for a crime or other general language a penalty is imposed by
offense. an appropriate authority when a person
have not complied with the law but have
not committed any offence.

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Fine has been used as punished for Penalty has been used to indicate civil
criminal offence. offence

Fine can be imposed only by a court of law. penalty may be imposed even by an
administrative officer.

Fine is imposed as a punitive measure. Penalty is imposed as a compensatory

measure or for breach of civil obligation.

Offences to be Non-cognizable [Section 439]

A non-cognizable offence as per section 2(l) of the CrPC means an offence for which, a
police officer has no authority to arrest without a warrant.

Offences to be Cognizable and Non-Bailable under Section 212(6)

Section 212(6) provides, offence covered under section 447 of the Companies Act, 2013
shall be cognizable and no person accused of any offence under those sections shall be
released on bail or on his own bond unless-

1. the Public Prosecutor has been given an opportunity to oppose the application for
such release; and

2. where the Public Prosecutor opposes the application, the court is satisfied that
there are reasonable grounds for believing that he is not guilty of such offence and
that he is not likely to commit any offence while on bail:

Provided that a person, who, is under the age of sixteen years or is a woman or is sick or
infirm, may be released on bail, if the Special Court so directs:

Provided further that the Special Court shall not take cognizance of any offence referred
to this sub-section except upon a complaint in writing made by –

1. the Director, Serious Fraud Investigation Office; or

2. any officer of the Central Government authorized, by a general or special order in

writing in this behalf by that Government.

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Broadly the offences under the Act are classified, for the purpose of punishment, into two
categories, namely, –

1. offences involving frauds

2. other offences.

Further, the offences under Act are also classified into:

Accordingly, all other offences, i.e., offences punishable with (a) fine only, or (b) fine or
imprisonment and (c) fine or imprisonment or both are compoundable offences under
the Act.

Decriminalization of Offences under the Companies Act, 2013- Reduction in

Penalties

(a) withdrawal of exemptions available to a private company,

(b) company becoming ineligible to undertake buy-back of its equity shares or other
specified securities,

(c) disqualification of directors, and

(d) company being classified into an inactive company etc.

Following is overview of penal provisions under Chapter XXIX (Miscellaneous) of

the Companies Act, 2013

Sr.no Section Particulars

1) 447 Punishment for frauds

2) 448 Punishment for false statement

3) 449 Punishment for false evidence

4) 450 Punishment where no specific penalty or punishment is provided

5) 451 Punishment in case of repeated default

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6) 452 Punishment for wrongful withholding of property

7) 453 Punishment for improper use of ‘Limited’ or ‘Private Limited’

8) 454 Adjudication of Penalties

9) 454A Penalties for repeated defaults

Section 447-Punishment for Fraud

Key definitions relating to ‘fraud’:

• “Fraud” in relation to affairs of a Company or any body

corporate, includes any act, omission, concealment of
any fact or abuse of position committed by any person or
any other person with the connivance in any manner,
“Fraud”
with intent to deceive, to gain undue advantage from, or
to injure the interests of, the company or its shareholders
or its creditors or any other person, whether or not there
is any wrongful gain or wrongful loss.

• “wrongful gain” means the gain by unlawful means of

“Wrongful gain” property to which the person gaining is not legally
entitled.

“Wrongful loss” • “wrongful loss” means the loss by unlawful me

Section 447 stipulates that without prejudice to any liability including repayment of any
debt under this Act or any other law for the time being in force, any person who is found
to be guilty of:

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FRAUD PUNISHMENTS

Involving an amount of at least Rs. 10 • imprisonment for a term which shall

Lakhs or 1% of the turnover of the not be less than 6 months but which
company, whichever is lower may extend to 10 years; and

• shall also be liable to fine which shall

not be less than the amount involved
in the fraud, but which may extend to
three times the amount involved in the
fraud.

Where the fraud in question involves term of imprisonment shall not be less
public interest than 3 years

Involves an amount less than Rs. 10 Lakhs imprisonment for a term which may
or 1% of the turnover of the company, extend to 5 years or with fine which may
whichever is lower, and does not involve extend to Rs. 50 Lakhs or with both.
public interest, any person guilty of such
fraud shall be punishable with:

CASE LAW

In Re Komal Chadha Vs. Serious Fraud Investigation Office, high Court of Delhi BAIL
APPLN. NO. 1740 OF 2022, The accused-petitioner was summoned in the matter
through the summoning order made by the Special Judge (Companies Act) stating that
she was the director of PPPL (first accused), being the wife of Suman Chadha, who was
the other director of the company.

The gravamen of the offences alleged under section 447 of the Companies Act, 2013
was that the company, which was engaged in the trade of plastic granules, indulged in
cash sales, in fictitious sale of food grain and in creation of accommodation/adjustment
accounting entries, apart from misuse of cheque discounting facilities. It was also
alleged that the company manipulated financial statements, to project substantial

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growth in its revenues, to mislead banks, so as to induce them to extend and enhance
credit limits, which monies were not used towards the business activity of the company
but were diverted and siphoned-off to other entities, with no genuine underlying
business transactions, thereby indulging in fraudulent diversion of funds to sister
concerns.

This order which was based upon the criminal complaint filed by the SFIO under section
212(15), showed that the role ascribed to the petitioner was that of being an ‘officer
who was in default’ within the meaning of section 2(60), since the petitioner was a
director of the company and was liable for the affairs of the company under section
212(14).

Hence, petitioner being accused sought regular bail in the matter.

It was held that since there was no allegation against petitioner either intimidating any
witnesses or tampering with evidence or otherwise interfering in course of investigation,
she was to be admitted to regular bail.

Section 448-Punishment for False Statement

If in any return, report, certificate, financial statement, prospectus, statement or other

document required by, or for, the purposes of any of the provisions of this Act or the rules
made thereunder, any person makes a statement, —

• which is false in any material particulars, knowing it to be false; or

• which omits any material fact, knowing it to be material,

he shall be liable under section 447 (Punishment for Fraud).

CASE LAW

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In Re Usha Martin Telematics Ltd. Vs. Registrar of Companies C.R.R. 494 OF 2019, High
Court Of Calcutta, the petitioner company applied to Reserve Bank of India for being
registered as Core Investment Company (CIC) pursuant to Core Investment Companies
(Reserve Bank) Directions, 2011 following which Reserve Bank of India sought certain
clarifications and documents from petitioner company.

A meeting of Board of Directors of company was held and in course of preparing

minutes of said meeting in compliance with section 118(1), it was erroneously recorded
in minutes that company submitted application with Reserve Bank of India for its de-
registration as NBFC and registration as a CIC. Such recording was an
inadvertent/typographical error as company was not a registered Non-Banking
Financial Company (NBFC) at relevant time and question of de-registration as NBFC did
not arise, however, said error was detected by company subsequently and in a meeting
of its Board of Directors said error was rectified.

A complaint case was filed by opposite party before Special Court, for offence
punishable under section 118, read with section 448.

It was held that the typographical/inadvertent error in recording of minutes which was
rectified subsequently could under no stretch of imagination be termed as an offence,
far less an offence under provisions of Companies Act as alleged. The complaint lodged
by opposite party did not prima facie reflect intent to deceive, gain undue advantage
or injure interest of company or any person connected thereto on part of petitioners
and, therefore, proceeding in respect of complaint case was liable to be quashed.

Section 449-Punishment for False Evidence

if any person intentionally gives false evidence -

• upon any examination on oath or solemn affirmation, authorized under this Act;
or
• in any affidavit, deposition or solemn affirmation, in or about the winding up of
any company under this Act, or otherwise in or about any matter arising under
this Act,

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he shall be punishable with imprisonment for a term which shall not be less than three
years but which may extend to seven years and with fine which may extend to Rs. 10
Lakhs.

Section 450-Punishment Where No Specific Penalty or Punishment is Provided

If a company or any officer of a company • the company and every officer of the
or any other person contravenes any of the company who is in default or such
provisions of this Act or the rules made other person shall be liable to a penalty
thereunder, or any condition, limitation or of Rs. 10,000, and
restriction subject to which any approval,
• in case of continuing contravention,
sanction, consent, confirmation,
with a further penalty of Rs. 1000 for
recognition, direction or exemption in
each day after the first during which
relation to any matter has been accorded,
the contravention continues, subject to
given or granted, and for which no penalty
a maximum of Rs. 2 Lakhs in case of a
or punishment is provided elsewhere in
company and Rs. 50,000 in case of an
this Act:
officer who is in default or any other
person.

CASE LAW

In Re Doha Brokerage & Financial Services Ltd. Vs. Registrar of Companies C.P. NO. 13
(KOB) OF 2020 National Company Law Tribunal, Kochi Bench, it was held that the
petitioner sought compounding of offence punishable under section 450, wherein
petitioner-company allotted equity shares to its subsidiary company in violation of
section 19 (Subsidiary Company not to Hold Shares in its Holding Company), each
officer in default as members of Board of Directors was to be subjected to a fine of Rs.
5000 as a deterrent for not repeating default in future and offence was ordered to be
compounded subject to remittance of compounding fee imposed.

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Section 451- Punishment in Case of Repeated Default

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.

CASE LAW

In Re Pahuja Takii Seed Ltd. Vs. Registrar of Companies, NCT of Delhi & Haryana
Company Appeal (AT) NOS. 80 TO 83 OF 2018 National Company Law Appellate
Tribunal, New Delhi, in this matter it was held that there is no bar on preferring a single
application for compounding same offence committed during different financial years
by company and its officers.

Section 452- Punishment for Wrongful Withholding of Property.

(1) If any officer or employee of a company-

• wrongfully obtains possession of any property, including cash of the

company; or

• having any such property including cash in his possession, wrongfully

withholds it or knowingly applies it for the purposes other than those
expressed or directed in the articles and authorised by this Act,

he shall, on the complaint of the company or of any member or creditor or contributory

thereof, be punishable with fine which shall not be less than Rs. 1 lakh but which may
extend to Rs. 5 Lakhs.

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Section 453-Punishment for Improper Use of “Limited” or “Private Limited”

Punishable with fine which shall not be less than Rs. 500 but may extend to Rs. 2000 for
every day for which that name or title has been used.

Comprehensive list of Penalties under the Companies Act, 2013

Sections Particulars Penalty

After reservation of name, if • the person making

Section 4(5) – information given is not application shall be liable
Reservation of Name correct then: to a penalty which may
If the company has not been extend to Rs. 1 Lakh.
incorporated, the reserved
name shall be cancelled; and

• the company shall be

If any default is made in liable to a penalty of
Section 10A- complying with the Rs.50,000 and
Commencement of requirements of this section • every officer who is in
business etc. default shall be liable to
a penalty of Rs.1000 for
each day during which
such default continues
but not exceeding an
amount of Rs. 1 Lakh.

If any default is made in • the company and every

Section 12(8)- complying with the officer who is in default
Registered office of requirements of this section shall be liable to a
company penalty of Rs.1000 for
every day during which
the default continues but
not exceeding Rs. 1 Lakh.

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Default in noting alteration • the company and every

Section 15(2)- made in the memorandum officer who is in default
Alteration of or articles of a company in shall be liable to a
Memorandum or every copy of the penalty of Rs.1000 for
Articles to be noted memorandum or articles every copy of the
in every copy memorandum or articles
issued without such
alteration.

If a Company makes any • the Central Government

Section 16(3)- default in registration of shall allot a new name to
Rectification of Name name as in the opinion of the company in such
of Company Central Government the manner as prescribed
name for registration is and the Registrar shall
identical to the name of enter the new name in
company already registered the register of
companies in place of
the old name and issue a
fresh certificate of
incorporation with the
new name, which the
company shall use
thereafter.

If on request of member, • the company and every

Section 17(2)- Copies company has not provided officer of the company
of memorandum, them a copy of: who is in default shall be
articles, etc., to be (i) MOA; liable for each default, to
given to members (ii) AOA; and a penalty of Rs.1000 for
(iii) every agreement and each day during which
every resolution referred in such default continues or
sub-section (1) of section Rs. 1 lakh, whichever is
117 less.

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(i) If the company has not • the company and its

Section 39(5)- returned the application officer who is in default
Allotment of money received shall be liable to a
Securities by Company (ii) If a company having a penalty, for each default,
share capital has not filed of Rs.1000 for each day
return of allotment with during which such
Registrar default continues or Rs. 1
Lakh, whichever is less.

Defaults in filing the return • the company, its

Section 42(9)- Offer or of allotment within the promoters and directors
invitation for period prescribed shall be liable to a
subscription of penalty for each default
securities on private of Rs.1000 for each day
placement during which such
default continues but not
exceeding Rs.25 Lakh.

If a company makes an offer • the company, its

Section 42(10)- Offer or accepts monies in promoters and directors
or invitation for contravention of this section shall be liable for a
subscription of penalty which may
securities on private extend to the amount
placement raised through the
private placement or
Rs.2 Crore, whichever is
lower, and
• the company shall also
refund all monies with
interest to subscribers
within a period of thirty
days of the order
imposing the penalty.

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Failure of company to • such company and every

comply with the provisions officer who is in default
Section 53(3)- of this section shall be liable to a
Prohibition on issue of penalty which may
shares at discount extend to an amount
equal to the amount
raised through the issue
of shares at a discount or
Rs.5 Lakhs, whichever is
less, and
• the company shall also
be liable to refund all
monies received with
interest at the rate of
12% per annum from the
date of issue of such
shares to the persons to
whom such shares have
been issued.

If any default is made in • the company - penalty of

Section 60(2)- complying with the Rs.10,000 and every
Publication of provisions of publication of officer of the company
authorised, subscribed Authorised, Subscribed and who is in default shall be
and paid-up capital Paid-Up Capital on liable to pay a penalty of
Companies letter heads, Rs.5000, for each default.
business heads

If a Company fails to send • penalty of Rs.500 for

Section 64(2)-Notice notice to Registrar after each day during which
to be Given to alteration of Share Capital such default continues,
Registrar for subject to a maximum of
Alteration of Share Rs.5 Lakh in case of a
Capital company; and

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• Rs.1 Lakh in case of an

officer who is in default

Section 86- If a Company contravenes • the company shall be

Punishment for the provisions of Chapter VI- liable to a penalty of Rs.5
contravention of Registration of Charges Lakh; and
provisions of Charges • every officer of the
company who is in
default shall be liable to
a penalty of Rs.50,000.
Section 88(5)- If a company does not • the company shall be
Register of Members, maintain a register of liable to a penalty of Rs.3
etc. members or debenture- Lakhs; and
holders or other security • every officer of the
holders or fails to maintain company who is in
them in accordance with the default shall be liable to
provisions of sub- section (1) a penalty of Rs.50,000.
or sub-section (2)

(i) If any person fails to make • he shall be liable to a

a declaration penalty of Rs.50000 and
Section 89- (ii) If a company, required to in case of continuing
Declaration in Respect file a return under sub- failure, with a further
of Beneficial Interest section (6), fails to do so penalty of Rs.200 for
in any Share before the expiry of the time each day after the first
specified therein during which such failure
continues, subject to a
maximum of Rs.5 Lakhs.
• the company and every
officer of the company
who is in default shall be
liable to a penalty of
Rs.1000 for each day
during which such failure

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continues, subject to a
maximum of Rs. 5 Lakhs
in the case of a company
and Rs. 2 Lakhs in case
of an officer who is in
default.

(i) If any person fails to make • he shall be liable to a

a declaration as required penalty of Rs.50,000 and
Section 90- Register under sub-section (1) in case of continuing
of significant (ii) If a company, required to failure, with a further
beneficial owners in a maintain register under sub- penalty of Rs.1000 for
company section (2) and file the each day after the first
information under sub- during which such failure
section (4) or required to continues, subject to a
take necessary steps under maximum of Rs. 2 Lakhs.
sub-section (4A), fails to do • the company shall be
so or denies inspection as liable to a penalty of
provided therein Rs.1Lakh and in case of
continuing failure, with a
further penalty of Rs. 500
for each day, after the
first during which such
failure continues, subject
to a maximum of Rs. 5
Lakh; and
• every officer of the
company who is in
default shall be liable to
a penalty of Rs. 25,000
and in case of continuing
failure, with a further
penalty of Rs. 200 for
each day, after the first

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during which such failure

continues, subject to a
maximum of Rs. 1 Lakh.
If the register of members or • the company and every
Section 91(2)-Power of debenture-holders or of officer of the company
to Close Register of other security holders is who is in default shall be
Members or closed without giving the liable to a penalty of
Debenture-Holders or notice as provided in sub- Rs.5000 for every day
Other Security section (1), or after giving subject to a maximum of
Holders.
shorter notice than that so Rs.1 Lakh during which
provided, or for a continuous the register is kept
or an aggregate period in closed.
excess of the limits specified
in that sub- section

(i) If any company fails to file • such company and its

its annual return , before the every officer who is in
Section 92(5)-Annual expiry of the period specified default shall be liable to
Return therein a penalty of Rs.10,000
and in case of continuing
(ii) If a company secretary in failure, with further
practice certifies the annual penalty of Rs.100 for
return otherwise than in each day during which
conformity with the such failure continues,
requirements of this section subject to a maximum of
or the rules made Rs.2Lakhs in case of a
thereunder company and Rs.50,000
in case of an officer who
is in default.
• he shall be liable to a
penalty of Rs.2 Lakhs

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Section 94(4)-Place of If Company refuses to give • the company and every

keeping and copy of registers or to take officer of the company
Inspection of extract thereof or deny who is in default shall be
Registers, Returns, inspection liable, for each such
etc. default, to a penalty of
Rs.1000 for every day
subject to a maximum of
Rs.1 Lakh during which
the refusal or default
continues.

If Company defaults in • the company and every

holding meeting in officer of the company
Section 99- accordance with Section 96, who is in default shall be
Punishment for 97 or 98 or in complying punishable with fine
default in complying with any directions of the which may extend to
with provisions of Tribunal Rs.1 Lakh and
sections 96 to 98.

• in the case of a
continuing default, with
a further fine which may
extend to Rs.5000 for
every day during which
such default continues.

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Section 102(5)- if any default is made in • every promoter, director,

Statement to be complying with the manager or other key
Annexed to Notice. provisions of this section, managerial personnel of
the company who is in
default shall be liable to
a penalty of Rs.50,000 or
five times the amount of
benefit accruing to the
promoter, director,
manager or other key
managerial personnel or
any of his relatives,
whichever is higher.

If any officer fails to annex a • every officer of the

statement along with notice company who is in
Section 105(3)-Proxies with regard to proxy. default shall be liable to
penalty of Rs.5000.

Section111(5)- If any default is made in • the company and every

Circulation of complying with the officer of the company
Members’ Resolution provisions of this section who is in default shall be
liable to a penalty of
Rs.25,000.

If any company fails to file • such company shall be

the resolution or the liable to a penalty of
Section 117(2)- agreement under sub- Rs.10,000 and in case of
Resolutions and section (1) before the expiry continuing failure, with a
Agreements to be of the period specified further penalty of Rs.100
Filed therein for each day after the
first during which such
failure continues, subject
to a maximum of Rs.2
Lakhs; and

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• every officer of the

company who is in
default including
liquidator of the
company, if any, shall be
liable to a penalty of
Rs.10,000 and in case of
continuing failure, with a
further penalty of Rs.100
for each day after the
first during which such
failure continues, subject
to a maximum of
Rs.50,000.

If Company is not complying • the company shall be

Section 118-Minutes with the provisions of liable to a penalty of
of proceedings of minutes of general meeting, Rs.25,000; and
general meeting, Board Meeting and other • every officer of the
meeting of Board of meeting and resolutions company who is in
Directors and other passed by postal ballot default shall be liable to
meeting and
a penalty of Rs. 5000.
resolutions passed by
postal ballot
Section 119- If Company refuses for • the company shall be
Inspection of minute- inspection or copy of liable to a penalty of
books of general minutes of general meeting Rs.25,000; and
meeting is not furnished within the • every officer of the
time specified therein company who is in
default shall be liable to
a penalty of Rs.5000 for
each such refusal or
default, as the case may
be.

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If the company fails to file • Company shall be liable

the report to the ROC before to a penalty of Rs.1 Lakh
Section 121-Report on the expiry of the period and in case of continuing
Annual General specified therein failure, with further
Meeting penalty of Rs.500 for
each day after the first
during which such failure
continues, subject to a
maximum of Rs. 5 Lakhs;
and
• Every officer of the
company who is in
default shall be liable to
a penalty which shall not
be less than Rs.25000
and in case of continuing
failure, with further
penalty of Rs.500 for
each day after the first
during which such failure
continues, subject to a
maximum of Rs. 1 Lakh.

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If a company fails to comply • Company shall be liable

with any of the requirements to a penalty of Rs. 1 Lakh
Section 124(7)- of this section and in case of continuing
Unpaid Dividend failure, with a further
Account penalty of Rs.500 for
each day after the first
during which such failure
continues, subject to a
maximum of Rs. 10
Lakhs; and
• Every officer of the
company who is in
default shall be liable to
a penalty of twenty-five
thousand rupees and in
case of continuing
failure, with a further
penalty of one hundred
rupees for each day after
the first during which
such failure continues,
subject to a maximum of
two lakh rupees.

If a company is in default in • Company shall be liable

Section 134(8)- complying with the to a penalty of Rs. 3
Financial Statement, provisions of this section Lakhs; and
Board’s Report, etc • Every officer of the
company who is in
default shall be liable to
a penalty of Rs. 50,000.

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Section 135-Corporate If a company is in default in • Company shall be liable

Social Responsibility complying with the to a penalty of twice the
provisions of sub-section (5) amount required to be
or sub-section (6) of this transferred by the
Section company to the Fund
specified in Schedule VII
or the Unspent
Corporate Social
Responsibility Account,
as the case may be, or
Rs. 1 Crore, whichever is
less, and
• Every officer of the
company who is in
default shall be liable to
a penalty of one-tenth of
the amount required to
be transferred by the
company to such Fund
specified in Schedule VII,
or the Unspent
Corporate Social
Responsibility Account,
as the case may be, or
Rs. 2 Lakhs, whichever is
less.

If any default is made in • The company shall be

Section 136(3)- Right complying with the liable to a penalty of
of Member to Copies provisions of this section Rs.25,000; and
of Audited Financial • Every officer of the
Statement company who is in
default shall be liable to
a penalty of Rs.5000.

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Section 137(3)- Copy If a company fails to file the • The company shall be
of Financial Statement copy of the financial liable to a penalty of
to statements under sub- Rs.10,000 and in case of
be Filed with Registrar section (1) or sub-section (2), continuing failure, with a
as the case may be, before further penalty of Rs.100
the expiry of the period for each day during
specified therein which such failure
continues, subject to a
maximum of Rs.2 Lakhs;
and
• The managing director
and the Chief Financial
Officer of the company,
if any, and, in the
absence of the
managing director and
the Chief Financial
Officer, any other
director who is charged
by the Board with the
responsibility of
complying with the
provisions of this section,
and, in the absence of
any such director, all the
directors of the
company, shall be liable
to a penalty of Rs.10,000
and in case of continuing
failure, with further
penalty of Rs.100 for
each day after the first
during which such failure

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continues, subject to a
maximum of Rs.50,000.

Failure of the auditor to • he or it shall be liable to

intimate regarding his a penalty of Rs.50,000 or
Section 140(3)- resignation an amount equal to the
Removal, remuneration of the
Resignation of auditor, whichever is less,
Auditor and and in case of continuing
Giving of Special failure, with further
Notice
penalty of Rs. 500 for
each day after the first
during which such failure
continues, subject to a
maximum of Rs. 2 Lakhs.

If any auditor, cost • He shall:

accountant, or company • (a) in case of a listed
Section 143(15)- secretary in practice does company, be liable to a
Powers and Duties of not comply with the penalty of Rs.5 lakh; and
Auditors and Auditing provisions of sub-section • (b) in case of any other
Standards (12) company, be liable to a
penalty of Rs. 1 Lakh.

If a company fails to furnish • Company shall be liable

Director Identification to a penalty of Rs.25,000
Section 157(2)- Number and in case of continuing
Company to Inform failure, with further
Director Identification penalty of Rs. 100 for
Number to Registrar each day after the first
during which such failure
continues, subject to a
maximum of Rs. 1 Lakh,
and

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• Every officer of the

company who is in
default shall be liable to
a penalty of not less than
Rs. 25,000 and in case of
continuing failure, with
further penalty of Rs. 100
for each day after the
first during which such
failure continues, subject
to a maximum of Rs. 1
Lakh.
Section 159-Penalty If any individual or director • Such individual or
for Default of Certain of a company makes any director of the company
Provisions default in complying with shall be liable to a
any of the provisions of penalty which may
section 152, section 155 and extend to Rs. 50,000 and
section 156 where the default is a
continuing one, with a
further penalty which
may extend to Rs. 500
for each day after the
first during which such
default continues.

Section 165- Number If a person accepts an • he shall be liable to a

of Directorships appointment as a director in penalty of Rs. 2000 for
violation of this section each day after the first
during which such
violation continues,
subject to a maximum of
Rs. 2 Lakhs.

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Section 172- Penalty If a company is in default • Company and every

in complying with any of officer of the company
the provisions of Chapter who is in default shall be
X-Appointment and liable to a penalty of Rs.
Qualifications of Directors 50,000, and in case of
and for which no specific continuing failure, with a
penalty or punishment is further penalty of Rs. 500
provided therein for each day during
which such failure
continues, subject to a
maximum of Rs. 3 Lakhs
in case of a company
and Rs. 1 Lakh in case of
an officer who is in
default.
Every officer of the company • Liable to penalty of Rs.
Section 173(4)- whose duty is to give notice 25,000
Meetings of Board under this section and who
fails to do so

In case of any contravention • Company shall be liable

Section 178(8)-
of the provisions of section to a penalty of Rs. 5
Nomination and
177 and 178 Lakhs; and
Remuneration
• Every officer of the
Committee and
Stakeholders company who is in
Relationship default shall be liable to
Committee a penalty of Rs. 1 Lakh.

If a director of the company • such director shall be

Section 184(4)- contravenes the provisions liable to a penalty of Rs.
Disclosure of Interest of sub- section (1) or sub- 1 Lakh.
by Director section (2) of Section 184

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If a company is in default in • Company shall be liable to

Section 187(4)- complying with the a penalty of Rs. 5 Lakhs;
Investments of provisions of this section and
Company to be Held • Every officer of the
in its Own Name company who is in default
shall be liable to a penalty
of Rs. 50,000.

Any director or any other • In case of listed company,

Section 188(5)- employee of a company, be liable to a penalty of
Related Party who had entered into or Rs. 25 Lakhs; and
Transactions authorised the contract or • In case of any other
arrangement in violation of company, be liable to a
the provisions of this section penalty of Rs. 5 Lakhs.
shall,
Every director who fails to • Liable to a penalty of Rs.
Section 189(6)-
comply with the provisions 25,000.
Register of Contracts
of this section and the rules
or Arrangements in
Which Directors are made thereunder shall be
Interested

If any default is made in • Company shall be liable to

Section 190(3)- complying with the a penalty of Rs. 25,000;
Contract of provisions of sub-section (1) and
Employment with or sub-section (2) of this • Every officer of the
Managing or Whole- section company who is in default
Time Directors shall be liable to a penalty
of Rs. 5000 for each
default.

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Section 191(5)- If a director of the company • Such director shall be

Payment to Director makes any default in liable to a penalty of Rs. 1
for Loss of Office, etc., complying with the Lakh.
in Connection with provisions of this section
Transfer of
Undertaking, Property
or Shares

Section 197(15)- If any person makes any • He shall be liable to a

Overall Maximum default in complying with penalty of Rs. 1 Lakh; and
Managerial the provisions of this section • where any default has
Remuneration and been made by a company,
Managerial the company shall be
Remuneration in Case
liable to a penalty of Rs. 5
of Absence or
Lakhs.
Inadequacy of Profits
Section 203(5)- If any company makes any • Company shall be liable to
Appointment of Key default in complying with a penalty of Rs. 5 Lakh;
Managerial Personnel the provisions of this section and
• Every director and key
managerial personnel of
the company who is in
default shall be liable to a
penalty of Rs. 50,000 and
where the default is a
continuing one, with a
further penalty of Rs. 1000
for each day after the first
during which such default
continues but not
exceeding Rs. 5 Lakhs.
Section 204- If a company or any officer • the company, every officer
Secretarial Audit for of the company or the of the company or the
Bigger Companies company secretary in company secretary in
practice, who is in default,

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practice, contravenes the shall be liable to a penalty

provisions of this section of Rs. 2 Lakhs.
Section 232(8)- If a company fails to file a • the company and every
Merger and certified copy of the order officer of the company
Amalgamation of with the Registrar under who is in default shall be
Companies. sub-section (5), liable to a penalty of Rs.
20,000 and where the
failure is a continuing one,
with a further penalty of
Rs.1000 for each day after
the first during which such
failure continues, subject
to a maximum of Rs. 3
lakhs.
Section 238- The director who issues a • liable to a penalty of Rs. 1
Registration of Offer circular which has not been Lakh
of Schemes Involving presented for registration
Transfer of Shares. and registered under clause
(c) of sub-section (1)
Section 247(3)- If a valuer contravenes the • The valuer shall be liable
Valuation by provisions of this section or to a penalty of Rs. 50,000.
Registered Valuers. the rules made thereunder
Section 378V- The Chief Executive shall • liable to a penalty of
Meetings of Board give notice as aforesaid not Rs.5000.
and quorum of less than seven days prior to
Producer Company the date of the meeting of
the Board and if he fails to
do so, he shall be
Section 378X- If a Producer Company fails • the Company and every
Secretary of Producer to comply with the officer of the Company
Company provisions of appointment of who is in default, shall be
whole-time secretary liable to a penalty of Rs.
100 for every day during
which the default

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continues subject to a
maximum of Rs. 1 Lakh.
Section 403- Fee for Where a company fails or • the company and the
Filing, etc. commits any default to officers of the company
submit, file, register or who are in default, shall,
record any document, fact or without prejudice to the
information under sub- liability for the payment of
section (1) before the expiry fee and additional fee, be
of the period specified in the liable for the penalty or
relevant section punishment provided
under this Act for such
failure or default.
Section 405(4)-Power If any company fails to • the company and every
of Central comply with an order made officer of the company
Government to Direct under sub-section (1) or sub- who is in default shall be
Companies to Furnish section (3), or furnishes any liable to a penalty of Rs.
Information or information or statistics 20,000 and in case of
Statistics.
which is incorrect or continuing failure, with a
incomplete in any material further penalty of Rs. 1000
respect for each day after the first
during which such failure
continues, subject to a
maximum of Rs. 3 Lakhs.
Section 446B-Penalty if penalty is payable for non- • such company, its officer
for small company compliance of any of the in default or any other
and OPC provisions of this Act by a person, as the case may
One Person Company, small be, shall be liable to a
company, start-up company penalty which shall not be
or Producer Company, or by more than one-half of the
any of its officer in default, penalty specified in such
or any other person in provisions subject to a
respect of such company, maximum of Rs. 2 Lakhs in
then case of a company and Rs.
1 Lakh in case of an officer

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who is in default or any

other person, as the case
may be.
Section 450- If a company or any officer • the company and every
Punishment Where No of a company or any other officer of the company
Specific Penalty or person contravenes any of who is in default or such
Punishment is the provisions of this Act or other person shall be
Provided. the rules made thereunder, liable to a penalty of Rs.
or any condition, limitation 10,000, and in case of
or restriction subject to continuing contravention,
which any approval, with a further penalty of
sanction, consent, Rs. 1000 for each day after
confirmation, recognition, the first during which the
direction or exemption in contravention continues,
relation to any matter has subject to a maximum of
been accorded, given or Rs. 2 Lakhs in case of a
granted, and for which no company and Rs. 50,000
penalty or punishment is in case of an officer who is
provided elsewhere in this in default or any other
Act, person.
Section 454A-Penalty Where a company or an • it or he shall be liable for
for repeated default. officer of a company or any the second or subsequent
other person having already defaults for an amount
been subjected to penalty equal to twice the amount
for default under any of penalty provided for
provisions of this Act, again such default under the
commits such default within relevant provisions of this
a period of three years from Act.
the date of order imposing
such penalty passed by the
adjudicating officer or the
Regional Director, as the
case may be,

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ESTABLISHMENT OF SPECIAL COURTS

Section 435(1) stipulates that the Central Government may, for the purpose of providing
speedy trial of offences under this Companies Act, 2013 by notification establish or
designate as many Special Courts as may be necessary.

Structure of Special Courts

A Special Court shall consist of

a single judge holding office as Session Judge or Additional Session Judge,

in case of offences punishable under this Act with imprisonment of two
years or more; and

a Metropolitan Magistrate or a Judicial Magistrate of

the First Class, in the case of other offences,

Offences Triable by Special Courts (Section 436)

CASE LAW

In Re S. Satyanarayana Vs. Energo Masch Power Engineering & Consulting (P.) Ltd.
Criminal Appeal Nos. 516 - 518 Of 2010, Supreme Court of India, In this case it was held
that even if a number of persons are accused of offences under a special enactment
such as Companies Act and as also IPC in respect of same transaction or facts and even
if some could not be tried under special enactment, it is Special Court alone which
would have jurisdiction to try all offences based on same transaction to avoid
multiplicity of proceedings.

Here, the Special Court shall be deemed to be a Court of Session or the court of
Metropolitan Magistrate or a Judicial Magistrate of the First Class, as the case may be

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and the person conducting a prosecution before a Special Court shall be deemed to be
a Public Prosecutor.

ADJUDICATION OF OFFENCES
As per Ramanathan’s Law Lexicon “Adjudication” is the determination of matters in
dispute by the decision of a competent Court, arbitration of the determination of such
matters by the decision of arbitrators, whose decision may not be binding until confirmed
by a higher Court or assented to by the parties.

Adjudication Process under the Companies Act, 2013

APPOINTMENT OF ADJUDICATING OFFICER

• Central Government may appoint as many officers of the Central Government,

not below the rank of Registrar, as adjudicating officers for adjudging penalty.

• Foremost Adjudication Officer will find out the defaults.

STEP-I: ISSUE OF SHOW CAUSE NOTICE TO COMPANY AND OFFICER IN DEFAULT:

• Before adjudging penalty, the adjudging officer shall issue a written notice to the
company, the officer who is in default to show cause, within thirty days from the
date of service

• Every notice issued, shall clearly indicate the nature of non-compliance or default

• The reply to such notice shall be filed in electronic mode only within the period
as specified in the notice:

Provided that the adjudicating officer may, for reasons to be recorded in writing, extend
the period referred to above by a further period not exceeding fifteen days

STEP-II: ENQUIRY BY ADJUDICATION OFFICER- NOTICE FOR HEARING:

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• If, after considering the reply submitted by such company, its officer, or any other
person, as the case may be, the adjudicating officer is of the opinion that physical
appearance is required, he shall issue a notice, within a period of ten working days
from the date of receipt of reply fixing a date for the appearance

• If oral representation is requested for, the adjudicating officer shall allow such
person to make such representation after fixing a date of appearance.

MCA Compliance Monitoring System - MCACMS Portal

Compliance Monitoring System (MCACMS Portal) is an Artificial Intelligence initiative

under system in MCA 21 by Ministry of Corporate Affairs to make compliance process
easier and to ensure regular enforcement of Compliance requirements under Companies
Act. 2013.

MCACMS Portal by Ministry of Corporate Affairs is for issuing show cause notices
electronically for non compliances under Companies Act, 2013 and submitting replies
from companies / directors with their clarifications and submissions. Based on the replies
/ submissions, the Register of Companies, Ministry of Corporate Affairs shall initiate penal
actions for violations referred in the show cause notices.

Following are the steps for filing reply to the SCN:

1. Visit the MCA CMS portal

2. lick on ‘Reply for Show Cause Notice Tab;

3. Click the relevant section for which SCN has been issued;

4. Fill the CMS Reference number written on the SCN & click search. The system will

validate the number;

5. After validation click on ‘Send OTP’ tab.

6. OTP will be sent on the email id on which SCN was received;

7. Click on ‘Submit Reply’ tab and reply once submitted cannot be altered;

8. The system will show a confirmation message and the ‘Action’ tab will show reply

status.

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STEP III- DATE OF HEARING

• On the date fixed for hearing, pass any order in writing as he thinks fit including as
order for adjournment:

• Further, after hearing, adjudicating officer may require the concerned person to
submit his reply in writing on certain other issues related to the notice, relevant for
determination of the default.

STEP-IV-ORDER OF ADJUDICATING OFFICER

• The adjudicating officer shall pass an order within ninety days of the date of issue
of notice

• In case an order is passed after the aforementioned duration, the reasons of the
delay shall be recorded by the adjudicating officer and no such order shall be
invalid merely because of its passing after the expiry of ninety days

• Every order of the adjudicating officer shall be duly dated and signed by him and
shall clearly state the reasons for requiring the physical appearance.

• The adjudicating officer shall send a copy of the order passed by him to the
concerned company, officer who is in default.

POWERS OF ADJUDICATING OFFICER

The adjudicating officer shall exercise the following powers, namely:-

a) to summon and enforce the attendance of any person acquainted with the facts
and circumstances of the case after recording reasons in writing;

b) to order for evidence or to produce any document, which in the opinion of the
adjudicating officer, may be relevant to the subject matter.

PENALTY IMPOSED BY ADJUDICATING OFFICER

• The adjudicating officer may, by an order-

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(a)impose the penalty on the company, the officer who is in default

(b) direct such company, or officer who is in default, or any other person, as the
case may be, to

rectify the default, wherever he considers fit.

• If any person fails to reply or neglects or refuses to appear as required before the
adjudicating officer, the adjudicating officer may pass an order imposing the
penalty, in the absence of such person after recording the reasons for doing so.

• While adjudging quantum of penalty, the adjudicating officer shall have due
regard to the following factors, namely:-
a) size of the company;

b) nature of business carried on by the company;

c) injury to public interest;

d) nature of the default;

e) repetition of the default;

f) the amount of disproportionate gain or unfair advantage, wherever

quantifiable, made as a result of the default; and

g) the amount of loss caused to an investor or group of investors or creditors as

a result of the default:

Provided that, in no case, the penalty imposed shall be less than the minimum penalty
prescribed, if any, under the relevant section of the Act.

• In case a fixed sum of penalty is provided for default of a provision, the

adjudicating officer shall impose that fixed sum, in case of any default therein.

• Penalty shall be paid through Ministry of Corporate Affairs portal only.

• All sums realized by way of penalties under the Act shall be credited to the
Consolidated Fund of India.

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APPEAL AGAINST THE ORDER OF ADJUDICATING OFFICER {Rule 4 of the Companies

(Adjudication of Penalties) Rules, 2014)}

• Any person aggrieved by an order made by the adjudicating officer may prefer an
appeal to the Regional Director having jurisdiction in the matter.

• Every appeal against the order of the adjudicating officer shall be filed in writing
with the Regional Director having jurisdiction in the matter within a period of sixty
days from the date of receipt of the order

• Where the party is represented by an authorised representative, a copy of such

authorisation in favour of the representative and the written consent thereto by
such authorised representative shall also be appended to the appeal.

• Further that an appeal in Form ADJ shall not seek relief(s) therein against more
than one order

REGISTRATION OF APPEAL {Rule 5 of the Companies (Adjudication of Penalties)

Rules, 2014)}

• Endorsement of Date on Appeal: On the receipt of an appeal, office of the

Regional Director shall endorse the date on such appeal and shall sign such
endorsement.

• Registration/Admission: If, on scrutiny, the appeal is found to be in order, it shall

be duly registered and given a serial number.
Where the appeal is found to be defective, the Regional Director may allow the
appellant such time, not being less than fourteen days following the date of receipt
of intimation by the appellant from the Regional Director about the nature of the
defects, to rectify the defects.

• If the appellant fails to rectify the defects: The Regional Director may by order
and for reasons to be recorded in writing, decline to register such appeal and
communicate such refusal to the appellant within a period of seven days thereof.

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• Extension of period of rectification of defects: The Regional Director may, for

reasons to be recorded in writing, extend the period referred to in the first proviso
above by a further period of fourteen days if an appellant satisfies the Regional
Director that the appellant had sufficient cause for not rectifying the defects within
the period of fourteen days referred to in the first proviso.

DISPOSAL OF APPEAL BY REGIONAL DIRECTOR

• Copy of Notice to Adjudication officer: On the admission of the appeal, the

Regional Director shall serve a copy of appeal upon the adjudicating officer in not
exceeding twenty-one days.

• Reply of Adjudication officer: A copy of every reply, application or written

representation filed by the adjudicating officer before the Regional Director shall
be forthwith served on the appellant by the adjudicating officer.

• Intimation of Date of Hearing by RD: The Regional Director shall notify the
parties, the date of hearing of the appeal which shall not be a date earlier than
thirty days following the date of such notification for hearing of the appeal.

• Hearing by RD: On the date fixed for hearing the Regional Director may, subject
to the reasons to be recorded in writing, pass any order as he thinks fit including
an order for adjournment of the hearing to a future date.

• Ex-parte hearing: In case the appellant or the adjudicating officer does not appear
on the date fixed for hearing, the Regional Director may dispose of the appeal ex-
parte.

• Setting aside ex-parte order: Where the appellant appears afterwards and
satisfies the Regional Director that there was sufficient cause for his non-
appearance, the Regional Director may make an order setting aside the ex-parte
order and restore the appeal.

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• Order: The Regional Director may, after giving the parties to the appeal an
opportunity of being heard, pass such order as he thinks fit, confirming, modifying
or setting aside the order appealed against.

• Signing of Order: Every order passed under this rule shall be dated and signed by
the Regional Director.

• Communication: A certified copy of every order passed by the Regional Director

shall be communicated to the adjudicating officer and to the appellant forthwith
and to the Central Government.

• Fine: Where company fails to comply with the order, the company shall be
punishable with fine which shall not be less than twenty-five thousand rupees but
which may extend to five lakh rupees.

Some recent Orders of adjudicating authority

An order was passed by the adjudicating authority under Section 454 of Companies Act,
2013 read with Rule 3 of the Companies (Adjudication of Penalties) rule 2014 for violation
of Section 12 of the Companies Act, 2013.

1. M/S Kodagu Heritage

Facts of the case

M/s Kodagu Heritage is a private limited company which was incorporated on April 11,
2017. An order was filed by the adjudicating authority because the company had violated
Section 12 of the Companies Act, 2013.

As per Section 12(2) of Companies Act, 2013 the company, as soon as it is incorporated,
shall furnish to the registrar the verification of registered office within thirty days in Form
INC-22. But the company filed the form after the three years that’s on January 1, 2019.
The company and its officers in default had admitted that they have violated the provision
of Section 12(2) of Companies Act, 2013. The adjudicating authority issued a notice to the

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company and its officers in default to appear before the authority along with their
representatives before September 5, 2019, in the chamber of a registrar of the company.
The authorised representative was present on said date but the notice was not signed by
all the directors. According to Section 12(8) of Companies act, 2013, if a company and
officer in default contravenes the provisions of Section 12 of Companies Act, 2013 shall
be liable to pay a penalty of INR 1000 for every day during which the default continues
but it shall not exceed INR 1 lakh.

Order
The company and its officers in default are liable to pay INR 1 lakh each. As per Section
454(1) and (3) of Companies Act, 2013 and considering the delay of 621 days they have
imposed of a penalty of INR 1 lakh on the company and its directors and are required to
pay the amount on MCA portal and proof of payment to be produced within thirty days
from the date of receipt of order. An appeal shall be filed as per Section 454(1) and (3) of
Companies Act, 2013 to the regional director within sixty days from the date of order of
adjudicating authority and it shall be submitted in the prescribed form and with
prescribed fees.

2. Ms Joy Ice Cream (Bangalore) Private Limited

Facts of the case

Ms Joy Ice Cream (Bangalore) Private Limited was incorporated on July 25, 1996. The
matter before the adjudicating authority is as per Section 12(1) of Companies Act, 2013 a
company shall, within thirty days of its incorporation, have registered office which shall
be capable of receiving and acknowledging all the communications and notices which are
addressed to it. In case there is a change in the registered office of the company, the
company shall give notice of change in the registered office within thirty days after the
date of incorporation and shall submit in Form INC 22 to the registrar. On the verification
of the record, the authority came to the conclusion that it has not filed the Form INC 22.
When the office issued a letter on July 27, 2018, for seeking reply with regard to
complaints received against the company. The letter was returned unserved with no such
firm. The adjudicating authority issued a notice to the company and the officers in default
under section 454 of Companies Act, 2013 for violation of Section 12 of Companies, Act
2013.

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Order
The Company and its officers in default were called upon along with the representatives
to present before the registrar of companies. But none of them was present on the said
date. The adjudicating authority under section 454(3) of Companies act, 2013 issued a
penalty of INR 1 lakh to each director and the company and were required to pay the
amount on MCA portal and proof of payment to be produced within thirty days from the
date of receipt of order.

In case a company does not pay the penalty within ninety days as specified under section
454(8) of Companies Act, 2013 the company shall be liable to pay a fine which shall not
be less than INR 25 thousand but may extend to INR 5 lakhs. An officer in default or any
other person is in default shall be punishable with imprisonment which may extend to six
months or with a fine which shall not be less than INR 25,000 but which may extend to
INR 1 lakh or with both.

Order for Penalty under Section 454 for violation of Section 173 of the Companies
Act, 2013 In The Matter Of Narangs International Hotels Private Limited

Facts about the Case

The Company, filed application for adjudication of penalties for offence under Section 454
of the Companies Act, 2013 for violation of provisions of Section 173(1) of the Companies
Act, 2013. Whereas, every company shall hold the first meeting of the Board of Directors
within thirty days of the date of its incorporation and thereafter hold a minimum number
of four meetings of its Board of Directors every year in such a manner that not more than
one hundred and twenty days shall intervene between two consecutive meetings of the
Board.

As per the application and records of this office, it is noticed that the Company has failed
to hold a minimum number of four meetings of its Board of Directors every year in such
a manner that not more than one hundred and twenty days shall intervene between two
consecutive meetings of the Board during the financial year ended 2020-21. Further, the
MCA vide circular dated 24.03.2020 extended the number of days to 180 days. However,
the number of days between the two consecutive meetings of the Board of Directors, i.e.
between 13.12.2019 and 11.09.2020 was 273 days which is 93 days more than the

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prescribed 180 days accordingly, there was contravention of Section 173 of the
Companies Act, 2013. The delay in days is calculated from 10.06.2020 instead of
13.12.2019 till 11.09.2020 as per extension of 180 days by the Ministry. Thus, there was a
delay of 943 days in conducting the Board Meeting.

Therefore, the Regional Director in exercise of power conferred under sub-Section 3 of

Section 454 of the Companies Act, 2013 had issued hearing notice dated 18.03.2021, to
the Company and Officers in default for giving an opportunity to be heard and for
submissions in the matter, if any. In response to the hearing notice, representative of the
Company, appeared 25.03.2021 and gave consent to pass necessary orders as per the
provisions of the Companies Act, 2013.

Factors to be taken into account by the Adjudicating Officer:- While adjudging

quantum of penalty under Section 173(4) of the Act, the Adjudicating Officer shall have
due regard to the following factors, namely:
a) The amount of disproportionate gain or unfair advantage, wherever quantifiable,
made as a result of default.
b) The amount of loss caused to an investor or group of investors as a result of the
default.
c) The repetitive nature of default.

With regard to the above factors to be considered while determining the quantum of
penalty, it is noted that the disproportionate gain or unfair advantage made by the
Noticee or loss caused to the investor as a result of the delay on the part of the Noticee
to redress the investor grievance are not available on record.
Further, it may also be added that it is difficult to quantify the unfair advantage made by
the Noticee or the loss caused to the investors in a default of this nature.

Order
Having considered the facts and circumstances of the case and after taking into account
the factors above, penalty of Rs.25,000/- (Rupees Twenty Five Thousand only} on each of
its Directors for violation of provisions of Section 173 of the Companies Act, 2013 was
imposed.

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Order for Penalty for Violation of section 39(4) of the Companies Act, 2013 R/w Rule
12(1) of Companies (Prospectus and Allotment of Securities) Rules 2014. In The
Matter of Sunshakti Solar Power Projects Private Limited

Facts about the Case

The company and its director(s) have suo-moto filed application vide e-form GNL-1 dated
19.11.2021 for compounding of offence under the provisions of section 441 of the
Companies Act, 2013, however, as the matter was dealt with adjudication under section
454 of the Act, the subject company submitted a letter to this office dated 12.04.2022 and
made request to treat the said e-form GNL-1 as filed for adjudication, The petition
submitted by company stated as under:- During the financial year ended 31.03.2018, the
company issued 37,500, 10% Compulsorily Convertible Debentures with face value of Rs,
10,000/- each amounting to Rs, 37,50,00,000 on Private Placement basis, pursuant to
section 62 and section 42 r/w Companies (Prospectus and allotment of securities) Rules
2014 of the Act details of which are as under:

Name of No. of Nominal Total amount Date of Date of

Allottee CCDs value of approval shareholder
issued CCDs/- of Board approval

Sky Power 37,500 10,000 37,50,00,000 05.09.2017 30.09.2017

Southeast Asia
IIl Investment
Limited

The company approved the issuance of 37,500 10% Compulsorily Convertible Debentures
by passing special resolution in its Annual General Meeting held on 30.09.2017 and Letter
of offer in form PAS-4 was circulated to the offeree accordingly. The company allotted the
CCDs to allottess namely Skypower Southeast Asia Il Investment Limited vide dated
06.01.2018 after receiving subscription money in its escrow account. The necessary e-form
PAS:3 (Return of Allotment} for allotment of 37,5000 10% Compulsorily Convertible
Debentures was filed on 31.03.2018. Further, the company and officers in default
submitted their reply on 20th June 2022 in response to the show cause notice issued by
this office.

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Further, an authorized Representative of the Company appeared on 09.11.2022 for

hearing on behalf of company.

The default in the instant case was related to the delay in filing of Return of allotment
(Form PAS-3) and Letter of offer (in PAS-4) by 69 days and 151 days respectively. The
authorized representative submitted that the company will submit written submission
regarding delay filing of Letter of offer (in Form PAS-4) within 7 days from the date hereof.
The default regarding aforésaid forms has been made good by the company. However,
the delay in filing of PAS-3 has been admitted.

Further, company submitted written submission wherein stated that delay in filing of PAS-
4 by 151 days was unintentional and also request to grant relief pursuant to Rule 13 of
the Companies (Share Capital and Debentures) Rules, 2014 in filing of offer letter in form
PAS-4 by delay of 151 days.

Adjudication of penalty
In the instant case, the default relating to late filing of return of allotment was not subject
of penalty under section 42 (10) of the Act as on the date of the default. As default relating
to delay in allotment of securities was not recovered within such provision, this default
will instead lead to penalty under section 39(5) for violation of section 39 (4) r/w Rule
12(1) of Companies (Prospectus and Allotment of Securities) Rules 2014.

Now in exercise of the powers conferred and having considered the reply submitted by
the noticee(s) in response to the notice(s) issued to company, Regional Director hereby
imposed the penalty on the company and its officers in default for violation of section 39
(4) r/e Rule 12(1) of Companies (Prospectus and Allotment of Securities) Rules 2014.

PENALTIES AND ADJUDICATION UNDER SEBI ACT, 1992

SAT Litigation Division of Prosecution Settlement Division

Responsible for handling The division shall handle Handles the

appeals against orders of work related to filing Settlement Applications
prosecution proceedings filed by the Applicant for

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SEBI or its Adjudicating through the courts and the Settlement of the
Officers. follow up to obtain Specified Proceedings that
While undertaking defence conviction. have been initiated or may
representation in The Division will also frame be initiated by SEBI.
contentious matters procedures for cooperation Settlement Applications
involving complex issues of with public prosecutors, are processed as per SEBI
law, the Division would other agencies and for (Settlement of
liase with Senior making referrals to Administrative and Civil
Advocates, law firms, prosecutors and other Proceedings) Regulations,
solicitors firms and government agencies. 2014 [Settlement
represent the interest of Regulations] and if
SEBI at Securities Appellate settlement is arrived at, the
Tribunal (SAT). Settlement Orders are
The Division would also be passed.
an interface between SEBI Responsible for handling
and SAT, while Registration of Settlement
collaborating with other Application, Calculation of
departments of SEBI. Settlement amount as per
It would also assist SEBI in the Settlement
filing affidavits/written Regulations, organizing
submissions, as and when Internal Committee
needed, while attending Meeting between the
hearings. Applicants and Internal
Committee Members for
formulating the settlement
amount/terms, Organizing
High Powered Advisory
Committee (HPAC)
Meeting, placing the
recommendation before
Whole Time Members for
approval.

Power of SEBI to Issue Directions and Levy Penalty [Section 11B]

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Section 11B of the Act provides that if the SEBI is satisfied after making or causing to be
made an enquiry, that it is necessary:

(i) in the interest of investors, or orderly development of securities market; or

(ii) to prevent the affairs of any intermediary or other persons being conducted in a
manner detrimental to the interests of investors or securities market; or
(iii) to secure the proper management of any such intermediary or person, SEBI may
issue such directions:
(a)to any person or class of persons, or associated with the securities market; or
(b)to any company in respect of matters relating to issue of capital, transfer of
securities and other matter incidental thereto, as may be appropriate in the
interests of investors in securities and the securities market.

Penalty for failure to furnish information, return, etc.

As per Section 15A of the SEBI Act, 1992, A, if any person, who is required under this Act
or any rules or regulations made thereunder,—

a) to furnish any document, return or report to the Board, fails to furnish the same or
who furnishes or files false, incorrect or incomplete information, return, report,
books or other documents, he shall be liable to a penalty which shall not be less
than one lakh rupees but which may extend to one lakh rupees for each day during
which such failure continues subject to a maximum of one crore rupees;

b) to file any return or furnish any information, books or other documents within the
time specified therefor in the regulations, fails to file return or furnish the same
within the time specified therefor in the regulations or who furnishes or files false,
incorrect or incomplete information, return, report, books or other documents, he
shall be liable to a penalty which shall not be less than one lakh rupees but which
may extend to one lakh rupees for each day during which such failure continues
subject to a maximum of one crore rupees;

c) to maintain books of account or records, fails to maintain the same, he shall be

liable to a penalty which shall not be less than one lakh rupees but which may

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extend to one lakh rupees for each day during which such failure continues subject
to a maximum of one crore rupees.

Penalty for failure by any person to enter into agreement with clients.
As per Section 15B of the SEBI Act, 1992, if any person, who is registered as an
intermediary and is required under this Act or any rules or regulations made thereunder
to enter into an agreement with his client, fails to enter into such agreement, he shall be
liable to a penalty which shall not be less than one lakh rupees but which may extend to
one lakh rupees for each day during which such failure continues subject to a maximum
of one crore rupees.

Penalty for failure to redress investors’ grievances.

As per Section 15C of the SEBI Act, 1992, if any listed company or any person who is
registered as an intermediary, after having been called upon by the Board in writing
including by any means of electronic communication, to redress the grievances of
investors, fails to redress such grievances within the time specified by the Board, such
company or intermediary shall be liable to a penalty which shall not be less than one lakh
rupees but which may extend to one lakh rupees for each day during which such failure
continues subject to a maximum of one crore rupees.

Penalty for certain defaults in case of mutual funds.

As per Section 15D of the SEBI Act, 1992, if any person, who is—
a) required under this Act or any rules or regulations made thereunder to obtain a
certificate of registration from the Board for sponsoring or carrying on any
collective investment scheme,- 1 lac to 1 cr (if default continues)

b) registered with the Board as a collective investment scheme, including mutual

funds, for sponsoring or carrying on any investment scheme, fails to comply with
the terms and conditions of certificate of registration, - 1 lac to 1 cr (if default
continues)

c) registered with the Board as a collective investment scheme, including mutual

funds, fails to make an application for listing of its schemes as provided for in the
regulations governing such listing, - 1 lac to 1 cr (if default continues)

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d) registered as a collective investment scheme, including mutual funds, fails to

despatch unit certificates of any scheme in the manner provided in the regulation
governing such despatch,- 1 lac to 1 cr (if default continues)

e) registered as a collective investment scheme, including mutual funds, fails to

refund the application monies paid by the investors within the period - 1 lac to 1
cr (if default continues)

f) registered as a collective investment scheme, including mutual funds, fails to invest

money collected by such collective investment schemes - 1 lac to 1 cr (if default
continues)

Penalty for failure to observe rules and regulations by an asset management

company.
1 lac to 1 cr (if default continues)

Penalty for default in case of alternative investment funds, infrastructure

investment trusts and real estate investment trusts.
As per Section 15EA of the SEBI Act, 1992-- 1 lac to 1 cr (if default continues)

Penalty for default in case of investment adviser and research analyst.

1 lac to 1 cr (if default continues)

Penalty for default in case of stock brokers.

As per Section 15F of the SEBI Act, 1992, if any person, who is registered as a stock broker
under this Act,—
a) fails to issue contract notes in the form and manner specified by the stock
exchange of which such broker is a member- 1 lac to 1 cr (if default continues)

b) fails to deliver any security or fails to make payment of the amount due to the
investor in the manner within the period specified in the regulations- 1 lac to 1 cr
(if default continues)

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(c) charges an amount of brokerage which is in excess of the brokerage specified in

the regulations, -- 1 lac to 1 cr (if default continues)

Penalty for insider trading.

As per Section 15G of the SEBI Act, 1992, if any insider who,—
(i) either on his own behalf or on behalf of any other person, deals in securities of
a body corporate listed on any stock exchange on the basis of any unpublished
price-sensitive information; or

(ii) communicates any unpublished price-sensitive information to any person, with

or without his request for such information except as required in the ordinary
course of business or under any law; or

(iii) counsels, or procures for any other person to deal in any securities of any body
corporate on the basis of unpublished price-sensitive information, shall be
liable to a penalty which shall not be less than ten lakh rupees but which may
extend to twenty-five crore rupees or three times the amount of profits made
out of insider trading, whichever is higher.

Penalty for non-disclosure of acquisition of shares and takeovers.

As per Section 15H of the SEBI Act, 1992, if any person, who is required under this Act or
any rules or regulations made thereunder, fails to,—
(i) disclose the aggregate of his shareholding in the body corporate before he
acquires any shares of that body corporate; or

(ii) make a public announcement to acquire shares at a minimum price; or

(iii) make a public offer by sending letter of offer to the shareholders of the concerned
company; or

(iv) make payment of consideration to the shareholders who sold their shares pursuant
to letter of offer, he shall be liable to a penalty which shall not be less than ten lakh
rupees but which may extend to twenty-five crore rupees or three times the
amount of profits made out of such failure, whichever is higher.

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Penalty for fraudulent and unfair trade practices.

As per Section 15HA of the SEBI Act, 1992, if any person indulges in fraudulent and unfair
trade practices relating to securities, he shall be liable to a penalty which shall not be less
than five lakh rupees but which may extend to twenty-five crore rupees or three times the
amount of profits made out of such practices, whichever is higher.

Penalty for alteration, destruction, etc., of records and failure to protect the
electronic database of Board.

As per Section 15HAA of the SEBI Act, 1992, any person, who—
a) knowingly alters, destroys, mutilates, conceals, falsifies, or makes a false entry in
any information, record, document (including electronic records), which is required
under this Act or any rules or regulations made thereunder, so as to impede,
obstruct, or influence the investigation, inquiry, audit, inspection or proper
administration of any matter within the jurisdiction of the Board.

b) without being authorised to do so, access or tries to access, or denies of access or

modifies access parameters, to the regulatory data in the database;

c) without being authorised to do so, downloads, extracts, copies, or reproduces in

any form the regulatory data maintained in the system database;

d) knowingly introduces any computer virus or other computer contaminant into the
system database and brings out a trading halt;

e) without authorisation disrupts the functioning of system database;

f) knowingly damages, destroys, deletes, alters, diminishes in value or utility, or

affects by any means, the regulatory data in the system database; or

Penalty for contravention where no separate penalty has been provided.

1 lac to 1 cr (if default continues)

Factors to be taken into account while adjudging quantum of penalty (Section 15 J)

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While adjudging quantum of penalty under 15-I or section 11 or section 11B, the Board
or the adjudicating officer shall have due regard to the following factors, namely :—
a) the amount of disproportionate gain or unfair advantage, wherever quantifiable,
made as a result of the default;

b) the amount of loss caused to an investor or group of investors as a result of the

default;

c) the repetitive nature of the default.

Explanation.—For the removal of doubts, it is clarified that the power to adjudge
the quantum of penalty under sections 15A to 15E, clauses (b) and (c) of section
15F, 15G, 15H and 15HA shall be and shall always be deemed to have been
exercised under the provisions of this section.

Crediting sums realised by way of penalties to Consolidated Fund of India (Section

15 JA)
All sums realised by way of penalties under this Act shall be credited to the Consolidated
Fund of India.

Settlement of administrative and civil proceedings. (Section 15 JB)

• The Board may, after taking into consideration the nature, gravity and impact of
defaults, agree to the proposal for settlement, on payment of such sum by the
defaulter or on such other terms as may be determined by the Board in accordance
with the regulations made under this Act.

• The settlement proceedings under this section shall be conducted in accordance with
the procedure specified in the regulations made under this Act.

• No appeal shall lie under section 15T against any order passed by the Board or
adjudicating officer, as the case may be, under this section.

• All settlement amounts, excluding the disgorgement amount and legal costs, realised
under this Act shall be credited to the Consolidated Fund of India.

CASE STUDY

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Ignorance of law is not an excuse for escaping from liability of violation of law
The Appellant, Mega Resources Limited, is aggrieved by the order dated 13.08.2014
passed by the Adjudicating Officer, SEBI imposing a penalty of Rs. 2,00,000/- under
Section 15A(b) of the SEBI Act and Rs. 50,00,000/- under Section 15 H(ii) of the SEBI Act
for failure on the part of the appellant to comply with the provisions of Regulation 7(1)
read with Regulation 7(2) and Regulation 11(1) read with Regulation 14(1) of the SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

The appellant has admitted that pursuant to the acquisition of 25000 equity shares
through off-market transactions the shareholding of the Promoters/Promoter Group of
the Company had increased from 50.46% to 60.46% of the Target Company. This
triggered Regulation 11(1) of the erstwhile SAST Regulations along with the
requirement of submission of certain disclosures under Regulation 7(1) and 7(2) of the
erstwhile Regulations. It is admitted by the appellant that the non-compliance with the
disclosure requirements in respect of acquisition of shares and failure to make an open
offer to the shareholders of the Company was due to lack of awareness of the erstwhile
regulations on the part of the Appellant and purely unintentional and without any
malafide intentions.

However, it is trite law that ignorance of law will not excuse the appellant to escape the
liability of violating the law nor ever absolve the wrongdoer of his crime or misconduct.
Further, the appellant contended that in the matter of imposition of penalty, the Section
15(H)(ii) of the SEBI Act, 1992 was amended dated October 29, 2002 and the penalty
for non-disclosure of acquisition of shares and takeovers was enhanced from a
maximum of Rs.5 lakh to Rs.25 crore. It is argued that since the violation in Appeal was
committed in February, 2001, the appellant would be governed by the erstwhile
provisions of Section 15H(ii) of the SEBI Act, which existed on the date of violation in
question.

Decision
It is true that the maximum monetary penalty imposable for non-disclosure of
acquisition of shares and takeovers under the erstwhile SEBI Act on the date of violation
by the Appellant was Rs. 5 Lakh and by the amendment dated October 29, 2002 it is up

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to Rs. 25 Crore or three times of the amount of profits made out of such failure,
whichever is higher. However, the moot point in this connection to be noted is that as
on October 29, 2002 the obligation to make disclosure and public announcement under
Regulations 7(1) read with 7(2) and 11(1) read with 14(1) continued. Therefore, because
the violation was continued even after October 29, 2002, the appellant has been rightly
imposed penalty under the amended provisions of Section 15H(ii) of the SEBI Act. Since
the punishment imposable now for such non-disclosure and public announcement is
up to Rs. 25 Crore, SAT finds that the penalty of Rs. 50 Lakh is just and reasonable and
not disproportionate. The contention of the appellant in this regard is, therefore, liable
to be turned down. Therefore, in the peculiarity of the facts and circumstances of the
case and, in particular, the continuity of the obligation to make disclosure and public
announcement, the penalty of Rs. 50 lakh is upheld and the appeal is dismissed.

PENALTIES UNDER SECURITIES CONTRACTS(REGULATION)

ACT, 1956
Section 23
Any person who-
a) without reasonable excuse (the burden of proving which shall be on him) fails to
comply with any requisition made under sub-section (4) of section 6; or

b) enters into any contract in contravention of any of the provisions contained in

section 13 or section 16; or

c) contravenes the provisions contained in section 17 or section 17A, or section 19;

or

d) enters into any contract in derivative in contravention of section 18A or the rules
made under section 30;

e) owns or keeps a place other than that of a recognised stock exchange which is
used for the purpose of entering into or performing any contracts in contravention
of any of the provisions of this Act and knowingly permits such place to be used
for such purposes; or

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f) manages, controls, or assists in keeping any place other than that of a recognised
stock exchange which is used for the purpose of entering into or performing any
contracts in contravention of any of the provisions of this Act or at which contracts
are recorded or adjusted or rights or liabilities arising out of contracts are adjusted,
regulated or enforced in any manner whatsoever; or

g) not being a member of a recognised stock exchange or his agent authorised as

such under the rules or bye-laws of such stock exchange or not being a dealer in
securities licensed under section 17 wilfully represents to or induces any person to
believe that contracts can be entered into or performed under this Act through
him; or

h) joins, gathers or assists in gathering at any place other than the place of business
specified in the bye-laws of a recognised stock exchange any person or persons
for making bids or offers or for entering into or performing any contracts in
contravention of any of the provisions of this Act;

shall be punishable with imprisonment for a term which may extend to ten years or with
fine, which may extend to twenty-five crore rupees, or with both.

Penalty for failure to furnish information, return, etc. [Section 23A]

Any person, who is required under this Act or any rules made thereunder, —
a) to furnish any information, document, books, returns or report to the recognised
stock exchange - 1 lac to 1 cr (if default continues)
b) to maintain books of account or records, as per the listing agreement - 1 lac to 1
cr (if default continues)

Penalty for failure by any person to enter into an agreement with clients.[Section
23B]
1 lac to 1 cr (if default continues)

Penalty for failure to redress investors’ grievances. [Section 23C]

1 lac to 1 cr (if default continues)

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Penalty for failure to segregate securities or moneys of client or clients. [Section

23D]
1 lac to 1 cr (if default continues)

Penalty for failure to comply with provision of listing conditions or delisting

conditions or grounds. [Section 23E]
5 lac- 25 cr (if default continues)

Penalty for excess dematerialisation or delivery of unlisted securities. [Section 23F]

5 lac- 25 cr (if default continues)

Penalty for failure to furnish periodical returns, etc. [Section 23G]

If a recognised stock exchange fails or neglects to furnish periodical returns or furnishes
false, incorrect or incomplete periodical returns to the Securities and Exchange Board of
India - 5 lac- 25 cr (if default continues)

Penalty for failure to conduct business in accordance with rules, etc. [Section 23GA]
Where a stock exchange or a clearing corporation fails to conduct its business with its
members or any issuer or its agent or any person associated with the securities markets
in accordance with the rules or regulations made by the Securities and Exchange Board
of India and the directions issued by it under this Act, the stock exchange or the clearing
corporations, as the case may be, shall be liable to penalty which shall not be less than
five crore rupees but which may extend to twenty-five crore rupees or three times
the amount of gains made out of such failure, whichever is higher.

Factors to be taken into account while adjudging quantum of penalty. [Section 23J].
While adjudging the quantum of penalty under section 12A or section 23-I, the Securities
and Exchange Board of India or the adjudicating officer shall have due regard to the
following factors, namely:—
a) the amount of disproportionate gain or unfair advantage, wherever quantifiable,
made as a result of the default;

b) the amount of loss caused to an investor or group of investors as a result of the

default;

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c) the repetitive nature of the default.

Recovery of amounts [Section 23JB]

• If a person fails to pay the penalty imposed, the Recovery Officer may draw up
under his signature a statement in the specified form specifying the amount due
from the person, namely:–

a) attachment and sale of the person’s movable property;

b) attachment of the person’s bank accounts;

c) attachment and sale of the person’s immovable property;

d) arrest of the person and his detention in prison;

e) appointing a receiver for the management of the person’s movable and immovable
properties,

Appeal to Securities Appellate Tribunal [Section 23L]

• Any person aggrieved, by the order or decision of the recognized stock exchange
or the adjudicating officer or any order made by the Securities and Exchange Board
of India under or sub-section (3) of section 23-I, may prefer an appeal before the
Securities Appellate Tribunal and the provisions of sections 22B, 22C, 22D and 22E
of this Act, shall apply, as far as may be, to such appeals.

• Every appeal made above shall be filed within a period of forty-five days from the
date on which a copy of the order or decision is received by the appellant and it
shall be in such form and be accompanied by such fee as may be prescribed:

• Provided that the Securities Appellate Tribunal may entertain an appeal after the
expiry of the said period of forty-five days if it is satisfied that there was sufficient
cause for not filing it within that period.

• On receipt of an appeal under sub-section (1), the Securities Appellate Tribunal

may, after giving the parties to the appeal, an opportunity of being heard, pass
such orders thereon as it thinks fit, confirming, modifying or setting aside the order
appealed against.

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• The Securities Appellate Tribunal shall send a copy of every order made by it to the
parties to the appeal and to the concerned adjudicating officer.

• The appeal filed before the Securities Appellate Tribunal under sub-section (1) shall
be dealt with by it as expeditiously as possible and endeavour shall be made by it
to dispose of the appeal finally within six months from the date of receipt of the
appeal.

The Securities Contracts (Regulation) (Procedure for Holding Inquiry and Imposing
Penalties) Rules, 2005.

Appointment of adjudicating officer for holding inquiry (Rule 3) - Whenever the

Securities and Exchange Board of India is of the opinion that there are grounds for
adjudging under sections 23A, 23B, 23C, 23D, 23E, 23F, 23G and 23H of the Act, it may
appoint any of its officer not below the rank of Division Chief to be an adjudicating officer
for holding an inquiry for the said purpose.

Holding of inquiry (Rule 4)

1. Show Cause Notice: In holding an inquiry for the purpose of adjudging under
sections 23A, 23B, 23C, 23D, 23E, 23F,23G, 23GA and 23H of the Securities Contract
(Regulation) Act, 1956, whether any person has committed contraventions as
specified in any of sections as mentioned above, the Board or the adjudicating
officer shall, in the first instance, issue a notice to such person requiring him to
show cause within such period as may be specified in the notice (being not less
than fourteen days from the date of service thereof) why an inquiry should not be
held against him.

2. Content of Notice: Every notice under sub-rule (1) to any such person shall
indicate the nature of offence alleged to have been committed by him.

3. Date of Appearance: If, after considering the cause, if any, shown by such person,
the Board or the adjudicating officer is of the opinion that an inquiry should be
held, he shall issue a notice fixing a date for the appearance of that person either
personally or through his lawyer or other authorised representative.

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4. Personal Hearing: On the date fixed, the Board or the adjudicating officer shall
explain to the person proceeded against or his lawyer or authorised representative,
the offence, alleged to have been committed by such person indicating the
provisions of the Act, rules or regulations in respect of which contravention is
alleged to have taken place.

5. Opportunity to produce Evidence: The Board or the adjudicating officer shall

then give an opportunity to such person to produce such documents or evidence
as he may consider relevant to the inquiry and if necessary the hearing may be
adjourned to a future date and in taking such evidence the Board or the
adjudicating officer shall not be bound to observe the provisions of the Evidence
Act, 1872.
The notice referred to in sub-rule (3), and the personal hearing referred to in sub-
rules (3), (4) and (5) may, at the request of the person concerned, be waived.

6. Enforcement of Attendance: While holding an inquiry under this rule the Board
or the adjudicating officer shall have the power to summon and enforce the
attendance of any person acquainted with the facts and circumstances of the case
to give evidence or to produce any document which, in the opinion of the Board
or the adjudicating officer, may be useful for or relevant to, the subject-matter of
the inquiry.

Order of the Board or the adjudicating officer (Rule 5)

1) Imposition of Penalty: If, upon consideration of the evidence produced before

the Board or the adjudicating officer, the Board or the adjudicating officer is
satisfied that the person has become liable to penalty

2) Quantum of Penalty: FACTORS:

a) the amount of disproportionate gain or unfair advantage, wherever quantifiable,
made as a result of the default ;

b) the amount of loss caused to an investor or group of investors as a result of the

default ;

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c) the repetitive nature of the default.

d) Content of Order: Every order made under sub-rule (1) shall specify the provisions
of the Act in respect of which default has taken place and shall contain brief reasons
for such decisions.

e) Date & Sign: Every such order shall be dated and signed by the Board or the
adjudicating officer.

f) Rectification of Error: The Board or the adjudicating officer who has passed an
order, may rectify any error apparent on the face of record on such order, either
on its own motion or where such error is brought to his notice by the affected
person within a period of fifteen days from the date of such order.

Service of notices and orders (Rule 7)

1) A notice or an order issued under these rules shall be served on the person through
any of the following modes, namely:–
a) by delivering or tendering it to that person or his duly authorised agent;
o
b) by sending it to the person by fax or electronic mail or electronic instant
messaging services along with electronic mail or by courier or speed post
or registered post:
The courier or speed post or registered post shall be sent to the address
of his place of residence or his last known place of residence or the place
where he carried on, or last carried on, business or personally works, or
last worked, for gain, with acknowledgment due:
A notice sent by fax shall bear a note that the same is being sent by fax
and in case the document contains annexure, the number of pages being
sent shall also be mentioned:
A notice sent through electronic mail or electronic instant messaging
services along with electronic mail shall be digitally signed by the
competent authority and bouncing of the electronic mail shall not
constitute valid service.

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2) In case of failure to serve a notice or an order through any one of the modes
provided under sub- rule (1), the notice or order may be affixed on the outer door
or some other conspicuous part of the premises in which the person resides or is
known to have last resided, or carried on business or personally works, or last
worked, for gain and a written report thereof shall be prepared in the presence of
two witnesses.

3) In case of failure to affix the notice or order on the outer door as provided under
sub-rule (2), the notice or order shall be published in at least two newspapers, one
of which shall be in an English daily newspaper having nationwide circulation and
another shall be in a newspaper having wide circulation published in the language
of the region where that person was last known to have resided or carried on
business or personally worked for gain.

CONTRAVENTION AND PENALTIES, ADJUDICATION AND

APPEAL UNDER FOREIGN EXCHANGE MANAGEMENT ACT
(FEMA), 1999
Penalties (Section 13)
• If any person contravenes any provision of this Act, or contravenes any rule,
regulation, notification, direction or order issued in exercise of the powers under
this Act, he shall, upon adjudication, be liable to a penalty up to thrice the sum
involved in such contravention where such amount is quantifiable, or up to two
lakh rupees where the amount is not quantifiable, and where such contravention
is a continuing one, further penalty which may extend to five thousand rupees for
every day after the first day during which the contravention continues.

• If any person is found to have acquired any foreign exchange, foreign security or
immovable property, situated outside India, of the aggregate value exceeding the
threshold he shall be liable to a penalty up to three times the sum involved in such
contravention and confiscation of the value equivalent, situated in India, the
Foreign exchange, foreign security or immovable property

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Enforcement of the orders of Adjudicating Authority (Section 14)

• Subject to the provisions of section 19(2), if any person fails to make full payment
of the penalty imposed on him under section 13 within a period of ninety days
from the date on which the notice for payment of such penalty is served on him,
he shall be liable to civil imprisonment under this section.

• Order for the arrest and detention in civil prison of a defaulter shall be made if the
Adjudicating Authority, for reasons in writing, is satisfied –
a) that the defaulter, with the object or effect of obstructing the recovery of
penalty, has after the issue of notice by the Adjudicating Authority,
dishonestly transferred, concealed, or removed any part of his property,
or
b) that the defaulter has, or has had since the issuing of notice by the
Adjudicating Authority, the means to pay the arrears or some substantial
part thereof and refuses or neglects or has refused or neglected to pay
the same.

• defaulter is likely to abscond or leave the local limits of the jurisdiction of the
Adjudicating Authority.

• Where appearance is not made pursuant to a notice issued and served under sub-
section (1), the Adjudicating Authority may issue a warrant for the arrest of the
defaulter.

• A warrant of arrest issued by the Adjudicating Authority \

• Every person arrested in pursuance of a warrant of arrest under this section shall
be brought before the Adjudicating Authority issuing the warrant as soon as
practicable and in any event within twenty- four hours of his arrest (exclusive of
the time required for the journey):

• Pending the conclusion of the inquiry, the Adjudicating Authority may, in his
discretion, order the defaulter to be detained in the custody of such officer as the
Adjudicating Authority may think fit or release him on bail

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• Every person detained in the civil prison in execution of the certificate may be so
detained,–
(a) where the certificate is for a demand of an amount exceeding rupees one crore,
up to three
years, and.
(b) in any other case, up to six months:

• Provided that he shall be released from such detention on the amount mentioned
in the warrant for his detention being paid to the officer-in-charge of the civil
prison.

• A defaulter released from detention under this section shall not, merely by reason
of his release, be discharged from his liability for the arrears, but he shall not be
liable to be arrested under the certificate in execution of which he was detained in
the civil prison.

• A detention order may be executed at any place in India in the manner provided
for the execution of warrant of arrest under the Code of Criminal Procedure, 1973.

Power of recover arrears of penalty (Section 14A)

• the Adjudicating Authority may, by order in writing, authorize an officer of
Enforcement not below the rank of Assistant Director to recover any arrears of
penalty from any person who fails to make full payment of penalty imposed on
him under section 13 within the period of ninety days from the date on which the
notice for payment of such penalty is served on him.

Appeal to Special Director (Appeals) (Section 17)

• The Central Government shall, by notification, appoint one or more Special
Directors (Appeals) to hear appeals against the orders of the Adjudicating
Authorities under this section and shall also specify in the said notification the
matter and places in relation to which the Special Director (Appeals) may exercise
jurisdiction.

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• Any person aggrieved by an order made by the Adjudicating Authority, being an

Assistant Director of Enforcement or a Deputy Director of Enforcement, may prefer
an appeal to the Special Director (Appeals).

• Every appeal under sub-section (1) shall be filed within forty-five days from the
date on which the copy of the order made by the Adjudicating Authority

• On receipt of an appeal, the Special Director (Appeals) may after giving the parties
to the appeal an opportunity of being heard, pass such order thereon as he thinks
fit, confirming, modifying or setting aside the order appealed against.

• The Special Director (Appeals) shall send a copy of every order made by him to the
parties to appeal and to the concerned Adjudicating Authority.

• The Special Director (Appeals) shall have the same powers of a civil court which are
conferred on the Appellate Tribunal under sub-section (2) of section 28 and –
(a) all proceedings before him shall be deemed to be judicial proceedings
within the meaning of sections 193 and 228 of the Indian Penal Code ;

(b) shall be deemed to be a civil court for the purposes of sections 345 and
346 of the Code of Criminal Procedure, 197)

Appeal to Appellate Tribunal (Section 19)

• the Central Government or any person aggrieved by an order made by an
Adjudicating Authority, or the Special Director (Appeals), may prefer an appeal to
the Appellate Tribunal:

While filing the appeal, the applicant shall deposit the amount of such penalty with
such authority as may be notified by the Central Government:

• Every appeal shall be filed within a period of forty-five days from the date on which
a copy of the order made by the Adjudicating Authority

• On receipt of an appeal under sub-section (1), the Appellate Tribunal may, after
giving the parties to the appeal an opportunity of being heard, pass such orders

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thereon as it thinks fit, confirming, modifying or setting aside the order appealed
against.

• The Appellate Tribunal shall send a copy of every order made by it to the parties
to the appeal and to the concerned Adjudicating Authority or the Special Director
(Appeals), as the case may be.

Procedure and powers of Appellate Tribunal and Special Director (Appeals) (Section
28)
a) summoning and enforcing the attendance of any person and examining him on
oath;
b) requiring the discovery and production of documents;
c) receiving evidence on affidavits;
d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872
(1 of 1872); requisitioning any public record or document or copy of such record
or document from any office;
e) issuing commissions for the examination of witnesses or documents;
f) reviewing its decisions;
g) dismissing a representation of default or deciding it ex parte;
h) setting aside any order of dismissal of any representation for default or any order
passed by it ex parte; and
• An order made by the Appellate Tribunal or the Special Director (Appeals) under
this Act shall be executable by the Appellate Tribunal or the Special Director
(Appeals) as a decree of civil court and, for this purpose, the Appellate Tribunal and
the Special Director (Appeals) shall have all the powers of a civil court.

Civil court not to have jurisdiction (Section 34)

No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any
matter which an Adjudicating Authority or the Appellate Tribunal or the Special Director
(Appeals) is empowered to determine and no injunction shall be granted by any court or
other authority in respect of any action taken or to be taken in pursuance of any power
conferred by or under this Act.

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Appeal to High Court (Section 35)

• Any person aggrieved by any decision or order of the Appellate Tribunal may file
an appeal to the High Court within sixty days from the date of communication of
the decision or order of the Appellate Tribunal

Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000

Holding of inquiry (Rule 4)

1) Issue of Show Cause Notice- For the purpose of adjudicating under section 13 of
the Act whether any person has committed any contravention as specified in that
section of the Act, the Adjudicating Authority shall, issue a notice to such person
requiring him to show cause within such period as may be specified in the notice
(being not less than ten days from the date of service thereof) why an inquiry
should not be held against him.

2) Content of Notice- Every notice under sub-rule (1) to any such person shall
indicate the nature of contravention alleged to have been committed by him.

3) Date of Appearance- After considering the cause, if any, shown by such person,
the Adjudicating Authority is of the opinion that an inquiry should be held, he shall
issue a notice fixing a date for the appearance of that person either personally or
through his legal practitioner or a chartered accountant duly authorised by him.

4) Personal Hearing- On the date fixed, the Adjudicating Authority shall explain to
the person proceeded against or his legal practitioner or the chartered accountant,
as the case may be, the contravention, allowed to have been committed by such
person indicating the provisions of the Act or of rules, regulations, notifications,
directions or orders or any condition subject to which an authorisation is issued by
the Reserve Bank of India in respect of which contravention is alleged to have taken
place.

5) Opportunity to produce Evidence-The Adjudicating Authority shall, then, given

an opportunity to such person to produce such documents or evidence as he may
consider relevant to the inquiry and if necessary, the hearing may be adjourned to

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a future date and in taking such evidence the Adjudicating Authority shall not be
bound to observe the provisions of the Indian Evidence Act, 1872

6) Power to summon and enforce attendance-While holding an inquiry under this

rule the Adjudicating Authority shall have the power to summon and enforce
attendance of any person acquainted with the facts and circumstances of the case
to give evidence or to produce any document which in the opinion of the
Adjudicating Authority may be useful for or relevant to the subject matter of the
inquiry.

7) If any person fails, neglects or refuses to appear as required by sub-rule (3) before
the Adjudicating Authority, the Adjudicating Authority may proceed with the
adjudication proceedings in the absence of such person after recording the
reasons for doing so.

8) Order by the Adjudicating Authority- If, upon consideration of the evidence

produced before the Adjudicating Authority, the Adjudicating Authority is satisfied
that the person has committed the contravention, he may, by order in writing,
impose such penalty as he thinks fit, in accordance with the provisions of section
13 of the Act.

9) Every order made under sub-rule (8) of the rule 4 shall specify the provisions of the
Act or of the rules, regulations, notifications, directions or orders or any condition
subject to which an authorisation is issued by the Reserve Bank of India in respect
of which contravention has taken place and shall contain reasons for such
decisions.

10) Every order shall be dated and signed by the Adjudicating Authority.

11) A copy of the order made under sub-rule (8) of rule 4 shall be supplied free of
charge to the person against whom the order is made and all other copies of
proceedings shall be supplied to him on payment of copying fee @ Rs. 2 per page.

Procedure before Special Director (Appeals) (Rule 6)

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1) On receipt of an appeal, the Special Director (Appeals) shall send a copy of the
appeal, together with a copy of the order appealed against, to the Director of
Enforcement.

2) The Special Director (Appeals) shall, then, issue notices to the applicant and the
Director of Enforcement fixing a date for hearing of the appeal.

3) On the date fixed for hearing of the appeal or any other day to which the hearing
of the appeal may be adjourned, the applicant as well as the presenting officer of
the Directorate of Enforcement shall be heard.

4) Where on the date fixed, or any other day to which the hearing of the appeal may
be adjourned, the applicant or the presenting officer fail to appeal when the appeal
is called for hearing, the Special Director (Appeals) may decide the appeal on the
merits of the case within one hundred and eighty days from the date of such
appeal.

Contents of the Order in appeal (Rule 7)

1) The order of Special Director (Appeals) shall be in writing and shall state briefly the
grounds for the decision.
2) The order referred to in sub-rule (1) shall be signed by the Special Director
(Appeals) hearing the appeal.

Representation of party (Rule 8)

Any applicant who has filed an appeal before the Special Director (Appeals) under
section 17 of the Act, may appoint a legal practitioner or a chartered accountant
to appear and plead and act on his behalf before the Special Director (Appeal)
under the Act.

Service of notices, requisitions or orders (Rule 9)

A notice, requisition or an order issued under these rules shall be served on any person
in the following manner, that is to say,—
a) by delivering or tendering the notice or requisition or order to that person or his
duly authorised person;

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b) by sending the notice or requisition or order to him by registered post with

acknowledgment due to the address of his place of residence or his last known
place or residence or the place where he carried on or last carried on, business or
personally works or last worked for gain; or
c) by affixing it on the outer door or some other conspicuous part of the premises in
which the person resides or is known to have last resided or carried on business or
personally works or last worked for gain and that written report thereof should be
witnesses by two persons; or
d) if the notice or requisition or order cannot be served under clause (a) or clause (b)
or clause (c), by publishing in a leading newspaper (both in vernacular and in
English) having wide circulation of area or jurisdiction in which the person resides
or is known to have last resided or carried on business or personally works or last
worked for gain.

Appeal to the Appellate Tribunal (Rule 10)

Form of appeal
1) Every appeal presented to the Appellate Tribunal under section 19 of the Act shall
be in the Form II signed by the applicant. The appeal shall be sent in triplicate and
accompanied by three copies of the order appealed against.

2) The appeal shall set forth concisely and under distinct head the grounds of
objection to the order appealed against without any argument of narrative and
such grounds shall be numbered consecutively;

Procedure before Appellate Tribunal (Rule 11)

1) On receipt of an appeal, the Appellate Tribunal shall send a copy of the appeal
together with a copy of the order appealed against, to the Director of Enforcement.
2) The Appellate Tribunal shall, then, issue notices to the applicant and the Director
of Enforcement fixing a date for hearing of the appeal.
3) On the date fixed for hearing of the appeal, or any other day to which the hearing
of the appeal may be adjourned, the applicant as well as the presenting officer of
the Directorate of Enforcement shall be heard.
4) Where on the date fixed, or any other day to which the hearing of the appeal may
be adjourned the applicant or the presenting officer fail to appeals when the

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appeal is called on for hearing, the Appellate Tribunal may decide the appeal on
the merits of the case.

Contents of the Order in appeal (Rule 12)

1) The order of Appellate Tribunal shall be in writing and shall state briefly the
grounds for the decision.

2) The order referred to shall be signed by the Chairman or Member of the Appellate
Tribunal hearing the appeal.

Representation of party (Rule 13)

Any applicant who has filed an appeal before the Appellate Tribunal may appoint
a legal practitioner or a chartered accountant to appeals and plead and act on his
behalf before the Special Director (Appeals) under the Act,

Service of notices, requisitions or orders (Rule 14)

a) by delivering or tendering the notice or requisition or order to that person or his
duly authorised person,

b) by sending the notice or requisition or order to him by registered post with

acknowledgment due to the address of his place of residence or his last known
place or residence or the place where he carried on, or last carried on, business or
personally works or last worked for gain, or

c) by affixing it on the outer door or some other conspicuous part of the premises in
which the person resides or is known to have last resided or carried on business or
personally works or has worked for gain and that written report thereof should be
witnesses by two persons, or

d) if the notice or requisition or order cannot be served under clause (a) or clause (b)
or clause (c), by publishing in a leading newspaper (both in vernacular and in
English) having wide circulation or area or jurisdiction in which the person resides
or is known to have last resided or carried on business or personally works or last
worked for gain.

Differences between Section 441 and Section 454 under the Companies Act, 2013

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Compounding (Section 441) Adjudication (Section 454)

Regional Director or on an authorized no monetary limits stipulated for

officer of the Central Government can exercising the powers by the adjudicating
compound offence upto Rs. 25 Lakhs; and officers
NCLT can compound offence above Rs. 25
Lakhs

The compounding order is delivered the adjudicating officer’s order is more

generally based on a consensus arrived at arbitrary and not on consensus, though a
by both parties with the compounding reasonable opportunity may be given to
authority having a final say on the the company and the officer in default as
outcome of the application and the required u/s 454(4) before the imposition
quantum of penalty of any penalty.

compounding order is generally not adjudication order is appealable with the

appealable. Once he agrees on the higher authorities as per the express
compounding order, he cannot go on provision provided in section 454, with the
appeal against it. procedure being provided by the Rules,

When there is a provision for compounding u/s 441 how does section 454 come into
play? Does Section 454 override Section 441 since it is a later section? Or do both
sections play parallelly? Which section prevails?

Both these sections are independent of each other. The question of one section overriding
the other does not arise, as they operate concurrently. The Regional Director cannot set
the compounding process in motion u/s 441 and simultaneously the ROC cannot order
adjudication u/s. 454.

Section 441 deals with compounding and Section 454 deals with adjudication. The
adjudicating officer has no power to compound. The Regional Director alone can
compound.

If he has to authorize another officer it has to be u/s 441(1)(b) and not under 454. The
adjudicating officer u/s 454 can only adjudicate on the quantum of penalty. He has no

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right to go into the merits and demerits of the default. Within the parameters set under
the sections which are under default he can wander. In fact, he can only revise the fee
upwards not downwards as can be seen from the parameters set under Rule 3(9) of the
Companies (Adjudication of Penalties) Rules, 2014. Whereas, the Regional Director or the
NCLT can afford to give lot of concessions on the quantum of penalty depending on the
facts of the case. The power to compound vested with the Regional Director or the NCLT
is more subjective.

When a suo motto application for compounding is made, how does Section 454
come into play?
The moot question here will be, should the Regional Director or the NCLT take cognizance
of adjudication proceedings u/s 454(2) when a suo moto application made by the
defaulter for composition involving an offence, the nature of which the defaulter himself
has identified, is pending with him/NCLT for disposal and stop the adjudication
proceedings? Therefore, it appears that prima facie section 454 will not come into play.
The ROC who has forwarded the compounding application to either of them with his
report has to seek directions from the RD/NCLT in such a case. The Regional
Director/NCLT may agree for adjudication after giving justifiable reasons for his choice for
adjudication overriding the compounding application in a speaking manner. But this
decision can be challenged before the same RD under section 454(5) by the applicants to
a suo moto compounding application if the ROC, being the adjudicating officer exercises
his power u/s 454, on the grounds that the defaulting party itself has identified the non-
compliance and none else and therefore, the offence will obviously be outside the purview
of Section 454.

COMPLAINT BY REGISTRAR AND SERIOUS FRAUD

INVESTIGATION OFFICE
Serious Fraud Investigation Office (SFIO) has been established through the Government
of India vide Notification No. S.O.2005(E) dated 21.07.2015. It is a multi-disciplinary
organization under the Ministry of Corporate Affairs, consisting of experts in the field of
accountancy, forensic auditing, banking, law, information technology, investigation,
company law, capital market and taxation, etc. for detecting and prosecuting or

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recommending for prosecution white-collar crimes/frauds. As per section 210 of the Act
an investigation into the affairs of a company is assigned to SFIO, where Government is
of the opinion that it is necessary to investigate into the affairs of a company –
1) on receipt of a report of the Registrar or inspector under section 208 of the
Companies Act, 2013;
2) on intimation of a special resolution passed by a company that its affairs are
required to be investigated;
3) in public interest, it may order an investigation into the affairs of the company;
4) Where an order is passed by a court or the Tribunal in any proceedings before it
that the affairs of a company ought to be investigated, the Central Government
shall order an investigation into the affairs of that company.

SFIO is headed by a Director as Head of Department in the rank of Joint Secretary to the
Government of India. The Director is assisted by Additional Directors, Joint Directors,
Deputy Directors, Senior Assistant Directors, Assistant Directors Prosecutors, and other
secretarial staff. The Headquarter of SFIO is in New Delhi, with five Regional Offices in
Mumbai, New Delhi, Chennai, Hyderabad & Kolkata.

The SFIO is headed by a Director, who shall be an office not below the rank of a Joint
Secretary to Government of India having knowledge and experience in Corporate Affairs,
and consist of expertise in the fields of investigations, cyber forensics, financial
accounting, management accounting, cost accounting and any other fields as may be
necessary for the efficient discharge of Serious Fraud Investigation Office (SFIO) functions
under the Act.

The Central Government may appoint such experts and other officers and employees in
the Serious Fraud Investigation Office as it considers necessary for the efficient discharge
of its functions under this Act.

Investigation
Section 212(1) of the Companies Act, 2013 empowers Central Government to investigate
into the affairs of the company by SFIO.

a) on receipt of a report of the Registrar or inspector under section 208;

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b) on intimation of a special resolution passed by a company that its affairs are

required to be investigated;

c) in the public interest; or

d) on request from any Department of the Central Government or a State
Government.

The Central Government may, by order, assign the investigation into the affairs of the said
company to the Serious Fraud Investigation Office and its Director, may designate such
number of inspectors, as he may consider necessary for the purpose of such investigation.
Section 212(2) stipulates that, where any case has been assigned by the Central
Government to the Serious Fraud Investigation Office for investigation under this Act, no
other investigating agency of Central Government or any State Government shall proceed
with investigation in such case in respect of any offence under this Act and in case any
such investigation has already been initiated, it shall not be proceeded further with and
the concerned agency shall transfer the relevant documents and records in respect of
such offences under this Act to Serious Fraud Investigation Office.

The investigation into the affairs of a company shall be conducted in the manner and by
following the procedure specified in Chapter XIV of Companies Act, 2013. The SFIO shall
submit its report to the Central Government within the period specified in the order.
{Section 212(3)}

The Director SFIO shall cause the affairs of the company to be investigated by an
investigating officer, who shall have the powers of the Inspector under section 217 of the
Companies Act, 2013. {Section 212(4)}

It shall be the responsibility of the company, its officers and employees, who are or have
been in the employment of the company to provide all information, explanation,
documents and assistance to the investigating officer as he may require for conduct of
business. {Section 212(5)}

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Section 212(6) stipulates that the offence covered under Section 447 of the Companies
Act, 2013 is a cognizable offence, and no person accused of any offence under those
sections shall be released on bail or on his own bond unless—
(i) the Public Prosecutor has been given an opportunity to oppose the application
for such release; and
(ii) where the Public Prosecutor opposes the application, the court is satisfied that
there are reasonable grounds for believing that he is not guilty of such offence
and that he is not likely to commit any offence while on bail:

Provided that a person, who, is under the age of sixteen years or is a woman or is sick or
infirm, may be released on bail, if the Special Court so directs:
Provided further that the Special Court shall not take cognizance of any offence referred
to this sub-section except upon a complaint in writing made by—
(i) the Director, Serious Fraud Investigation Office; or
(ii) any officer of the Central Government authorised, by a general or special order in
writing in this behalf by that Government.

POWER TO ARREST:
• If any officer, not below the rank of Additional Director, of SFIO has a reason to
believe that any person is guilty of any offence punishable under Section 447 of
the Companies Act, 2013 on basis of material in his possession, the office can arrest
that person and will inform him the grounds of such arrest . {Section 212(8)}

• A copy of arrest order along with the material in his possession which basis such
arrest is forwarded by the concerned officer to SFIO in a sealed envelope. {Section
212(9)}

• Every person arrested by the SFIO officer shall within twenty-four hours be taken
to Special Court or Judicial Court or Metropolitan Magistrate, as the case may be,
having appropriate jurisdiction over such matter. The period of twenty-four hours
excludes the time required for journey from place of arrest to appropriate court.
[Section 212(10)]

REPORT TO CENTRAL GOVERNMENT:

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• The Serious Fraud Investigation shall submit an interim report, if so, directed by
the Central Government {Section 212(11)}

• On completion of investigation, the SFIO shall submit the Investigation Report to

the Central Government. {Section 212(12)}

• On receipt of the Investigation Report, the Central Government will examine the
report and after taking legal advice, if required, may direct SFIO to initiate
proceedings against the company and its officers or employees, who are or have
been in employment of the company or any other person directly or indirectly
connected with the affairs of the company. {Section 212(14)}

• Where the report under sub-section (11) or sub-section (12) states that fraud has
taken place in a company and due to such fraud any director, key managerial
personnel, other officer of the company or any other person or entity, has taken
undue advantage or benefit, whether in the form of any asset, property or cash or
in any other manner, the Central Government may file an application before the
Tribunal for appropriate orders with regard to disgorgement of such asset,
property or cash and also for holding such director, key managerial personnel,
other officer or any other person liable personally without any limitation of liability.
{Section 212(14A)}

• It is important to note that the investigation report filed with the Special Court for
framing of charges against any person shall deemed to be a report filed by a Police
Officer under Section 173 of the Code of Criminal Procedure, 1973 {Section
212(15)}

TRIBUNALS
Qualification of President and Members of Tribunal (Section 409)
• The President shall be a person who is or has been a Judge of a High Court for five
years. A person shall not be qualified for appointment as a Judicial Member unless
he—
(a) is, or has been, a judge of a High Court; or

(b) is, or has been, a District Judge for at least five years; or

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(c) has, for at least ten years been an advocate of a court.

Explanation.—For the purposes of clause (c), in computing the period during which
a person has been an advocate of a court, there shall be included any period during
which the person has held judicial office or the office of a member of a tribunal or
any post, under the Union or a State, requiring special knowledge of law after he
become an advocate.

• A person shall not be qualified for appointment as a Technical Member unless he—
(a) has, for at least fifteen years been a member of the Indian Corporate Law
Service or Indian Legal Service and has been holding the rank of Secretary or
Additional Secretary to the Government of India; or

(b) is, or has been, in practice as a chartered accountant for at least fifteen years;
or
(c) is, or has been, in practice as a cost accountant for at least fifteen years; or

(d) is, or has been, in practice as a company secretary for at least fifteen years; or

(e) is a person of proven ability, integrity and standing having special knowledge
and professional experience of not less than fifteen years in industrial finance,
industrial management, industrial reconstruction, investment and accountancy

(f) is, or has been, for at least five years, a presiding officer of a Labour Court,
Tribunal or National Tribunal constituted under the Industrial Disputes Act,
1947.

Qualification of President and Members of Appellate Tribunal (Section 411)

• The chairperson shall be a person who is or has been a Judge of the Supreme Court
or the Chief Justice of a High Court.

• A Judicial Member shall be a person who is or has been a Judge of a High Court or
is a Judicial Member of the Tribunal for five years.

• A technical member shall be a person of proven ability, integrity and standing

having special knowledge and professional experience of not less than twenty-five

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years in industrial finance, industrial management, industrial reconstruction,

investment and accountancy.

Selection of Members of Tribunal and Appellate Tribunal (Section 412)

• The President of the Tribunal and the chairperson and Judicial Members of the
Appellate Tribunal, shall be appointed after consultation with the Chief Justice of
India.

• The Members of the Tribunal and the Technical Members of the Appellate Tribunal
shall be appointed on the recommendation of a Selection Committee consisting
of—
(a) Chief Justice of India or his nominee—Chairperson;

(b) a senior Judge of the Supreme Court or Chief Justice of High Court—

Member;

(c) Secretary in the Ministry of Corporate Affairs—Member; and

(d) Secretary in the Ministry of Law and Justice—Member.

• Where in a meeting of the Selection Committee, there is equality of votes on any

matter, the Chairperson shall have a casting vote.

• The Secretary, Ministry of Corporate Affairs shall be the Convener of the Selection
Committee.

• The Selection Committee shall determine its procedure for recommending persons
under sub-section (2).

• No appointment of the Members of the Tribunal or the Appellate Tribunal shall be

invalid merely by reason of any vacancy or any defect in the constitution of the
Selection Committee

Term of Office of President, Chairperson and Other Members (Section 413)

• The President and every other Member of the Tribunal shall hold office as such for a
term of five years from the date on which he enters upon his office, but shall be eligible
for re-appointment for another term of five years.

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•
• A Member of the Tribunal shall hold office as such until he attains,—
a) in the case of the President, the age of sixty-seven years;
b) in the case of any other Member, the age of sixty-five years:

Provided that a person who has not completed fifty years of age shall not be eligible
for appointment as Member:

Provided further that the Member may retain his lien with his parent cadre or Ministry
or Department, as the case may be, while holding office as such for a period not
exceeding one year.

• The chairperson or a Member of the Appellate Tribunal shall hold office as such for a
term of five years from the date on which he enters upon his office, but shall be eligible
for re-appointment for another term of five years.

• A Member of the Appellate Tribunal shall hold office as such until he attains,—
(a) in the case of the Chairperson, the age of seventy years;
(b) in the case of any other Member, the age of sixty-seven years:
Provided that a person who has not completed fifty years of age shall not be eligible
for appointment as Member:

Powers of the Tribunal under the Act

Sr.no. POWER

1. Powers of the Tribunal to give various orders for regulation or winding up of company

when the company has been incorporated by furnishing false or incorrect information

or by suppressing material facts

2. Powers to impose conditions for disposal surplus remaining after the winding up of a

section 8 company

3. Power to set aside the variation of shareholders’ rights

4. Power to approve the redemption of unredeemed preference shares by issuing further

preference shares

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5. Powers to direct registration of transfer of transmission or rectification of register in

case of refusal to register the transfer

6. Powers for rectification of register of members

7. Power to approve the consolidation or division which changes the voting percentage of

shareholders

8. Power to pass orders as it deems fit for conversion of Government owned debentures

or loan given by Government into equity

9. Power to approve the reduction of share capital

10. Powers to grant relief in case of inability to redeem debentures

11. Powers of Tribunal to direct the company to pay sum due for any loss incurred by

depositor

12. Powers of Tribunal to extend the time for repayment of deposit

13. Power of Tribunal to call annual general meeting

14. Power of Tribunal to call meetings other than annual general meeting

15. Power to direct immediate inspection of minutes book

16. Power to order re-opening of books of accounts or re-casting of financial statements in

case of preparation in fraudulent manner or mismanagement of the affairs of the
company

17. Power to approve the voluntary revision of financial statements or Board’s Report

18. Powers to waive the requirement of circulation of representation of the auditor sought

to be removed

19. Power to direct the company to change the auditors

20. Power to waive the requirement of circulation of representation of the director sought

to be removed

21. Powers to order investigation into affairs of the company

22. Powers to approve the action against the employee during the course of investigation

by the company

23. Powers to freeze the assets of the company during inquiry and investigation

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24. Sub-section (1) of section Imposing restriction on the securities of the

222 company during investigation

25. Sub-section (1) of section Powers to call a meeting to consider compromise

230 or arrangement with the creditors or members or

any class of them

26. Sub-section (6) and (7) of Power to approve the compromise or arrangement

section 230 by an order

27. Sub-section (12) of section Powers to grant relief in case of takeover offer of

230 companies other than listed companies

28. Sub-section (1) and (2) of Power to supervise and enforce Compromise or

section 231 Arrangement

29. Sub-section (1) and (3) of Powers to approve merger and amalgamation

section 232

30. Sub-section (2) of section Power to grant relief to the minority shareholders

235 where their shares are proposed to be acquired by

the majority

31. Sub-section (4) of section Power to hear appeals regarding compensation in

237 case of amalgamation of companies in public

interest

32. Sub-section (2) of section Power to hear appeal against the order of Registrar

238 refusing to register the scheme for transfer of

shares
33. Sub-section (1) and (2) of Granting of relief in case of oppression and

section 242 Mismanagement

34. Sub-section (1) of section Powers to waive the requirement of minimum

244 members to apply under section 241

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35. Sub-section (1) of section Power to hear and pass orders for class action Suits

245

36. Sub-section (1) and (3) Power to hear appeals against removal of name

of section 252 and order restoration of name of company

37. Part I of Chapter XX- Winding up by the Tribunal

Section 271 to section 303

38. Section 328 Power to set aside transactions amounting to

fraudulent preference

39. Sub-section (3) and (4) of Power to decide the liabilities in reference to

section 331 fraudulent preference

40. Sub-section (1), (3), (5) and Power to allow disclaimer of onerous property

(6) of section 333

41. Sub-section (2) of section Power to allow the transfer of property after the

334 commencement of winding up

42. Sub-section(1) and (2)of Power to charge a director, manager, officer or any

section 339 other person who was knowingly a party to the

carrying on of business of the company in a

fraudulent manner with unlimited liability

43. Sub-section(1) and (2) of Power to assess damages against a delinquent

section 340 Person

44. Sub-section (1) of section Power to direct the liquidator to prosecute the

342 officer or member of the company who is guilty of

an offence relating to a company

45. Sub-section (1) and (3) of Power to sanction the exercise of certain powers by

section 343 the Company Liquidator

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46. Sub-section (1) of section Power to direct the disposal of books and papers

347 of the company wound up by the Tribunal

47. Section 350 Power to permit the opening of bank account with

any specified bank and to authorize the retention

of money by Liquidator

48. Sub-section (1) of section Power to direct the company liquidator to make

353 good the default in filing the returns etc. required

to be filed

49. Sub-section (1) of section Power to direct the meetings of the creditors and

354 contributories

50. Sub-section (1) of section Power to declare the dissolution of the company to

356 be void

51. Sub-section (4) of section Powers to pass necessary orders in respect of

364 Appeals against the decisions of Official Liquidator

under section 363

52. Section 373 Power to grant leave for commencement or

proceeding of a suit or other legal proceeding

against the company

53. Sub-section (3) and (4) of Powers with respect to winding up of unregistered

section 375 companies

54. Sub-section (2) of section Power to issue process for compelling the

399 production of document kept by the Registrar

55. Sub-section (1) of section Power to regulate their own procedure

424

56. Section 425 Power to punish for contempt

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57. Section 426 Delegation of Powers

58. Sub-section (1) of section Power to seek assistance of Chief Metropolitan

429 Magistrate or District Collector etc.

59. Sub-section (1) of section Power to compound offences punishable with fine

441 of more than Rs. 25 lakhs

60. Sub-section (2) and (3) of Reference of matter to Mediation and Conciliation

section 442 Panel

Procedure Before Tribunal and Appellate Tribunal (Section 424)

• The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging
their functions under this Act or under the Insolvency and Bankruptcy Code, 2016,
the same powers as are vested in a civil court under the Code of Civil Procedure,
1908 while trying a suit in respect of the following matters, namely:—

a) summoning and enforcing the attendance of any person and examining him on

oath;

b) requiring the discovery and production of documents;

c) receiving evidence on affidavits;

d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act,

1872, requisitioning any public record or document or a copy of such record or

document from any office;

e) issuing commissions for the examination of witnesses or documents;

f) dismissing a representation for default or deciding it ex parte;

g) setting aside any order of dismissal of any representation for default or any

order passed by it ex parte; and

Few Forms w.r.t. NCLT Rules, 2016

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Form no. Description

NCLT-1 Petition or application or reference shall be filed with the Tribunal with

attachments thereto accompanied by Form No. NCLT.2

NCLT-4 The general heading for Proceedings

NCLT-6 General Affidavits verifying Petition

NCLT-5 Notice to be issued by the Tribunal to the opposite party

NCLT-12 Memorandum of Appearance

Orders of Tribunal (Section 420)

• The Tribunal may, after giving the parties to any proceeding before it, a reasonable
opportunity of being heard, pass such orders thereon as it thinks fit.

• The Tribunal may, at any time within two years from the date of the order, with a
view to rectifying any mistake apparent from the record, amend any order passed
by it, and shall make such amendment, if the mistake is brought to its notice by
the parties.

• No such amendment shall be made in respect of any order against which an appeal
has been preferred under this Act.

• The Tribunal shall send a copy of every order passed under this section to all the
parties concerned.

Appeal from Orders of Tribunal (Section 421)

• Any person aggrieved by an order of the Tribunal may prefer an appeal to the
Appellate Tribunal.

• No appeal shall lie to the Appellate Tribunal from an order made by the Tribunal
with the consent of parties.

• Every appeal shall be filed within a period of forty-five days from the date on which
a copy of the order of the Tribunal is made available to the person aggrieved and
shall be in such form, and accompanied by such fees, as prescribed:

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• The Appellate Tribunal may entertain an appeal after the expiry of the said period
of forty-five days from the date aforesaid, but within a further period not exceeding
forty-five days, if it is satisfied that the appellant was prevented by sufficient cause
from filing the appeal within that period.

• On the receipt of an appeal, the Appellate Tribunal shall, after giving the parties to
the appeal a reasonable opportunity of being heard, pass such orders thereon as
it thinks fit, confirming, modifying or setting aside the order appealed against.

• The Appellate Tribunal shall send a copy of every order made by it to the Tribunal
and the parties to appeal.

Appeal to Supreme Court (Section 423)

Any person aggrieved by any order of the Appellate Tribunal may file an appeal to the
Supreme Court within sixty days from the date of receipt of the order of the Appellate
Tribunal to him on any question of law arising out of such order:

Provided that the Supreme Court may, if it is satisfied that the appellant was prevented
by sufficient cause from filing the appeal within the said period, allow it to be filed within
a further period not exceeding sixty days.

Securities Appellate Tribunals (SAT)

Securities Appellate Tribunal (SAT) is a statutory body established under the provisions of
Section 15K of the Securities and Exchange Board of India Act, 1992 to hear and dispose
of appeals against orders passed by the Securities and Exchange Board of India or by an
adjudicating officer under the Act; and to exercise jurisdiction, powers and authority
conferred on the Tribunal by or under SEBI Act, 1992 or any other law for the time being
in force.

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