INVESTOR & SHAREHOLDER PROTECTION UNDER THE COMPANIES ACT, 2013 - - PowerPoint PPT Presentation

“INVESTOR & SHAREHOLDER PROTECTION”

UNDER

THE COMPANIES ACT, 2013

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Fraud Disgorgement and related provisions Deposits Oppression and mismanagement

INDEX

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INVESTOR & SHAREHOLDER PROTECTION - TECHINIQUES

liabilities on committing fraud disgorgement of amount Stringent norms for deposits Oppression and mismanagement techniques

FRAUD DEFINITION

Act Fraud Omission Concealment of fact With intent to Abuse of position Deceive Gain undue advantage from Injure Interests of Company Shareholders Creditors Any other person Whether or not there is Wrongful gain Wrongful loss

FRAUD RELATED PROVISIONS

Punishment for fraud

Min 6 months Max 10 Yrs Min Amt Involved Max 3x Amt Involved

Particulars Section Furnishing any false or incorrect particulars of any information or suppression any material information in relation to incorporation 7(5),(6) Fraudulent conduct of affairs of a charitable company 8(11) Untrue or misleading statement in prospectus 34 Fraudulently inducing persons to invest money 36 Personation for acquisition, etc., of securities 38(1) Issue of duplicate certificate of shares with an intent to defraud 46(5) Transfer of shares by depository or depository participant, with an intention to defraud 56(7) Furnishing False statement, mutilation, destruction

• f

documents statement during inspection, inquiry or investigation 229 Fraudulent application for removal of name 251(1) Fraudulent conduct of business of Company being wound up 339(3) False statement or omission in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for, the purposes of this Act 448

ACTS TO BE PUNISHABLE AS FRAUDS

DISGORGEMENT RELATED PROVISIONS

In case of fraud tribunal may order disgorgement of property, assets , cash held by directors/ officers / KMP who are in default by making them unlimitedly liable The disgorged amount refers to the amount received through disgorgement or disposal of securities. To prevent the public interest law provides provisions related to disgorgement as following

Funds in IEPF can be utilized for distribution of any disgorged amount among eligible and identifiable applicants Disgorgement may be ordered in case of impersonation, amount realized shall be transferred to IEPF

DISGORGEMENT RELATED PROVISIONS

Exit opportunity in case of variation in terms of objects or contracts has been provided in he Act to curb the malpractices of usurping public money wrongfully

DISGORGEMENT RELATED PROVISIONS

DEPOSITS

All companies can accept deposits only from members (Directors & their relatives excluded) Deposits not to exceed 25% of the aggregate paid up capital and free reserves Prior approval of members required for accepting deposits Concept of Deposit Repayment Reserve, credit rating, deposit insurance and creation of charge introduced Appointment deposit trustee is mandatory for issuing of secured deposit Deposit to be invited by issue of circular to members Where deposits are unsecured it has to be specifically quoted in every document inviting deposit

New law brings seminal changes in the provisions related to deposits now the norms has been made stringent for accepting deposits

Every public company having net worth of Rs 100 crore or turnover of Rs 500 crore are allowed to raise deposits from public Consent of members to be obtained by passing of special resolution Credit rating of deposits compulsory while inviting deposits and subsequently on yearly basis during the tenure of deposits Compulsory creation of charge on the assets of the company for the amount of deposit within 30 days of acceptance, if deposits are secured

PUBLIC DEPOSITS from other then members … TOUGHER

Accepting deposit from public no longer easy. Strict requirements to ensure protection of depositor’s interests

REPYAMENT OF DEPOSITS

All the outstanding deposits on commencement of the Act have to be repaid within 1 year from date of maturity or 1 from commencement if already matured; which ever is earlier

A lawsuit that allows a large number of people with a common interest in a matter to sue or be sued as a group. Allows shareholders to take action against shoddy corporate governance practices and other actions which harm the minority shareholders. Allows members or depositors or any class of them to approach NCLT if the management or conduct of the affairs of the company prejudices the interest of the company, its members or depositors. Compensation can be claimed from auditors, experts, advisors or consultants for any improper or misleading statement or any fraudulent, unlawful or wrongful act or conduct.

CLASS ACTION SUIT

Mahindra Satyam and PwC paid $125 mn and $25.5 mn to foreign investors to settle Class Action Suits but Indian shareholders were left in lurch

• Not less than 100 members or not less than 10%
• f total number of members whichever is less; or
• Any member(s) singly or jointly holding not less

than 10% of the issued share capital of the company In case of company having share capital

• Not less than 1/5 of the total number of its

members. In case of company not having share capital

• Not less than 100 depositors or not less than 10%
• f the total number of depositors; whichever is

less or

• Any depositor(s) singly or jointly holding not less

than 10% of the total value of outstanding deposits of the company The requisite number of depositors that can file an application before the Tribunal for Class Action are as follows as per the

WHO MAY FILE CLASS ACTION SUIT

Following may file class action suits :

OPPRESSION AND MISMANAGEMENT

Application for relief from oppression may be field in NCLT if any members of the company who complaints that

• The affairs of the company have been or are being conducted in a manner prejudicial to

public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or

• The material change, not being a change brought about by, or in the interests of, any

creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company’s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members,

• Not less than 100 members or not less than 10% of

total number of members whichever is less; or

• Any member(s) singly or jointly holding not less than

10% of the issued share capital of the company In case of company having share capital

• Not less than 1/5 of the total number of its

members. In case of company not having share capital

WHO MAY FILE APPLICATION FOR RELIEF FROM OPPRESSION AND MISMANAGEMENT

Following members may file application in tribunal for getting relief from oppression and mismanagement :

OPPRESSION AND MISMANAGEMENT

An application for oppression & mismanagement shall now be filed to NCLT instead of CLB Provisions for relief related to oppression and mismanagement combined Power to issue orders in addition to those provided on Act of 1956 has been vested in the tribunal Copy of order of the tribunal now to be filed within 30 days of the order Penal provisions has been significantly increased Power to waive the requirement of eligibility for filing an application for relief from

• ppression has been shifted to tribunal