All of you in corporate practice would have noticed Easy Exit Scheme, 2011 introduced by the Ministry of Corporate Affairs to pave way for weeding out defunct companies. Previously when this scheme was introduced, several companies had exited. Similarly now defunct companies could become active to apply for an exit. One of the benefits of this scheme is that the applicant comapnies do not need to update all accounts and returns and other documents which such companies might have omitted to file. As such it is quite possible that several squared up transactions do not get reported and several contraventions might not get detected at all. For instance if in Year 1 there is a loan transaction carried out in perfect violation of Section 295 of the Companies Act, 1956 and in Year 2 the same has been squared by an entry and in Year 3 [let us say 2011] they file a Statement of Account and get an honourable exit (officially), it is nothing 'closing eyes where they are supposed to open'. In this era of scams, should MCA be introducing schemes such as EES 2011 without proper safeguards? Would it not be prudent for professional certifications as regards 'no violation' in the past three years at least? If complaints are not there, could that indicate 'all is well"? Are we not having enough experience of shareholders filing complaints under Section 235 / 273 / 397/ 398 and other provisions even after 8 to 10 years upon coming to know of issues? Can there be an exit otherwise than through a proper winding up in the case of companies with assets and liabilities? How is the EES, 2011 valid when it allows companies with assets and liabities to exit? What is the validity of the indemnity of one or two directors? Will there be any verification of their means and credibility so as to say that their indemnity would stand the test at the relevant time? Are we not hearing many a stories of closure of companies floated by Kings through such schemes which could have been 'pass through' for various transactions? It is time we wake up and make the administration shake up!
Friday, December 24, 2010
Sunday, December 5, 2010
corporatelawmadesimple: benefits of compounding of offences under the Comp...
corporatelawmadesimple: benefits of compounding of offences under the Comp...: "A prosecution of the offence would not be launched in a Criminal Court by filing a criminal complaint whereby the hassles of appearing befor..."
benefits of compounding of offences under the Companies Act
A prosecution of the offence would not be launched in a Criminal Court by filing a criminal complaint whereby the hassles of appearing before a criminal court would not arise. If a prosecution had already been launched, the compounding of offence puts an end to such prosecution.
The compounding fee payable in consideration of the appropriate authority allowing the application for compounding is not same as a fine levied by a criminal court. A fine will be levied as the or part of the punishment for the offence committed preceded by the court convicting the accused of the offence.
However it protects public interest by ensuring that prior to compounding, the default is remedied by compliance of the applicable provision; by curbing compounding of repeat offences and above all by making it a discretionary power. If a case involves serious offences investigated by CBI or Serious Corporate Frauds, the compounding authority may refuse to allow applications for compounding offences arising from seemingly technical defaults!
The compounding fee payable in consideration of the appropriate authority allowing the application for compounding is not same as a fine levied by a criminal court. A fine will be levied as the or part of the punishment for the offence committed preceded by the court convicting the accused of the offence.
However it protects public interest by ensuring that prior to compounding, the default is remedied by compliance of the applicable provision; by curbing compounding of repeat offences and above all by making it a discretionary power. If a case involves serious offences investigated by CBI or Serious Corporate Frauds, the compounding authority may refuse to allow applications for compounding offences arising from seemingly technical defaults!
corporatelawmadesimple: Private Placement of Securities to 50 or more pers...
corporatelawmadesimple: Private Placement of Securities to 50 or more pers...: "In the year 2000, Section 67 of the Companies Act, 1956 [the Act] was amended to introduce a proviso prohibiting a company from issuing shar..."
Private Placement of Securities to 50 or more persons amounts to a Public Issue
In the year 2000, Section 67 of the Companies Act, 1956 [the Act] was amended to introduce a proviso prohibiting a company from issuing shares to 50 [Fifty] or more persons otherwise than through a public issue. A public issue of shares is a cumbersome and costly process with enormous disclosure requirements. It is not possible to proceed with an issue of shares to public unless Securities and Exchange Board of India [SEBI], which is the capital market regulator, clears the offer document. The aforesaid amendment was not made as clearly as we have mentioned in the opening sentence.
As you may be aware, lawmakers in India have always had the sadistic pleasure of saying something indirectly testing even the ability of persons with professional qualifications such as company secretaries and lawyers.
Prior to the above amendment, promoters of companies have issued shares to thousands and thousands of persons to raise equity capital. Such share issues were popularly known as private placement of shares and many such companies have vanished soon after the issue of shares. When this law was introduced, private placement of shares to people stopped for a while. However companies resorted to issuing shares to 50 [Fifty] or more people in tranches ensuring that each time the issue is made only to less than 50 [Fifty] persons.
Recently in a leading case, SEBI had issued an order against one such issue of shares by private placement. The aggrieved company termed the order of SEBI as “imprudent and inappropriate”. SEBI vide its order dated 24th November, 2010 held that the issue of Optionally Fully Convertible Debentures (OFCDs) by certain companies to persons who are allegedly friends, relatives, associates, employees and other individuals who are associated / affiliated or connected in any manner with those companies. SEBI held that an issue of securities to 50 [Fifty] or more persons is a ‘Public Issue” and consequently the issue ought to have been made after complying with the relevant provisions of the Act, the SEBI (ICDR) Regulations, 2009 and other Regulations.
As you may be aware, lawmakers in India have always had the sadistic pleasure of saying something indirectly testing even the ability of persons with professional qualifications such as company secretaries and lawyers.
Prior to the above amendment, promoters of companies have issued shares to thousands and thousands of persons to raise equity capital. Such share issues were popularly known as private placement of shares and many such companies have vanished soon after the issue of shares. When this law was introduced, private placement of shares to people stopped for a while. However companies resorted to issuing shares to 50 [Fifty] or more people in tranches ensuring that each time the issue is made only to less than 50 [Fifty] persons.
Recently in a leading case, SEBI had issued an order against one such issue of shares by private placement. The aggrieved company termed the order of SEBI as “imprudent and inappropriate”. SEBI vide its order dated 24th November, 2010 held that the issue of Optionally Fully Convertible Debentures (OFCDs) by certain companies to persons who are allegedly friends, relatives, associates, employees and other individuals who are associated / affiliated or connected in any manner with those companies. SEBI held that an issue of securities to 50 [Fifty] or more persons is a ‘Public Issue” and consequently the issue ought to have been made after complying with the relevant provisions of the Act, the SEBI (ICDR) Regulations, 2009 and other Regulations.
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