The realm of corporate law is ever-evolving, marked by legal precedents, penalties, and regulatory shifts. This article delves into recent case law, penalties imposed by regulatory authorities, and updates in compliance standards across various legal domains.
Officer in default under section 2(60) of companies Act.
Case Law
In recent case ROC held company secretary solely accountable for non-compliance of Secretarial standards.
As per Clause 14 of Secretarial Standard no gifts, gift coupons, or cash in lieu of gifts shall be distributed to the Members at or in connection with the meeting.
How ever company had given SBI card to all 53 Minority shareholder violating the provision of Sec. 118(10) of the Companies Act, 2013 read with SS-2 in Clause 14 of Secretarial Standard.
As per the provisions of Section 205 (1)(b) of the Companies Act, 2013, one of the functions of the Company Secretary shall be to ensure that the Company complies with the applicable Secretarial Standards making Managing Director and Whole-time Director not intervene in those matters.
As Sec. 2(60) also recognizes the Company Secretary who is a KMP as officer in default. ROC set aside penalty imposed on the Company, Managing Director and Whole-time Director and initiated necessary action against the Company Secretary alone, making Company secretary officer in default.
ROC penalize company and its directors for ESOP violation
The company came up with ESOP Scheme for the issue of 1379 equity shares of the company during the Year 2021-22.
Company later approved allotment of 500 equity shares under ESOP scheme to allotee no 1.
Further company also approved allotment of 1095 equity shares under ESOP scheme to allotee no. 1 (200 shares) & to allotee no. 2(895 shares).
This resulted in excessive allotment of 216 equity shares to allotee no. 2 making it violation of sec 62(1)(b).
Minimum vesting period of 1 year was also not maintained.
Stamp duty on the increase in Authorized share capital of the company.
The company incorporated with initial Authorized share capital of Rs. 36 crore, later in 1992 it increased its capital to 600 crore and subsequently increased to 1,200 crore in 1994.
In 1992 company paid stamp duty of Rs. 1.12 crore as per Article 10 of schedule-I of stamp act. Later the article was amended saying that maximum duty chargeable on AOA of a Company under stamp Act to be 25 Lakhs.
Company paid stamp duty of Rs. 25 lakhs in year 1994 in event of increase in Authorize share capital. It later realized that they were not liable to pay stamp duty since the maximum stamp duty which was of Rs. 25 lakhs payable on AOA as per the amended provisions of the Stamp Act, had already been paid by them in 1992.
- On April 5, 2024, the Supreme Court concluded that instrument “Articles of Association” remains the same and the duty already paid on the same very instrument will have to be considered.
- Companies act being specific act will prevail over the Stamp Act which is general law.
- Maximum cap on the stamp duty is applicable as a onetime measure and not to each subsequent increase in authorized share capital.
- Held that duty already paid on the same instrument must be considered for subsequent increases initiated after the introduction of the cap.
Click here to read order by supreme court
ROC imposes a penalty of Rs 9.89 crore for violation in Private placement.
Action has been taken by ROC on 2 entities as well as nine individuals for violating sec 42 of companies act.
Penalty of Rs. 7 crore has been imposed on entity 1 and its four individual and Rs. 2.98 crore on entity 2 and its five individuals.
A crowdsourcing platform was used to raise funds via private placement
Violation of section 42 of Companies Act:
a. Acompany making a private placement offer is not permitted to issue securities to more than 200 persons and
b. Issuing securities through the private placementroute should not come out with any public advertisements or utilize any media marketing or distribution channels or agents to inform the public about the issue.
Click here to read order by Roc.
Standardization of the Private Placement Memorandum (PPM) Audit Report.
Securities Law
SEBI has prescribed standard format for PPM Audit.
The reporting requirement shall be applicable for PPM audit reports to be filed for the Financial Year ending March 31,2024 onwards.
The format considerable amount of data with respect to investment, valuation, liquidation.
Click here to read the circular.
Moratorium under sec 14 of IBC applicable is only to Corporate debtor and not its director or officers.
IBC
In a recent ruling, the Supreme Court of India clarified that the moratorium under Section 14 of Insolvency and bankruptcy code, 2016 is only applicable to corporate debtor.
Which means that directors and officers of the corporate debtor are not shielded from the moratorium provision.
Click here to read order by Supreme Court.
Small traders, challenges 45 days MSME payment rule in Supreme court.
Other Updates
Newly inserted 45 Days Payment Rule under section 43b clause (h) under Income Tax Act states that sums owed to micro and small enterprises for supply of goods or services can be deducted in the same year if paid within 45 days.
Traders Association has challenged that in Supreme Court stating that this restriction unfairly penalizes micro & small enterprises by restricting them from offering credit of more than 45 days to buyers.
Small traders claim that this provision pushes buyers away from purchasing from micro and small enterprises, creating an arbitrary classification that violates constitutional rights.
Click here to read 45 days payment rule order.
Conclusion: The legal landscape in corporate governance is characterized by a dynamic interplay of case law, penalties, and regulatory updates. Adherence to statutory provisions, secretarial standards, and compliance regulations is paramount for corporate entities to mitigate legal risks and uphold the principles of transparency, integrity, and accountability in their operations. Stay informed, stay compliant.
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