The Year 2016

The year that was……
The year that would be…….

Dear Friends,
The World changed in 2016.
That’s probably an understatement. Everything around us has changed in 2016 and the impact of the change was mammoth, immediate & cascading.

2016 saw a total of 413 amendments to various legislations in India. 101 new regulations came into effect. 72 drafts of proposed legislations were issued. Various authorities issued 79 clarifications on various regulations. There were 52 landmark judgments declared by various courts in India.

The Insolvency and Bankruptcy Code 2016 came into effect which will bring about reforms in the bankruptcy and insolvency regime of the country. The year also saw the coming into effect of the Real Estate Regulation and Development Act 2016 which aims at regulating the largely unregulated real estate sector. The Constitution (One Hundred And First Amendment) Act, 2016 was passed by both the houses in September, 2016. This amendment gave the Parliament and State Legislatures concurrent powers to make laws on the Goods and Services Tax. The Companies Act 2013 underwent some more amendments. The Office of Controller General of Patents, Designs and Trade marks (Indian Patent Office) on February 19, 2016 issued a revised set of Guidelines for Examination of Computer-Related Inventions. On 13 May 2016, the National Intellectual Property Rights (IPR) Policy was announced by the Government of India’s Department of Industrial Policy and Promotion (DIPP).

As practicing Lawyers, our world changed more than anticipated, expected or experienced in recent past.

Legaltech: In 2016, Legaltech space experienced unprecedented shift. Although the debate of Death of Conventional Lawyers is still out in open, it became an imperative that without the backup support of technology, lawyering output became strenuous. Conventional lawyers found it very difficult to deliver with competitive advantage. Nasdaq acquired the Boardvanatge for $ 200 Million. Diligant was acquired by Insight Venture Partners for $ 624 Million. Just these two examples show the trends in coming years about the legaltech space that is show-casing the value proposition of businesses that were built on robust and sustainable platforms.

Corporate Governance: On July 21,2016, a group of executives and CEOs of major US MNCs released “Commonsense Principles of Corporate Governance”. Although it is probably too early to determine the adoption of these principles across the Boards of the companies, they set the tone for practical good governance practices. In India we experienced some turmoil and change of guards across some of the very visible enterprises. These changes in the management brought to the foreground of business considerations a sharp discussion on corporate governance and ethics. It is a great sign and excellent opportunity for Indian companies now to exhibit in near future that a new era of Indian Corporate Governance can emerge setting high ethical standards and balancing the Business Judgment Rules and Stakeholders inclusiveness.

Compliance: Compliances with statutory & regulatory requirements have become more rigorous across the globe. Especially in India, the frequency with which the laws are changing is simply incomprehensible. When we analyzed our database of over 365,000 business tasks we realized that about 1.5 task changes every day. Team Legasis tried to capture how life of a lawyer or compliance executive changed during 2016 . We realized that while the cost of compliance is rising, cost of non-compliance vs cost of compliance is no longer a discussion issue. We also experienced “quacks” advising large corporates on critical compliance issues. The so-called technology and legal support providers tried to impress the clients with half-baked knowledge. Profile of some of these “experts” indicates that they are “uneducated”, thrown out of their jobs because of causes such as violation of Prevention of Sexual Harassment at work place, failed professionals who have no ethical base or simply not competent to support the requirements of businesses.

If you would like to know more about the new regulations that came into effect last year or about the various amendments that were brought about in 2016, please get in touch with me at suhas.t@legasis.in I look forward to hearing from you.

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Preservation of Documents

Background

As In-House Counsel, we understand, realise and recognize importance of information contained in various corporate documents. With advent of electronic and digital governance it has become very difficult to set up systems, policies and procedures around Preservation of Documents. With SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 (the LODR) the question of the company’s policy on Preservation of Documents has once again become an imperative. Regulation 9 of the LODR has now mandated that every listed company’s Board of Directors shall approve the policy for Preservation of Documents. [i] Under the Indian laws (for that matter the laws of any jurisdiction) there are various statutory provisions under respective legislations that mandate Preservation of Documents.

Apart from obligations provided for Policy on Preservation of Documents under LODR, there are plethora of laws that prescribe conditions of preservations of Documents under them. Some of the laws that quickly come to mind are:

  1. Corporate Laws
  2. Direct and Indirect Tax Laws
  3. Labour Laws
  4. Commercial Laws
  5. State and Local Laws
  6. Industry specific Laws

It thus becomes imperative to ensure that the Preservation of Documents Policy to be approved by the Board that takes into consideration the Company’s obligations under various applicable legislations. Besides the statutory documents, every organisation maintains some other documents like the third party contracts that are required to be preserved for specified periods. In addition certain internal document such as business plans; budgets etc. are generally preserved for longer duration.

Challenges

In good old days, each office had a designated person who was custodian of documents. He ensured that documents were collated, properly filed and retrieved as and when required. Inward and outward registers were maintained by this person. He also had a register with index of files. With almost every transaction now happening in digital space, the physical files do not contain necessary documents, the designated person is gone. The documents are a mix of physical and soft copies. The documents are residing on server, attached to the mails or simply on individual’s desktop/laptop. Completeness of the relevant documents that can recreate a transaction for its understanding is wanting. The documents and information is very scattered, even if it is available for retrieval. Almost 55% of corporate documents are in public domain. All public filings are available for public view. Most of the other information is available from governmental agencies through RTI. The transparency levels have considerably increased. The challenge on reconciling the data to ensure that there is consistency, “no conflict” is leading to allegations of Misleading Or False Information (MOFI). The Evidence Act, 1872 has now been amended to include Section 65B[ii] that lays down the procedure for admissibility of evidence contained in the digital records. Overruling its earlier decision [iii]that electronic record is a secondary evidence, the Supreme Court of India[iv] while holding that “an electronic record by way of secondary evidence is not be admitted in evidence unless the requirements under Section 65B are satisfied” clarified that “notwithstanding what we have stated herein in the preceding paragraphs on the secondary evidence on electronic record with reference to Section 59, 65A and 65B of the Evidence Act, if an electronic record as such is used as primary evidence under Section 62 of the Evidence Act, the same is admissible in evidence, without compliance of the conditions in Section 65B of the Evidence Act.” This would in effect mean that evidentiary value of digital records can be established by public or governmental authorities very easily and that inconsistencies in same information contained two different documents can lead to MOFI and its criminal consequences. Soon Indian judiciary will move towards drawing presumptions if defendant companies fail to respond to data discovery. Challenges surrounding the Preservation of Documents assume monstrous proportion if we consider various State laws, the stamping requirements and requirements of notarial attestation or solemn affirmation.

There is no easy fix or rule that can work in this field. One will have to befriend the monster or count the Dracula’s teeth (as they say).

Policy & Ready Reckoner

One needs to go threadbare and deep in terms of understanding all applicable laws including industry specific laws. Thereafter one has to prepare a ready reckoner based on applicable laws, provisions stipulating preservation of documents and duration for which documents need to be preserved. Preservation of Documents Policy needs to be well-articulated, simple in understanding and translated in vernacular languages, if need be. Policy for POD should contain Board of Directors’ statement of intent, categorization of risks associated with the documents, confidentiality thresholds (on the principles of “need to know” basis). You want to ensure that neither BoDs, nor KMPs are in personal capacity responsible for MOFI accusations. It is therefore imperative that the POD Policy incorporates roles and responsibilities in such a manner that owners and custodians are identified clearly, their roles are envisioned and how they coordinate with each other or integrate with the Document Management System (DMS) is spelled out. You also want to ensure that documents are not preserved beyond its requirement. In this regard it is essential to spell out what you are going to redact or destroy periodically.

List & Classification

Preparing an exhaustive list of Statutory Documents is the most essential part of POD. One has to give sufficient time and understand the letter and spirit of why a particular document is required to be preserved under the statute. Applying a standard rule that all statutory documents require to be preserved permanently, may lead to some catastrophic outcome. You may also want to set up a system that updates the legal environment to incorporate amendments in laws. On an average, almost 10 compliance requirements in various legislations are changing every week. The speed, with which legislative changes are taking place, might make your list redundant in about a month’s time.

Legal Advisory

Seek proper legal advice to ensure exhaustiveness, accuracy and authenticity regarding your POD Policy, procedures and practices. It is also important that in this process you ensure that privileges attached to the documents or information is not breached.

[i] Regulation 9: Preservation of documents

[ii] 65A. Special provisions as to evidence relating to electronic record: 65B. Admissibility of electronic records:

[iii] Re: State (NCT of Delhi) v.Navjot Sandhu alias Afsan Guru 2005 (11) SCC 600: Overruled by Constitution Bench of the Supreme Court of India.

[iv] Re: Anvar v Basheer 2014 (10) SCC 473 is now considered as revolutionary law in the digital space.

Regulation 9: Preservation of documents
65A. Special provisions as to evidence relating to electronic record: 65B. Admissibility of electronic records:
Re: State (NCT of Delhi) v.Navjot Sandhu alias Afsan Guru 2005 (11) SCC 600: Overruled by Constitution Bench of the Supreme Court of India.
Re: Anvar v Basheer 2014 (10) SCC 473 is now considered as revolutionary law in the digital space.

ARBITRATION AND CONCILIATION (AMENDMENT) ORDINANCE, 2015: A CRITICAL ANALYSIS

Overview: The Arbitration & Conciliation Act, 1996 (1996 Act) was a legislation which consolidated the Arbitration law in India. The inadequacies and defects in the Arbitration Act, 1940, the Foreign Awards (Recognition & Enforcement) Act, 1961 and the Arbitration (Protocol and Convention) Act, 1937 were sought to be cured by the 1996 Act. Despite such an effort to consolidate the law and iron out the creases of the previous legislations for achieving effective alternate dispute resolution, the 1996 Act paved way for unprecedented litigation concerning Arbitrations. The Arbitral process suffered substantial delay. In this background, to remedy the defects the 1996 Act, the President on 23rd October, 2015 has promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2015. The object that the amendment seeks to achieve is twofold. First, to expedite arbitration process and secondly to lay down guidelines and provisions for the judiciary to abide by while disposing applications before it.

Opportunity Lost: Indian lawyers and justice delivery system is under severe criticism for its slow pace not only due to the system (itself) but due slower ( or virtually lack of) reforms. Indian lawyers, at times have been ridiculed by their foreign counterparts as very ingenious in using or abusing the justice delivery system to delay and thus defeat the very purpose of justice delivery system- Justice Delayed Is Justice Denied. Alternate Dispute Resolution primarily using Arbitration, Conciliation & Mediation has been a popular way as effective alternate to traditional justice delivery system. However, in India it is considered to be “smart” to avoid being subjected to fast track, effective alternative way in the nature of International Commercial Arbitration (ICA). Defeating the ICA is considered as a favourite past time of Indian lawyers. In this backdrop, the changes effected by the Ordinance may be considered as an opportunity lost. Today more than any time in the history of international trade, we are experiencing unprecedented transactions across the borders, jurisdictions and countries. With the explosion of Internet, IoT, 3D Plazma Printing and other technology advances, International Commercial Arbitrations needed far greater emphasis. The amendments ought to have considered setting up quarantined International Arbitration Centre so that ICAs can be more meaningful and India can be an example in line with London (LCIA), Singapore (SIAC) and Dubai ( DIAC).

Increased Court Intervention: The Arbitration Act of 1940 had a provision (Section 28) where the Courts only could enlarge the time for making awards, unless the arbitration agreement provided for it by mutual consent of both parties. Invariably in every major arbitration wth high stakes that was under the old law, either of the Party, was before the Court seeking time extension. At times, the Parties took turns in approaching the Courts for time extension. This invariably happened at the last hour when the time for making the award was about to expire. This resulted in uncertainties, delay and additional costs. The Ordinance now under Section 29A mandates that the Court alone can extend the time. The Courts have been further empowered to stipulate certain additional directions while extending the time including substitution of arbitrator/s without annulling previous proceedings. This is an area that would allow Courts’ interference in arbitral proceedings.

Acknowledgements: Mr. Amol Bavare, Partner- Legasis Partners

Comply by Choice……… Don’t be a Consequential Chooser

Over the period of past 12 months some very basic legislations brought out to the fore role of Corporate Compliance professionals. The Companies Act, 2013 mandated setting up of compliance systems. It also legislated OECD principles of good governance, though India is not yet a member of OECD. Board of Directors role in the management of companies has assumed an ‘orbit tilt’ in favour of Compliance & Ethics not just because the laws mandate it because of the good governance imperative. The SEBI Insider Trading Regulations for the first time defined and mandated role of a “Compliance Officer”. RBI prescribed Compliance as a critical theme for banks’ board deliberations. Many other legislations including sector specific regulations brought out highly regulated regime of Compliance. On one hand, we all are grappling with overregulation, on the other hand some legislative initiatives have attempted to simply the effects of complexities that existed due to redundant laws, archaic practices such as notarial attestations. Impetus on “Make In India” forced a constructive dialogue on “Ease of Doing Business”.
Looking at recent global development such as the US DoJ memo of 9/9 popularly refereed as Yates Memo seeks accountability of the individuals in the companies that perpetrated wrongdoing. To quote from the Yates Memo: “There are, however, many substantial challenges unique to pursuing individuals for corporate misdeeds. In large corporations, where responsibility can be diffuse and decisions are made at various levels, it can be difficult to determine if someone possessed the knowledge and criminal intent necessary to establish their guilt beyond a reasonable doubt. This is particularly true when determining the culpability of high-level executives, who may be insulated from the day-to-day activity in which the misconduct occurs. As a result, investigators often must reconstruct what happened based on a painstaking review of corporate documents, which can number in the millions, and which may be difficult to collect due to legal restrictions.” 9/9 Memo is probably a game changer not only in the US but also across the globe. We are experiencing stricter enforcement regimes that are crossing the boundaries.
There are five myths around doing ethical business (a) “It is is never going to happen to me”; (b)” everyone does it so do I”; (c) “laws are so complex that it is impossible to comply with all laws” ; (d) “I am doing so much good for public that my goodness will outshine my wrongdoings”; and most prevalent myth is (e)”I am so well connected that I can get away”. All these and other myths have vanished.
In India, we are at crossroads today. While territorial boundaries have vanished, barriers and territorial jurisdictions remain. We are experiences classic conflicts of (a) Overregulation v/s deregulation; (b) Bottom-line Shareholder Profit v/s Triple Bottom-line focus; (c) Principle based Regulations v/s Rule based Regulations; (d) Comply or explain v/s Comply or Perish . For analysing compliance we need to understand that firstly we all live in complex normative systems. The complexity of the normative systems vary from society to society and from country to country. Each of the corporate executive has some knowledge of few applicable rules relating to the business. Thus, the normal question that an executive asks is “What ought I to do?” One needs to ask oneself “What does law require from me?” If you ask former question, though you may have general intention to comply your motivation to do specific acts of compliance do not result from requirements of system of normative behaviour. At corporate level we must thus understand subtle differences and drivers of norms, intentions, obligations, actions and consequences. Compliance with thousands of obligations result in performance of tasks which is obligatory according to laws, however intentions to comply may be evidenced by various actions including a policy based approach. Intentions and commitments to one-self goes hand in hand. These cannot be driven only by fear of consequences. Those who choose to comply due to fear of consequences or consequentialist choosers probably cannot bring about change in mind-sets or change in behaviour patterns. Once we accept the “Compliance by Choice” all the conflicts vanish. You are complying for right reasons. Once we adopt “Compliance by Choice” it follows that self-interests, intentions and motivations are inconsequential questions needing no answers.
“Compliance by Choice” converts difficulty of doing business to ease of doing business, it brings about sustainability, value creation, impact and power to the business of your company.
Over past 8 years, we at Legasis worked with 450 odd companies through C-Mission ( Compliance Mission) in setting up IT enabled compliance systems that focussed on creation of robust action items and task lists under complex legal systems ( including Indian legal system). We also attempted to create awareness about consequences of non-compliance. The dialogue about cost of non-compliance vs cost of compliance needs no further elaboration. We are now moving to “Compliance by Choice”. I am confident that all corporations will join us in our endeavour to create sustainable compliant environment because we want it and not because someone tells us. “Compliance by Choice” is probably our corporate existence for right reasons.

Suhas Tuljapurkar

Legasis.

COMPANIES (AMENDMENT) ACT, 2015 A Step in the Right Direction for Ease of Doing Business

The Companies (Amendment) Bill 2014 has received Presidential Assent on 25th May 2015 and has been published in the Official Gazette a day later and notified as the Companies (Amendment) Act 2015. Earlier the Rajya Sabha passed the Companies (Amendment) Bill, 2014 on 13th May 2015 which was previously passed by the Lok Sabha on 17th December 2014.

This Act will reflect in at least 16 amendments in the erstwhile Companies Act 2013.

The Government had received representations from various stakeholders such as Industry Chambers, Professional Institutes, Legal Experts and Ministries/Departments expressing practical difficulties in complying with certain requirements laid down in the commenced provisions of the Companies Act, 2013.

The primary intention of passing the Companies (Amendment) Act 2015 is to improve India’s ranking on the Ease of Doing Business survey on which India currently ranks 142 among 189 countries. Prime Minister Narendra Modi has been focused on improving the current business environment and improving perception of foreign investors regarding the regulatory compliance burden.

Summary of Amendments for Ease of Doing Business:
• Doing away with the requirement for minimum paid up share capital for incorporation of a Company
• Making the use of Common Seal optional.
• Denying access of Board resolutions filed with the Registrar during public inspection of Company’s documents.
• Allowing companies to write off past losses/depreciation before declaring dividend for the year.
• Prescribing thresholds beyond which fraud needs to be reported to the Central Government, however any fraud below such threshold must be reported to the Audit Committee.
• Relief under Section 185 for loans, guarantees or securities to wholly owned subsidiaries
• Enabling the Audit Committee to concentrate on its other core activities by granting omnibus approvals for related party transactions on annual basis.
• Substitution of ‘Special resolution’ with ‘Ordinary resolution’ with respect to the approval of related party transactions by non-related shareholders.
• Exemption for approval of related party transactions between holding companies and wholly owned subsidiaries.
• Applying the restrictions of Bail only for offences relating to Fraud under Section 447.
• Cases of Winding Up to be heard by 2 member Bench instead of a 3 member Bench.
• Only offences carrying imprisonment of two years or more to be tried by the Special Courts.
• Specific punishment prescribed for contravention with regards to the deposits accepted under the Act.
• Correcting the requirement of transferring equity shares for which unclaimed/unpaid dividend has been transferred to the IEPF even though subsequent dividend(s) has been claimed.

Conclusion:
The relaxations granted by the Companies (Amendment) Act 2015 dilute the burden of procedural compliances, especially when it comes to related party transactions which have been a problematic area for many corporates.

The intent of the legislators is clear i.e. removal of all impractical and redundant provisions which have limited applicability in modern business transactions. Corporates will now be able to carry on day to day business and concentrate on more critical issues without worrying about approvals at every stage for group level transactions.

Arun Jaitley, Finance Minister stated that “A broad-based committee will continue to go into this question for the next few months as to where the shoe pinches, and this may not be the last amendments which we are bringing in,”1

The Companies (Amendment) Act, 2015 has brought significant changes and removed various practical difficulties in implementation of the new corporate regime. However only industry acceptance, foreign investors’ participation and this year’s rankings on the Doing Business Index will tell whether these changes have positively impacted the Indian economy.

1http://www.thehindu.com/news/national/rajya-sabha-passes-changes-in-companies-act/article7201967.ece

COMPANIES (AMENDMENT) BILL, 2014 A Step in the Right Direction for Ease of Doing Business

The Rajya Sabha passed the Companies (Amendment) Bill, 2014 on 13th May 2015 which was previously passed by the Lok Sabha on 17th December 2014 which will reflect in at least 16 amendments in the erstwhile Companies Act 2013.

The Government had received representations from various stakeholders such as Industry Chambers, Professional Institutes, Legal Experts and Ministries/Departments expressing practical difficulties in complying with certain requirements laid down in the commenced provisions of the Companies Act, 2013.

The primary intention of passing the Companies (Amendment) Bill 2014 is to improve India’s ranking on the Ease of Doing Business survey on which India currently ranks 142 among 189 countries. Prime Minister Narendra Modi has been focused on improving the current business environment and improving perception of foreign investors regarding the regulatory compliance burden.

Summary of Amendments for Ease of Doing Business:

  • Doing away with the requirement for minimum paid up share capital for incorporation of a Company
  • Making the use of Common Seal optional.
  • Denying access of Board resolutions filed with the Registrar during public inspection of Company’s documents.
  • Allowing companies to write off past losses/depreciation before declaring dividend for the year.
  • Prescribing thresholds beyond which fraud needs to be reported to the Central Government, however any fraud below such threshold must be reported to the Audit Committee.
  • Relief under Section 185 for loans, guarantees or securities to wholly owned subsidiaries
  • Enabling the Audit Committee to concentrate on its other core activities by granting omnibus approvals for related party transactions on annual basis.
  • Substitution of ‘Special resolution’ with ‘Ordinary resolution’ with respect to the approval of related party transactions by non-related shareholders.
  • Exemption for approval of related party transactions between holding companies and wholly owned subsidiaries.
  • Applying the restrictions of Bail only for offences relating to Fraud under Section 447.
  • Cases of Winding Up to be heard by 2 member Bench instead of a 3 member Bench.
  • Only offences carrying imprisonment of two years or more to be tried by the Special Courts.
  • Specific punishment prescribed for contravention with regards to the deposits accepted under the Act.
  • Correcting the requirement of transferring equity shares for which unclaimed/unpaid dividend has been transferred to the IEPF even though subsequent dividend(s) has been claimed.

Conclusion:

The relaxations granted by the Companies (Amendment) Bill 2014 dilute the burden of procedural compliances, especially when it comes to related party transactions which have been a problematic area for many corporates.

The intent of the legislators is clear i.e. removal of all impractical and redundant provisions which have limited applicability in modern business transactions. Corporates will now be able to carry on day to day business and concentrate on more critical issues without worrying about approvals at every stage for group level transactions.

Arun Jaitley, Finance Minister stated that “A broad-based committee will continue to go into this question for the next few months as to where the shoe pinches, and this may not be the last amendments which we are bringing in,”[1]

The Companies (Amendment) Bill, 2014 has brought significant changes and removed various practical difficulties in implementation of the new corporate regime. However only industry acceptance, foreign investors’ participation and this year’s rankings on the Doing Business Index will tell whether these changes have positively impacted the Indian economy.

[1] http://www.thehindu.com/news/national/rajya-sabha-passes-changes-in-companies-act/article7201967.ece

“Experts” under CA 2013 Company Secretaries :

With the commencement of the Companies Act 2013 (“Act”) and DLF matters have raised many questions on the definition and liabilities of “Experts”. While dealing with the legal provisions, I see transparency and accountability going hand-in-hand. While a new era of possibilities has begun for Company Secretaries in practice[1] and employment[2] from increasing their professional potential, with Indian businesses at inflexion point, the speed of growth may give way to quality of inputs. In first blog of the series on “Experts”, I propose to share my thoughts on what it entails to be a Company Secretary today.

Company Secretaries are now considered as “experts”[3] and also fall under the ambit of “Key Managerial Personnel”[4]

An “expert” includes an engineer, a valuer, a chartered accountant, a company secretary, a cost accountant and any other person who has the power or authority to issue a certificate in pursuance of any law for the time being in force.

This certificate is as per Rule 11(2) of the Companies (Management and Administration) Rules 2014, which states that the annual return filed by a listed company or a company having paid-up share capital of 10 crore rupees or more or turnover of 50 crore rupees or more, shall be certified by a Company Secretary in practice and the certificate shall be in Form No. MGT.8.

This certification is exhaustive in nature as it includes:

  • Maintenance of statutory registers and records
  • Timely filing of forms and returns with statutory authorities
  • Timely convening of the Board, General and other Committee meetings
  • Related party transactions
  • Acceptance of deposits
  • Borrowings from members and outsiders
  • Loans and investments made by the company
  • Loans and advances to directors and others
  • Share Capital including restructuring
  • Payment of dividend and transfer of unclaimed dividend
  • Proper constitution of Board of Directors and filling of vacancies

If a Company Secretary in practice certifies an annual return fraudulently or incorrectly, he will be punishable with fine which shall not be less than Rs.50,000 but which may extend to Rs. 5 lakh as per Section 92(6) of the Act.

 

Another avenue of certification for Practicing Company Secretaries is Secretarial Audit which is applicable to

  • Every Listed Company AND
  • Every public Company having paid of share capital of Rs. 50 crore or more
  • Every public Company having a turnover of Rs. 250 crore or more

The scope for Secretarial Audit is not limited to the Companies Act 2013, it extends to compliance certification for The Listing Agreement, Secretarial Standards, SEBI regulations and all other laws as may be specifically applicable to the Company.

In case of contravention, the Company, the Company Secretary in practice and every officer of the Company in default shall be punishable with fine which shall not be less than Rs. 1 lakh but which may extend to Rs. 5 lakhs.

Being considered an “expert” comes with its own set of risks.

Class Action Suits[5] can be initiated by members and depositors, if they are of the opinion that management or conduct of the affairs of the Company are being conducted in a manner prejudicial to their interest, they are entitled to file an application before the Tribunal and can claim damages or compensation or demand any other suitable action from any expert or advisor or consultant for providing incorrect or misleading information or any fraudulent conduct.

There has always been a tendency of Companies to conveniently shift the blame to the “Experts”. Let us take the example of the DLF Case[6] in which the management was quick to respond by blaming expert advice.

Mr. K.P Singh, DLF Chairman submitted that “given the complexity and specialized nature of the process of IPO of DLF and his advanced age of 82 years, he heavily relied on the advice of various experts involved in the process such as Merchant Bankers and acted bona fide on such expert advice.”

Mr. Rajiv Singh, DLF Director submitted that “while approving the Financial Statements contained in the Offer Document, he was largely guided by expert advice required, and the contents of the Offer Document had been certified to be true, correct and in due compliance with all disclosure requirements by relevant expert advice.

Mr. T.C Goyal, DLF Director submitted that “he acted in good faith on the basis of expert advice of Merchant Bankers and legal advisors and no mala fide intent can be imputed on him.”

Mr. Ramesh Sanka, DLF Director submitted that “the statements of the DLF limited were duly reviewed and recommended by the audit committee of DLF prior to being tabled before the Board of Directors after having been audited by its Statutory Auditors. DLF had, for the purposes of the IPO, appointed eminent Merchant Bankers, lawyers and other advisors to ensure that detailed due diligence is undertaken with regard to all aspects of the company for the purposes of ensuring due disclosure of information.”

The risk and liability exposure for Company Secretaries has increased manifold and it is imperative for transparency and disclosure levels to be stepped up accordingly.

Also, the certifications provided by the PCS in Form MGT-8 and Form MR-3 will be available as public domain information after filing of the same with the MCA. Any discrepancies noticed by competitors can adversely affect the reputation of the PCS in his fraternity and the corporate world at large.

[1] Section 2(25) of Companies Act 2013

[2] Section 2(24) of Companies Act 2013

[3] Section 2(38) of Companies Act 2013

[4] Section 2(51) of Companies Act 2013

[5] Section 245(1)(g) of Companies Act 2013

[6] SEBI Order No WTM/RKA/IVD-7/117 – 124 /2014 dated 10th Oct 2014 http://www.sebi.gov.in/cms/sebi_data/attachdocs/1413191997529.pdf