[FAQs] Relief and Remedies – Resolution of Corporate Disputes

The crime of fraud comes under non-compoundable offence and these types of crime shall not be referred to mediation or conciliation for settlement. Hence the crime committed by P, cannot be referred to mediation and conciliation.

As per rule 30 of Companies (Mediation and Conciliation), Rule 2016, following matters shall not be referred to mediation or conciliation, namely:—

• • the matters relating to proceedings in respect of inspection or investigation under Chapter XIV of the Companies Act, 2013; or the matters which relate to defaults or offences for which applications for compounding have been made by one or more parties.
  • Cases involving serious and specific allegations of fraud, fabrication of documents forgery, impersonation, coercion etc.
  • Cases involving prosecution for criminal and non-compoundable offences.
  • Cases which involve public interest or interest of numerous persons who are not parties before the Central Government or the Tribunal or the Appellate Tribunal as the case may be.

If any offence committed by Company or the officers was compounded under section 441 of the Companies Act, 2013, and an offence similar to what was compounded earlier is committed again by a company or its officers within a period of three years from the date on which the earlier offence was compounded, then the provisions of section 441 of the Companies Act, 2013 will not be applicable and the company and the officers concerned will not be eligible for compounding again. In other words, similar offence can be compounded only once in three years.

Section 451 of the Companies Act, 2013 provides that 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.

As per section 420(2) of the Companies Act, 2013, the National Company Law:

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:

(i) Amend any order passed by it, and

(ii) Shall make such amendment, if the mistake is brought to its notice by the parties. Provided that no such amendment shall be made in respect of any order against which an appeal has been preferred. Further, pursuant to Rule 11 of National Company Law Tribunal Rules, 2016, Tribunal has inherent power to make such order as may be necessary for meeting the end of justice or to prevent abuse of the process of the tribunal, accordingly, the Tribunal can rectified the order passed by its own.

In Sree Ayyanar Spinning & Weaving Mills Ltd. v. Commissioner of Income Tax , 2008 (301 ITR 434), it was held that under first part of the provision, the tribunal is empowered to suo motu rectify any mistakes apparent on record any time within two years from the date of its original order. Under the second part, either the taxpayer or the department may file an application highlighting the mistake apparent on record.

In light of the provision, the Apex Court held that the appellate tribunal took time beyond the stipulated period even though the application was filed well within the period.

Thus, in the mentioned event the applicant has filed the application within the stipulated period of two years from the date of original order, it is binding for the appellate tribunal to decide the matter on the basis of merits and not on the ground of limitation.

Thus, Section 420(2) read with Rules 11, 154 and 155 of National Company Law Tribunal Rules, 2016 substantiate that the Tribunal has power to rectify a mistake apparent from the record on its own motion or on an application by a party under the Act.

As per Rule 4 of Companies (Mediation and Conciliation) Rules, 2016, a Company Secretary with at least fifteen years of continuous practice is qualified for being empanelled as mediator or conciliator.

However, as per Rule 5 of Companies (Mediation and Conciliation) Rules, 2016, a person shall be disqualified for being empanelled as mediator or conciliator, if he-

• • is an undischarged insolvent or has applied to be adjudicated as an insolvent and his application is pending;
  • has been convicted for an offence which, in the opinion of the Central Government, involves moral turpitude;
  • has been removed or dismissed from the service of the Government or the Corporation owned or controlled by the Government;
  • has been punished in any disciplinary proceeding, by the appropriate disciplinary authority; or
  • has, in the opinion of the Central Government, have such financial or other interest in the subject matter of dispute or is related to any of the parties, as it is likely to affect the discharge of his professional obligations as a mediator or conciliator.

The professional dress prescribed under the code of conduct for the professional is required to be worn by the authorised representative while appearing before the authorities.

The Council of ICSI has approved the following Guidelines for Professional Dress Code for Company Secretaries to appear before judicial/quasi judicial bodies and tribunals:

(1) For Male Members:

• • • • Navy Blue Suit (Coat & Trouser), with CS logo, Insignia or Navy Blue Blazer over a sober colored Trouser
      • Neck Tie (ICSI)
      • White full sleeve Shirt
      • Formal Black Leather Shoes (Shined)

(2) For Female Members:

• • • • Navy Blue corporate suit (Coat & Trouser), could be with a neck tie Insignia or
      • Saree/any other dress of sober colour with Navy Blue Blazer with CS logo
      • A sober footwear like Shoes/Bellies/Wedges, etc. (shined)

The Members in employment have also been prescribed the same dress code

As per section 423 of the Companies Act, 2013, 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.

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.

Section 209 of the Companies Act, 2013 provides that where upon information in his possession or otherwise, the Registrar (ROC) or inspector has reasonable ground to believe that the books and papers of

i. a company, or

ii. relating to the key managerial personnel, or

iii. any director, or

iv. auditor, or

v. company secretary in practice if the company has not appointed a company secretary, are likely to be destroyed, mutilated, altered, falsified or secreted, he may, after obtaining an order from the Special Court for the seizure of such books and papers,­

(a) enter, with such assistance as may be required, and search, the place or places where such books or papers are kept; and

(b) seize such books and papers as he considers necessary after allowing the company to take copies of or extracts from, such books or papers at its cost.

ROC may enter and search the place where such books or papers are kept and seize them only after obtaining an order from the Special Court.

In terms of Section 441 of the Companies Act, 2013, there are two compounding authorities:

• • Regional Director: The Regional Director (RD) appointed by the Central Government as a Regional Director for the purposes of the Companies Act, 2013, and
  • National Company Law Tribunal (NCLT)

Procedure for Compounding of offence

• • Call for a board meeting to decide on compounding as per the Companies Act, 2013.
  • Arrive at the amount of the fine involved as per the relevant section(s).
  • Hold the Board Meeting and pass resolution(s) to compound and provide for preparation and providing necessary authorization for compounding.
  • Every application for the compounding of an offence shall be made to the Registrar who shall forward the same, together with his comments thereon, to the Tribunal or the Regional Director or any officer authorised by the Central Government, as the case may be.
  • The filing with Registrar of Companies (ROC) is done in the e-form GNL-1 prescribed for this purpose. Also deliver sufficient number of hard copies of the compounding application to ROC for him to forward it to RD/Tribunal based on the quantum of fee involved.
  • There will be a personal hearing before the Regional Director or Tribunal which will decide the amount to be paid for compounding.
  • Get the order passed by the RD/Tribunal and pay the amount stipulated within the time fixed.
  • File Order of RD/NCLT with ROC in form INC-28 and ROC will take note of the Same.

Rule 21 of the Mediation and Conciliation Rules, 2016 states the confidentiality, disclosure and inadmissibility of Information.

Disclosure of substance information to the party by the Mediator or Conciliator subject to maintenance of confidentiality.

(1) When a mediator or conciliator receives factual information concerning the dispute from any party, he shall disclose the substance of that information to the other party, so that the other party may have an opportunity to present such explanation as it may consider appropriate:

When a party gives information to the mediator or conciliator subject to a specific condition that the information may be kept confidential, the mediator or conciliator shall not disclose that information to the other party.

(2) The receipt or perusal, or preparation of records, reports or other documents by the mediator or conciliator, while serving in that capacity shall be confidential and the mediator or conciliator shall not be compelled to divulge information regarding those documents nor as to what transpired during the mediation or conciliation before the Central Government or the Tribunal or the Appellate Tribunal or as the case may be, or any other authority or any person or group of persons.

(3) The parties shall maintain confidentiality in respect of events that transpired during the mediation and conciliation and shall not rely on or introduce the said information in other proceedings as to—

(a) views expressed by a party in the course of the mediation or conciliation proceedings;

(b) documents obtained during the mediation or conciliation which were expressly required to be treated as confidential or other notes, drafts or information given by the parties or the mediator or conciliator;

(c) proposals made or views expressed by the mediator or conciliator;

(d) admission made by a party in the course of mediation or conciliation proceedings.

(4) There shall be no audio or video recording of the mediation or conciliation proceedings.

(5) No statement of parties or the witnesses shall be recorded by the mediator or conciliator.

Rule 25 of the Companies (Mediation and Conciliation) Rules, 2016 provide for Settlement agreement

(1) Written Signed Agreement between the parties resolving some or all issues – duly signed by the parties and counsel if any

Where an agreement is reached between the parties in regard to all the issues or some of the issues in the proceeding, the same shall be reduced to writing and signed by the parties and if any counsel has represented the parties, the conciliator or mediator may also obtain the signature of such counsel on the settlement agreement.

(2) Submission of the Settlement agreement to the mediator or conciliator, Mediator or conciliator to forward the same alongwith covering letter to the Central Government or Tribunal or Appellate Tribunal

The agreement of the parties so signed shall be submitted to the mediator or conciliator who shall, with a covering letter signed by him, forward the same to the Central Government or the Tribunal or the Appellate Tribunal, as the case may be.

(3) Failure of settlement agreement between parties the mediator or conciliator , to report the same to the Central Government or Tribunal or Appellate Tribunal

Where no agreement is reached at between the parties, before the time limit specified in rule 19, or where the mediator or conciliator is of the view that no settlement is possible, he shall report the same to the Central Government or the Tribunal or the Appellate Tribunal, as the case may be, in writing.

Settlement of proceedings before the Adjudicating Officer and the Board (Regulation 23)

1. Disposal of proceeding by the Adjudicating Officer based on the approved settlement terms

The Adjudicating Officer shall by an appropriate order dispose of the proceeding pending before him on the basis of the approved settlement terms.

Explanation.—In case of concurrent proceedings, a comprehensive order may be passed by the Panel of Whole-Time Members and thereafter the concerned Adjudicating Officer may pass an order, disposing of the relevant proceedings before him, in view of the settlement.

2. Disposal of proceeding by the Panel of the Whole Time Members except to the Regulation 23(1)

The Panel of the Whole-Time Members shall by an appropriate order dispose of proceedings initiated or proposed to be initiated other than the proceedings referred to in sub-regulation (1) of Regulation 23.

3. Settlement order to include details

The settlement order passed under these regulations shall, contain the details of the alleged default(s), relevant provisions of the securities laws, brief facts and circumstances relevant to the alleged default, the admissions made by the applicant, if any and the settlement terms.

The professional dress prescribed under the code of conduct for the professional is required to be worn by the authorized representative while appearing before the authorities.

The Council of ICSI has approved the following Guidelines for Professional Dress Code for Company Secretaries to appear before judicial/quasi-judicial bodies and tribunals like NCLT- NCLAT, SAT, etc.:

(1) For Male Members:

(a) Navy Blue Suit (Coat & Trouser), with CS logo, Insignia OR Navy Blue Blazer over a sober coloured Trouser

(b) Neck-Tie (ICSI)

(c) White full sleeve Shirt

(d) Formal Black Leather Shoes (Shined)

(2) For Female Members:

(a) Navy Blue corporate suit (Coat & Trouser), could be with a neck- tie/Insignia

OR

(b) Saree/any other dress of sober colour with Navy Blue Blazer with CS logo

(c) A sober footwear like Shoes/Bellies/Wedges, etc. (shined)

Offences cannot be compounded under the Companies Act, 2013 are as follows:

• Offence punishable with imprisonment only or imprisonment and fine – Not Compoundable

Any offence punishable under this Act (whether committed by a company or any officer thereof) being an offence punishable with imprisonment only or imprisonment and also with fine cannot be compounded.

• Compoundable offence in case the investigation against company is pending or has been initiated

Any offence otherwise compoundable cannot also be compounded if the investigation against such company has been initiated or is pending under this Act.

• Offence committed within a period of three years from the date on which a similar offence committed

An offence committed by a company or its officer within a period of three years from the date on which a similar offence committed by it or him was compounded under this section, cannot be compounded. If the offence is not similar, this restriction to compound will not apply. Second or subsequent offence committed after the expiry of a period of three years eligible to be compounded.

Rule 4 and Rule 5 of the Companies Mediation and Conciliation Rules, 2016 provide for the qualifications and disqualifications of Empanelment

Qualifications for Empanelment (Rule 4)

A person shall not be qualified for being empanelled as mediator or conciliator unless he:

(a) has been a Judge of the Supreme Court of India; or

(b) has been a Judge of a High Court; or

(c) has been a District and Sessions Judge; or

(d) has been a Member or Registrar of a Tribunal constituted at the National level under any law for the time being in force; or

(e) has been an Officer in the Indian Corporate Law Service or Indian Legal Service with fifteen years’ experience; or

(f) is a qualified legal practitioner for not less than ten years; or

(g) is or has been a professional for atleast fifteen years of continuous practice as Chartered Accountant or Cost Accountant or Company Secretary; or

(h) has been a Member or President of any State Consumer Forum; or

(i) is an expert in mediation or conciliation who has successfully undergone training in mediation or conciliation.

Disqualifications for Empanelment (Rule 5)

A person shall be disqualified for being empanelled as mediator or conciliator, if he:

(a) is an undischarged insolvent or has applied to be adjudicated as an insolvent and his application is pending;

(b) has been convicted for an offence which, in the opinion of the Central Government, involves moral turpitude;

(c) has been removed or dismissed from the service of the Government or the Corporation owned or controlled by the Government;

(d) has been punished in any disciplinary proceeding, by the appropriate disciplinary authority; or

(e) has, in the opinion of the Central Government, such financial or other interest in the subject matter of dispute or is related to any of the parties, as is likely to affect prejudicially the discharge by him of his functions as a mediator or conciliator.

Rule 17 of the Companies Mediation and Conciliation Rules, 2016 provide for the Role of Mediator or Conciliator

The mediator or conciliator shall attempt to

• • facilitate voluntary resolution of the dispute by the parties,
  • communicate the view of each party to the other,
  • assist them in identifying issues,
  • reducing misunderstandings,
  • clarifying priorities,
  • exploring areas of compromise and generating options in an attempt to resolve the dispute,
  • emphasising that it is the responsibility of the parties to take decision which affect them and he shall not impose any terms of settlement on the parties,
  • On consent of both the parties, the mediator or conciliator may impose such terms and conditions on the parties for early settlement of the dispute as he may deem fit.

Rule 28 of the Companies Mediation and Conciliation Rules, 2016 provide for the Ethics to be followed by Mediator or Conciliator

The mediator or conciliator shall–

(a) follow and observe the rules strictly and with due diligence;

(b) not carry on any activity or conduct which shall reasonably be considered as conduct unbecoming of a mediator or conciliator;

(c) uphold the integrity and fairness of the mediation or conciliation process;

(d) ensure that the parties involved in the mediation or conciliation are fairly informed and have an adequate understanding of the procedural aspects of the process;

(e) satisfy himself or herself that he or she is qualified to undertake and complete the assignment in a professional manner;

(f) disclose any interest or relationship likely to affect impartiality or which might seek an appearance of partiality or bias;

(g) avoid, while communicating with the parties, any impropriety or appearance of impropriety;

(h) be faithful to the relationship of trust and confidentiality imposed in the office of mediator or conciliator;

(i) conduct all proceedings related to the resolutions of a dispute, in accordance with the relevant applicable law;

(j) recognise that the mediation or conciliation is based on principles of self-determination by the parties and that the mediation or conciliation process relies upon the ability of parties to reach a voluntary, undisclosed agreement; and

(k) maintain the reasonable expectations of the parties as to confidentiality and refrain from promises or guarantees of results.

If any party finds that conduct of mediator or conciliator violates the ethics laid down in this rule, the party may immediately bring it to the notice of the Regional Director.

Regulation 10 of the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 provide for the factors to be considered to arrive at the settlement terms

While arriving at the settlement terms, the factors indicated in Schedule-II may be considered, including but not limited, to the following:

(a) conduct of the applicant during the specified proceeding, investigation, inspection or audit;

(b) the role played by the applicant in case the alleged default is committed by a group of persons;

(c) nature, gravity and impact of alleged defaults;

(d) whether any other proceeding against the applicant for non-compliance of securities laws is pending or concluded;

(e) the extent of harm and/or loss to the investors’ and/or gains made by the applicant;

(f) processes that have been introduced since the alleged default to minimize future defaults or lapses;

(g) compliance schedule proposed by the applicant;

(h) economic benefits accruing to any person from the non-compliance or delayed compliance;

(i) conditions which are necessary to deter future non-compliance by the same or another person;

(j) satisfaction of claim of investors regarding payment of money due to them or delivery of securities to them;

(k) any other enforcement action that has been taken against the applicant for the same violation; and

(l) any other factors necessary in the facts and circumstances of the case.

Procedure of settlement before the Internal Committee (Regulation 13) as per the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018 is stated below:

1. Application referred to Internal Committee for examination and determination of the settlement terms:

Save as otherwise provided in these regulations, an application shall be referred to an Internal Committee to examine whether the proceedings may be settled and if so to determine the settlement terms in accordance with these regulations.

2. Internal Committee to call for information and/or personal appearance and or permit the submission of revised settlement terms within a period of ten working days from the date of the Internal Committee meeting

The Internal Committee may:

(a) call for relevant information, documents, etc., pertaining to the alleged default(s) in possession of the applicant or obtainable by the applicant;

(b) call for the personal appearance of the applicant before it:

Provided that a duly authorized representative of the applicant may represent on behalf of the applicant,

(c) permit the applicant to submit revised settlement terms within a period not exceeding ten working days from the date of the Internal Committee meeting:

Provided that the revised settlement terms received after ten working days, but within twenty working days may be considered subject to an increase of ten per cent over the recommended settlement amount.

3. The proposed settlement terms, if any, shall be placed before the High-Powered Advisory Committee.