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CAM Disputes Team

The CAM Disputes team can be reached at cam.mumbai@cyrilshroff.com

SFIO – Putting Corporate Fraudsters Behind Bars

Introduction

The battle against financial fraud and malpractices has significantly intensified over recent years. Globally, governments are establishing stricter regulatory frameworks and compliance standards to combat fraud in commercial transactions. A manifestation of such heightened awareness and regulatory action in India is evident under the provisions in relation to the Serious Fraud Investigation Office (SFIO) introduced under the Companies Act, 2013 (the Act) and Rules thereunder. These provisions bring with them implications for companies, which need to be fully understood and preventative steps taken to avoid any suspicion of fraud and consequent arrests. In the following paragraphs, we have analysed key aspects of the newly introduced Rules and the steps that must be taken by corporates to avoid any adversity under the same.

Under the provisions of the Act, the SFIO has been established by the Central Government as a multi-disciplinary office consisting of experts from diverse fields. The SFIO has been empowered to investigate serious cases of ‘fraud’, as defined under the Act. Furthermore, under the recently notified Companies (Arrests in Connection with Investigation by Serious Fraud Investigation Office) Rules, 2017 (the SFIO Rules or Rules), the SFIO has been empowered to arrest any person if believed to be guilty of fraud. The legislative intent behind these provisions and the wide-ranging powers granted to the SFIO is certainly clear. The power of investigation coupled with the power to arrest any person ‘believed to be guilty of fraud’ indeed equips the SFIO with potent powers to combat the menace of corporate fraud, which is deeply entrenched into and plagues our economy.Continue Reading SFIO – Putting Corporate Fraudsters Behind Bars

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Published here is Part II of the blog piece on the Indra Sawhney Case, which examines in-depth, the case of Indra Sawhney, the use of ‘caste’ as a factor in determining backwardness for the purpose of reservation, and the delicate balance between the needs of the society and the constitutional vision.  

We hope you enjoy reading this as much as we have enjoyed putting this together.

II.  The Mandal Commission and the case of Indra Sawhney

A. The Mandal Commission and its Recommendations

In the year 1979, the Second Backward Classes Commission (Mandal Commission) was set up which was tasked with, inter alia, determining the criteria for defining the socially and educationally backward classes. After an exhaustive survey, the Mandal Commission identified 52% of the Indian population as “Socially and Economically Backward Classes” (SEBCs). Subsequently, it recommended a 27% reservation for SEBCs in addition to the previously existing 22.5% reservation for SC/STs.

In the year 1990, Prime Minister V.P. Singh announced that his government would implement reservations on the basis of the recommendations of the Mandal Commission.[1] Two office memoranda, O.M. No. 36012/13/90-Estt (SCT) dated August 13, 1990 as amended by O.M. No. 36012/13/90-Estt(SCT) dated September 25, 1990 sought to enforce these recommendations. The decision sparked widespread controversy and led to thousands of students coming out onto the streets to protest against the decision. There was a complete breakdown of law and order and some students even immolated themselves.[2]Continue Reading Casteism Much? – An Analysis of Indra Sawhney: Part II

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This is the third blog piece in our series entitled “Those Were the Days”, which is published monthly. 

This is a two-part piece which analyses the Indra Sawhney Case – a case that is famous for both settling several issues and unsettling several others in the great Indian backward-class-reservation jurisprudence. Published here is Part I of the piece, which examines the legal history of affirmative action in India.   

We hope you enjoy reading this as much as we have enjoyed putting this together.

The “Mandal Commission Report” and the controversy that followed it, is etched in the memory of every Indian. By upholding the implementation of the Mandal Commission Report, the Apex Court judgment in the case of Indra Sawhney v. Union of India, established a central role for itself in every debate on the sensitive issue of reservations in India.

One of the avowed objectives of the Indian Constitution is the creation of an egalitarian society, including, and especially, by way of the eradication of caste and the caste system. In support of this objective, several successive governments have devised various affirmative action policies to eradicate caste and support the social mobility of backward classes. These measures typically include reserving seats in representative and educational institutions or public employment for members of certain classes that have been traditionally and historically marginalised. However, over time, these measures have become a tool for populism and to appease certain communities. Therefore, every time such a measure is introduced, it has resulted in dividing public opinion and caused widespread controversy. On some occasions, this divide has escalated into public demonstrations and even riots, for or against reservation.[1]

When these hotly contested measures have come up for adjudication, the judiciary’s role has not been easy; it has to account for social realities, while simultaneously grounding its decision within the sacred framework of the Constitution. One recurrent controversy that has arisen on multiple occasions before the Apex Court is the criteria for determining backwardness in order to qualify for reservation. There have been several cases that directly deal with this question. Of these, the most significant is the 1992 decision of by the Supreme Court in Indra Sawhney v. Union of India, (1992) Supp. (3) SCC 217 [2] (Indra Sawhney).Continue Reading Casteism Much? – An Analysis of Indra Sawhney: Part I

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This is the second piece in our series entitled “Those Were the Days”, which is published monthly. We hope you enjoy reading this as much as we have enjoyed putting this together.

This post deals with Securities Exchange Board of India’s (SEBI) interpretation of the term “Unpublished Price Sensitive Information” (UPSI) arising from the alleged insider trading by Hindustan Lever Limited (now Hindustan Unilever Limited) (HLL) in its purchase of shares of Brooke Bond Lipton India Limited (BBLIL).

While the subject SEBI order employed provisions of the SEBI (Prohibition of Insider Trading) Regulations, 1992 (1992 Regulations), this post also analyses the relevant provisions of the subsequently notified SEBI (Prohibition of Insider Trading) Regulations, 2015 (2015 Regulations) in relation the subject case.

Case Analysis: Hindustan Lever Limited v. SEBI[1]

The facts of the case concerned the purchase by HLL of 8 lakh shares of BBLIL from the Unit Trust of India (UTI) on March 25, 1996. This purchase was made barely two weeks prior to a public announcement for a proposed merger of HLL with BBLIL.Continue Reading Insider Trading: Hindustan Lever Limited v. SEBI

Diwali Gifts Are You Wrapping Up a Bribe

Diwali is one of the most anticipated and celebrated festivals in India. It is also a festival of giving gifts, which is often a challenge for compliance professionals who struggle with policies and nuances of law around this time, on giving gifts that might seem like bribes.

Under the Prevention of Corruption Act, 1988 (PCA), the principal anti-bribery and anti-corruption statute in India, giving and receiving any form of pecuniary gratification may imply criminal penalties for both the bribe-giver and the public official. Furthermore, according to the conduct rules of various government departments, government servants are obliged to report receipt of gifts that go beyond prescribed monetary limits..

Gifting per se is not an illegal activity under Indian law. Under the PCA, the determining factor that separates a gift from a bribe is whether the gift was made with an expectation of quid pro quo. Furthermore, it must be clarified that the various conduct rules do not prescribe a de minimis or a minimum monetary threshold up to which a gift is seen as unquestionable. The conduct rules (as may be applicable to different public officials) merely provision for reporting obligations on behalf of the government servant, in cases where the pecuniary value of the gift received exceeds a certain limit.Continue Reading Diwali Gifts: Are You Wrapping Up a Bribe?

Kesavananda Bharati Case - Supreme Court of India

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Sociologists know that the formation and survival of civilization is conditional upon the universal adherence to a framework of acceptable norms and guidelines of human conduct and interaction. Moses therefore set out as God’s message, the directive to love thy neighbor, (so as not to have him for dinner) and also to not covet his wife (so that he may not make a meal out of you either).Continue Reading Kesavananda Bharati v. State of Kerala and The Basic Structure Doctrine

In this day and age of scams, crime by corporate entities throws a lot of challenges at multiple levels. The level of crime may be extraordinary owing to the magnitude, powers and reach of such corporations as opposed to an individual committing any crime. Once it is found that a corporation has committed a crime, the next question is whether corporations can be held guilty of such crimes since they do not have minds of their own.

For a long time, corporations in India were not held liable for criminal offences due to the requirement of mens rea or the intention to commit the offence and inability to award imprisonment or arrest, etc. However, corporations are no longer immune.

Supreme Court on Liability of Corporations and its Officials

The law on this aspect has evolved over time. Now, a corporation can be convicted of offences involving mens rea by applying the doctrine of attribution[1]. Thus, the corporation can be held responsible for offences committed in relation to the business of the corporation by the persons in control of its affairs. The legal position in the US and UK has also crystallised to ensure a corporation can be held liable for crimes of intent. In the UK, the courts have adopted the doctrine of attribution to the corporation liable for acts committed by the directing mind, i.e., the directors and managers.Continue Reading Criminal Liability of Corporate Officials in India

One of the key tenets of effective corporate governance is the ability of a corporation to promote transparency. Transparency and accountability is strengthened not just by efficient management and robust disclosure policies, but also by the creation of systems and processes to detect and address internal instances of fraud and corruption.

Whistleblowing has always played a distinct role in making companies alert to, and mindful of, employee conduct as well as internal processes and procedures. The existence of this class of facilitators is well recognised in the Indian legislative framework. Under section 177(9) of the Companies Act, 2013, it is mandatory for every listed company to establish a vigilant mechanism for directors and employees. Furthermore, the revised clause 49 of the listing agreement mandates that the company must establish a whistleblower mechanism with adequate safeguards against victimisation of whistleblowers.

Whilst immensely beneficial, tipping off/whistleblowing comes with its own set of unique challenges for the company, the alleged wrongdoer as well as whistleblowers themselves. While there is no ‘one size fits all’, certain aspects, as detailed below, should be considered by any company seeking to establish a whistleblower mechanism:
Continue Reading Who Can Hear The Whistle Blow? Whistleblowing And Its Impact On Corporate Governance In India

The power of judicial review enables the judiciary to determine the constitutional validity of legislative and/or executive actions, possibly making them subject to invalidation.

The power of judicial review by Tribunals was examined and decided by the Supreme Court in S.P. Sampath Kumar v. Union of India and in the subsequent case of L. Chandra Kumar v. Union of India. After the decision in Sampath Kumar case divergent views were taken by various benches of the Supreme Court. The matter was therefore referred to a seven judge bench of the Supreme Court in L. Chandra Kumar. Continue Reading Power of Judicial Review by the National Green Tribunal

On July 11, 2016, the President of the Queen’s Bench accorded final approval to the second Deferred Prosecution Agreement (DPA) entered into by the Serious Fraud Office of the UK (SFO). Through this short post, we seek to examine the DPA, what such approval of the DPA means and its significance for UK owned/based companies in India (Indco) that are subject to the provisions of the UK Bribery Act, 2010 (UKBA).
Continue Reading UK SFO’s Second DPA: Implications for Indian Companies