WHETHER A COMPANY SECRETARY IS RESPONSIBLE FOR CERTAIN MISSTATEMENTS AND INCORRECT DISCLOSURES MADE BY THE COMPANY?

 

WHETHER A COMPANY SECRETARY IS

 RESPONSIBLE FOR CERTAIN

 MISSTATEMENTS AND INCORRECT

 DISCLOSURES MADE BY THE

 COMPANY?

In V. Shankar, the company secretary of Deccan Chronicle Holdings Limited (DHCL), SAT SAYS NO BUT SUPREME COURT set aside the SAT's order and remitted the matter back to the SAT for further consideration.

COMPANY SECRETARY IS NOT LIABLE FOR AUTHENTICATION OF FINANCIAL STATEMENTS-SAT

The case of V. Shankar c/o Manish Ghia & Associates vs. Securities Appellate Tribunal (SAT) involves the liability of a company secretary under securities laws.

The SAT initially exonerated Shankar , Company Secretary from liability.

 SAT held that a Company Secretary is not liable for authentication of financial Statements under the Companies Act, 1956.

EARLIER , SEBI HELD COMPANY SECRETARIES ARE ACCOUNTABLE FOR SIGNING OF FINANCIAL STATEMENT OF THE COMPANY

1)SEBI  earlier held the Company Secretary is liable for signing the financial statements;

2) Appeal by Company Secretary to Securities Appellate Tribunal (SAT) against the order.

3) SAT reverses the order passed by SEBI.

4) SEBI appealed to Supreme Court against SATs Order.

SUPREME COURT DECISION

The Supreme Court's decision emphasized that the SAT had erred in confining the role of the company secretary solely to investor grievance redressal, as per Regulation 19(3) of the SEBI (Buyback of Securities) Regulations, 1998.

The Supreme Court noted that the regulation imposes two separate obligations on the company secretary: ensuring compliance with the buyback regulations and addressing investor grievances.

 The Supreme Court found that the SAT had failed to consider the first, broader obligation. Consequently, the Supreme Court directed the SAT to reconsider the matter, keeping the rights and contentions of the parties open, and to decide the case within six months.

SAT REITREATS ITS EARLIER ORDER ON 5 MAY 2025.

SAT once gain rehears the matter as directed by Supreme Court and conclusively determines that Company Secretary is not liable for signing the financial statements in the present matter.

RESPONSIBILITIES OF COMPANY SECRETARIES UNDER CORPORATE AND SECURITIES LAWS

Having held the above, as professionals one needs to be tremendously cautious, while signing the financials or any other document containing the financial aspects even though approved by the Board or any other competent authority, as there is no blanket protection available to a company secretary, even though such checks have been carried out by an independent statutory auditor.

R V Seckar FCS , LLB 79047 19295

WHETHER MINORITY SHAREHOLDERS OF A COMPANY CAN OPPOSE SELECTIVE CAPITAL REDUCTION?

 

WHETHER MINORITY SHAREHOLDERS

 OF A COMPANY CAN OPPOSE

 SELECTIVE CAPITAL REDUCTION?

NCLAT DELHI DECISION ON SELECTIVE CAPITAL REDUCTION OF BHARTI TELECOM LIMITED.

The National Company Law Appellate Tribunal (NCLAT) in New Delhi upheld Bharti Telecom Limited's (BTL) selective capital reduction scheme, confirming its compliance with the Companies Act, 2013.

The scheme involved reducing BTL's share capital by ₹28.46 crore, representing 1.09% of its total capital, by canceling shares held by 726 identified minority shareholders.

GOOD CASE STUDY

This is a good case law to quote, where minority shareholders UNJUSTLY oppose the majority’s decision for the exit of the minority in unlisted companies ( selective capital reduction )

Overall , 14 appeals have been filed by 35 Appellants in this case and the main observations of the Appellate Tribunal upholding the Order of NCLT Chandigarh bench allowing the capital reduction.

NCLAT HELD THAT

1.   Selective capital reduction is permissible in terms of Section 66(1)(b)(ii) of the Companies Act, 2013.

·      VALUATION CERTIFICATE –

·      The complaint of the minority shareholders was that they were not given a copy of the valuation report in compliance with Section 102 and 120 of the Companies Act, 2013 r/w Rule 27 to Rule 29 of the Companies (Management and Administration) Rules, 2014.

·      NCLAT is of the view that it is NOT mandatory to be attached to the Notice for the general meeting where the approval for capital reduction u/s 66 of CA 2013 is sought as in the case of n the case of preferential allotment u/s 62.

·  The passing of the resolution through postal ballot and e-voting without conducting personal/physical voting was not violative of the rights of the Identified Shareholders

 VALUATION AND FAIRNESS:

BTL appointed independent Valuers and obtained a fairness opinion to determine the buyback price of ₹196 per share, which was later increased to ₹310 per share. The NCLAT found no patent unfairness in the valuation process and deemed the reduction fair and reasonable.

SHAREHOLDER APPROVAL:

The capital reduction was approved by 99.90% of shareholders, including 76.35% of the identified minority shareholders, indicating broad support for the scheme.

LEGAL PRECEDENTS:

The NCLAT referenced previous judgments, such as Reckitt Benckiser (India) Ltd. and RS Live Media Pvt. Ltd., affirming that selective capital reduction is permissible under Section 66 of the Companies Act, provided it is fair and equitable.

The NCLAT's decision underscores that, in the absence of patent unfairness or lack of majority approval, courts are unlikely to withhold sanction to a capital reduction scheme.

R V Seckar FCS , LLB 79047 19295

 

UPDATES FOR NSE LISTED COMPANIES

 UPDATES  FOR  NSE  LISTED COMPANIES

NSE issues Master Circular for Listed Companies

Ref No: NSE/CML/2025/25 | Date: April 30, 2025

The National Stock Exchange (NSE) has released a comprehensive Master Circular consolidating relevant and updated guideline applicable to listed companies as of April 30, 2025. The circular is divided into two parts:

Part A: Covers Listing Approvals including IPOs, Further Issues, Schemes of Arrangement, Debt Listing, and Social Stock Exchange.

Part B: Compiles guidelines relating to Listing Compliance under SEBI LODR, SAST, and PIT regulations.

KEY REGULATORY CLARIFICATIONS INCLUDE:

◾ Promoter/promoter group cannot be removed from the shareholding pattern during the quarter based on share sale alone—reclassification approval from the stock exchange is mandatory.

◾ Stock Exchanges have introduced API-based integration for select filings to enable automatic dissemination across exchanges (e.g., share capital audit reports, shareholder meetings).

◾ Includes industry standard notes on BRSR Core, disclosures for related party transactions, and Regulation 30 under SEBI LODR.

For the detailed circular and FAQs covering various aspects, refer to the annexed circular available on the NSE website.

Courtesy : Miss Vidhi Joshi

R V Seckar FCS , LLB 79047 19295

JAPAN’S SUMITOMO MITSUI BANK IS ACQUIRING A 𝟱𝟭% STAKE IN YES BANK-AN ANALYSIS

 JAPAN’S SUMITOMO MITSUI BANK IS ACQUIRING A 𝟱𝟭% STAKE IN YES BANK-AN ANALYSIS

Japan’s Sumitomo Mitsui Banking Corp (SMBC) has received 𝗥𝗕𝗜 𝗮𝗽𝗽𝗿𝗼𝘃𝗮𝗹 to buy a 𝟱𝟭% 𝘀𝘁𝗮𝗸𝗲 𝗶𝗻 𝗬𝗲𝘀 𝗕𝗮𝗻𝗸. This deal could value Yes Bank at $𝟭.𝟳 𝗯𝗶𝗹𝗹𝗶𝗼𝗻.

WHY IT IS UNIQUE?

·      Deal could be largest in India's banking sector

If the deal goes through, it could potentially be the largest in India's banking sector, where deal-making, especially involving foreign entities, is rare.

• ·      SMBC will first buy less than 26%, then merge its subsidiary with Yes Bank to reach 51%.

• ·      Voting rights will be capped at 26%, even with a 51% stake. RBI regulations need the largest shareholder of a bank to reduce their holding to 26% in 15 years.

·      Existing shareholders like SBI, Axis Bank, and HDFC Bank will sell some of their shares.

 SBI holds a 24% stake in Yes Bank. ICICI Bank, HDFC Bank, Kotak Mahindra Bank, Axis Bank and Life Insurance Corporation of India together hold an 11.34% stake in Yes Bank.

WHY IT IS IMPORTANT?

• ·      A takeover of troubled Lakshmi Vilas Bank by Singapore-based DBS Group in 2020 was the last major deal in the sector.

• ·      SMBC has been in discussions with Yes Bank's largest investor, State Bank of India and with RBI last year, but the negotiations faltered amid concerns over ownership and voting rights

·      This could reinforce Yes Bank’s operations, bring in global expertise, and mark a new phase of foreign investment in Indian banking sector.

R V Seckar FCS , LLB 79047 19295

INDEPENDENT DIRECTOR CONTINUING TO ACT EVEN AFTER EXPIRY OF HIS TERM IN NESCO LIMITED WHICH RESULTED IN PAYMENT OF PENALTY OF ₹21.45 LAKH TO SEBI.

 

 INDEPENDENT DIRECTOR  CONTINUING 

TO ACT EVEN AFTER EXPIRY OF HIS TERM

 IN NESCO LIMITED WHICH RESULTED IN

 OF PENALTY OF  ₹21.45 LAKH TOSEBI.

There have been instances where an independent director (ID) continued to act beyond the expiry of their term at Nesco Limited.

A notable case involves Manu M. Parpia, who served as an independent director until May 9, 2022.

However, it was alleged that he continued to function in this capacity for over a year after his tenure had ended, violating the provisions of the SEBI  LODR.

Moreover, he was found to have provided a deceptive declaration regarding his independence and eligibility at the time of his appointment.

For continuing Shri Parpia as an independent director on NESCO’s Board after expiry of his tenure, NESCO  violated Regulation 25(2) of the LODR Regulations read with Section 149(10) of the Companies Act, 2013.

COOKUPS MADE BY NESCO TO SAVE ITS NON-COMPLIANCE

1.NESCO has submitted that owing to a clerical oversight, the Company omitted to note the expiry of tenure of Shri Parpia and therefore, the Company, in compliance with Regulation 27(2) of the LODR Regulations, filed CGRs in the standard format provided by SEBI, for the quarters ending June 2022, September 2022, December 2022 and March 2023, representing that Shri Parpia’s was a non-executive ID in the Company.

2. The Board of the Company  approved a resolution in their meeting dated May 24, 2023 THAT THE ATTENDANCE OF SHRI PARPIA DURING THIS INTERVENING PERIOD WILL BE CONSIDERED IN THE CAPACITY OF “SPECIAL INVITEE”.

3. Further, it was resolved by the Board in the said meeting dated May 24, 2023 THAT THE SITTING FEES PAID TO SHRI PARPIA FOR ALL THE MEETINGS ATTENDED BY HIM AS A SPECIAL INVITEE SHALL BE CONSIDERED AS FEES PAID TO PROFESSIONALS. NESCO VIOLATION OF REGULATION 17(1C) OF THE LODR REGULATIONS

4.NESCO failed to include IDs appointments in the annual general meeting (AGM) agenda scheduled. Instead, shareholder approval was sought through a postal ballot issued on the same date.

This process violated Regulation 17(1C) of the LODR Regulations, which mandates shareholder approval in the next general meeting or within three months of board approval, whichever is earlier.

5.DISCLOSURE OF POSTAL BALLOT RESULTS TO STOCK EXCHANGES

NESCO delayed the disclosure of the postal ballot notice. Although approved by the Board on 4 August 2023, the notice was disclosed to the stock exchanges only on 6 September 2023, far beyond the mandated 12-hour window.

PENALTY ON INDEPENDENT DIRECTOR

 In response to these allegations, Parpia filed a settlement application with SEBI and paid a settlement amount of ₹21.45 lakh.

PENALTY ON THE COMPANY

Penalty on company Rs 5 lakhs and the Director filed  the Settlement Application and the proceedings was disposed of on Jan 1 2025.

POINTS TO PONDER

1.How a listed company like NESCO has not observed the expiry of tenure of an Independent Director and allowed him to function even after his expiry of his term.

2. How Statutory Auditor and Secretarial Auditor of NESCO have not reported this lapse in their reports.

R V Seckar FCS , LLB 79047 19295

NOW ALL THE LISTED COMPANIES HAVE TO AMEND THEIR ORGANIZATION STRUCTURE TO POSITION THE COMPLIANCE OFFICER CUM COMPANY SECRETARY ONE LEVEL BELOW THE BOARD BUT ONE LEVEL ABOVE THE CFO.

NOW ALL THE LISTED COMPANIES HAVE TO

 AMEND THEIR ORGANIZATION STRUCTURE

 TO POSITION THE COMPLIANCE OFFICER

 CUM COMPANY SECRETARY ONE LEVEL

 BELOW THE BOARD BUT ONE LEVEL

 ABOVE THE CFO.

POSITION OF COMPLIANCE OFFICER IN TERMS OF

 REGULATION 6 OFTHE  SEBI  (LODR)  REGULATIONS

, 2015.

The proviso to regulation 6(1) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations,  2015  (“LODR  Regulations”) inter-alia requires  the  Compliance  Officer of  a listed entity to be in whole-time employment of the listed entity, not more than one level below the board of directors, and designated as a Key Managerial Personnel.

The said provision was   inserted   vide   SEBI   (Listing   Obligations   and   Disclosure   Requirements)   (Third Amendment Regulations), 2024 dated December 12, 2024.

                ONE-LEVEL  BELOW  THE  BOARD  OF  DIRECTORS’ 

The term ‘level’  used  in  regulation  6(1)  refers  to  the position of the Compliance Officer in the organization structure of the listed entity. Therefore, ‘one-level  below  the  board  of  directors’  means  one-level  below  the  Managing  Director  or Whole-time Director(s)who are part of the Board of Directors of the listed entity. This will be in  line  with  regulation  2(1)(o)  of  the  LODR  Regulations  read  with  section  2(51)  of  the Companies Act, 2013.

ONE-LEVEL  BELOW  THE  CHIEF  EXECUTIVE  OFFICER OR MANAGER

In case a listed entity does not have a Managing Director or a Whole-Time Director, then the Compliance Officer shall  not be more  than  one-level  below  the  Chief  Executive  Officer or Manager or any other person heading the day to-day affairs of the listed entity.

TO REDRAFT THEIR ORGANISATIONAL HIERARCHY CHART

Accordingly , all the listed companies have to redraft their organisational hierarchy chart as below.

WHETHER A SINGLE PERSON CAN PLAY DUAL ROLE AS COMPLIANCE OFFICER CUM COMPANY SECRETARY IN A LISTED COMPANY?

Thus , now Compliance Officer Cum Company Secretary should be one level below the board but one level above the Chief Financial officer (CFO).

Hence ,a listed company cannot have Compliance officer cum CFO hither after. T

hus , a person cannot play dual role as Compliance officer cum CFO hither after in a listed company as per above SEBI FAQs.

R V SECKAR FCS,LLB 79047 19295

WHY INDEPENDENT DIRECTORS ARE RESIGNING CITING PERSONAL REASONS FROM INDIAN COMPANY BOARDS?

WHY INDEPENDENT DIRECTORS ARE

 RESIGNING CITING PERSONAL REASONS

 FROM INDIAN COMPANY BOARDS?

PERSONAL REASONS

​Independent directors across various companies globally and in India have recently resigned, often citing "personal reasons." However, these departures sometimes mask deeper concerns related to governance issues, legal risks, and ethical standards.

Many directors, when faced with allegations of corporate misgovernance, have chosen to resign under the pretext of “personal reasons,” leaving companies vulnerable during critical times.

Number of cessations of Independent Directors in 2024 stood at 2,465 against 2,311 appointments, according to primeinfobase.com.

GLOBAL CONTEXT

Mineral Resources (Australia): Denise McComish, a non-executive director, resigned amid a series of scandals involving the company's managing director, Chris Ellison. The resignations followed allegations of tax evasion and misuse of company funds, leading to an investigation by the Australian Securities & Investments Commission (ASIC).

INDIAN CONTEXTS

GENSOL ENGINEERING:

Two independent directors, Harsh Singh and Kuljit Singh Popli, resigned following allegations by the Securities and Exchange Board of India (SEBI) against the company's co-founders. The allegations included misuse of company funds and undisclosed related-party transactions.

DHANLAXMI BANK:

 Independent director Sridhar Kalyanasundaram resigned, citing factionalism within the board and differences regarding a rights issue. He also expressed concerns about the lack of in-depth banking knowledge among other board members. ​

PAYTM PAYMENTS BANK:

Independent director Manju Agarwal resigned, citing personal commitments. Her resignation came amid the Reserve Bank of India's move to curb operations at the bank.

R & B DENIM LIMITED

Resignation of Mr. Dharmesh Prafulchandra Mehta ,Mr. Girishkumar Prahladrai Kalawatia and Mr. Manak Lal Tiwari (as the Independent Directors of the Company, with effect from close of business hours on 27th December, 2023 citing pre-occupation and personal commitments.

TRENDS AND REGULATORY RESPONSES

RESIGNATION PATTERNS:

In the first three quarters of 2024, 94% of mid-term board cessations for independent directors in India's National Stock Exchange (NSE) companies were due to resignations. The most common reasons cited were preoccupation with other commitments (54%) and personal reasons (27%).

REGULATORY MEASURES:

The Securities and Exchange Board of India (SEBI) has proposed that independent directors disclose detailed reasons for their resignation, including an explanation if "personal reasons" are cited. Additionally, a mandatory cooling-off period of one year before they can join another board is being considered.

IMPORTANCE OF TRANSPARENCY AND ACCOUNTABILITY

These developments underscore the importance of transparency and accountability in corporate governance. While personal reasons are often cited for resignations, underlying issues such as governance failures and ethical concerns may be at play. Regulatory bodies are taking steps to address these challenges and enhance the integrity of corporate boards.​

R V SECKAR FCS,LLB 79047 19295