WHETHER ORDINARY RESOLUTION PASSED WITH 51% BY A PARENT COMPANY WITH 20% OF HOLDING COMPANY SHARES TO APPROVE A RELATED PARTY TRANSACTION IS VALID ONE? DOES SECTION 188 OF COMPANIES ACT 2013 AND REGULATION 23(4) OF SEBI LODR HAS A LOOPHOLE?

 WHETHER ORDINARY RESOLUTION PASSED WITH 51% BY A PARENT COMPANY WITH 20% OF HOLDING COMPANY SHARES TO APPROVE A RELATED PARTY TRANSACTION IS VALID ONE?

DOES SECTION 188 OF COMPANIES ACT 2013 AND REGULATION 23(4) OF SEBI LODR HAS A LOOPHOLE?

FACTS OF THE CASE

Imagine a listed company — for example, Tata Steel Limited — places a resolution before its shareholders in the General Meeting to approve the termination of a construction contract entered into with Tata Sons Private Limited (its Promoter Group entity and Related Party).

The company secures the Ordinary Resolution with 51% votes in favour. However, out of this, Tata Sons (holding 20%) also voted in favour of the termination.

IS THIS ORDINARY RESOLUTION VALID?

Does Section 188 of Companies Act 2013 and Regulation 23(4) of SEBI LODR has a loophole?

This question  dives right into the intersection of Companies Act, 2013 (Section 188) and SEBI LODR Regulations (Regulation 23), both of which govern related party transactions (RPTs).

KEY LEGAL PROVISIONS

SECTION 188(1), COMPANIES ACT, 2013:

Certain related party transactions require Board approval and, in some cases, shareholder approval.

SECOND PROVISO TO SECTION 188(1):

If shareholder approval is required, related parties cannot vote to approve the resolution.

REGULATION 23(4), SEBI LODR:

 For listed companies, all material related party transactions must be approved by shareholders, and all related parties are prohibited from voting to approve such resolutions, regardless of whether they are interested in that transaction.

HOW IT APPLIES?

·       Tata Steel Limited is a listed company.

·       The resolution concerns termination of a contract with Tata Sons Pvt Ltd, a promoter group entity and related party.

·       Tata Sons holds 20% shares and voted in favour.

·       The resolution passed with 51% votes in favour, but this includes Tata Sons’ 20%.

·       Problem: Since Tata Sons is a related party, its votes must be excluded when calculating whether the resolution has passed.

·       Excluding Tata Sons’ 20%, the effective votes in favour are only 31%.

·       That means the resolution fails, because it does not secure a majority of the non-related party shareholders.

IS THERE A LOOPHOLE?

Not really. Both Section 188 and Regulation 23(4) are clear: related parties cannot vote to approve their own transactions. SEBI has tightened this further by requiring exclusion of related party votes even if they are not directly interested.

So, in this scenario:

·       The resolution is invalid because Tata Sons’ votes should not have been counted.

·       There is no loophole — the law anticipates this exact situation and prevents promoter group entities from pushing through RPT approvals with their own votes.

KEY TAKEAWAYS

The ordinary resolution passed with 51% including Tata Sons’ votes is not valid. For compliance, Tata Steel must re-run the resolution and secure majority approval excluding Tata Sons’ 20% stake.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,

ARE THE INDEPENDENT DIRECTORS PROTECT THE MINORITY SHAREHOLDERS INTEREST IN INDIA? PROTECTION OF MINORITY SHAREHOLDER’S INTEREST BY INDEPENDENT DIRECTOR IS A MYTH OR REALITY?

 ARE THE INDEPENDENT DIRECTORS PROTECT THE MINORITY SHAREHOLDERS INTEREST IN INDIA?

PROTECTION OF MINORITY SHARE

 HOLDER’S INTEREST BY

 INDEPENDENT DIRECTOR IS A MYTH OR

 REALITY?

The Companies Act, 2013 and SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations give them explicit responsibilities to safeguard minority investors, especially in promoter-controlled companies where conflicts of interest are common.

Schedule IV outlines their Code of Conduct, including duties to act in the interest of all shareholders, especially minorities.

SEBI LODR REGULATIONS, 2015

·       IDs must oversee related party transactions (RPTs), which often involve promoter interests.

·       IDs chair or sit on key committees like the Audit Committee and Nomination & Remuneration Committee (NRC).

·       Regulation 25 requires IDs to meet separately at least once a year to evaluate board performance and independence.

INFORMATION ASYMMETRY:

IDs rely on management for data, which may be incomplete or biased.

CASES WHERE INDEPENDENT DIRECTORS PROTECTED MINORITY SHAREHOLDERS

CASE LAW NAME	DETAILS
Tata–Cyrus Mistry Case (2016)	Independent directors of Tata group companies, such as Nusli Wadia, openly supported Cyrus Mistry after his ouster as Chairman of Tata Sons. They raised concerns about governance practices and minority shareholder rights, showing IDs can act as a check on promoter dominance.
Infosys Whistleblower Allegations (2019)	Anonymous whistleblowers alleged that the CEO and CFO were engaging in unethical practices to inflate short-term profits. The company’s independent directors took the allegations seriously, hired independent law firms to conduct a thorough investigation, and demonstrated transparency to protect retail and institutional shareholders from sudden panic.

CASES WHERE INDEPENDENT DIRECTORS FAILED TO PROTECT MINORITY INTERESTS

CASE LAW NAME	DETAILS
Satyam Computer Services (2009)	The independent directors on the audit committee—despite their highly distinguished professional backgrounds—failed to scrutinize the fake accounts and resigned shortly after the scam broke, drawing severe criticism for acting as passive "rubber stamps".
Infrastructure Leasing & Financial Services (IL&FS) (2018):	Despite a robustly constituted board, independent directors failed to flag massive related-party transactions and excessive debt leveraging. This led to a liquidity crisis that severely eroded minority shareholder and public investor wealth.
Manpasand Beverages (2019):	Following the resignation of their statutory auditors, independent directors on the audit committee approved financial results without sufficient due diligence. SEBI penalized the independent directors for failing to exercise proper oversight over financial reporting, proving that mere participation isn't enough to protect shareholders
Defeating Promoter Resolutions (2023): KRBL Ltd	Emboldened by proxy advisory firms and stricter corporate governance norms under the Companies Act, minority shareholders successfully banded together to vote down resolutions—such as disproportionate remuneration hikes for promoter families—at prominent companies (e.g., KRBL Ltd.). Independent oversight has empowered these proxy advisory systems.
Fortis Healthcare Case (2018)	Independent directors were criticized for not acting decisively against alleged diversion of funds by the promoters (Singh brothers). SEBI later intervened to protect minority shareholders, showing IDs had not fulfilled their duty effectively.

KEY TAKEAWAY

Independent directors in India do have a statutory duty to protect minority shareholders, especially through oversight of related party transactions, board independence, and transparency.

So, while the law in India clearly mandates independent directors to safeguard minority shareholders, real-world outcomes vary widely. In some cases, they’ve been strong protectors; in others, they’ve failed due to lack of independence or oversight.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,

CAN A COMPANY BE HELD CRIMINALLY LIABLE FOR OFFENSES REQUIRING MENS REA (A GUILTY MIND), SUCH AS CHEATING AND CRIMINAL CONSPIRACY? THE DOCTRINE OF ATTRIBUTION: IRDIUM INDIA TELECOM LTD. V. MOTOROLA INC. (2011)

 CAN A COMPANY BE HELD CRIMINALLY LIABLE FOR OFFENSES REQUIRING MENS REA (A GUILTY MIND), SUCH AS CHEATING AND CRIMINAL CONSPIRACY?   THE DOCTRINE OF ATTRIBUTION:

IRDIUM INDIA TELECOM LTD. V.

 MOTOROLA INC. (2011)

In IRDIUM INDIA TELECOM LTD. V. MOTOROLA INC. (2011) case, the Supreme Court of India firmly established that companies can be held criminally liable in India, including for offences requiring mens rea (criminal intent).

FACTS OF THE CASE

Iridium India Telecom accused Motorola of criminal conspiracy and cheating under Section 420 read with Section 120-B of the Indian Penal Code (IPC). Iridium alleged Motorola made false representations and assurances in its Private Placement Memorandum to induce massive financial investments into the commercially disastrous "Iridium" satellite project.

THE INITIAL HURDLE:

The Bombay High Court quashed the criminal complaint. It ruled that a corporation is an artificial entity without a physical body or mind, making it legally incapable of possessing the mens rea (intent) to commit fraud.

THE SUPREME COURT RULING:

 The Supreme Court set aside the High Court's decision. It established that corporations can be prosecuted under the IPC.

THE DOCTRINE OF ATTRIBUTION:

 The Court ruled that the "intent" of the corporation's directors, managers, or high-level agents (who control its affairs) is legally attributed to the corporation itself.

PRACTICAL IMPLICATIONS

·       Companies in India can now face criminal prosecution for fraud, cheating, conspiracy, and other offences.

·       Directors’ and officers’ actions can implicate the corporation itself.

·       Corporate veil may be pierced when companies are used as instruments of fraud.

·       This ruling aligns Indian law with global trends recognizing corporate criminal responsibility.

IRIDIUM CASE INFLUENCE ON LATSER CORPORATE FRAUD CASES

SATYAM COMPUTER SERVICES SCANDAL (2009)	In Satyam, both individual directors and the company faced charges under IPC provisions for cheating and criminal breach of trust.
SAHARA GROUP CASE (2012–2014)	The Supreme Court held Sahara liable for misleading investors and violating SEBI regulations.
KINGFISHER AIRLINES & VIJAY MALLYA (2016 ONWARDS)	Allegations of financial mismanagement and fraud in securing loans. Banks and regulators pursued both Mallya personally and Kingfisher Airlines as a corporate entity.
NIRAV MODI & PUNJAB NATIONAL BANK FRAUD (2018)	Fraudulent Letters of Undertaking (LoUs) led to losses exceeding ₹11,000 crore. Enabled investigators to pursue corporate entities linked to Modi’s firms under IPC provisions.

 

LESSONS LEARNED

Iridium India Telecom Ltd. v. Motorola Inc. (2010) is a landmark Supreme Court judgment that firmly established corporate criminal liability in India, confirming that corporations can be prosecuted for offences requiring mens rea, thereby strengthening investor protection and corporate accountability.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,

WHAT IS MISLEADING BRAND NAMES, TRADE NAMES AND PRODUCT CLAIMS, LABELLING VIOLATIONS UNDER FSSAI?

 WHAT IS MISLEADING BRAND NAMES, TRADE NAMES AND PRODUCT CLAIMS, LABELLING VIOLATIONS UNDER FSSAI?

HOW MULTIPLE FOOD BUSINESS OPERATORS (FBOS) INCLUDING FERRERO, MARICO, PLUCKK, EMAMI, NEUHERBS, AND OTHERS EMPLOYING MISLEADING BRAND NAMES, DECEPTIVE HEALTH CLAIMS, AND LABELLING VIOLATIONS UNDER FSSAI.

FSSAI ISSUED NOTICES TO MULTIPLE FOOD BUSINESS OPERATORS (FBOS) FOR VIOLATING PROVISIONS OF THE FSS ACT, 2006 RELATED TO MISLEADING BRAND NAMES, TRADE NAMES AND PRODUCT CLAIMS, LABELLING VIOLATIONS AND OTHER CONSUMER COMPLAINTS.

The Food Safety and Standards Authority of India (FSSAI) has recently issued notices to multiple food business operators (FBOs) including Ferrero, Marico, Pluckk, Emami, Neuherbs, and others for misleading brand names, deceptive health claims, and labelling violations.

 These actions fall under the Food Safety and Standards Act, 2006 and the Advertising and Claims Regulations, 2018, with companies directed to take corrective measures immediately.

COMPANIES & PRODUCTS FLAGGED

COMPANY / BRAND	PRODUCT / CLAIM	ISSUE RAISED
Pluckk	Mango fruit juice – “No Added Sugar”	Ingredients included sugarcane juice, misleading consumers about sugar content
Ferrero India	Kinder Joy wafer – “Rich in Milk Solids”	Claim not substantiated by actual composition
Marico Ltd	Saffola Total Heart Pro cooking oil	Heart-health claims lacked scientific backing
Emami Healthy & Tasty	Cooking oil branding	Trade name implies health benefits without approval
Neuherbs	“True Vitamin” range	Term undefined under FSSAI rules, misleading
The Healthy Factory	“Zero Maida” bread & pizza base	Ingredients included atta & gluten, contradicting claim
Troovy	Veggie & Ragi chips	“Healthy” claims not justified by ingredients
Bikanervala	Hygiene complaint	Staff consuming food in kitchen during operations
Param Dairy Ltd	Dahi & rabri supplied via IRCTC	Alleged fungal contamination

RISKS & CONSUMER IMPACT

HEALTH MISREPRESENTATION:	Products marketed as “healthy,” “natural,” or “sugar-free” may mislead buyers into unsafe consumption choices.
REGULATORY PENALTIES:	FBOs face legal consequences, including fines and mandatory corrective actions.
CONSUMER TRUST:	Repeated violations erode confidence in food brands and highlight the need for stricter oversight.

CONCLUDING REMARKS

FSSAI is cracking down on deceptive food marketing in India, targeting both multinational and domestic brands. Consumers should stay vigilant, read labels thoroughly, and rely on verified certifications rather than marketing slogans.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,

BAJRANGBALI SPONGE AND POWER LIMITED WAS PENALISED BY THE REGISTRAR OF COMPANIES (ROC), CUTTACK, FOR FAILING TO APPOINT A CHIEF FINANCIAL OFFICER (CFO) FOR OVER SIX YEARS (2014–2020) ROC CUTTACK vs BAJRANGBALI SPONGE AND POWER LIMITED

 BAJRANGBALI SPONGE AND POWER LIMITED WAS PENALISED BY THE REGISTRAR OF COMPANIES (ROC), CUTTACK, FOR FAILING TO APPOINT A CHIEF FINANCIAL OFFICER (CFO) FOR OVER SIX YEARS (2014–2020)

ROC CUTTACK vs BAJRANGBALI SPONGE AND POWER LIMITED

FACTS OF THE CASE

Bajrangbali Sponge and Power Limited was penalised by the Registrar of Companies (RoC), Cuttack, for failing to appoint a Chief Financial Officer (CFO) for over six years (2014–2020), despite being legally required under Section 203 of the Companies Act, 2013. The company and its directors were fined ₹5 lakh each for prolonged non-compliance.

VIOLATION:

Failure to appoint a whole-time CFO despite having paid-up share capital exceeding ₹10 crore (making CFO appointment mandatory).

LAW INVOKED:

Section 203(1)(iii) of the Companies Act, 2013, read with Rule 8 of the Companies (Appointment and Remuneration) Rules, 2014.

PENALTY:

·       ₹5,00,000 on the company.

·       ₹5,00,000 each on several directors/officers.

LEGAL BACKGROUND

Under Section 203 of the Companies Act, 2013:

·       Certain classes of companies must appoint Key Managerial Personnel (KMP), including a Managing Director/CEO, a Company Secretary (CS), and a Chief Financial Officer (CFO).

·       Non-compliance attracts penalties under Section 203(5):

·       Company: Fine up to ₹5 lakh.

·       Officers in default: Fine up to ₹50,000 plus ₹1,000 per day of continuing default.

COMPARISON OF PENALTIES

COMPANY	PERIOD OF DEFAULT	POSITIONS VACANT	PENALTY AMOUNT
Bajrangbali Sponge & Power Ltd	2014–2020 (6 yrs)	CFO	₹5 lakh (company) + ₹5 lakh each director
Virupaksha Organics Ltd	2018–2021 (3 yrs)	CS & CFO	₹79.40 lakh total
Mahatamil Mining & Thermal Ltd	2014–2023 (9 yrs)	CS, CFO, MD	₹75.18 lakh total

KEY LESSONS LEARNED

·       Mandatory CFO appointment applies to companies with paid-up capital ≥ ₹10 crore.

·       Non-compliance is costly: penalties can reach tens of lakhs depending on duration and positions vacant.

·       Regulators are strict: pleas for leniency (e.g., citing administrative oversight or pandemic delays) are often rejected.

·       Best practice: Companies should proactively appoint KMPs to avoid financial and reputational damage.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,