𝗪𝗜𝗣𝗣𝗥𝗢 𝘃𝘀. 𝗖𝗢𝗚𝗡𝗜𝗭𝗔𝗡𝗧 𝗧𝘂𝘀𝘀𝗹𝗲 ,NON COMPETE CLAUSE -

 

WHY COGNIZANT DECIIDED TO PAY Rs 4 Crores to WIPRO FOR RETAINING  ITS CFO JATIN DALAL  JOINED FROM WIPRO – NON COMPETE  CLAUSE -

𝗪𝗜𝗣𝗣𝗥𝗢 𝘃𝘀. 𝗖𝗢𝗚𝗡𝗜𝗭𝗔𝗡𝗧 𝗧𝘂𝘀𝘀𝗹𝗲

There was a tug-of-war between Wipro and Cognizant—over a non-compete clause present in the Jatin Dalal appointment contract with WIPRO.

Wipro alleged Dalal's appointment as Cognizant's CFO violated a non-compete clause, which lists 10 of Wipro's competitors and states that he cannot work in any capacity with them for 12 months after his exit as per non-compete clause in his employment with WIPRO.

In its petition, Wipro asked for 251.5 million rupees ($3.02 million) plus interest in damages, as well as a permanent injunction on Dalal from being able to share company-sensitive details with Cognizant.

WHAT IS A NON-COMPETE AGREEMENT ?

A Non-Compete Agreement (NCA) is a contract where one party agrees not to compete against the other.

When two parties exchange sensitive business information, one party could exploit that information to gain an unfair competitive advantage. A Non-Compete Agreement can help deter and limit this kind of competition.

HOW NON-COMPETE CLAUSE HELPS THE EMPLOYER ?

• Protect confidential information. The agreement includes a confidentiality clause to protect everything from trade secrets to customer lists.
• Get legal recourse. If the other party begins competing against you unfairly, you can rely on the contract to seek injunctive relief to stop the behavior.

➤ 𝗧𝗵𝗲 𝗖𝗮𝘀𝗲:

 ↳ After a 20-year-long career at Wipro, Jatin Dalal moved to Cognizant (Wipro’s IT rival) as their CFO in September 2023. However, this transition wasn’t smooth.

·       Wipro filed a lawsuit against Dalal for breaching the non-compete clause in his employment contract.

·       Wipro sought ₹25 crore in damages for the contravention of Non-Compete clause

➤ 𝗧𝗵𝗲 𝗦𝗲𝘁𝘁𝗹𝗲𝗺𝗲𝗻𝘁

The Dispute went into arbitration ( Note Arbitration is a good alternative for long litigation process.

Cognizant announced they would support their new CFO, covering legal fees and paying half a million dollars in settlement.

This pattern suggests a tightening of Wipro’s contractual enforcement, especially under the leadership of their new CEO, Srinivas Pallia.

➤ 𝗘𝗻𝗳𝗼𝗿𝗰𝗲𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝗼𝗳 𝗡𝗼𝗻-𝗖𝗼𝗺𝗽𝗲𝘁𝗲 𝗖l𝗮𝘂𝘀𝗲𝘀 𝗶𝗻 𝗜𝗻𝗱𝗶𝗮:

In response, Dalal said that non-compete clauses were in violation of Section 27 of the Indian Contract Act and therefore unenforceable.

𝙎𝙚𝙘𝙩𝙞𝙤𝙣 𝟮𝟳 𝙤𝙛 𝙩𝙝𝙚 𝙄𝙣𝙙𝙞𝙖𝙣 𝘾𝙤𝙣𝙩𝙧𝙖𝙘𝙩 𝘼𝙘𝙩, states that agreements restraining anyone from lawful profession, trade, or business are void.

This makes non-compete clauses unenforceable post-employment.

➤ 𝗝𝘂𝗱𝗶𝗰𝗶𝗮𝗹 𝘃𝗶𝗲𝘄

In 𝘚𝘶𝘱𝘦𝘳𝘪𝘯𝘵𝘦𝘯𝘥𝘦𝘯𝘤𝘦 𝘊𝘰𝘮𝘱𝘢𝘯𝘺 𝘰𝘧 𝘐𝘯𝘥𝘪𝘢 𝘗𝘳𝘪𝘷𝘢𝘵𝘦 𝘓𝘪𝘮𝘪𝘵𝘦𝘥 𝘷. 𝘒𝘳𝘪𝘴𝘩𝘢𝘯 𝘔𝘶𝘳𝘨𝘢𝘪 (1979), an employee was restricted from working with competitors in Delhi for two years post-employment. The Supreme Court held such a restraint as void and unenforceable.

In Dalal’s case, Wipro argued that his new role at Cognizant, a direct competitor, would inevitably involve using sensitive information acquired during his tenure at Wipro.

Dalal’s legal team pushed for arbitration, and the parties settled recently.

𝗪𝗵𝗮𝘁 𝗱𝗼𝗲𝘀 𝘁𝗵𝗶𝘀 𝘁𝗲𝗹𝗹 𝘂𝘀 𝗮𝗯𝗼𝘂𝘁 𝘁𝗵𝗲 𝗜𝗧 𝗶𝗻𝗱𝘂𝘀𝘁𝗿𝘆 𝗮𝗻𝗱 𝗰𝗼𝗿𝗽𝗼𝗿𝗮𝘁𝗲 𝗹𝗲𝗴𝗮𝗹 𝗯𝗮𝘁𝘁𝗹𝗲𝘀?

⚫      𝗡𝗼𝗻-𝗰𝗼𝗺𝗽𝗲𝘁𝗲 𝗰𝗹𝗮𝘂𝘀𝗲𝘀 𝗮𝗿𝗲 𝗻𝗼𝘁 𝗷𝘂𝘀𝘁 𝗹𝗲𝗴𝗮𝗹 𝗳𝗼𝗿𝗺𝗮𝗹𝗶𝘁𝗶𝗲𝘀; they are fiercely defended, especially at senior levels where sensitive information is at stake.

⚫     𝗧𝗵𝗲 𝘀𝗲𝘁𝘁𝗹𝗲𝗺𝗲𝗻𝘁 𝗮𝗺𝗼𝘂𝗻𝘁—₹𝟰 𝗰𝗿𝗼𝗿𝗲—is a significant sum but is only a fraction of what Wipro initially demanded. This disparity indicates that settlements often reflect practical considerations over theoretical claims.

It’s a reminder that such issues are as much about negotiation as it is about law.

This case emphasizes how a confidentiality clause will protect everything from trade secrets to customer lists for an employer.

•If the other party begins competing against you unfairly, you can rely on the contract to seek injunctive relief to stop the behavior.

DETAILS OF PENALTIES IMPOSED BY ROC FOR NOT COMPLYING THE PROVISIONS OF THE COMPANIES ACT,2013

DETAILS OF PENALTIES IMPOSED BY ROC FOR

 NOT COMPLYING THE PROVISIONS OF THE

 COMPANIES ACT,2013

Compliances of Companies Act 2013 are pivotal to

 a corporate. This article tries to highlight how

 company has to pay hefty penalty for violations of

 simple defaults .

• ·       Failure to appoint company secretary
• ·       Failure to report Related party Transactions
• ·       Violation of MOA Objects – Companies Act Section 10(1)
• ·       Failed to maintain the register of Directors and Key Managerial Personnel (KMP) as mandated by Section 170 of the Companies Act, 2013
• ·       Violation in Private Placement of Shares
• ·       Individuals who already possess a DIN from applying for or obtaining another DIN.

1. ·       Notice of AGM not specified number of Board Meetings

• ·       Penalty for Omitting Email and Phone on Company Letterhead
• ·       Board Meeting Attendance Sheet not serially numbered
• ·       CSR Unspent Amount Transfer Delay

Failure to appoint company secretary   ROC,JAIPUR

Penal action under Section 203(5) of the Companies Act, 2013.

·       Prism Buildcon Private Limited: Rs. 5,00,000/- ·       Shripal Choudhari (Additional Director): Rs. 5,00,000/- Mahipal Choudhari (Director): Rs. 5,00,000/- ·       Ambika Prasad Ramdhari Maurya (ex-Director): Rs. 1,73,000/- ·       Ayushman Barua (ex-Director/ex-Additional Director): Rs. 5,00,000/- The total penalty amounted to Rs. 21,73,000/-.

 

ROC, Gujarat SUNPHARMACEUTICAL INDUSTRIES LIMITED

M/s Deloitte Haskins & Sells LLP

MCA imposes penalty on CA Firm for failure to report Related party Transactions

 

ROC, Rajasthan Gems Export Private Limited and its directors

Financial Year 2015-16 & 2016-17, Fine Gems Export Private Limited intended to engage in real estate activities. Due to circumstances, the company could not carry out the intended activities

MCA Imposes Penalty: Violation of MOA Objects – Companies Act Section 10(1)

 

Registrar of Companies , Chennai

M/s Hermes I Tickets Pvt. Ltd. 6,00,000/- (Rupees Six Lakhs) as penalty on company and its directors

M/s Hermes I Tickets Pvt. Ltd. failed to maintain the register of Directors and Key Managerial Personnel (KMP) as mandated by Section 170 of the Companies Act, 2013

 

Planify Capital Limited, a company engaged in fundraising for start-ups.

Despite regulatory restrictions, the company facilitated the sale of shares to investors through its platform, violating Section 42 of the Companies Act, 2013.

MCA New Delhi imposes Penalty of Rs. 7 Crore for Violation in Private Placement of Shares of Rs. 1 Crore

 

Section 155 of the Companies Act, 2013 prohibits individuals who already possess a DIN from applying for or obtaining another DIN. Despite this, Smt. Shashi Singla applied for and obtained a second DIN, DIN 10008811, on 1st July 2022, while still holding her original DIN.

Smt. Shashi Singla was fined Rs. 50,000 for the initial default. An additional penalty was levied for the 729 days of delay (at Rs. 500 per day), totaling Rs. 3,64,500. The total penalty imposed amounted to Rs. 4,14,500

MCA Punjab & Chandrigarh   Smt. Shashi Singla of her right to appeal within 60 days. Failure to pay the imposed penalty within 90 days may lead to further fines or even imprisonment under Section 454(8) of the Companies Act, 2013.

 

MCA , NEW DELHI Notice of AGM not specified number of Board Meetings – MCA Imposes Penalty

Ministry of Corporate Affairs has issued an order imposing penalties for violations of Section 118 of the Companies Act, 2013. This order concerns Darvi Life Styles International Limited and its non-compliance with Secretarial Standards in relation to board meetings during the financial years 2016-17 and 2017-18.

Penalty of Rs 80,400 on the company and its directors. Since the subject company fulfill the requirements of a small company as define u/s 2(85) of the Act. Thus, the penalty on the subject company would be governed by Section 446B of the Act.

 

MCA imposes Penalty for Omitting Email and Phone on Company Letterhead   REGISTRAR OF COMPANIES CUM OFFICIAL LIQUIDATOR, CHHATTISGARH

The omission of contact information led to penalties being imposed under section 12(8) of the Act.

The penalty amounted to Rs. 28,000 per day of default, not exceeding Rs. 1,00,000. The company, as well as the directors, Satija Nikish and Akshat Goyal, were deemed liable for the penalty.

 

Board Meeting Attendance Sheet not serially numbered: MCA  MadyaPradesh imposes Penalty

The Ministry of Corporate Affairs (MCA) recently issued penalties against M/s PEOPLES INTERNATIONAL & SERVICES PRIVATE LIMITED and its officers for violations regarding the serial numbering and authentication of board meeting attendance sheets

A penalty of Rs 45000 was imposed on company and its directors.

 

CSR Unspent Amount Transfer Delay: MCA- ROC Karnataka - Imposes Rs. 1.08 Crore Penalty

CSR Unspent Amount Transfer Delay: MCA Imposes Rs. 1.08 Crore Penalty

The penalty is 7imposed on Quest Global Engineering Services Private Limited for the violation of provisions of Section 135 of the Companies Act, 2013.

 

The above cases remind us how compliance is important to a corporate.

R V SECKAR PRACTICING COMPANY

 SECRETARY 79047 19295

UPDATING MOBIILE NUMBER OR EMAIL ID IN MCA PORTAL -DIR-3 KYC

 Now , an individual who wants to update his mobile number or email address in MCA Portal , he can do the same by filing DIR-3KYC on payment of fees of Rs 500/=. 

Need not wait till the filing of annual return.

 R V Seckar FCS ,PCS 79047 19295

SECRETS ABOUT SHELL COMPANIES

 

SECRETS ABOUT SHELL COMPANIES

Shell Companies are used for legitimate purposes but can be used for tax evasion, tax avoidance, money laundering, or to achieve a specific goal such as anonymity

SHELL COMPANIES IN INDIA

Shell Companies are also known as ghost companies, are quite popular among fraudsters, especially money launderers who wish to legitimize the source of their funds

TYPES OF SHELL COMPANIES

1) Anonymous shell companies

2) Shelf companies

3) Special Purpose Entities (SPE)

4) Letterbox companies

KEY TAKEAWAYS OF SHELL COMPANIES

1) Shell companies are often used to facilitate money laundering by obscuring the money trail and creating false invoices

2) Regulatory efforts have been implemented to increase transparency, identify shell companies used for money laundering and protect the integrity of the global financial system

3) Businesses must implement risk-based AML strategies such as beneficial ownership verification and transactional activity monitoring in order to detect and prevent misuse of shell companies and associated activities like money laundering

WARNING SIGNS OF MONEY LAUNDERING THROUGH SHELL COMPANIES

1) Unusual transaction patterns, such as frequent transfers of large amounts of money to and from the company

2) Inconsistent or incomplete documentation for transactions

3) Lack of physical presence or legitimate business operations

4) Complex ownership structures or nominee directors

CHECKS TO IDENTIFY SHELL COMPANIES

1) Probe for ultimate beneficiaries

2) Check if the company owns insignificant assets given its financial position

3) Check historic P & L statements for nil or marginal operations

4) Check if there are frequent changes in management

5) Check if the email is used to register the business is valid

6) Check if the target is a Struck off company

7) Check if the target is flagged as a defaulting company

8) Check if the target is flagged as a vanishing company

9) Check if the directors are flagged as defaulters

10) Check if the directors are flagged as proclaimed offenders

11) Check if the target is flagged as SFIO (Serious Fraud Investigation Office)

12) Check if SEBI has debarred any of the promoters

13) Check if SEBI has debarred the company previously

14) Check if the entity has been flagged as a shell company by SEBI if a listed entity

15) Check if the beneficial owners are associated with companies flagged by the SEBI as shell entities

16) Check if the entity has been prosecuted for GST fraud

17) Check if the number of employees through EPFO registration

18) Check if the entity has PEPs in the management

19) Check if the entity of beneficial owners is sanctioned by OFAC, UN or EU

20) Check if the entity has parent firms or subsidiaries in tax heavens

REAL EXAMPLES OF MONEY LAUNDERING SHELL COMPANIES

1) Danske bank scandal

2) Panama papers

3) Unitouch Group

4) Los Zetas Drug Cartel

ANONYMOUS SHELL COMPANIES

The ultimate beneficial owner is concealed behind the corporation or a network of connected shell companies in other jurisdictions, providing anonymity and control over company's resources

They are frequently connected to illegal activities

SHELF COMPANIES

It is a type of company that has previously been incorporated but has never done business

It is kept until sold to a buyer who can use it to launch a new firm using an already known company name, avoiding the process of starting a new corporation from scratch

SPECIAL PURPOSE ENTITIES (SPE)

This type of company primarily engages in group financing or holding activities, with few employees and little physical presence in the host economy

It's assets and liabilities include investments made abroad and are frequently used for aggressive tax planning

LETTERBOX COMPANIES

This type of corporation is registered in one state but operates in another state

This can be used to get around labour rules of the nation where the activity is taking place

MODUS OPERANDI OF SHELL COMPANIES

1) Create a shell company

2) Enter into fake transactions

3) Park the amount as investments

4) Evasion of taxes to hide illegal transactions

 

TAX HAVEN

A tax haven is a state or a country or territory where certain taxes are levied at a low rate or not at all while offering due process, good governance and low corruption rate

TOP TEN TAX HAVENS IN A YEAR 2017

1) The Bahamas

2) Hong Kong

3) Switzerland

4) The Cayman Island

5) Luxembourg

6) Malta

7) The Isle of Man

8) Monaco

9) Mauritius

10) Singapore

IMPACT OF SHELL COMPANIES ON THE STOCK MARKET

1) A margin funding crisis

2) Sensex and Nifty fell nearly 1%

3) Raising volatility Index

4) BSE midcap and BSE smallcap indices registered heavy loss

5) Loss of genuine investors and trustworthiness

6) Problems of raising funds by new enterpreneurs

ADVANTAGES OF SHELL COMPANIES

1) A shell corporation can help an individual to avoid paying taxes and gain access to new markets

2) It can help an individual to gain access to foreign stocks and exchanges

3) It helps an individual to avoid lawsuits, especially if the country is protected from the US

4) It can protect the owners identity, especially if the investors want to avoid scrutiny from the local authorities of their country

DISADVANTAGES OF SHELL COMPANIES

1) It can be risky for a company

2) Once caught, it damages creditability and potential for future business

3) Owning a shell corporation to avoid paying taxes can lead to criminal investigations from the country where taxes are owned

4) Trying to hide assets from the government's eye can be very expensive

COMPILED BY : SRI AVINASH KULKARNI

R V SECKAR , FCS , PCS , 7904719295