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Published : November 16, 2013 | Author : YSRAO JUDGE
Category : Miscellaneous | Total Views : 635 | Rating : | |||
Law and Social Change
The abstract idea of '' social change'' evinces dimension of some of the characteristics of a group of people. If any action which affects a group of people who shared values or characteristics can also be said as ''social change.''
Generally, the change in existing pattern of social life is known as '' Social Change''. Society and social conditions never remain static. Generally, social change is to be understood as change in social structure. According to Gainsberg, social change is change in social structure e.g the size of a society, the composition or balance or its part or the type of its organisation. According to Jones, ''social change devotes variation in, or modification of , any aspect of social process,social patterns, social interaction or social organisation.'' Davis observed that social change is large number of persons are engaging in activities that differ from those which their immefiate fore-fathers engaged in some time before. According to Anderson and Parker, social chnage involved alteration and structure or functioning of forms or processes themselves. Social change means there is must change in social structure. Social structure which can be understood as nature, social behaviour, social relations, social organizations, community of people. Social change is change in the social order. According to Charles L. Harper, ''"significant alteration of social structure and cultural patterns through time." In this context, I deem it is apt to remember, the observation of Dennis R. Fox:''Well-meaning efforts by liberal psychologists to reform the law in keeping with values such as dignity, privacy, justice, and equality are often misguided because law exists to serve the status quo. Law inhibits the systemic, radical social change necessary for psychological and societal well-being. It does so through coercive power, substantive assumptions about human nature, the ideology of law's legitimacy, a preoccupation with procedure rather than substance, a focus on rational technicality rather than equity, and encouragement for limited, self-defeating legal solutions. Psycholegal scholars should arouse public dissatisfaction with law and assist social movements seeking to overcome legal impediments to social change.'' The theories of Social Change: 1. Linear theory of social change 2. Cyclic theory of social change. Elements of Social Change: The word ''social change'' is used in history, politics, economics and sociology. Social change is also an issue in social work, political science, history, sociology, anthropology, and in many social sciences. Social change is being created by revolution, protest, politics, communities, and by direct action. Elements of social change can be separated as follows. 1. Physical or geographical 2. Biological 3. Economic 4. Cultural 5. Psychological 6. Technical 7. Population Anthony Giddens observed social change as infra: Sociology was born of the transformations that wrenched the industrializing social order of the West away from the ways of life characteristic of preceding societies. The world that was created by these changes is the primary object of concern of sociological analysis. The pace of social change has continued to accelerate, and it is possible that we stand on the threshold of transitions as significant as those that occurred in the late eighteenth and nineteenth centuries. Law as a means of social control: Two fold objectives of law to serve is, firstly, to keep up stability and afford orderly life in the society. Secondly, to persuade social change by changing itself according to the needs of the changing society. Thus , law is an important agency of social control. The society supervenes the law for bettermost socialization. Rule of law in any constitution is the bedrock for democracy. By putting fear in th minds of public, the law is a helpful agency for social control. Law regulates the behaviour of the people in society. Law, by using force, makes the people conscious about their duties and obligations. Law saves precious and good concepts of the society. The exploitation of the people is curbed through law. The constitution of India, criminal , civil laws and other statutes are designed to surmount this goal. Law as an instrument of social change: To understand the social change through law and legal system, it is pertinent to understand that the working of legal system in the light of political,social,economic perspectives which can be seen in the constitution of India. Law is a mirror to know how people relate to one another , their values,what they consider worth preserving in life, and how they define their own security. Law and Public opinion: The law , which is molded through public opinion is thus the result of state action in accordance with the public opinion. Here it is necessary to remember that when Rajiv Gandhi government waned to bring defamation bill, because of the opposition to the bill in the public, the government dropped the idea. The public opinion is the reflection of the Peoples will. Public opinion becomes law. Social change and the constitution of India: Preamble is a key to open the statute and consists of source and objectives of the statute. Literally preamble means preliminary statement in writing or in speech or an introductory part of the statute. The word ''Pre '' means ''before''. '' Amble'' means ''walk''. Thus , it is known the word '' preamble'' means ''before walk''. The preambular declaration provides that we the people of India having solemnly resolved to constitute India into a sovereign,socialist,secular,democratic republic and Justice: Social, economic and political Liberty of thought, expression , belief, faith and worship. Equality of status and of opportunity and to promote among them all. Fraternity assuring the dignity of the individual and the unity and integrity of the nation. The Supreme Court of India in Beru Bari's case,1969 observed that preamble is not part of the constitution and hence the parliament has no power to amend the preamble. Later, in Kesavananda Bharati vs State of Kerala,1973 the Court held that there is no wrong in treating preamble as part of constitution. Conclusion: A systems perspective must acknowledge that social problems are interconnected rather than isolated. People should be advocates for radical perspectives defensible on both psychological and political grounds, in keeping with values such as dignity, autonomy, equality, and justice. -x- # Harper, CL (1993). Exploring social change. Engelwood Cliffs: New Jersey. # ''Law Against Social Change'', Dennis R. Fox,1991 # Paper presented at the annual convention of the American Psychological Association, San Francisco # Giddens, A (2006). Sociology. Cambridge: Polity Press. # popularly known as Fundamental rights case | |||
Friday, 21 March 2014
A Strategic Approach to Reputation Risk
Dr. Linda S. Spedding comments on a strategic approach to reputation risk.
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Introductory Remarks
Reputation risk management has become an increasingly recognised area of risk management in most jurisdictions, especially as:
· a good reputation has been evaluated as the key major asset of the business in strategic approaches to risk ; and
· the ongoing growing impact of internet technology applications can in so many ways have major impacts upon this value.
Since perception drives behaviour, calculating the effect of reputational risk - and managing such risk prudently - is vital. Therefore relationships with all stakeholders are paramount, including relevant non governmental organisations (NGOs), enhancing the importance of a clear understanding of – and linkage with - the CSR debate. Indeed in India the recent legislative amendment to Companies’ regulation and the innovative approach to CSR (mentioned further below and to be discussed in more detail in an article to follow) emphasises the value of maintaining a coherent strategy. Such a strategy should integrate the approach to reputation risk management and CSR as an aware corporate citizen in order to maintain a successful and sustainable market position nationally, regionally and globally. This is timely also given the emphasis upon transparent corporate behaviour and upright business conduct. It is also interesting bearing in mind that India initially led the world as regards corporate social responsibility many years ago evidently.* The debate over reputation - and its value- has developed in Europe and the USA over the last two decades in particular following several widely reported cases of failure in directors’ duties, economic crime and corporate mismanagement. Moreover, according to The Aon European Risk Management and Insurance Survey 2002–2003 , loss of reputation was regarded as the second biggest threat to business (after business interruption). These findings were based on the views of risk managers, insurance managers and financial directors of over 100 of Europe’s largest companies. Aon’s research also indicated that the top 2000 private and public sector organizations regard reputation as their biggest risk. The results of a similar survey carried out in Australia revealed a very similar picture, with loss of reputation, business interruption and brand protection topping the list. It was also pointed out that the key causes of concern for brand management were ethics, corporate governance, compliance and product quality. A decade or so earlier global investment leaders were also quoted as prioritizing reputation risk management. ‘It takes 20 years to build a reputation and five minutes to ruin it.’ Fortune Magazine reported Warren Buffett’s view in 1991, arguably the world’s most successful investor. It now takes more than just good public relations and a clever advertising campaign to successfully secure financial success – ongoing reputational due diligence and corporate governance exercises are needed. If a company commits to an idea, it does so in public and will be therefore subject to public scrutiny and examination. As is noted further below, consultation with stakeholders is the best way to ascertain stakeholder perceptions and expectations about building credibility. In relation to any organization, a good corporate reputation can influence:
· Investors’ willingness to hold its shares;
· Consumers’ willingness to buy from it;
· Suppliers’ willingness to become its partner;
· Competitors’ determination to enter its market;
· Media coverage and pressure group activity;
· Regulators’ attitude towards it;
· Its cost of capital;
· Potential recruits’ eagerness to join; and
· The motivation of the existing employees.
The Aon European Risk Management & Insurance Survey 2002–2003. Extracts available on:
http://www.aon.com/about/publications/issues/2003_uk_biennial_survey.jsp (06 June 2004).
Stakeholders
Corporate reputation is now very much defined in stakeholder terms. One definition of corporate reputation has referred to it as the ‘aggregate perceptions of multiple stakeholders about a company’s performance.’ A good reputation is therefore achieved when stakeholders’ expectations and experiences of the company are aligned. Stakeholder expectations represent the expectations of all conceivable parties interested or in some way involved in the workings and development of a company. As noted further below, the stakeholders that really matter to the private sector are invariably customers, employees and investors. Others may include regulators, strategic partners, suppliers and the local community. For some time in the USA and Europe and leading business jurisdictions, as a whole, it has been considered good business sense to perform market surveys on relevant consumers. The rationale behind this is that these consumers will have an effect on the corporate health of a company. If consumers like a product or brand, they will purchase it. This will result in profits. This is well understood because it can be seen to have an obvious effect on the economic bottom line. However, if consumers are examined more closely, they can be seen to be swayed by trends of fashion, values and other outside influences. The risk a company faces is having a product boycotted, found unfashionable, of poor quality or not purchased because of bad press. To minimize these risks it is sensible to address stakeholders concerns and interests and that way influence the perceptions of stakeholder, encouraging purchasing decisions and investment, whilst also ensuring a reduced exposure to liabilities. Furthermore, it will also give the business the opportunity to:
· be able to recognize market trends faster;
· change faster; and
· predict the social effect on the economic aspect of their business.
Therefore a wider range of research undertaken with regards to stakeholder groups should be enacted and an example of this is the shareowner analysis provided later in this discussion or
Fombrun, C., Gardberg, N., & Sever, J., ‘The Reputation Quotient: A multi-stakeholder measure of corporate reputation’ Journal of Brand Management, Volume 7, p.241–255. 2000.
debate. As a matter of business practice, the following are the most significant areas where a risk to reputation may arise:
· Brand damage;
· Delivering customer promise;
· Communications and crisis management;
· Corporate governance, leadership and board competency failures;
· Lack of regulatory compliance;
· Workplace talent and culture;
· Financial performance and long-term investment value irregularities, restatements, profit warnings, or missed targets; and
· Corporate Responsibility (CR).
Risk Mitigation and Corporate Governance Businesses cannot afford to ignore risks related to their reputation and brand. However, apart from business interruption, the top risks identified by the Aon survey are uninsurable. Therefore, mitigation of such business risks is largely an issue for corporate governance. The Cadbury Report defined corporate governance as ‘the system by which companies are directed and controlled’ (paragraph 2.5). The Report’s findings marked an important advance in the process of establishing corporate governance. A broader definition of corporate governance is that it ensures that the Board of Directors develops implements and explains policies that will result in an increased shareowner value and address their concerns. It will also reduce the costs of capital and diminish business, financial and operational risks. It should be noted in developing a risk management strategy approach that the relationship between risk and materiality is not necessarily a straightforward one. Western case law seems to have defined materiality to mean those things that would be material to shareowner interests. For example, the current US regulatory regime requires directors of listed
Committee on the Financial Aspects of Corporate Governance. Report with Code of Best Practice, [Cadbury Report], London: Gee Publishing. 1992.
companies to develop a system of detailed business controls that enables them to report accurately on any financial or business risks that are material to shareowner interests. In other words, material risks included anything that - if the information leaked out or was disclosed - could lead to a material decline in the share price or value of its bonds. This is remarkably close to what investors expect the purpose of good corporate governance to be. This implies a very much wider interpretation of risks than those usually reported on by companies in their annual accounts. This can be illustrated with respect to the well-known experience of Nike and the labor practices of its suppliers in Pakistan and Vietnam. Those local companies were found to be using unregulated child labor in the manufacture of Nike sports goods. Nike, of course, was aware of this. From a financial accounts perspective, these were not material risks or issues, other than it kept manufacturing costs low. However, once the news came out Nike’s shares dived as a result of the ensuing consumer backlash. That decline in the share price was definitely ‘material to shareowners’ interests’. Being socially responsible and engaging in stakeholder dialogue with investors and consumer groups may have helped avoid this problem. The impact on the global reputation of the company was evident.
In India another example is that of the mining group Vedanta Resources plc who has faced reputation damage from a prolonged campaign against their application to drill on Dongria Kondh tribal land in the sacred Niyamgiri Hills area of the Orissa region.. This project attracted celebrity opposition and resulted in the Indian government rejecting the potential £6.2 billion investment in August of 2010. Indeed India’s the Environment Minister, Jairam Ramesh rejected their its $1.7-billion (Rs 7,820-crore) bauxite mining project and stated that he had concerns about violations of the Environment Act and Forest Right Acts. The financial repercussions of the project’s rejection and the element of reputational damage were that shares in Vedanta Resources fell to a 10-month low in London trading having dropped as much as 7.6 percent. Corporate Governance, Reputation, Brands and Corporate Culture There are many lengthy publications, manuals and books that address the vital matters of corporate governance, reputation, brands and corporate culture. Clearly the comprehensive treatment of such topics cannot be attempted in this article. Instead, selected and relevant aspects will be mentioned and prioritised here. The concept of corporate governance has been attracting public attention for quite some time in many parts of the world and the practical developments and responses have been gaining momentum. The topic is no longer confined to the halls of academia and is increasingly finding acceptance for its relevance and underlying importance in the industry and capital markets. Progressive firms in many places have voluntarily put in place systems of good corporate governance. The focus on corporate governance and related issues is an inevitable outcome of a process which connects with reputation risk management in today’s world. Accordingly there remains considerable and ongoing discussion regarding the meaning of the concept of corporate governance that can be very relevant when considering reputation risk management. Briefly, on one hand it can be regarded in a limited sense that covers financial controls and on the other hand it can be taken to extend to all of the responsibilities and policies of the business that include such matters as environmental concerns. Between these two approaches there are, of course, many variations. What is clear is that the trend is in favour of widening the scope of the term. As with previous debates over such issues as sustainability, it is recognised that the role of business in today’s global economy is profound and that accountability should be extensive. Stakeholders, including members of the public, and not only those with a direct interest in the company, are demanding more transparency and evidence of responsible behaviour. Therefore for many observers corporate governance is becoming a value and values (ethical and moral dimensions) framework under which business decisions are taken that has key consequences also for its reputation. |
DR.LINDA SPEDDING is an International Lawyer & Advisor. She may be reached at linda@spedding.org. This article is Part 1 of a series of article that the author shall be writing on this topic.
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Companies Act, 2013: Rise of the Minority Shareholder
Akshat Sulalit comments on the rise of the minority shareholder as per the newly enacted Companies Act, 2013.
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Democratic decisions are made in accordance with the majority decision and are deemed to be fair and justified while overshadowing the minority concerns. The corporate world has adopted this majority rule in decision making process and management of the companies. Statutory provisions in this regard have been provided under the Companies Act, 1956 ("CA 1956"), which is being replaced by the Companies Act, 2013 ("CA 2013").
Despite the fact provisions have been in place under the CA 1956 to protect the interest of the minority shareholders, the minority has been incapable or unwilling due to lack of time, recourse or capability- financial or otherwise. This has resulted in the minority to either let the majority dominate and suppress them or squeeze them out of the decision making process of the company and eventually the company. CA 2013 has sought to invariably provide for protection of minority shareholders rights and can be regarded as a game changer in the tussle between the majority and minority shareholders. Various provisions have been introduced in CA 2013 to essentially bridge the gap towards protection and welfare of the minority shareholders under CA 1956. Presently, 'minority shareholders' are not defined under any law, however, by virtue of Section 395 (Power to acquire shares of dissenting shareholders) and Section 399 (Right to apply for Oppression and Mismanagement) of CA 1956, minority shareholders have been set out as ten percent (10%) of shares or minimum hundred (100) shareholders, whichever is less, in companies with share capital; and one-fifth (1/5) of the total number of its members, in case of companies without share capital. In general terms, minority shareholding can be understood to mean holding such amount of shares which does not confer control over the company or render the shareholder with having a non-controlling interest in a company. CA 1956 provides for various provisions dealing with situations wherein rights of minority shareholders are affected and the same can be divided into two major heads, i.e., (a) oppression and mismanagement of the company; and (b) reconstruction and amalgamation of companies. Oppression and Mismanagement CA 1956 provides for protection of the minority shareholders from oppression and mismanagement by the majority under Section 397 (Application to Company Law Board for relief in cases of oppression) and 398 (Application to Company Law Board for relief in cases of mismanagement). Oppression as per Section 397(1) of CA 1956 has been defined as 'when affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members' while the term mismanagement has been defined under Section 398 (1) as 'conducting the affairs of the company in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company or there has been a material change in the management and control of the company, and by reason of such change it is likely that affairs of the company will be conducted in a manner prejudicial to public interest or interest of the company'. Right to apply to the Company Law Board in case of oppression and/or mismanagement is provided under Section 399 to the minority shareholders meeting the ten percent shareholding or hundred members or one-fifth members limit, as the case may be. However, the Central Government is also provided with the discretionary power to allow any number of shareholders and/or members to apply for relief under Section 397 and 398 in case the limit provided under Section 399 is not met. On the other hand, CA 2013 provides for provisions relating to oppression and mismanagement under Sections 241-246. Section 241 provides that an application for relief can be made to the Tribunal in case of oppression and mismanagement. Section 244(1) provides for the right to apply to Tribunal under Section 241, wherein the minority limit is same as that mentioned in CA 1956. Under CA 2013, the Tribunal may also waive any or all of the requirements of Section 244(1) and allow any number of shareholders and/or members to apply for relief. This is a huge departure from the provisions of CA 1956 as the discretion which was provided to the Central Government to allow any number of shareholders to be considered as minority is, under the new CA 2013 been given to the Tribunal and therefore is more likely to be exercised. To further briefly examine a few provisions of CA 1956 vis-à-vis theprovisions of CA 2013: 1. Provision of Section 397 and 398 of CA 1956 are combined in Section 241 of CA 2013 and accordingly applications for relief in cases of oppression, mismanagement etc. will have to be directed to the Tribunal. 2. While the powers of the Tribunal under CA 1956 on application under Section 397 or 398 and Section 404 were limited, CA 2013 granted additional powers to the Tribunal including to:
(a) restrictions on the transfer or allotment of the shares of the company;
(b) removal of the managing director, manager or any of the directors of the company; (c) recovery of undue gains made by any managing director, manager or director during the period of his appointment as such and the manner of utilisation of the recovery including transfer to Investor Education and Protection Fund or repayment to identifiable victims; (d) the manner in which the managing director or manager of the company may be appointed subsequent to an order removing the existing managing director or manager of the company; (e) appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct; and (f) imposition of costs as may be deemed fit by the Tribunal. 3. The requirement of establishing existence of 'just and equitable' circumstances to waive any and all requirements of the section pertaining to the meeting the minimum minority limits and providing 'security' while allowing such an application are excluded from the Companies Act, 2013. 4. Further, by way of Section 245, CA 2013 has introduced the concept of class action which was non-existent in CA 1956. Class Action - Section 245 of CA 2013 provides for class action to be instituted against the company as well as the auditors of the company. The Draft Companies Rules allow for this class action to be filed by the minority shareholders under Clause 16.1 of Chapter-XVI (Number of members who can file an application for class action). On close reading of Section 245 of the Companies Act, 2013, it can be seen that the intent of the section is not only to empower the minority shareholder and/or members of the company but also the depositors. Unlike Section 399 of CA 1956 which provides for protection to only shareholder/members of the company, Section 245 of CA 2013 also extends this protection to the class of depositors as well. However, in the current scenario, the provision of representation of a class of members or depositors by a particular member or depositor lacks clarity. Sub-section (1) of Section 245 provides, "such number of member or members, depositor or depositors or any class of them, as the case may be, as are indicated in sub-section (2) may, if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the Tribunal on behalf of the members or depositors for seeking all or any of the following orders …". Besides, there being a typographical error in this sub- section (1) with respect to indicating sub-section (2) instead of sub-section (3) which provides for the minimum number of members who can apply for class action there is also some confusion as to the class on whose behalf such class action can be instituted. While 'member has been defined in the CA 2013 as including the subscriber to the memorandum of the company, shareholders and person whose name is entered in the register of members; definition for depositor is not provided under CA 2013. Further, section 245 does not empower the Tribunal with discretionary power to admit/allow any class suit wherein class of members or depositors are unable to comply with the minimum number of members/depositors requirement to be laid down in the Companies Rules. Also, on a close reading of Section 241 and Section 245 of the Companies Act, 2013, we can find duplication in protection provided to the members in case affairs of the company are conducted in a manner prejudicial to the interest of the company/members. Reconstruction and Amalgamation With respect to minority shareholder rights at the time of reconstruction and amalgamation of companies, CA 1956 under Section 395 states that transfer of shares or any class of shares of a company (transferor company) to another company (transferee company), has to be approved by holders of atleast nine-tenths (9/10) in value of the shares whose transfer is involved within four months after the offer has been made by the transferee company. Herein it is important to note that consent of 90% (ninety percent) shareholders is required, which is referred to as majority. The section further provides that within two months after the lapse of the aforementioned four months, the transferee company shall give a notice to any dissenting shareholders expressing its desire to acquire their shares. Herein, the term 'dissenting shareholder' is defined under Section 395(5)(a) as including shareholder who has not assented to the scheme or contract and any shareholder who has failed or refused to transfer his shares to the transferee company in accordance with the scheme or contract. As the ninety percent (90%) shareholders in this section are referred to as majority, the remaining ten percent (10%) dissenting shareholders can be referred to as minority. The section further goes on to provide that once the notice is provided to the dissenting shareholders, unless the dissenting shareholders make an application to the Tribunal within a month of such notice, transferee company shall be entitled to the shares of the dissenting shareholders and such shares shall be transferred to the transferee company. If the transferee already owns ten percent (10%) or more of such shares then the scheme needs to be approved by shareholders holding ninth- tenth (9/10) in value and being three-fourth (3/4) in number of the shareholders holding such shares. In such a case, the dissenting shareholder ought to be offered the same price as the other shareholders. However, this section has seldom been used and instead recourse has been to Section 100 of CA 1956 to eliminate the minority. Section 100 provides that the capital of the company may be reduced in any manner whatsoever by way of a special resolution i.e. assent of seventy-five (75%) shareholders present and voting subject to approval of the courts. This section ignores minority shareholding to the extent that special resolution does not reflect the intention of the minority shareholders. To counter these shortcomings, CA 2013 has provided for Section 235 (Power to acquire shares of shareholders dissenting from scheme or contract approved by majority) and 236 (Purchase of Minority Shareholding). Section 235 is corresponding to Section 395 of CA 1956 and provides that transfer of shares or any class of shares in the transferor company to transferee company requires approval by the holders of not less than nine-tenths (9/10) in value of the shares whose transfer is involved and further the transferee company may, give notice to any dissenting shareholder that it desires to acquire his shares. Section 235 makes it mandatory for the majority shareholders to notify the company of their intention to buy the remaining equity shares the moment acquirer, or a person acting in concert with such acquirer, or group of persons becomes the registered holder of ninety per cent (90%) or more of the issued equity share capital ofa company. It further provides that such shares are to be acquired at a price determined on the basis of valuation by a registered valuer in accordance with such rules as may be prescribed. CA 2013, in addition to minor improvements to certain provisions of CA 1956 has also introduced new provisions affecting the reconstruction and amalgamation procedures. These, inter alia, include: 1. CA 2013 vide Section 235(4) in respect of 'Dissenting Shareholders' provides that the sum received by the transferor company must be paid into separate bank account within the specified period of time as against the provision mentioned in Section 395(4)of CA 1956 which lacked clarity on this aspect; 2. As per CA 2013, Section 236 (1) and (2), the Acquirer on becoming registered holder of niney percent (90%) or more of issued equity share capital shall offer minority shareholder for buying equity shares at the determined value; 3. Section 236 (3) of CA 2013 has provided the minority with an option to make an offer to the majority shareholders to buy its shares; and 4. Section 236 (5) of CA 2013 requires the transferor company to act as a transfer agent for making payments to minority shareholders. Minority Upgraded Besides the above, CA 2013 has sought to empower the minority shareholders in corporate decision making also. Section 151 of the CA 2013 requires listed companies to appoint directors elected by small shareholders, i.e. shareholders holding shares of nominal value of not more than twenty thousand rupees (INR 20,000/-). The Draft Companies Rules elaborates the provision in this regard under Clause 11.5 of Chapter XI and provides that a listed company may either suo-moto or upon the notice of not less than five hundred (500) or one-tenth (1/10) of the total number of small shareholders, whichever is less, elect a small shareholders’ director from amongst the small shareholders. Here, it is important to note that small shareholders are different from the minority shareholders as small shareholders are ascertained according to their individual shareholding which should be less than twenty thousand rupees (INR 20,000/-); whereas minority shareholders/shareholding is collectively ascertained and regarded as having non-controlling stake in the company. However, small shareholders can be included in and/or regarded as minority shareholders by virtue of their small shareholding amounting to non-controlling stake in the company. The Draft Companies Rules further provides for the procedure for nomination of a small shareholder director and the information and declaration to be provided in this regard. To safeguard the interest of the small shareholder and to maintain the independent decision making by such directors, the Draft Companies Rules provides that such director shall not be liable to retire by rotation and shall have tenure of three years. However, the small shareholder director will not be eligible for reappointment. Sub-Clause (4) of Clause 11.5 of the Draft Companies Rules provides that "such director shall be considered as an independent director subject to his giving a declaration of his independence in accordance with sub-section (7) of Section 149 of the Act." Meaning thereby, that small shareholder director may or may not be an independent director. However, the Draft Companies Rules provides under Sub-Clause (5) of Clause 11.5 that such office shall be vacated if the director inter alia cease to be an independent director. Now, while Sub-Clause (4) of Clause 11.5 makes it optional for the small shareholder director to be an independent director; Sub-Clause (5) of Clause 11.5 makes it mandatory for the small shareholder director to be an independent director and to maintain its independence throughout its term thereby creating confusion. It is expected that this inconsistency may be addressed while finalizing the Draft Company Rules. While empowering the minority/small shareholders in the decision making process, the CA 2013 endeavours to further its present provisions to safeguard the interest of minority shareholders through appointment of independent directors. The 'Code of Independent Directors' provided pursuant to Section 149(8) in Schedule IV of the CA 2013, provides that independent directors shall inter alia work towards promoting the confidence of minority shareholders. Conclusion Upon careful examination of the provisions of the CA 2013 it can be ascertained that legislative intent in CA 2013 is to safeguard the minority interest in a more comprehensive manner. However, the provisions of CA 2013 not only requires proper implementation upon addressing the present lacunas but also requires instilling confidence in the minority shareholders with respect to the institutional and regulatory mechanism which ensures that interest of minority shareholders shall be given due consideration. This dual approach towards enforcement of minority rights shall only guarantee proper administration of the corporate activities. Nevertheless, Ministry of Corporate Affairs' effort in preparation of a framework, which endeavors to empower minority shareholders, is commendable. | |
AKSHAT SULALIT is a Partner with Kaden Boriss at its Gurgaon Office. He may be reached at ask@kadenboriss.com.
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Monday, 10 March 2014
Ship Arrest, Release and Sale within the Jurisdiction of Cyprus
Ship arrest practice in the Republic of Cyprus is enforced by the Administration of Justice Act Part 1 of the Arrest Convention in 1952, as adopted by the United Kingdom, by virtue of Cyprus’ Constitution and section 29 of Law the Courts of Justice Act (14/60).
Discretionary Power of Admiralty Court
Ship arrest cases fall under admiralty litigation and are adjudicated by the Supreme Court of Cyprus. The Supreme Court in its admiralty jurisdiction is able to arbitrate on cases relating to the arrest of a ship, in line with Rule 50 of the Cypriot Admiralty Jurisdiction Order 1983, which sets out that any person may file an application to the court for the issue of an order for the arrest of a vessel.
Procedure to Arrest a Ship
Any person desiring the arrest of a vessel must file an ex parte application. In an ex parte application, the claimant is required to assist the Admiralty Court in reaching an informed and just decision, especially as the other party is not represented. The claimant must not only convince the court that the conditions determined in the regulations have been met, but also provide all material facts and details pertaining to the case that the court needs in order to reach an informed and correct verdict.
An affidavit must also be filed in support of the application for the arrest of the vessel, presenting background information of the case to be tried and stating that the assistance of the court is required. The affidavit must provide all data needed to satisfy the provisions of the rules, as well as the pre-conditions for the issuance of an arrest order.
The court must be satisfied that:
• There are matters which must be heard between the parties.
• The claimant has a right to have those matters heard.
• It is evident that the claimant has the right to have the matters raised by the oral evidence tried.
• The claimant is entitled to have the ship arrested.
The warrant for the arrest of the vessel must be executed by an officer in the way set out in the Admiralty Jurisdiction Order 1893 for the service of a writ of summons in an action in rem, where the vessel will be judged to be arrested.
Any individual wishing to avert the arrest of a ship, the release of a ship under arrest or the payment of any funds, may cause a caveat against the issuance of any warrant of arrest or release of a vessel, or payment of funds to be filed with the Registrar in a book to be kept for that purpose, called the Caveat Book.
Release of a Ship under Arrest
Rule 60 of the Cypriot Admiralty Jurisdiction Order and notices of opposition give the Admiralty Court discretionary power over the release of a ship under arrest. The procedural rule sets out that any person may file an application for releasing a vessel under arrest and that the court may order the release of such vessel upon such conditions, after lodging a security or payment of any estimated costs with regard to the removal or inspection of the vessel. Thus, any application for the release of a ship should be conducted through the submission of an autonomous action for such release.
Assessing the Amount of Security for the Release
The discretion of the Admiralty Court under Rule 60 should be exercised judicially in line with the principle of law governing the jurisdiction to directly arrest a vessel, on the one hand, and the nature of the case, on the other. The jurisdiction to arrest a vessel and, in general, order security for the claim of the plaintiff is a particularly important remedy for the efficient exercise of the admiralty jurisdiction in rem, due to the fact that the presence of the defendant in the country is usually provisional. Nevertheless, the conditions for the release of a vessel must not be unreasonable and the amount set must be directly related to the amount probable to be recovered in case of success.
The value of the claim is one of the key issues to be regarded when evaluating the amount of security to be paid in order to assure the release of the vessel. The court will consider both the degree of the loss suffered and the time period given to the claimant to provide estimation. In the event that time is short and there is a possibility that the ship will sail outside the country, the Admiralty Court may bestow an order, if it is pleased that the claimant has given a basic evaluation of the losses and the amount of money claimed.
When evaluating the amount requested for security, the claim cannot be more than what the ship is worth. Therefore, a plaintiff may ask for security that is adequate to recoup the amount of its best arguable scenario, together with interest and costs, while not exceed the value of the ship.
Preferably, the value of the ship or the amount of security would be arranged between the claimant and the defendant. In the event that they cannot reach to an agreement regarding the value of the ship, the ship’s owner may submit an affidavit with regard to the matter. In response, the claimant can submit his affidavit concerning the real value and let the court come to a decision.
The obligation to provide evidence that the court could reasonably believe with regard to the actual value of the ship lies with the defendant. In case that he fails to refute the plaintiff’s evidence with regard to the actual value of the ship, he cannot succeed in decreasing the amount of security that must be lodged for the release of the ship. It is not sufficient to simply conflict or deny the plaintiff’s allegations. The defendant must provide evidence that the plaintiff’s facts do not correspond to reality.
Sale of a Vessel Under Arrest
As a result of the defendant’s continued failure to provide financial security to release the vessel and his negligence regarding the status of the ship under arrest, the Admiralty Court has the discretionary power to sale the vessel pending the final verdict of the case. The procedural rule pertaining to the sale of a vessel sets out that the court has jurisdiction, either before or after reaching to a final verdict and with or without notice to appoint an officer of the court to arrange the sale a vessel either with or without evaluation or to discharge any freight under arrest on board of the vessel.
Conditions to Sale Pendente Lite
The court approves selling a vessel pendente lite or, in other words, pending litigation. The court will order the sale of a ship which stays under arrest and against which expenditures are mounting up, and which is deteriorating in value, if a fast sale would seem to be desirable to the interest of all parties. The sale of a vessel pending litigation is not a usual solution, which nevertheless comprises a suitable measure in case adequate factors exist that necessitate the sale of the vessel in order to safeguard its value.
Typical grounds which tend to support the sale of a vessel pendente lite are:
• The estimated worth of the ship and the fact that is deteriorating, due to the fact of being under arrest for a long time.
• The ongoing maintenance costs that the ship is costing or the fact that the cargo is perishable.
• The amount of wages owed to the ship’s crew that would keep increasing for the time period the condition remains unsettled.
• The impassivity of the defendant with regard to the vessel and the sailors, and in securing the needed daily supplies.
• The non-operative status of the vessel, which would lead to the rise of its maintenance expenses and the drop of its value.
• The possibility that the profit deriving from selling the ship would be inadequate to pay for the amount due and that this insufficiency would keep augmenting as long as the vessel remains unsold.
It is not easy to advice on the exact time frame involved in selling a vessel, as this will greatly be determined on a case-by-case basis and any objection by the defendant to the application will largely extend the procedure. In general, according to the instructions of the court, the ship is sold through a public auction, after a proper announcement has been published in a local or foreign newspaper.
AUTHOR: Michael Chambers & Co. LLC
Copyright Michael Chambers & Co. LLC
More information about Michael Chambers & Co. LLC
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Ship arrest cases fall under admiralty litigation and are adjudicated by the Supreme Court of Cyprus. The Supreme Court in its admiralty jurisdiction is able to arbitrate on cases relating to the arrest of a ship, in line with Rule 50 of the Cypriot Admiralty Jurisdiction Order 1983, which sets out that any person may file an application to the court for the issue of an order for the arrest of a vessel.
Procedure to Arrest a Ship
Any person desiring the arrest of a vessel must file an ex parte application. In an ex parte application, the claimant is required to assist the Admiralty Court in reaching an informed and just decision, especially as the other party is not represented. The claimant must not only convince the court that the conditions determined in the regulations have been met, but also provide all material facts and details pertaining to the case that the court needs in order to reach an informed and correct verdict.
An affidavit must also be filed in support of the application for the arrest of the vessel, presenting background information of the case to be tried and stating that the assistance of the court is required. The affidavit must provide all data needed to satisfy the provisions of the rules, as well as the pre-conditions for the issuance of an arrest order.
The court must be satisfied that:
• There are matters which must be heard between the parties.
• The claimant has a right to have those matters heard.
• It is evident that the claimant has the right to have the matters raised by the oral evidence tried.
• The claimant is entitled to have the ship arrested.
The warrant for the arrest of the vessel must be executed by an officer in the way set out in the Admiralty Jurisdiction Order 1893 for the service of a writ of summons in an action in rem, where the vessel will be judged to be arrested.
Any individual wishing to avert the arrest of a ship, the release of a ship under arrest or the payment of any funds, may cause a caveat against the issuance of any warrant of arrest or release of a vessel, or payment of funds to be filed with the Registrar in a book to be kept for that purpose, called the Caveat Book.
Release of a Ship under Arrest
Rule 60 of the Cypriot Admiralty Jurisdiction Order and notices of opposition give the Admiralty Court discretionary power over the release of a ship under arrest. The procedural rule sets out that any person may file an application for releasing a vessel under arrest and that the court may order the release of such vessel upon such conditions, after lodging a security or payment of any estimated costs with regard to the removal or inspection of the vessel. Thus, any application for the release of a ship should be conducted through the submission of an autonomous action for such release.
Assessing the Amount of Security for the Release
The discretion of the Admiralty Court under Rule 60 should be exercised judicially in line with the principle of law governing the jurisdiction to directly arrest a vessel, on the one hand, and the nature of the case, on the other. The jurisdiction to arrest a vessel and, in general, order security for the claim of the plaintiff is a particularly important remedy for the efficient exercise of the admiralty jurisdiction in rem, due to the fact that the presence of the defendant in the country is usually provisional. Nevertheless, the conditions for the release of a vessel must not be unreasonable and the amount set must be directly related to the amount probable to be recovered in case of success.
The value of the claim is one of the key issues to be regarded when evaluating the amount of security to be paid in order to assure the release of the vessel. The court will consider both the degree of the loss suffered and the time period given to the claimant to provide estimation. In the event that time is short and there is a possibility that the ship will sail outside the country, the Admiralty Court may bestow an order, if it is pleased that the claimant has given a basic evaluation of the losses and the amount of money claimed.
When evaluating the amount requested for security, the claim cannot be more than what the ship is worth. Therefore, a plaintiff may ask for security that is adequate to recoup the amount of its best arguable scenario, together with interest and costs, while not exceed the value of the ship.
Preferably, the value of the ship or the amount of security would be arranged between the claimant and the defendant. In the event that they cannot reach to an agreement regarding the value of the ship, the ship’s owner may submit an affidavit with regard to the matter. In response, the claimant can submit his affidavit concerning the real value and let the court come to a decision.
The obligation to provide evidence that the court could reasonably believe with regard to the actual value of the ship lies with the defendant. In case that he fails to refute the plaintiff’s evidence with regard to the actual value of the ship, he cannot succeed in decreasing the amount of security that must be lodged for the release of the ship. It is not sufficient to simply conflict or deny the plaintiff’s allegations. The defendant must provide evidence that the plaintiff’s facts do not correspond to reality.
Sale of a Vessel Under Arrest
As a result of the defendant’s continued failure to provide financial security to release the vessel and his negligence regarding the status of the ship under arrest, the Admiralty Court has the discretionary power to sale the vessel pending the final verdict of the case. The procedural rule pertaining to the sale of a vessel sets out that the court has jurisdiction, either before or after reaching to a final verdict and with or without notice to appoint an officer of the court to arrange the sale a vessel either with or without evaluation or to discharge any freight under arrest on board of the vessel.
Conditions to Sale Pendente Lite
The court approves selling a vessel pendente lite or, in other words, pending litigation. The court will order the sale of a ship which stays under arrest and against which expenditures are mounting up, and which is deteriorating in value, if a fast sale would seem to be desirable to the interest of all parties. The sale of a vessel pending litigation is not a usual solution, which nevertheless comprises a suitable measure in case adequate factors exist that necessitate the sale of the vessel in order to safeguard its value.
Typical grounds which tend to support the sale of a vessel pendente lite are:
• The estimated worth of the ship and the fact that is deteriorating, due to the fact of being under arrest for a long time.
• The ongoing maintenance costs that the ship is costing or the fact that the cargo is perishable.
• The amount of wages owed to the ship’s crew that would keep increasing for the time period the condition remains unsettled.
• The impassivity of the defendant with regard to the vessel and the sailors, and in securing the needed daily supplies.
• The non-operative status of the vessel, which would lead to the rise of its maintenance expenses and the drop of its value.
• The possibility that the profit deriving from selling the ship would be inadequate to pay for the amount due and that this insufficiency would keep augmenting as long as the vessel remains unsold.
It is not easy to advice on the exact time frame involved in selling a vessel, as this will greatly be determined on a case-by-case basis and any objection by the defendant to the application will largely extend the procedure. In general, according to the instructions of the court, the ship is sold through a public auction, after a proper announcement has been published in a local or foreign newspaper.
AUTHOR: Michael Chambers & Co. LLC
Copyright Michael Chambers & Co. LLC
More information about Michael Chambers & Co. LLC
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
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