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1. Whether the company is liable for fraud?

Section 447 of the Company act provide for the definition of fraud and also the punishment
for committing the fraud. The section says that “fraud in relation to affairs of a company or
anybody corporate includes any act, omission, concealment of any fact or abuse of any
position committed by any person with the connivance in any manner, with the intent to
deceive, to gain undue advantage from or to injure the interest of, the company or its share
holders or its creditors or any other person, whether or not there is any wrongful gain or
wrongful loss.”

Fraud is defined in Section 17 of Indian Contract Act, 1872 as follows:


“Fraud” means and includes any of the following acts committed by a party to a contract, or
with his connivance, or by his agents, with intent to deceive another party thereto his agent,
or to induce him to enter into the contract;

(1) the suggestion as a fact, of that which is not true, by one who does not believe it to be
true;
(2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.

Explanation – Mere silence as to facts likely to affect the willingness of a person to enter into
a contract is not fraud, unless the circumstances of the case are such that, regard being had to
them, it is the duty of the person keeping silence to speak, or unless his silence, is, in itself,
equivalent to speech.
The companies R&D wing by installing software which helps to reduce the power
consumption and they must have known that the software is helping them with false
indications of emissions of HFC’s. By installing such software they had concealed the facts
to t he consumers at large which amounts fraud.

1.1 Whether the CEO, Board of Directors, Independent Director and the officers are
liable?
As per the definition in the Companies Act 2013, a ‘director’ means a director
appointed to the board of a company (whereas under the Companies Act 1956 – ie, up
to March 31 2014 – a ‘director’ includes any person occupying the position of
director, by whatever name called). Thus, under the current law, in order for a person
to be considered as a director he has to be appointed as such on the board of directors
of the company (whereas under the earlier company law, any person who occupied
the position of a director – whether appointed on the board of the company or
otherwise – by whatever name called, was considered as a director). The 2013 act
provides definitions for some of the terms used for directors, but the listing agreement
for equity shares, entered into by the listed company with the recognised stock
exchanges in India (the Bombay Stock Exchange, the National Stock Exchange and
others), might use different terminology in relation to directors.

CEO: A Chief Executive Officer--better known as a CEO--is an individual who holds


the highest-ranking position in an organization. The CEO (or Managing Director in
the United Kingdom) is the most prominent position in a corporate office; the CEO is
in charge of total management of the business model. In the majority of business
organizations, such as a public corporation, where the company shares its profits with
shareholders, the CEO will report to the board of directors.

INDEPENDENT DIRECTOR – A director other than a managing director or a


wholetime director or a nominee director (see below) who:
• in the opinion of the board is a person of integrity and possesses relevant expertise
and experience;
• is or was not a promoter of the company or its holding, subsidiary or associate
company;
• is not related to promoters or directors in the company or in its holding, subsidiary
or associate company;
• has or had no pecuniary relationship with the company or its holding, subsidiary or
associate company, or their promoters or directors, during the two immediately
preceding financial years or during the current financial year;
• along with his relatives has or had no pecuniary relationship or transaction with the
company or its holding, subsidiary or associate company, or their promoters or
directors, amounting to 2% or more of its gross turnover or total income or RS5
million (approximately US$75,000) or such higher amount as may be prescribed,
whichever is lower, during the two immediately preceding financial years or during
the current financial year;
• neither himself nor any of his relatives: – holds or has held the position of one of the
key managerial personnel or is or had been employee of the company or its holding,
subsidiary or associate company in any of the three financial years immediately
preceding the financial year in which he is proposed to be appointed; – is or has been
an employee, proprietor or partner, in any of the three financial years immediately
preceding the financial year in which he is proposed to be appointed, of –a firm of
auditors or company secretaries in practice or cost auditors of the company or its
holding, subsidiary or associate company; or • any legal or consulting firm that has or
had any transaction with the company, or its holding, subsidiary or associate
company, amounting to 10% or more of the gross turnover of such firm; holds,
together with his relatives, 2% or more of the total voting power of the company; or –
is a chief executive or director, by whatever name called, of any nonprofit
organisation that receives 25% or more of its receipts from the company, any of its
promoters or directors or its holding, subsidiary or associate company, or that holds
2% or more of the total voting power of the company; or possesses such other
qualifications as may be prescribed
DOCTRINE OF LIFTING OF CORPORATE VEIL:
The doctrine of lifting the corporate veil means ignoring the corporate nature
of the body of individuals incorporated as a company. A company is a juristic person,
but in reality it is a group of person who are the beneficial owners of the property of
the corporate body. Being an artificial person, it (company) cannot act on its own, it
can act only by natural persons. The doctrine of lifting the veil can be understood as
the identification of the company with its members. The company is equal in law, to
natural person.

Any act done in the company will be done with the consent of the CEO, Board
of Directors and officers. Hence they had the knowledge about the act which resulted
in fraud. Hence they were liable.ss