INDIA Law and Practice Contributed by: Vijayendra Pratap Singh, Asif Ahmed, Bhanu Jindal and Jitesh Lakra, AZB & Partners
3. Corporate Entities, Ultimate Beneficial Owners and Shareholders 3.1 Imposing Liability for Fraud on a Corporate Entity Indian courts have held that, where an offence requir - ing mens rea or a guilty mind (such as fraud) is com - mitted by persons exercising control over the affairs of a corporate entity, the offence would also be imputed to the entity. Such imputation will be dependent on the degree to which the corporation can be said to be acting through such persons, so as to make such persons the “alter ego” of the entity. Therefore, the corporate entity will be held to be liable for the actions of its director or officer if such persons are acting in the course of their regular duties. Where the relevant statute prescribes a fine or penalty, the corporate enti - ty may also be subjected to such punishment upon conviction. 3.2 Claims Against Ultimate Beneficial Owners When a corporate entity is used as a vehicle for fraud, and its separate identity has been misused to commit such frauds, courts use the well-established common law doctrine of piercing the corporate veil to identify the individuals who are the ultimate beneficial owners of the entity. In such circumstances, the courts dis - regard the company’s separate legal identity in order to punish the actual perpetrators of the fraudulent conduct. The courts have frequently lifted the corpo - rate veil where they suspect that the company itself is a sham entity created for an unlawful purpose or through unlawful means. Notably, in order to aid identification and regulation of such individuals, in 2018 the Ministry of Corporate Affairs in India introduced the Significant Beneficial Ownership Rules (the “SBO Rules”), which define the criteria for constituting a significant beneficial own - er (SBO) in a company. The SBO Rules require the reporting company to submit specified information pertaining to SBOs to the Registrar of Companies (ROC), thereby providing investigative and regulatory agencies with ready access to ultimate beneficiaries in complex ownership structures. Similar rules also exist under the PMLA, wherein banks and financial institu - tions are charged with the responsibility of maintaining
or undue influence must state detailed particulars, including dates and times where necessary. 2.8 Claims Against “Unknown” Fraudsters Claims may also be brought against unknown fraud - sters, especially when a claimant seeks ex parte inter - im injunction to protect its interests, where there is an imminent threat to such interests, and where the identity of the fraudster is unknown. India courts have frequently granted such “John Doe” orders (referred to as “Ashok Kumar” orders in India), especially in cases involving fraudulent misrepresentations or frauds in relation to intellectual property. 2.9 Compelling Witnesses to Give Evidence Criminal Proceedings As stated in 2.1 Disclosure of Defendants’ Assets and 2.3 Obtaining Disclosure of Documents and Evi- dence From Third Parties , Section 94 of the BNSS empowers the police or a court to direct a person to produce certain specified documents in their pos - session as evidence. Courts in India also have broad powers to summon witnesses, either on their own motion or upon application by a claimant, and to com - pel production of any evidence or document. Civil Proceedings Arbitral tribunals can also seek court assistance in taking evidence under Section 27 of the A&C Act by exercising the stipulated powers. These powers have also been recognised under the BSA. Additionally, under Order XXVI of the CPC, courts may appoint a commission for deposing a witness or pursuing inter - rogatories in cases where: • the witness is within local limits and cannot be compelled to appear before a court; • there is apprehension of evading jurisdiction before such witness can be compelled to appear before a court; or • such witness is incapable of attending evidentiary proceedings.
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