INDIA Law and Practice Contributed by: Vijayendra Pratap Singh, Asif Ahmed, Tanmay Sharma and Bhanu Jindal, AZB & Partners
• 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 evi - dentiary proceedings. 3. Corporate Entities, Ultimate Beneficial Owners and Shareholders 3.1 Imposing Liability for Fraud on to a Corporate Entity Indian courts have laid down that, where an offence requiring mens rea or a guilty mind (such as fraud) is committed 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 per - sons 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. Such an entity would also be liable to pay a fine if convicted of the offence, where a fine and/or a penalty is provided under the relevant statute. 3.2 Claims Against Ultimate Beneficial Owners When a corporate entity has been used as a vehicle for fraud, and its separate identity has been misused to commit such frauds, the courts in India use the well-established common law doctrine of piercing the corporate veil to uncover the individuals who are the ultimate beneficial owners of the entity. In such circumstances, the courts will disregard the separate legal identity generally accorded to corporations in order to
punish the actual perpetrators of the fraudulent conduct. The courts have frequently lifted the corporate veil where they suspect that the com - pany itself is a sham entity created for an unlaw - ful purpose or through unlawful means. It is important to note that, in order to aid iden - tification 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 crite - ria for constituting a significant beneficial owner (SBO) in a company. The SBO Rules require the reporting company to submit specified informa - tion pertaining to SBOs to the 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 finan - cial institutions are charged with the responsibili - ty of maintaining records of their clients and their respective beneficial owners. The Securities and Exchange Board of India (SEBI) has also issued multiple guidelines and circulars for identifying ultimate beneficial ownership among companies listed on a stock exchange. 3.3 Shareholders’ Claims Against Fraudulent Directors Under the Companies Act, shareholders may institute oppression and mismanagement pro - ceedings against the company and its director(s) where, inter alia, the affairs of the company have been or are being conducted in a manner that is prejudicial to public interest or prejudicial to such shareholders’ interests. The require - ment for initiating such proceedings has been provided for under the Companies Act as not less than 100 members or one tenth of the total members (whichever is less), or any member(s) holding one tenth of the paid-up share capital of the company, in the case of a company that
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