Class 1:

Why Company Law?

Company laws specify how a corporation must conduct business and elaborate on
how companies should be managed to ensure that there are no defaults that could
impair the efficient operation of a business venture. The law is crucial to uphold
transparency and accountability.

Significance of Company Law:

Company law is a complex set of laws, rules, regulations, and practices that govern
the establishment and operation of a corporation.

It creates a framework of operations and ensures that all businesses follow them. The
laws are in place to make it simpler for corporations to conduct business. The
lawmakers designed the rules regulating how to incorporate a company and conduct
corporate affairs to support commerce and ensure fair treatment for everyone.

The rules are present to manage conflicts among its participants and promote the
overall welfare of all parties impacted by a company’s operations.

Corporate law aims to define a type of enterprise and manage conflicts among its
participants. It promotes the overall welfare of all those impacted by a company’s
operations. Therefore, this includes the company’s shareholders, employees,
consumers, suppliers, and other parties, including local communities and those who
benefit from the environment. Corporate law establishes restricted liability, controls
its consequences, and allows for exclusions by establishing regulations. One can
view these regulations as a type of standard contract.

It is enforced to create a framework of operations and ensure that all businesses

follow it. The laws are in place to make it simpler for corporations to conduct
business. The rules designed to support commerce and ensure everyone is treated
fairly regulate how to incorporate a company and conduct corporate affairs. They
provide that companies behave in predictable ways that others may rely on.
In addition to it, laws and regulations in place keep corporations operating on a level
playing field. The rules are meant to help and protect businesses since corporations
are known for bringing in a lot of cash and wielding a fair amount of power in a
given market. Corporations may begin to monopolize markets as they become more
successful and influential, making them the sole supplier of a shared good, service,
or trade. Additionally, corporate rules are in place to keep the market competitive
and fair, allowing new enterprises to flourish. By banning excessively erratic
business practices, they maintain an appropriate playing field for all firms.

Principles of Company Law:

1. Limited Liability:

If ever a corporation gets sued, the liability is with the corporation only since it's a
separate entity. The owners & and investors are not personally responsible to the
corporation, their liability is limited to only the amount they have invested in the
corporation.

2. Investor Ownership:

Investors' ownership in the corporation is limited to the profit share only in the
proportion of their investment. Though they may help in making decisions, they
aren’t involved in actual decision-making per se. The task of running & and
decision-making rests with the owners & and management of the corporation.

3. Legal Personality:

All the stakeholders, be they investors, owners or employees pool their resources in
a separate legal entity that can utilise the assets for conducting its business activities
& transactions. The separate legal entity can make use of resources the way it likes
whether in buying or selling assets without seeking permission of investors or
owners alone.

4. Transferable Shares:
Hassle-free transferring of shares is one of the unique features of the corporation. If
an owner no longer wants to be a part of the corporation, they may transfer their
shares to another owner in the corporation, just like in a business partnership.

5. Delegated Management:

A corporation follows a hierarchical approach such that proper accountability & and
responsibility are established & and defined to prevent chaos. Typical corporation
management consists of a Board of Directors and officers. The Board hires, monitors
& and supervises the officers & and is responsible for the ratification of decisions
made by the officers. The officers are responsible for conducting day-to-day
activities of the corporation & and making routine decisions. The shareholder in turn
help elect the board members.

What is drop-shipping?

• Drop-shipping is a business model that allows you to sell products online

without having to own or operate the physical location where those products
are stored and processed. This means you can start an e-commerce store and
sell a wide range of products without handling inventory and fulfillment.

• In a drop-shipping business model, you promote products and provide an

online storefront. When a customer places an order, you send the order to the
drop-shipper and inform customers the products are on the way. The rest of
the physical fulfillment process is out of your hands.

CASES:

1. BYJU’S

Byju’s Case Study PDF:

https://www.icsi.edu/media/webmodules/research_corner/BYJUCASESTUDYSE
PT2723.pdf

Background

The meteoric rise of Indian Edtech companies in India have received a jolt with the
sinking of BYJU in the empyrean of online education in India. According to one of
the estimates, online education was estimated to grow at an astounding pace that is
from $2.8 Billion in 2020 to a whopping $10.4 Billion by 2025 but it can be opined
that BYJU’s debacle may exert a debilitating impact on the fortunes of Edtech
companies.

BYJU took birth in 2011 as Think and Learn Pvt. Ltd by teacher and engineer Byju
Raveendran. Based in Bangalore, India, with offices in Palo Alto, CA, the company
quickly grew into one of the world’s largest Edtech companies and one of the top
five most-valued private internet companies in India. Its flagship product, BYJU’S -
The Learning App, was launched in India in 2015 and reached more than 100 million
registered students around the world, with 6.5 million annual paying subscribers. In
2019, the Disney. BYJU’S Early Learn App was launched in India to offer
personalized, interactive programs for young learners. BYJU has huge human capital
base of more than 10,000 working across the globe including a content and research
team of 2500 plus people who are highly qualified educators and learning science
wizards who developed the curriculum after conducting extensive research. Due to
its innovative approach in the education sector, it has won several accolades like
Kidscreen awards, Brain Child award, Smart Media award etc. Chronology of
BYJU’s Turmoil Before moving ahead, it would be of paramount academic and
research interests to comprehend the chronology of BYJU’s turmoil.
Fault Lines to Fissures The company’s early success could be attributed to its
adaptive learning technology and engaging teaching methods, which resonated with
a growing market of tech-savvy students. Byju’s managed to secure significant
investments from prominent investors, such as Chan Zuckerberg Initiative and
Sequoia Capital, enabling its expansion and aggressive marketing campaigns. As a
result, the company quickly became a household name in the Indian education
sector, boasting millions of users and a valuation of billions of dollars. Despite its
soaring success, Byju’s journey was blemished by various instances of corporate
governance failures stymied by opaque accountability and transparency in the
company’s financial reporting. Multiple reports and investigations revealed that
Byju’s indulged in unethical accounting practices, such as, inflating its operational
revenue to attract more investments and such fraudulent activities eroded the trust
of investors and raised serious concerns about the company’s integrity. Byju’s faced
allegations of mishandling sensitive users’ information, breaching privacy
regulations and engaging in aggressive data mining practices. These disclosures not
only damaged the company’s reputation but also elicited legal action and regulatory
scrutiny. The absence of data protection measures and transparency further exposed
the weak corporate governance structure within the organization. Delioitte , Byju’s
Auditor, resigned on the ground that start-up had not provided its financials over a
year. Besides, three independent directors representing investors and lenders also
relinquished their positions. The firm has been subject to lawsuits by the investors. It
failed to honour the financial covenants and interestingly, Byju’s filed counter
lawsuits against the creditors and lenders. There has been a considerable number of
dismissals and the prevalence of utter-chaos in the corporate governance mechanism
which rocked the corporate world. Aftermath of BYJU’s Corporate Governance
Collapse The repercussion of BYJU’s fiasco may be captured under the following
points:
1. Eeriness among Venture Capitalists: The BYJU’s crisis has cautioned various
venture capital firms. One of the India’s largest venture capital firm, Blume Ventures
which manages $625 million in assets, is cutting back on “frivolous” investments as
it pushes portfolio companies to increasingly shift focus to profitability. According
to the management one-third of its portfolio which consisted of e-commerce and
mobility firms has become topsy-turvy. Corporate governance collapses like BYJU
are disseminating quivers through the South Asian nation’s fledgling start-up
economy. The fiasco at BYJU has forced the complete business ecosystem to think
about what could be wrong in every portfolio company, as most of the venture
capital firms finances several firms.

2. Financial Turbulence: On the financial front, BYJU’s agony seems to exacerbate as

settling of the ongoing dispute over its $1.2 billion term loan B (TLB), as it may prove
to be more expensive for BYJU. The distressed Edtech major may have to cough up
an additional $50-60 million to service the increased interest rate it has offered to
finalize the new terms of the disputed TLB. Byju's has been negotiating with its TLB
creditors to freeze new terms for the loan, which has been a sore point for the Edtech
firm for the past few months. The total interest rate being proposed by BYJU is
working out to around 11-11.50%. The creditors are yet to sign off on this, and
discussions are ongoing between both parties. While the interest rate is yet to be
finalized, the next question that arises is how Byju’s will finance this payout. It is to
be noted that BYJU raised the TLB in November 2021 at a floating interest rate of
Libor plus 550 basis points (bps). The additional interest rate being discussed by
Byju’s is on top of this. BYJU has been working to secure new funds but its myriad
troubles related to test prep subsidiary Aakash, TLB lenders, as well as statements
from investors like Prosus on corporate governance issues have affected the process.

3. Tempest in Inorganic Growth: Another major development that may be attributed

to the stressed BYJU’s business conditions is declining of swapping of equity
holdings by minority shareholders of Aakash Educational Services Limited (AESL)
with the firm’s parent TLPL resulting from a merger deal wherein Think and Learn
Private Limited (TLPL) which operates under BYJU’s brand acquired 43 percent and
Byju Raveendran another 27 per cent. Founder Chaudhry's family maintains about
18 per cent in AESL and Blackstone the remaining 12 per cent. The above mentioned
deal took place in 2021, wherein BYJU acquired 33 year old brick and mortar
coaching center AESL for approximately USD 940 million in a cash and stock deal.
However, BYJU has sent a legal notice to founders of Aakash Educational Services
following their alleged resistance to complete a share swap that was unconditionally
agreed as part of the sale of Aakash Educational Services Ltd (AESL).

4. Cessation of Operations and Retrenchment: The impact on the operations of BYJU

from this calamity have been severe. Amid continuous cost-cutting exercises, BYJU
has shuttered some of its offices in Gurugram and Bengaluru, with multiple rounds
of layoffs impacting occupancy. The Bengalurubased startup has been consolidating
its real estate spaces in tune with layoffs. Even the company has defaulted in
provident fund payouts.

As can be observed from the table, that number of layoffs is highest in case of BYJU.
Among the edtech companies covered in the table, BYJU employs highest number of
human capital and when such a company serve pink slips to its employees it really
create jitters not only among the employees employed in such organization but also
triggers panicky among the employees of the sector at a macro level.

2. KINGFISHER

Kingfisher’s Case Study PDF:

https://grm.institute/wp-content/uploads/2021/04/Kingfisher-Airlines-Case-
Study.pdf

Operational Reasons

1. The maintenance, navigation, landing cost of KFA in 2012 was about 1 0.86%
of the total revenue generated and 3% more than that of Jet Airways.
2. The employee cost of KFA was also higher than any other airlines.
3. The cost of Value added Services (VAS) by KFA was also very high and also
they paid less attention on cleanliness, connectivity, scheduling and low
prices that were the basic requirements of Indian customers. From the reports
generated and studies conducted it shows that the condition of Aviation
Industry in India was in so much pain that it adversely affected the KFA.
There were 4 factors responsible for bad condition of Aviation Industry in
India.

As the Kingfisher Airlines in general and the promoter, Vijay Mallya, in

particular draw flak for the Kingfisher Airlines Debacle, there is a much larger
story that seems to be getting missed out. Kingfisher Airlines was not the first
business failure in India and it definitely will not be the last. Businesses are
designed to evolve and get ejected through the process of creative destruction.
That is what Josef Schumpeter had suggested nearly a 100 years ago and that still
holds today. The tragedy of Kingfisher Airlines was not just about the mistakes
of omissions and commissions of Vijay Mallya. It was the combination of a series
of failures that brought Kingfisher Airlines to its knees. As the media takes
potshots at Vijay Mallya's lifestyle and his defaults, a much bigger story is either
not being told or it is being relegated to the background. The extradition trial of
Vijay Mallya, wanted in India on charges of Rs 9,000 crores fraud and money
laundering, began on Monday at a UK court here, with the prosecution asserting
that the embattled liquor baron had a case of fraud to answer. The trial, however,
was briefly halted as the courtroom had to be evacuated due to a fire alarm. The
61-year-old tycoon and others waited outside the Westminster magistrates court
during the fire drill. The trial began with the Crown Prosecution Service (CPS),
arguing on behalf of the Indian government, presenting its opening arguments in
the case which focused on loans totalling around Rs 2,000 crores sought by the
erstwhile Kingfisher Airlines from a consortium of Indian banks. The CPS
admitted that there may have been irregularities in the internal processes of the
banks sanctioning some of those loans but that would be a question to be dealt
with at a later stage in India. The focus of our case will be on his (Mallya's)
conduct and how he misled the bank and misused the proceeds, said CPS
barrister Mark Summers. The CPS noted that in all the loans sought, loss-making
Kingfisher Airlines had relied on nearly the same set of security pledges, which
included the UB Groups reputation, Kingfishers own brand value, a promised
infusion of equity funds and a projected return to profit by the airline by
February 2011. The airline had claimed that it had put proactive measures in
place to improve performance, the CPS noted. However, it was also a time when
according to an industry analysis, the state of the airline industry was described
as grim and as being in intensive care. It was not a scenario in which a state bank
would have entertained such loan requests, the CPS added. Mallya's barrister,
Clare Montgomery, told the judge that she had hoped to set out the defences
opening arguments on the first day as well. But the CPS said it will not be rushed
as it lays out the complete chronology of events. Meanwhile, Mallya watched the
proceedings from behind a glasswindowed dock. His defence team tried to get
the judge to allow him to sit outside the dock near his defence team to access
some of the complicated paperwork being relied upon, but the judge denied that
request saying all defendants are expected to sit in the dock. However, the judge
has directed that a table be provided to Mallya for easier access to his
paperwork.Earlier, Mallya looked relaxed when he entered the court to stand
trial on charges of fraud and money laundering related to his erstwhile
Kingfisher Airlines owing several Indian banks around Rs 9,000 crores. THESE
(allegations against me) are false, fabricated and baseless, Mallya told reporters
outside the court ahead of the hearing. A four-member CBI and Enforcement
Directorate (ED) team from India had also arrived at the court ahead of the trial,
one of whom nodded when asked they were confident about their case. Mallya,
who has been out on bail since Scotland Yard executed an extradition warrant in
April this year, will be in the dock for the duration of the trial scheduled to end
 on December 14. A judgment in the case, being presided over by Judge Emma
Louise Arbuthnot, is unlikely until early next year. The CPS will need to
demonstrate a prima facie case by producing evidence to show that the criminal
charges against Mallya are justified and that he should be extradited to face the
Indian courts. Prison conditions in India are expected to be at the forefront
during the hearing, with the Indian government providing assurances of
protection of Mallya's human rights. The tycoon has been on selfimposed exile in
the UK since he left India on March 2, 2016. He is on strict bail conditions, which
include providing a bail bond worth 650,000 pounds, surrender of his passport
and a ban on possessing any travel documents.

3. SATYAM SCAM:

Satyam Scam Case Study PDF:

https://www.srcc.edu/sites/default/files/Satyam%20scam%20of%20corporate
%20governance.pdf

https://www.nishithdesai.com/fileadmin/user_upload/pdfs/Ma%20Lab/
AsiaLaw-Satyam.pdf

The Satyam Scam was a major corporate scandal that shook India's business world
in 2009. It exposed the lack of transparency and poor corporate governance practices
in one of India's leading IT companies, Satyam Computer Services. The scandal
involved the company's founder and chairman, Ramalinga Raju. He confessed to
inflating profits and manipulating accounts for several years, amounting to massive
financial fraud. This revelation led to a severe loss of investor confidence. It resulted
in a significant impact on the Indian stock market.

The Satyam computer scam exposed the urgent need for better corporate
governance practices in Indian companies.

What is Corporate Governance?

Corporate Governance refers to the way in which a corporation is managed and run.
This aims to ensure the best possible outcomes for the stakeholders involved. The
Cadbury Committee defined corporate governance as the mechanisms, processes,
and relations through which corporations are controlled and managed.

Corporate Governance ensures the following:

 o Transparency and accountability in the corporate world.
o Compliance with the prevailing laws and statutes.
o Protecting the interests of shareholders.
o Being committed to the values of ethical and moral business practices.
o Adequate and effective decision-making.

About the Satyam Firm

Satyam was an Indian IT services company founded in 1987 by Ramalinga Raju. It

was one of the leading IT companies in India with clients across the globe.

o The company's services included software development, engineering,

business process outsourcing, and infrastructure management.
o In 2008, Satyam was ranked as the fourth-largest IT services company in
India by revenue.
o The company had over 50,000 employees and had operations in over 65
countries.
o Satyam was listed on both the Bombay Stock Exchange and the National
Stock Exchange of India.
o Satyam Info Way became the first Indian internet business to be listed
on the NASDAQ.
o The company was known for its corporate governance practices and
had won several awards for the same.

About the Satyam Scam

o Ramalinga Raju, who was the founder and CEO of Satyam Computers,
had accepted falsifying its accounts to mislead the investors and benefit
the shareholders.
o CBI took over the investigation and, in February 2009, filed
chargesheets.
o The public company was subsequently removed from Nifty as well as
the Sensex, and its board was removed, and the government appointed
its own board for protecting and attempting to save the company.
o The company was bought by Tech Mahindra, which was renamed
Mahindra Satyam. The company ceased operations in 2013 and was
merged with its parent tech, Mahindra.

Satyam Scam: How did it Come to Spotlight

o Satyam Computers announced the acquisition of a 100 per cent share in

Maytas Properties and Maytas Infra in December 2008. However, the
proposed $1.6 billion purchase was called off the same day, leading to the
dipping of Satyam's stocks.
o Just next week, the World Bank barred the company from conducting
business with it for an 8-year term accusing it of providing illegal incentives
 to bank employees and failure to maintain documentation to justify costs
charged to its subcontractors.
o Following the World Bank's punishment, multiple directors resigned from the
company and the promotor's stakes dipped.
o Ramalinga Raju resigned after confessing to inflating the company's financial
statistics on Jan 7, 2009. He stated that the company's cash and bank accounts
on the balance sheet were highly overstated and fudged to the tune of nearly
INR 50,400 million.

4. NIRAV MODI CASE:

Case Study PDF:

https://www.livelaw.in/pdf_upload/goi-v-nirav-modi-judgment-final-25022021-
389755.pdf

Nirav Modi fraud case and India's bank debt crisis: Punjab National Bank (PNB) is
India's second largest government-owned bank with assets of around $111.7bn
(£79bn) as of 31 March 2017. The total amount of the alleged fraud has been
estimated to total $1.8bn. Reports suggest that Mr Modi - no relation to Indian Prime
Minister Narendra Modi - left the country in early January. His immediate family
also left India during the course of the month. He is believed to be staying in a
luxury hotel in New York and was last seen at the World Economic Forum in Davos
as a part of an Indian delegation, which even had its picture taken with the prime
minister. Mr Modi has not been formally charged by Indian authorities yet, but
several investigations have begun. Police have also arrested two bank officials and a
business associate of Mr Modi's on suspicion of helping him. In a letter to PNB, the
businessman has said he owed the bank $775m and not $1.8bn. He also denied the
allegations and said the "erroneously cited liability" and the resulting "media frenzy"
had "destroyed my brand and the business and have now restricted your ability to
recover all the dues leaving a trail of unpaid debts". The bank has not commented on
the nature of the fraud but analysis so far suggests that what the billionaire is
accused of involves PNB guaranteeing him loans by issuing a letter of undertaking
(LOU). This would mean that every time a loan was due, Mr Modi would get PNB to
open another LOU equivalent to the loan amount plus the interest that was due on
it. The money from the new LOU was used to pay off the loan and the interest due
on the previous LOU. In July 2017, the finance ministry shared some data showing
that PNB's control systems were in bad shape, which meant it got defrauded
significantly more than other banks. The data shows that between the years 2012-
2013 and 2016-2017, Indian banks saw a total number of 22,949 instances of fraud,
with total losses to banks amounting to $10.8bn. Of the 78 banks on the list, PNB
faced the highest losses when it came to fraud. Over the five-year period, the bank
faced 942 cases with losses of $1.4bn. Also, more significantly, PNB faced more fraud
cases than the country's largest bank, State Bank of India, which has an asset base 4.6
times larger than PNB. A bad loan is a loan which has not been repaid for a period of
90 days or more. The corporate default rate is even higher. Largely due to corporate
loan defaults, Indian banks have had to write off loans worth around $38.8bn for the
period of five years ending 31 March 2017.