An 'investor' is a person who allocates capital with the expectation of a financial return. Generally, the primary concern of an investor is to minimize risk while maximizing return, as opposed to a speculator, who is willing to accept a higher level of risk in the hopes of collecting higher than average.

In simple terms, an investor is a person or group of persons who invest in a company through a security market while in wider terms an investor is an individual (either natural or artificial) or classes of persons or special entity who or which use to commit money or capital with intention to gain a financial return in terms of profit. In India, security market usually refers to capital market and capital market is broadly divided into primary market and secondary market.

The Act introduces new provisions for ensuring accountability and transparency in a company's management for safeguarding stakeholders' interest such as prohibition of insider trading (S. 195), proscription of forward dealing of securities (S. 194), introduction of class action suits (S. 245), registered valuers (S. 247) and offence of fraud (S. 447), facilitating exit opportunities for dissenting shareholders (S. 230, 27, and 13) and enhancing penalties for breaches and non-compliances.

Measure Taken By SEBI:
The SEBI has taken numerous measures to ensure the protection of interest of investors. They have released many directives, established investor protection fund to compensate investors, and conducted several investor awareness programmes.

Section 11(2) of the SEBI Act enumerates the measures taken for investors protection:

• Stock Exchange and other securities market business regulation.
• Registration and regulation of intermediaries in the business like brokers, bankers, trustees, investment consultants, etc.
• Works of custodians, participants, credit rating agencies, foreign investors, depositors, etc. being recorded and monitored.
• Registration of investment schemes like Mutual fund and venture Capital funds, and regulation of their working.
• Promoting and controlling of self-regulatory companies.
• Checking regularly for frauds and unfair trading practices relating to the securities market.
• Monitoring and regulating major transactions and take-over of the companies.
• Conducting investor awareness and education programme.
• Remedies against Oppression, Mismanagement and Prejudice: Sections 241-246 of the 2013 Act provide relief and protection to members of a company (subject to meeting a minimum numerical threshold) against acts of oppression, mismanagement, and acts prejudicial to the interests of the company or public interest.

If the NCLT, on an application made to it, is satisfied that facts justify the winding-up of the company on just and equitable grounds, but that such an order would not do complete justice, it may make such orders as it thinks fit, to bring an end to the matters complained. The powers of the NCLT are wide-ranging in this regard.

Oppression:
Conducting the company's affairs in a manner prejudicial to public interest or interests of the company or in a manner oppressive to any member or members amounts to oppression. Oppression of a person in a capacity other than as member – such as a director (unless it is in relation to a shareholder nominee/ appointed director and so relatable to the shareholder himself), would not be redressable under this provision.

The bedrock of principles that govern acts of oppression were laid down more than fifty years ago in S.P. Jain v. Kalinga Tubes Ltd, where the Supreme Court expounded the principles determining the concept of oppression, i.e. that the conduct must be burdensome, harsh and wrongful, involving lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder.

Further, a mere lack of confidence between the majority and minority shareholders would not be enough, unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs.

These principles were applied and amplified in other cases. In Needle Industries India Ltd. v. Needle Industries Newey (India) Holdings Ltd, the Supreme Court held that an illegal act will not in and of itself be treated as oppressive, unless it is accompanied by a mala fide intention or if otherwise such an act was harsh, burdensome and wrongful. However, where there has been a series of illegal acts directed against a person, it would be justifiable to conclude that they are a part of the same object of committing oppression.

In V.S. Krishnan v. Westfort Hi-Tech Hospital Ltd, the Supreme Court relied on the Needle Industries case,and ruled that the test to gauge whether an action is oppressive – is not whether it is illegal, but rather, whether the act of oppression entailed the absence of probity, good conduct, or an act that was mala fide, harsh burdensome and wrong or for a collateral purpose. Going further, it observed that although the ultimate objective of such an action may be in the interest of the company, the immediate purpose would result in an advantage for some shareholders vis-à-vis others.

These cases make it clear that just one act may not be sufficient to meet the test of oppression. In general, several/ continuous acts on the part of majority shareholders, continuing up to the date of the petition, would establish that the affairs of the company were being conducted in an oppressive manner. However, this is not a rule of law but only a rule of prudence, which has been evolved by courts to prevent frivolous litigation so that a dissatisfied group of shareholders do not obstruct the regular working of the company by complaining of any trivial or one-off act of oppression.

That said, even one single and egregious act of oppression may nevertheless qualify – particularly if the effects are of a continuing nature, and the members concerned are deprived entirely of any important right(s)/ privilege(s). For instance, the single act of issuing additional shares at a meeting without complying with legal requirements and made to a single member without a simultaneous offer to others on a pro rata basis – was considered to be an act of oppression.

Using the same example, illegality of the oppressive act complained of, while it may be more extreme, is not a sine qua non for being entitled to protection. The remedy can be invoked even where the act is lawful. For instance, an allotment of shares, where such allotment reduced the petitioners to frail minority, would be treated as being oppressive - despite such conduct being perfectly legal.

Similarly, a rights issue made for the sole purpose of diluting minority shareholding, or a preferential allotment to one section of the shareholders at a steep discount etc., are examples of conduct that are legally kosher, but could nevertheless be interdicted on the grounds of being oppressive. However, where the allotment or issuance of shares was bona fide and in the interest of the company, it will not amount to oppression even if it incidentally leads to majority shareholders losing control over the company, or becoming a minority.

Some instances of oppression include breach of shareholders' agreement on terms relating to the management of the company, such as, failure to vote in favour of the appointment of managing director, contrary to the agreement.

Mismanagement:
The term 'mismanagement' generally refers to gross mismanagement of a company's affairs and acts that are prejudicial to its interest.The 2013 Act extended the scope to also include a change that is prejudicial to the shareholders or any class thereof. It may include (a) diversion of public money for unknown/ unwanted purposes, affecting grossly the financial state of the company, (b) gross negligence in managing the affairs, and (c) inaction.

An act of mismanagement may be alleged if a material change takes place in the management or control of the company, either by alteration of the board of directors, manager and ownership of the company's shares or alteration to the company's membership or in any other manner whatsoever. This change is then the reason there is actual mismanagement in the company's affairs or it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest, or in a manner prejudicial to the interests of the company or its shareholders or any class thereof.

Relief will only be granted if it can be proved that such change will lead to the affairs of the company being conducted in a manner prejudicial to public interest or interests of the company.

Prejudicial Acts:
Newly introduced in the 2013 Act, members also have recourse against affairs of a company being conducted in a manner prejudicial to their interest. A prejudicial act refers to an act that adversely affects the interests of petitioning shareholders.

For instance, the single act of issuing additional shares for the sole purpose of altering the shareholding pattern in certain shareholders' favour and subsequent changes to the board of directors, was held to prejudicially affect the interests of the petitioning shareholders by the Andhra Pradesh High Court in the case of R.N. Jalan v Deccan Enterprises Pvt. Ltd.

In this case, noting that the company was profitable (and so it would be inappropriate to order it to be wound up), the Court appointed an interim administrator/ special officer to take charge and conduct the affairs of the company in supersession of the Board of Directors, in order to remedy the prejudice caused.

1. Regulation Of Board:
   In the wake of increasing number of corporate scams, the need for having an accountable and transparent board cannot be overemphasized. The Act lays stricter standards for functioning of board and management of the company. The standards are coupled with mandatory disclosures and increased penalty (including criminal liability) to act as deterrent for unscrupulous practices.
   
   1. Duties of Directors
      S. 166 codifies the duties of directors requiring them to act with good faith, due and reasonable care, skill, and exercise independent judgment in management. Conceptually, this existed under the old law too but as part of fiduciary duties. Now, breach of duties entail fine between INR 0.1 million (US$ 1,583)1 to INR 0.5 million (US$ 7,914) on the defaulting director. But, the Act does not provide an objective standard of assessment and whether a director has fulfilled his duties will be determined on factual basis.
      
      As an illustration, every director is required to disclose his "interest" at the first board meeting in which he participates and thereafter, at the first board meeting in every fiscal year or whenever there is any change. For ensuring that transactions are in a company's best interests and to rule out vested interest of directors, an interested director must disclose his interest in the proposed transaction and refrain from the voting process.3
      
      A director is interested (directly or indirectly) in a contract, if he (individually or with another director) holds more than 2% shareholding, or is a promoter, manager, CEO of the other transacting company, and in case of any other transacting entity is a partner, owner or member.
      
      A contract or even an arrangement in breach of this i.e. without making the necessary disclosures where there is a need is voidable at company's option. It is, therefore, necessary to accurately record board proceedings, and specifically note dissent raised by a director for attributing liability on the defaulting director only.
      
      Further, under S. 188, related party transactions ("RPTs") beyond a certain threshold and which are not at an arm's-length4 require prior shareholders' approval. Details of RPTs have to be maintained in registers and disclosed in the board's report. Such provisions should go a long way in guaranteeing that company's funds are utilized to maximize shareholders' interests.
      
      In India, closely held group entities undertake RPTs on a day-to-day basis for economies of scale and optimum utilization of resources. Such companies will have to review things afresh and change their mindsets so as to comply with the strict mandate.
       
   2. Disclosure in Board Report
      Annual board disclosures are tightened to facilitate transparency by presenting a true picture of a company's state of affairs. S. 134 mandates various additional disclosures to be made in the board report such as:
      
      1. Details of RPTs undertaken in a fiscal year
      2. Particulars on inter-corporate loans and investments
      3. Directors' responsibility statement containing affirmations regarding:
         • Following accounting standards for preparation of financial statements
         • Exercise of independent judgment
         • Discharge of duties with due care and skill
         • Having adequate mechanism to prevent fraud
         • Compliance with applicable laws
      4. Development and implementation of risk management policy
      5. Details of corporate social responsibility initiatives, if applicable
      
      The penalty for non-compliance has been enhanced and now, breach entails fine on the company up to INR 2.5 million (US$ 39,572), and imprisonment up to 3 years and/or fine up to INR 0.5 million (US$ 7,914) on every officer-in-default which includes every director.
      
      As personal liability is imposed on every director, it is imperative that board functions diligently and makes adequate disclosures in its report to present a true and fair view. While these additional disclosures will increase accountability of the board, it also will provide more information to shareholders and enable informed decision making.
       
   3. Increased Penalty
      The Act has also enlarged the scope of penalty imposed on defaulting directors and key managerial personnel ("KMP") for ensuring responsible functioning of the board as a whole. KMP is a new concept and includes CEO, MD, manager, CS, whole-time director, CFO, and other officers as designated.
      
      For instance, S. 129 penalizes every director as officer-in-default (in absence of MD, whole-time director, CFO or specified officer responsible for preparation of financial statements) for non-compliance with accounting standards and the procedure for preparation of financial statements. Similarly, a director convicted for offence involving RPTs stands disqualified under S. 164.
      
      Conviction for offence involving RPT may be initiated by a company for recovery of loss incurred due to such RPT. However, the possibility of company initiating proceedings against a director is less probable. The Act aims at establishing adequate checks and balances for ensuring efficient management but the implementation of the stricter penalty provisions is yet to be tested. 
2. Class Action Suits:
   As a major change, the Act empowers the investor and minority shareholders by introducing "class action suits". During the Satyam scam, where US counterparts could institute such suits and recover damages, Indian investors were without any recourse. In addition to the remedies under oppression and mismanagement, the yet-to-be notified S. 245 introduces this concept and provides collective remedies to investors and claim damages against erring companies. It vests a right with members or depositors or class thereof (100 in number) to file a representative application with the National Company Law Tribunal ("NCLT")7, if they feel that management or company's affairs is conducted in a prejudicial manner.
   
   The positive determination that an alleged conduct is prejudicial is done if the conduct is prejudicial to the company's interest, or interest of stakeholders. There is no illustrative list for prejudicial conduct under the Act and the same may be decided on factual basis. Instances such as drawing funds for personal use, negligent action or omission, oppressive measures towards minority were considered as prejudicial conduct under the old law.8 Factors such as good faith of applicant, availability of remedy in one's own right, evidence presented relating to involvement of officer, opinion of non-interested members or depositors, and whether the alleged conduct is or is likely to be ratified ought to be considered by NCLT.
   
   Per S. 245(1), NCLT can grant a variety of remedies such as:
   
   1. restraining order for committing ultra vires act or breaching the charter documents or any resolution passed,
   2. declaring a resolution which alters the charter documents and is passed in suppression or falsification of facts as void,
   3. restraining directors from implementing such void resolution,
   4. grant damages against the company, its directors, auditor, or an expert, advisor or consultant, and
   5. any other remedy.
   
   Order in a class action suit shall be binding on the company and all its members, depositors, auditor or expert(s), consultant(s), or advisor(s). Non-compliance with NCLT's order may lead to fine between INR 0.5 million (US$ 7,914) to INR 2.5 million (US$ 39,572) on the company, imprisonment up to 3 years and fine between INR 25,000 to INR 0.1 million (US$ 1,583) for every officer-in-default.
   
   As a check on the potential abuse through frivolous or vexatious applications, S. 245(8) provides that such applications shall be rejected with reasons and the applicant shall be liable to pay cost up to INR 0.1 million (US$ 1,583) to the opposite party.
   
   The detailed procedure is likely to be notified in future. Introduction of class action suits will result in reducing the multiplicity of lawsuits and litigation costs and, hopefully, avoid conflicting judicial pronouncements. But, institution of such suits is fettered with practical roadblocks. For instance, while it is mandated that all applications concerning a particular cause should be clubbed, it is ambiguous as to how it will be done. The efficacy of this new regime shall be seen over time.
    
3. Fraud And Investigation:
   The Act has introduced "fraud" for the first time and given it a wide scope. Apart from the definition, the Act also contemplates presumption of fraud in certain instances. For example furnishing false information or suppressing material information upon incorporation, providing misleading or false statements in prospectus, issuing duplicate share certificates to defraud, fraudulently transferring or transmitting shares and fraudulently applying for removal of company's name. For the board, this may have varied connotations.
   
   Proof of negligence or willful misconduct by a director may weigh heavily in adjudging guilt for fraud. It is immaterial if there is any actual wrongful gain or loss, and proof of intent to defraud will suffice. Thus, the directors will now be required to discharge their statutory duties in a reasonable and diligent manner while exercising independent judgment to provide a positive inference of non-involvement in any alleged fraudulent conduct.
   
   Fraud is a non-compoundable, cognizable offence punishable with imprisonment between 6 months to 10 years and fine ranging between the amounts involved to 3 times of such amount. No bail will be granted to an accused unless the public prosecutor is provided with an opportunity to oppose and the court is satisfied that there are grounds for innocence.
   
   Further, an auditor has to report instances of fraud to the Central Government ("CG") within 60 days, if in the course of his duties as an auditor, he has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees.10 Failure of auditor to report could lead to penalty between INR 0.1 million (US$ 1,583) to INR 2.5 million (US$ 39,572). An auditor may also be debarred from appointment for 5 years, if NCLT conclusively finds one guilty. The ambit of auditor's responsibility is wide enough to cover board irregularities of any nature if they are not backed by reasonable and adequate explanations.
   
   For implementing fraud related provisions, statutory status is given to the Serious Fraud Investigation ("SFIO") to conduct investigations assigned by the CG. A case is assigned to SFIO, jurisdiction of all other investigation agencies will be suspended. Officers of SFIO will be vested with the power to arrest the accused and the SFIO report will be considered as a charge sheet. On receipt of investigation report, the CG may also direct SFIO to initiate prosecution.
   
   Further, RoC has suo moto powers to call for information and records, and impose penalty for fraud on every officer-in-default where it concludes that fraud has occurred. During an investigation if CG inspectors find that business is conducted to defraud stakeholders or for a fraudulent purpose, penalty for fraud will be levied on every officer-in-default including promoters.

Conclusion
The concepts discussed hereinabove empower India Inc. investors with new mechanisms for their protection. However, the provisions relating to NCLT, SFIO, and class action suit have not been notified, and the actual implementation is yet to be tested. The mechanisms aim to check the abuse of power by directors but there are no substantive standards which will guide the process of investigation by NCLT or SFIO.

Perhaps, the relevant ministry and departments will collectively come forward and provide an appropriate framework. In the meantime, increased caution has to be exercised by the board in its functioning. Proper maintenance of records, registers and pro-active participation in board meetings will help directors to avoid personal liability. Actual impact will be apparent only gradually. As of now, the picture promises a happy investor.