COVID-19: A BREEDING GROUND FOR HOSTILE TAKEOVERS

WHAT IS A HOSTILE TAKEOVER?

A hostile takeover in mergers and acquisitions is a form of takeover where the acquiring company acquires the target company without the approval of the Board of Directors. The fundamental difference between a hostile and a friendly takeover is that in a hostile takeover, the BOD does not approve of the transaction. The acquiring company can use a number of strategies to acquire the target company. On the other hand, the target company can also use a number of defenses against the acquiring company to try and stop the takeover.

One such strategy, emerging during these times of a worldwide pandemic is the use of Long-Term Strategic Investments. Typically, these are investments made by a company in another company with the view of transferring ownership or control. For instance, if Company A is of the opinion that Company B has a potential to become a monopoly in the domestic market and emerge as a tough competitor in the international market by the end of a certain year, Company A would invest in Company B buying up shares in the company bit by bit. When they become the majority shareholder of the company, they may elect to replace the Board of Directors with people from their quarters.

There are however, several checks in place to ensure this does not happen. These checks differ from country to country. In India, the Securities and Exchange Board of India, requires the companies to review their share holdings every quarter, so as to get an understanding if there is a possibility of a hostile takeover.

TAKEOVERS: PRE-COVID ERA

In the pre COVID era, takeovers were more friendly than hostile. The management of the companies saw huge potential in the target companies, would through a deal acquire the company. The deal would be such that it is a win-win situation for stakeholders of both the companies.

Some of the most famous takeovers, which has resulted in massive success of the companies include names like:

  • RPG Group: The RPG group led by the takeover wizard, RP Goenka made a series of acquisitions starting off with the Duncan in 1959, followed by Dunlop India and some other prominent names.
  • TATA Group: The most famous acquisition of the Indian business tycoon Ratan Tata is that of Jaguar Land Rover from Ford Motors. They also acquired Tetley Tea, which was twice the size of Tata Tea and had also introduced the world to the concept of tea bags.
  • VIDEOCON Industries: The most successful acquisition of VIDEOCON Industries have undoubtedly been the acquisition of French electronic company Thomas SA and Swedish giants AB Electrolux’s Indian subsidiary Electrolux Kelvinator.
  • UNITED BREWERIES: The Vijay Mallya led United Breweries acquisition of White & Mackey made them the second largest spirits manufacturer if the world. It also restored partial peace with the Scotch Whiskey Association, which had opinionated UB’s whiskey is not authentic whiskey.

COVID-19 AND ITS LINKS WITH TAKEOVERS

Amidst the outbreak of the COVID-19 pandemic, that has brought economies to a halt, and the world has come to a standstill, there is an increased speculation of hostile takeovers. The share market has hit all time lows, with most analysts predicting a situation much worse than 2008 and companies facing losses and subsequently filing for bankruptcy.

This creates an opportunity for investors looking to invest for the long term to enter into the markets. Arising speculations state most of the funds are flowing in from Chinese corporates. Most of the countries have revised their FDI and FII policies and have brought these inflows of funds into the purview of government intervention. The government of India has proved to be a knight in shining armor, revising its FDI policies, stating all funds flowing in from countries sharing land borders with India, would be subjected to government approval. The sole objective of this is to keep a check on hostile takeovers, considering the fact that the revision was done after HDFC reported that 1% shares of the bank was bought by Chinese Central Bank.

The pandemic has severely impacted M&As across the world, with the general tone of speculations shifting towards fears of hostile takeovers, especially by China, clubbed with the speculations of China’s aspirations of becoming a superpower. However, measures at the right time and slow scrutiny owing to the lockdown clubbed with the share market fluctuations have all played their part in keeping a check on such takeovers.

CORPORATE INSOLVENCY RESOLUTION PROCESS: INITIATION OF INSOLVENCY BY FINANCIAL/OPERATIONAL CREDITOR

A DISTRESSED FINANCIAL SECTOR’S CALL FOR HELP AND A FAILING RESPONSE MECHANISM

The year was 2002 and the financial sector was crippling. Desperate distress calls for help, answered with the institutionalization of the SICA Act followed by the DRTs had evidently failed. The banks had lost huge amounts of money to willful defaulters and were unable to recover their dues, thanks to a slow redressal mechanism, which saw a huge increase in NPAs and subsequently bad debts, paralyzing the backbone of the economy.

With great hope for a turnaround, the then Finance Minister, Arun Jaitley, introduced the Securitisation and Reconstruction of Financial Assets Enforcement of Security Interest Act, 2002 (SAARFAESI). This seemed promising in its initial stages since it allowed the financial creditors to recover their dues without approaching the courts. However, this could not live up to its expectations as well and did very little to pull the financial sector from its course of distress.

THE BIRTH OF IBC, 2016

With mounting pressure on the government to reform the financial sector and reduce the NPAs, the finance minister, Arun Jaitley, introduced the Insolvency and Bankruptcy Code in 2016. Owing to the overriding powers of this code, SAARFAESI Act was heavily amended so as to bring it in line with the provisions of this code. The essence of the code is to shift the control of the defaulting company from its existing management and shareholders to a management run by a conglomerate of the financial creditors called Committee of Creditors as given by Section 21. The code still in its initial phase appear to be promising and can prove to be a game changer if it does live up to the expectations, pulling India out of its financial woes.

INITIATION OF PROCESS BY FINANCIAL AND OPERATIONAL CREDITORS

This code classifies the creditors into two types:

  • Financial Creditors
  • Operational Creditors

The code was brought into effect with the purpose of strengthening the financial sectors and therefore they have been given preferences over the operational creditors as evidenced by Section 21.

AN INSIGHT INTO SECTIONS 7, 8 AND 9

Section 7 of the code states the manner in which a financial creditor can apply for initiation of the Corporate Insolvency Resolution Process. As per Section 4, in case of a default of more than 1 crore, a financial creditor can apply to the adjudicating authority and file for the initiation of corporate insolvency resolution process against the corporate debtor. The adjudicating authority, in this case, the NCLT, shall within 15 days either admit or reject the claim. In case the claim is rejected, the applicant is given a time frame of 7 days to rectify the defects in the application and re-apply to the NCLT.

On the other hand, the manner of application of initiation of such process by the operational creditor is laid down in Sections 8 and 9. Section 8 requires the creditor to give a demand notice to the debtor asking for payment. Within 10 days, the debtor has to reply to the notice stating either the existence of a dispute, for instance, the quality of product delivered not being the one which was ordered, or has to show the payment of unpaid operational debt by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the debtor or by sending an attested copy of record that the creditor has encashed the cheque issued by the debtor.

If such a communication is not received by the creditor within 10 days, Section 9 allows the creditor to apply to the NCLT for initiation of CIRP, with documents such as the notice for demand, an affidavit stating the non-receipt of reply within 10 days, the existence of a debt. The NCLT shall within 14 days either admit or reject the claim. If rejected, the creditor will be given a time period of 7 days to rectify the defects in application and re-apply to the NCLT.

CORPORATE INSOLVENCY RESOLUTION PROCESS

Once admitted, the directors and shareholders of the company lose their powers and Section 12 gives a time frame of 180 days subject to an extension of further 90 days to design a resolution plan to revive the company from its financial difficulties under the management of the conglomerate of the financial creditors, through constitution of a Committee of Creditors (COC). An Interim Resolution Professional under Section 16 is appointed by the NCLT, who within 30 days shall call upon the creditors to submit their claims and verify the same and also constitute the COC, conducting their first meeting within 7 days from the date of their constitution. In the meeting conducted under Section 24, they shall decide whether the IRP will continue as the Resolution Professional or should he be replaced. Once this decision is made and a Resolution Professional is appointed, the applicant shall be handed over the Information Memorandum prepared under Section 29 to design a Resolution Plan. This plan is then approved by the Resolution Professional and then sent to the Committee of Creditors. Upon approval of the plan by the COC, it shall be then sent to the NCLT for approval. If the NCLT approves the plan, the company will have to operate as per the guidelines given in the plan, in an attempt to revive the company.

If the plan is rejected by the tribunal, or is not adhered to after approval by NCLT or by a vote of 66% shareholders, the plan is not prepared, NCLT may order for liquidation of the company through the process laid down in Sections 33 to 58.

SECURITIZATION AS A TOOL OF OFF-BALANCE SHEET FINANCING

WHAT IS OFF-BALANCE SHEET FINANCING?

Off-Balance Sheet financing is a method of financing used to raise finance without recording a liability. This helps in reducing the level of debt in the company. Normally, if Company A takes a loan from a bank, it records a loan on its liabilities and cash or bank on its assets. Off-Balance sheet financing is a method to not record the loan on the liabilities side. This may seem illegal but is actually a legitimate process very much allowed by the Generally Accepted Accounting Principles (GAAP). Off-Balance sheet financing lowers the debt equity ratio, presenting a lucrative financial statement to the investors. However, owing to minimal disclosure requirements, off-balance sheet financing may turn out to be deceitful. Since it understates the liabilities of a company, it can be to some extent considered as a violation of the accounting principle of full disclosure.

A company has two options- either purchase an asset or lease the asset. Purchasing the asset would entail arranging for funds to purchase the asset, in addition to the funds that will be blocked. Moreover, arranging for funds will create a liability on the balance sheet of the lessee either in the form of a bank loan, or debentures or increased equity or capital creditors if the asset is purchased on credit. On the other hand, leasing an asset would mean the lessee books the lease rentals as expenses while allowing the lessor to retain the leased asset in its balance sheet. This not only reduces the overall requirement of funds of the lessee but also cleans the balance sheet to reflect a reduced liability to the extent of cost of the asset. This influences ratios such as the debt equity ratio, reflecting a lower debt to equity.

Although it may be argued that a leveraged capital will create opportunities for trading on equity, but a highly leveraged capital will also increase the financial risk of the company, laying on it the obligations of interest payments. If the company is to incur losses, the interest obligations cannot be waived off. Therefore, managers strive to arrive at an optimal debt equity mix. Further, the company may require to maintain a certain level of debt equity ratio for other debt it has. These are called debt covenants. Therefore, a company may opt for off-balance sheet financing for various reasons, not all of which are detrimental to the interests of the stakeholders or potential shareholders.

THE CONCEPT AND PROCESS OF SECURITIZATION

The credit risk of 2008 and the subsequent market crash paved way for an innovative concept of reducing credit risk of businesses and led to the birth of securitization. This is because most of the problems in the economy stemmed from securitised mortgages. Securitization is the process of converting the illiquid assets of a company into liquid assets. The process is fairly simple, but the regulations, ambiguity in tax laws, an underdeveloped market makes it difficult to pragmatically implement it.

Suppose Bank A extends loans to various customers, with different maturity periods. These loans advanced form assets of the bank, i.e. the bank has assets, but illiquid assets which cannot be converted into cash immediately. This ties up funds available with the banks and creates credit risk. To eliminate this risk, a Special Purpose Vehicle (SPV) is incorporated, usually in the form of a trust or a company especially for the purpose of securitization. The SPV issues securitised instruments in the market, which are subscribed to by the investors. These instruments are heavily dependent on the performance of the underlying assets and therefore, investors want some form of security or assurance against these instruments, which may be provided in the form of a guarantee. The money received from the subscription is used to then purchase the assets of the bank at their present value. The bank transfers the legal rights of the assets to the SPV but retains the operational rights, meaning, it is the responsibility of the bank to collect the principal repayments and the interest payments. The repayments received by the bank is transferred to the SPV, which then refunds the investors.

HOW DOES SECURITIZATION FACILITATE OFF-BALANCE SHEET FINANCING?

Securitization, as explained, is therefore a process to convert the illiquid assets of a company to liquid assets, improving the liquidity of a business. But, how exactly does this happen?

When the assets, in the form of receivables, are sold off to an SPV, it removes the financial assets from the assets side of the balance sheet. On the other hand, cash or liquid assets increases due to the purchase consideration received from the SPV.

Consider this balance sheet, before securitization:

LIABILITIESAMOUNTASSETSAMOUNT
Total Liabilities10,000,000Financial Assets55,000,000
  Liquid Assets45,000,000
 10,000,000 10,000,000

This balance sheet shows the assets side having two components:

  1. Financial Assets
  2. Liquid Assets

This is the position of the company before it has sold out the financial assets represented by loans and advances to an SPV. The position of the balance sheet changes as follows, once these financial assets are sold out

LIABILITIESAMOUNTASSETSAMOUNT
Total Liabilities10,000,000Financial Assets0
  Liquid Assets10,000,000
 10,000,000 10,000,000

Once the assets have been sold out to an SPV, the SPV makes an immediate payment to the company thus converting the liquidity position of the company. A comparison of the liquidity ratios of the balance sheets reveals that the liquidity position of the company in the second scenario, i.e. after securitization is better than the first. The company can use it to its advantage to secure short-term loans such as term loans or raise money from the money market.

CORPORATE FRAUDS DUE TO A FLAW IN LAW- THE NEED TO AMEND SECTION 139

AN INSIGHT INTO CORPORATE FRAUDS

What can Kingfisher Airlines possibly have in common with Yes Bank or a jewelry brand Gitanjali or a financial institution ILFS or Videocon or IT giant Satyam? The answer isn’t most certainly common ownership. They have all been in the news or are still in the news for the wrong reasons. The answer is Corporate Frauds. All of these companies have defrauded the investors in various ways and have looted crores of rupees worsening the woes of already despondent financial institutions. Desperate calls have been made by the backbone of the economy to see them through the crisis, most of which have been in vain.

Answering the desperate calls for help of the backbones of the economy, the Narendra Modi government introduced regulations such as Insolvency and Bankruptcy Code, Prohibition of Economic Offenders Order Act, all of which aim to help the financial sector recover their money. However, this has yielded little results, opening up room for a debate on whether the lacunae lie somewhere else.

This brings into question what the role of an auditor is. With fairly stringent rules in place to conduct regular audits, how is it that these companies are getting away with frauds they commit. Some might uphold the judgement passed in Kingston Cotton Mills co and correctly point out “The auditor is a watchdog and not a bloodhound”, meaning an auditor’s duty is to verify the transactions so stated and not detect frauds while others might also state that “The responsibility of preparation and presentation of the financial statements lies with the management of the company”. While all of these arguments have reasonable weights, they all overlook the problem at the roots.

UNDERSTANDING SECTION 139

Section 139 of the Companies Act 2013, lays down the manner in which an auditor shall be appointed. The section divides the companies on the basis of ownership, i.e Government Companies and Non-government companies.

As per this section:

  • First Auditor of a Government Company [Section 139(7)] shall be appointed by the CAG within 60 days from the date of incorporation. In case the CAG fails to do so, such shall be appointed by the Board within the next 30 days and in case they fail to appoint the auditor, the members shall within the next 60 days appoint the auditor through a meeting conducted under Section 100.
  • Subsequent Auditors of a Government Company [Section 139(5)] shall be appointed by the CAG within 180 days from the start of the financial year.
  • First Auditor of a Non-government Company [Section 139(6)] shall be appointed by the Board within 30 days from the date of incorporation. In case they fail to appoint, the members shall so appoint the auditors within the next 60 days.
  • Subsequent Auditor of a Non-government Company [Section 139(1)] shall be appointed by the Board of Directors.

Further Section 139(2) of the Companies Act, 2013 provides for rotation of the auditors the manner of which is laid down in Rule 6 of the Companies (Audit and Auditors Rules) 2014. This is however applicable to a certain class of companies as laid down in Rule 5 of Companies (Audit and Auditors Rules), the cap of which are as follows:

  1. All unlisted public companies having paid up share capital of 10 crore or more
  2. All unlisted public companies having paid up share capital of 20 crores or more
  3. All companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more.

Further the section states that a firm shall not be appointed as auditors for more than 2 consecutive terms of 5 years each, while an individual shall not be appointed for more than 1 term of 5 years. There is a cooling period of 5 years which follows. A harmonious construction of this section with Rule 9 of Companies (Audit and Auditors Rules) 2014, reveals that a firm having a common partner with a firm whose tenure as auditors has just expired, shall also not be eligible to be appointed as auditors of the company.

A BRIEF COMMENTARY OF SECTION 139

Section 139 of the Companies Act, 2013 was adopted from it’s previous version of Section 224 of the Companies Act, 1956, with a number of significant modifications from it’s previous version.

The newly introduced Section 139(2), brought in to ensure the rotation of auditors was intended to reduce the chances of frauds. The commentary of the section along with a harmonious construction of Rule 9 of Companies (Audit and Auditors Rules) 2014, reveals that the intention of the council was to curb the possibilities of the management of the company tying up with it’s auditors and indulge in fraudulent activities. A continuous rotation of auditors would ensure that the management does not get enough time to develop a relationship with the auditor and pass off their wrongdoings through an unqualified report.

Further, through an amendment brought in recently, the need for ratification of auditors at the General Meeting was removed, essentially giving the directors the power to appoint the auditors of their choice, subject to the recommendations of the Audit Committee constituted under Section 177 of the Act. The commentary states that the intention was to reduce the burden of compliance on the companies viz-a-viz empowering the Board to make decisions.

THE LACUNAE IN SECTION 139

Although these amendments and improvisations have been brought in to empower the auditor and with the expectation of keeping the frauds in check, they somehow seem to be not as effective as they are expected to be. Is there a problem in the implementation of such or does the problem lie with the Act itself?

The question can be answered by a very simple thought. Should a student evaluate his own answers after taking a test? The answer is most certainly no. What are the odds that the student will be awarding himself or herself full marks? Similarly, allowing companies to appoint their own auditors is the equivalent as allowing a student to appoint his own evaluator.

The harsh reality is, when companies are allowed to appoint their own auditors, they can easily influence the auditor in molding the audit report as per the requirements of the company. Either they abide by the management or they are not re-appointed as the auditors of the company the next time.

The chartered accountant faces a dilemma. Should he give in to the demands of the management or should he uphold the dignity of the profession and the responsibilities conferred on him by the shareholders of the company. At the end of the day, they have to fill their pockets as well and most therefore give in to the demands of the client. The select few who choose the other way, the road less travelled, end up being removed from the position. Further, in most firms the pressure of meeting business targets pressurize the partners to give in, simply because of the fact, they have a family to feed back home.

THE WAY OUT: A SOLUTION

Is there a way out, or do we accept this and treat it as a part and parcel of life?

There is a way out. A simple solution would be for a third party to play the role of a mediator and appoint an auditor on behalf of the company. A proposal is to institutionalize a government authority who should be responsible for appointing auditors of company beyond a certain threshold. This institution so formed would look into the performance of the auditors and grade them on various parameters.

Shifting the responsibility of appointment of the auditors to a third party makes them truly independent. Since they will now have reduced pressure from the management, acting in an independent capacity will ensure that they put down a “true and fair” audit report. Moreover, since their appointment and lucrative offers now depend on how fairly they report to their stakeholders, there will be an increased incentive to work independently.

Another solution, which should be initiated in line with this is to amend Section 142 and allow the appointing authority to decide the remuneration of the auditors. This will further remove the problem of incentives, as it will completely depend on the appointing authority now.

Is this a foolproof solution? Will this completely eradicate the problem? Maybe not! There will be people within the appointing authority corrupt enough to accept money under the table and give away appointments as per the will of the company and the auditors. But there will also be people who would be honest enough to uphold the dignity of their position.

After all, there is some good in every evil.

MONEY LAUNDERING: THE ROLE OF SHELL COMPANIES

UNDERSTANDING SHELL COMPANIES

The advent of professionals and education of such has brought about miraculous developments in every field and business has flourished. However, while these advancements in business and finance has created opportunities for a number of people, this has also been put to malicious use by professionals intending to earn money under the table. Money Laundering is a term that has become a common sight in every newspaper. One innovative method of laundering money are shell companies.

Mostly incorporated as a One Person Company (OPC), shell companies are companies incorporated on paper, with no business in reality. Although these companies are not illegal, they are however mostly used for illegal activities by people with malicious intents. They have neither assets nor liabilities and can be used for both legal as well as illegal activities. They neither generate revenues, nor create employment and are mostly used to park funds for both legal and illegal activities.

POSITIVES OF A SHELL COMPANY

  1. Parking funds for a startup: Shell companies can be used to park funds in the initial stages of a startup. Is that legal? How do the do it? Why would a startup need these companies? These are some questions one might have when one is introduced to this idea. Before a startup is incorporated, the founders of the company would want their finances in order, to allow operations to run with minimal hindrance. But they may not be able to raise all the money they need from under one roof or even if they do manage to do so, they would not want the funds gathered to remain idle before their company is incorporated. So, they may incorporate a shell company to park their funds and invest the money so raised in either equity or debt markets. This not only ensures an interest income over and above the money so raised, but also keeps the funds parked. Once incorporated, these funds can then be transferred to the company and the shell company be wound up.
  2. Safeguard of assets from a hostile takeover: A hostile takeover is when one company acquires another without the approval of the management. In this situation, the aggrieved company can protect their assets by incorporating a shell company and transferring the assets to the shell company. Since companies are a separate legal entity, the acquiring company have no right to takeover the assets of the shell company, owing to different legal entities. Further, since these assets are removed from the balance sheet of the company, it becomes less lucrative to the acquirer. This method is also used by companies to protect their assets from a lawsuit.
  3. Hide dealings between two companies: This is more of an unusual use of a shell company. Suppose A and B want to enter into a business transaction. However, the market reputation of B is extremely poor and A fears it might lose it’s goodwill if it does enter into a transaction. In this case, A can incorporate a shell company and route the business transaction through the shell company so incorporated. This ensures the goodwill of A is maintained viz-a-viz carrying out the transaction.

UNDERSTANDING MONEY LAUNDERING

Money Laundering, in simple terms, is the conversion of illegally earned money into legitimate money without paying taxes to the government. This is an illegal activity and there are laws such as Prevention of Money Laundering Act, 2002 which have been enforced to keep in check money laundering.  The people who do this are called Money Launderers and this is done in a manner such that it is next to impossible for the investigating agencies to trace the source of a transaction. So, black money invested into the capital markets comes back to the holders in the form of legitimate money.

There are three steps with which a money laundering operation is carried out. These steps are:

  1. Placement: The first step in the process of money laundering is to invest money earned illegally into the financial system. The launderer does so through agents or banks in the form of cash through an informal agreement.
  2. Layering: This is the second step in the process where the launderer hides his real income and invests his illegal money into equity or bond market or in their bank accounts abroad. This is usually done in those countries whose legal framework does not permit the banks to disclose details of their depositors, thus maintaining secrecy of the source of funds.
  3. Integration: This is the final stage where the laundered money is re-introduced into the legitimate economy, integrating it with the economy as legal money.

SHELL COMPANIES AS A CATALYST OF MONEY LAUNDERING

Shell companies play the lead role in facilitation of laundering money. There is a complex set of process involved, in laundering money and integrating it with the economy so as to conceal it’s original source. Questions have been asked on why such shell companies have not been declared illegal. While this may seem to be a relatively simple solution to stop money laundering or at least reduce it, a legal restriction on incorporation may not be as feasible as it appears for the legitimate reasons it has, not considering the need of the governments to keep the business lobby happy to retain their fundings. These companies are mostly incorporated in tax heavens and places or countries which require minimal documentation so as to maintain their anonymity.

With anonymity, the corporates or individuals looking to launder money enjoy the benefit of non-traceability. The most lucrative places for money launderers are Panama, Caveman Islands and the British Virgin Islands. The company is usually incorporated in the name of a person who is not the brain behind the act. The beneficial owner of the company is usually someone else, who controls the operations of the company. The entire process of how the shell companies are used in laundering money is explained.

Suppose there is a billionaire named A looking to launder money. He sets up a company in say, British Virgin Islands. The company is incorporated in the name of another person called B, who is lured into the position by a handsome reward. The identity of A is concealed. While on paper B is the owner, in reality, A is the owner, also called Beneficial Owner. The company so incorporated is called 1 which in turn is the holding company of another shell corporation called 2. The company 2 further has investments in company 3 and this continue till company 50. Now, A gives out cash, obtained from illegal sources, to Company 1. Company 1 makes payments to company to 2 which are incorporated in various countries across the world, making it all the more difficult for officials to trace the source of these fund flows. The receipts of Company 2 are shown in the form of receipts for certain services rendered. Company 2 further invests these funds or shows them in the form of payments to Company 3. This process goes on till Company 50, which makes a payment to the original company of A, converting it into legal money, integrating it with the economy and also avoiding taxes that would have otherwise been payable.

If and when they come under the scanner of tax departments, an investigation into the source of these funds can take years to yield results and the traces might also be lost owing to the money and muscle power these corporates have and the nexus with the governments, making shell companies a perfect choice to launder money.

ARE THERE CHECKS IN PLACE?

Various legislations have been brought in over the years to keep a check on money laundering. While these legislations have not been able to completely abolish the practice of money laundering, they have been able to curb the practice.

One such legislation is Section 186(1) of the Companies Act, which specifically state that a company shall not be allowed to make investments in more than two layers. This has been brought into force to keep a check on the layers of investments these companies have, so as to enable easy traceability of the sources of funds and their point of origin. Further the introduction of Prevention of Money Laundering Act, 2002 is another such historic legislation which had been brought about by the GOI.

Despite repeated efforts of the government to stop the laundering of money, it has always been outsmarted. This can get worse with the advancement of technology or even come to a complete halt, depending upon how we as a society perceive to use these technologies.

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