Many of our clients have expressed concern about the legal
liabilities faced by senior management of state owned enterprises
("SOE"). As defined by law, senior management of an SOE
generally includes legal representatives, directors, supervisors,
and other employees classified as senior management. As these
employees have special status and responsibilities, they may in
certain circumstances bear criminal, civil, administrative or
economic liability for their own acts or those of the SOE.
Criminal liability: SOE senior management may commit criminal
offenses under two circumstances: (1) when a criminal law clearly
states that the subjects of the offense are SOE directors, managers
or staff; and (2) when the subjects of a criminal offense are
"government officials," which includes SOE directors,
supervisors, and managers and those who bear the responsibilities
of organizing, leading, supervising, and managing the
Administrative liability: Laws conferring administrative
liability are found in administrative regulations and departmental
rules and regulations where the content is more complex. For
example, The Interim Regulations on Supervision and Management of
State-owned Assets of Enterprises, regulate the responsibilities of
SOE senior management and provide for administrative punishments
when those responsibilities are breached.
Civil liability: Senior management must comply with laws,
administrative regulations, and the Articles of Association, and
owe duties of loyalty and of diligence to the company. Senior
management must not accept bribes or other illegal income and must
not embezzle company property. In general, redress for violations
of the duties of loyalty and diligence consists of compensation for
losses suffered by the company.
Economic liability: Economic liability arises in the context of
auditing the SOE legal representative's economic duties during
his or her term of office. Article 45 of the Detailed implementing
rules of auditing economic responsibilities of Central Enterprises
states that "during audits of economic performance, if the
enterprise's losses are found to result from economic policy
mistakes, or if statements of the enterprise's assets are
untrue, or if operation results are false and so on, then liability
of responsible persons must be pursued depending on their degree of
influence, and financial penalties must be imposed."
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The NPP states that India is located on a strategically important location and is well connected to several international trade and commerce routes.
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