2009 (1) TMI 489 - HC - Companies Law

Offences by companies - persons responsible - Held that - In the present case, only Mr. G.S. Verma was the chairman-cum-managing director of the company at the time of commission of the alleged offence and, therefore, was the person responsible for the business of the company. However, the summons have been issued against all the accused persons who are impleaded as directors despite prime accused being the company in the absence of a specific averments against the petitioner. Even without taking care of requirements of law whether prima facie case was made out against the petitioner, the Magistrate acted mechanically in passing the impugned order against the petitioner. Thus the complaint as against the petitioner (accused No. 6 in the complaint) is not maintainable. Hence, the complaint and the impugned summoning order qua the petitioner is accordingly, quashed.

Issues Involved:
1. Summoning of the petitioner as a director of the company.
2. Allegations of violation of SEBI regulations and SEBI Act.
3. Responsibility and role of the petitioner in the company's day-to-day affairs.
4. Adequacy of the complaint's averments against the petitioner.
5. Quashing of the summoning order.

Detailed Analysis:

1. Summoning of the Petitioner as a Director of the Company:
The petitioner was summoned as a director of Divyabhoomi Agro (P.) Ltd. by the Additional Sessions Judge, based on alleged violations under section 27 of the SEBI Act. The company was operating Collective Investment Schemes (CIS) and had raised Rs. 8,26,800 from the public. Despite being required to apply for registration under the SEBI (Collective Investment Schemes) Regulations, 1999, the company failed to do so and did not wind up the schemes or repay the investors, thus violating SEBI regulations.

2. Allegations of Violation of SEBI Regulations and SEBI Act:
The company was directed by SEBI to refund the money collected under the CIS within a month, but it failed to comply, causing pecuniary damage to the public. This led to the filing of a complaint against the company and its directors/promoters, alleging violations of sections 11B and 12(1B) of the SEBI Act and regulations 5(1), 68(1), 68(2), 73, and 74 of the SEBI (CIS) Regulations, punishable under section 24(1) of the SEBI Act.

3. Responsibility and Role of the Petitioner in the Company's Day-to-Day Affairs:
The petitioner argued that the summoning order should be quashed as it was passed without perusing the material on record and lacked substantive allegations that the petitioner was in charge of or responsible for the company's business. The petitioner contended that she was never a director and was merely an initial subscriber of the company's shares. The complaint only mentioned the petitioner in paragraph 20, and no correspondence with SEBI was conducted by her on behalf of the company. Form 32 showed that the petitioner was not a director, contradicting the complaint's allegations.

4. Adequacy of the Complaint's Averments Against the Petitioner:
The court emphasized that the complaint must contain specific and explicit allegations against the directors, detailing their role in the company's affairs. Mere bald averments without specifying the violative act committed by the directors are insufficient to make them offenders. The initial burden is on the complainant to show that the accused was in charge of the company's affairs or that the offence was committed with their consent, connivance, or neglect. The complaint against the petitioner lacked such averments, and there was no evidence to show that she was responsible for the company's business.

5. Quashing of the Summoning Order:
The court found that the complaint did not contain any specific allegations against the petitioner to make her liable as a person in charge of the company's day-to-day affairs. The petitioner was shown to be in service at the relevant time and could not have been actively participating in the company's business. The complainant could have gathered necessary material from public documents like the company's annual returns and balance sheet to attribute a role to the petitioner. The tendency to make all directors liable for the company's offences needs rationalization. Summoning an accused in a criminal case is a serious matter and not a mere formality. The court issuing process must be satisfied that there are sufficient grounds for proceeding against the accused. In this case, the Magistrate acted mechanically in passing the summoning order without ensuring that a prima facie case was made out against the petitioner.

Conclusion:
The complaint and the summoning order against the petitioner (accused No. 6) were quashed as the complaint did not contain specific allegations or evidence to show that the petitioner was responsible for the company's day-to-day affairs or the conduct of its business.

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