2011 (10) TMI 509 - HC - Indian Laws

SEBI - offences punishable under Section 24(1) and 27 - accused company was operating collective investment scheme and raised a huge amount from the general public in contravention with the SEBI Act and Regulations - allegations against its Directors and promoters who were not arrayed as an accused were that the accused through its promoters/Directors who are the persons in-charge and responsible for the day-to-day affairs of the company and all of who actively connived with each other for the commission of the offence - petitioners as directors of company were summoned - Petitioners sought quashing of proceedings pending against them Held that - Section 27 of the SEBI Act makes responsible all other Directors of the company who are responsible and in-charge of the day-to-day affairs of the company, however in a case of conspiracy number of people can be involved and this is the allegation of the Respondent in the complaint - Petition and application are dismissed

Issues:
1. Summoning of accused company and its Directors and promoters under SEBI Act.
2. Legality of summoning the Petitioners as Directors of the company.
3. Specific role assigned to the Petitioners in the complaint.
4. Interpretation of Section 27 of the SEBI Act regarding vicarious liability of Directors.
5. Jurisdiction of the Learned Additional Sessions Judge in summoning the accused.
6. Sufficiency of evidence against the Petitioners in the complaint.

Issue 1: Summoning of accused company and its Directors and promoters under SEBI Act
The Respondents filed a complaint under Section 24(1) and 27 of the SEBI Act against the accused company for operating a collective investment scheme in contravention of the SEBI Act and Regulations. The complaint alleged that the accused company, along with its Directors and promoters, actively connived for the commission of the offence. The Learned ACMM observed the commission of the offence and summoned all the accused, including the company, for appearance.

Issue 2: Legality of summoning the Petitioners as Directors of the company
The Petitioners challenged the summoning order, contending that they were not initially arrayed as accused, and no specific role was assigned to them in the complaint. They argued that summons were issued without proper application of mind by the Trial Court. The Respondent justified the summoning, stating that the Directors and promoters were specifically mentioned in the complaint, and the Learned Additional Sessions Judge had the jurisdiction to summon them.

Issue 3: Specific role assigned to the Petitioners in the complaint
The Petitioners argued that no specific allegations were made against them in the complaint, and vicarious liability cannot be imposed without individual roles being detailed. They cited precedents to support their claim that specific allegations are necessary for summoning Directors. However, the Respondent maintained that the complaint clearly implicated the Directors and promoters for conniving in the offence.

Issue 4: Interpretation of Section 27 of the SEBI Act regarding vicarious liability of Directors
The Respondent relied on Section 27 of the SEBI Act, which holds persons in-charge and responsible for the company's affairs liable for violations. They argued that the Directors, being responsible for the company's conduct, were rightfully summoned. Precedents were cited to differentiate the SEBI Act from other statutes concerning vicarious liability.

Issue 5: Jurisdiction of the Learned Additional Sessions Judge in summoning the accused
The jurisdiction of the Learned Additional Sessions Judge to summon the accused was challenged by the Petitioners. They contended that the summons should have been issued by the Magistrate, and the Additional Sessions Judge lacked the authority. The Respondent argued that the Additional Sessions Judge had the competence to summon the accused based on administrative orders.

Issue 6: Sufficiency of evidence against the Petitioners in the complaint
The Court analyzed the complaint and found that it explicitly mentioned the role of the Directors and promoters in the alleged offence. Citing a relevant legal position, the Court concluded that in cases of conspiracy, multiple individuals can be involved, justifying the summoning of the Petitioners as Directors. The Court dismissed the petition, upholding the legality of summoning the accused, including the Petitioners.

This detailed analysis of the judgment provides a comprehensive understanding of the legal issues involved and the Court's reasoning in addressing each concern raised by the parties.

← Previous Next →