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2019 (4) TMI 1794 - AT - SEBIIssue of the Non-Convertible Debentures (NCDs) without complying with the listing provisions - Liability of directors - 'officer in default' - HELD THAT - The reading of the provisions of Section 5 of the Companies Act would show that in the absence of any of the officers specified in Clauses (a) to (c) any director or directors who may be specified by the Board would be called as officer who is in default and in absence of such specification all the directors would be termed as officers who are in default . The necessary consequence of Section 73(2) of the Companies Act would therefore follow. Appellant Yogesh Gemawat merely pointed out certain emails under which purportedly one Mr. Rahul Shah was directed to look after the work of raising funds as detailed (supra) and, thus, according to the appellants as there was a person charged by the Board with the responsibility as provided by Clause (f) of Section 5 of the Companies Act, the appellants would not be liable. However, it is merely an e-mail purported to have been sent by Mr. Sanjay Gupta. There is no regular appointment as such as per the provisions of the Companies Act nor there is anything to show that Mr. Rahul Shah has given his consent in this behalf. The prescription is found in this regard in Rule 4BB(2) and (3) under Companies (Central Government s) General Rules and Forms, 1956 and Form of consent is Form 1AB. In the absence of any document to show that any director was specified as per Clauses (a) to (c) of Section 5 of the Companies Act or any valid document to show that any person was authorized by the Board of Directors, the appellant cannot escape the liability as per Clause (g) of Section 5 of the Companies Act. Similar is the case regarding the other appellants. We do not find merits in any of the appeals.
Issues Involved:
1. Joint and several liability for contravention of the Companies Act and SEBI regulations in the issuance of Non-Convertible Debentures (NCDs). 2. Restraint orders on accessing and dealing in the securities market. 3. Refund of money collected through NCDs with interest. 4. Individual liability of directors and their defenses. Issue-wise Detailed Analysis: 1. Joint and Several Liability for Contravention of the Companies Act and SEBI Regulations: The appellants were held jointly and severally liable for contravening Sections 56, 60, 73, 117C of the Companies Act, 1956, and SEBI regulations regarding the offer and issue of NCDs by Neesa Technologies Ltd. (NTL) without complying with listing provisions. The WTM found that NTL offered NCDs amounting to ?5.96 crores to 341 persons during the financial year 2013-2014, which constituted a public issue under Section 67 of the Companies Act. Since NTL and its directors did not comply with Section 73(1) regarding compulsory listing, they were held liable. 2. Restraint Orders on Accessing and Dealing in the Securities Market: The impugned order restrained the appellants from accessing the securities market and prohibited them from buying, selling, or dealing in securities, directly or indirectly. They were also barred from issuing prospectuses, offer documents, or advertisements soliciting money from the public and from associating with any listed public company or any public company intending to raise money from the public. 3. Refund of Money Collected Through NCDs with Interest: The order directed NTL and the appellants, along with other directors, to jointly and severally refund the money collected through the issuance of NCDs to investors with interest at 15% per annum, compounded half-yearly until the actual payment. 4. Individual Liability of Directors and Their Defenses: Appeal No. 227 of 2016 - Mr. Yogesh G. Gemawat: Gemawat contended that he was merely an employee appointed as a director on April 1, 2013, and resigned on May 15, 2014. He claimed no knowledge of fund mobilization and argued that Sanjay Gupta was the key promoter. He also stated that he was a non-executive director for a short period without holding any shares. The WTM found him liable as he was a director during the relevant period. Appeal No. 228 of 2016 - Mr. Kamlendra Chunilal Joshi: Joshi argued that he was an employee appointed as an additional director on August 6, 2012, and resigned on July 15, 2013. He claimed he did not participate in the company's affairs and that financial decisions were made by Sanjay Gupta. The WTM held him liable as he was a director during the issuance of NCDs. Appeal No. 156 of 2017 - Mr. Sanjay Raghunath Prasad Gupta: Gupta contended that NCDs were issued through private placement and not a public issue. He stated that he was not on the board during the issuance period and that financial affairs were managed by other directors. The WTM found him liable as he was a director during the relevant period. Appeal No. 159 of 2017 - Mr. Arvind Kumar Jagannath Prasad Gupta: Gupta claimed he was an independent director not involved in day-to-day affairs or policy-making. The WTM held him liable as he was a director during the issuance of NCDs. Findings of WTM: The WTM found that all appellants were directors during the issuance of NCDs and continued to remain directors. Under Sections 5 and 73(2) of the Companies Act, read with Section 27 of the SEBI Act, all directors are liable if they do not comply with listing provisions. The WTM relied on the High Court of Madras decision in Madhavan Nambiar vs. Registrar of Companies, which held that all directors, whether full-time or part-time, are responsible for compliance with the Companies Act. Conclusion: The Tribunal dismissed all appeals, holding that the appellants could not escape liability under Sections 5 and 73(2) of the Companies Act. The restraint orders and refund directives were upheld, and the appellants were found liable for the contraventions. The appeals were dismissed with no order as to costs.
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