2020 (2) TMI 1417 - AT - SEBI

Misfeasance committed by the company - Liability of directors - Collective Investment Scheme - part of the mobilization of the fund was collected during the period when the appellant was appointed as a director and therefore have been held liable - WTM directed the company and its directors including the appellant to abstain from collecting any money from the investors or to carry out any Collective Investment Scheme including the nd further restrained the appellant and others from accessing the securities market and prohibited them from buying, selling or otherwise dealing in securities market for a period of 4 years - THAT - Misfeasance committed by the company -HELD THAT - An independent director shall be held liable only in respect of such acts of omission or commission by a Company which had occurred with his knowledge, attributable through a Board processes, and with his consent or connivance or where he had not acted diligently. In the instance case, there is no finding by the WTM that the acts of the Company in the collection of the funds had occurred with the appellant's knowledge or that the appellant was part of the decision making processes through Board's resolution or that the funds and the activities of the Company was being done with his consent or connivance. Further, we find that there is no finding that the appellant had not acted diligently. In fact, the record indicates the appellant was only appointed for a period of 5 months and had not attended any meeting of the Board. Thus the impugned order in so far as the appellant is concerned cannot be sustained and is quashed. The appeal is allowed to that extent.

Summary

Issues:
1. Whether the scheme floated by the company was a Collective Investment Scheme (CIS) under SEBI regulations?
2. Liability of an independent director for misfeasance committed by the company during their tenure.
3. Interpretation of Section 149(12) of the Companies Act, 2013 regarding the liability of independent directors.

Analysis:
1. The appeal was filed against an order holding the company's scheme as a CIS without proper registration, directing to abstain from collecting money, and restricting securities market activities for 4 years. The appellant, an independent director, resigned shortly after appointment. The appellant argued lack of involvement in company affairs and reliance on CIS Regulations for appointment.

2. The appellant contended that being an independent director without shareholding or direct association with company operations, they should not be held liable for misfeasance. A reference was made to a Madras High Court decision emphasizing a director's duty to diligently oversee company affairs.

3. The Tribunal noted the appellant's limited role, non-attendance at board meetings, and lack of involvement in decision-making or fund collection. Section 149(12) of the Companies Act, 2013 was analyzed to establish liability criteria for independent directors based on knowledge, consent, or connivance in company acts. The Tribunal found no evidence of the appellant's involvement in the company's activities or lack of diligence.

4. The Tribunal differentiated the case from the Madras High Court decision, emphasizing the lack of negligence on the part of the appellant. Consequently, the impugned order regarding the appellant's liability was quashed, and the appeal was allowed in favor of the appellant.

This detailed analysis of the judgment addresses the issues raised, including the classification of the scheme as a CIS, the liability of an independent director, and the interpretation of relevant legal provisions.