2021 (4) TMI 1367 - AT - SEBI

Fraudulent GDR issue - Fraudulent and Unfair Trade Practices relating to Securities Market - Sigle entity subscriber to the GDR issue - penalty on directors - HELD THAT - As appellant Mr. Govind Das, Mr. Bharat Kumar and Mr. Avichal were admittedly independent non executive directors. The resolution itself would show that they did not participate in the issue of GDR proceeds at any point of time after passing of the resolution. All the necessary followup was to be carried by the Managing Director. No case of adverse inference that they should have taken efforts to bring back GDR proceeds was made out against them in any of the impugned order as argued before us and, therefore, they could not have been penalised or restrained as detailed supra. Appellant Mrs. Jyoti Bankda is concerned, admittedly on the very day of the passing of the resolution she had resigned from the Directorship of the Company and the same was accepted. Necessarily she cannot be made liable for the subsequent acts of entering into account charge agreement by appellant Mr. Ajay Bankda, the Managing Director with the EURAM Bank on the strength of the resolution. Therefore, she also could not have been penalised or restrained by the respondent SEBI. Appellant Mr. Ajay Bankda the then Managing Director of the Company, the Company itself and appellant Mr. Jagdish Bagaria, the Whole Time Director are concerned, they cannot escape the liability. The Company would be liable for the acts of the Managing Director. So also the Managing Director is also liable for any default committed by the Company. Appellant Mr. Jagdish Bagaria was the Whole Time Directors and, therefore, he cannot plead that he was not aware of the day to day affair of the Company which included non return of GDR proceeds to the Company. Their involvement in the fraudulent activity as detailed supra is writ large from the record. Though the appellant Mr. Ajay Bankda claims that he had merely signed the documents religiously on instructions by the Lead Manager, being a Managing Director he cannot claim that he was not aware of the result of the account charge agreement i.e. misappropriation of the GDR proceeds.

Summary

Issues Involved:
1. Delay in filing appeals
2. Restraining appellants from accessing securities market
3. Imposition of penalties for violations of regulations
4. Liability of different appellants in the case

Issue 1: Delay in filing appeals
The judgment begins by condoning the delay in filing the appeals based on the reasons stated in the applications. The miscellaneous applications for condonation of delay are allowed, indicating a procedural issue addressed at the outset.

Issue 2: Restraining appellants from accessing securities market
The judgment discusses two separate orders by the Whole Time Member (WTM) of the respondent Securities and Exchange Board of India (SEBI) and the Adjudicating Officer (AO) concerning the appellants. The WTM restrained all appellants from accessing the securities market for five years, while the AO imposed penalties for violations of various regulations. The orders were based on violations of specific regulations related to fraudulent and unfair trade practices in the securities market.

Issue 3: Imposition of penalties for violations of regulations
The common facts of the case involve the issuance of Global Depository Receipts (GDRs) by the appellant Company, where the GDR proceeds were not utilized as intended but were instead used to create a false impression of immediate subscription. The GDRs were later converted into equity shares and sold in the Indian securities market. The judgment details the involvement of different appellants in these transactions and their defenses against liability.

Issue 4: Liability of different appellants in the case
The judgment analyzes the roles of each appellant in the case. Independent non-executive directors were found not liable as they did not participate in the GDR proceeds issue after passing the resolution. A resigned director was also deemed not liable for subsequent actions. However, the Managing Director, Whole Time Director, and the Company were held liable for their involvement in the fraudulent activities based on their roles and responsibilities. The judgment concludes by allowing some appeals and dismissing others based on the individual liability of each appellant.

Overall, the judgment provides a detailed analysis of the issues involved, focusing on the violations of regulations, individual liabilities of the appellants, and the rationale behind the decisions regarding penalties and restraints in accessing the securities market.