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2020 (2) TMI 101 - Board - SEBIResponsibility of Legal Representatives to refund the money collected from investors by the deceased - fund mobilising activity from the public - violation of provisions of respective provisions of the SEBI Act, 1992, the Companies Act, 1956, and Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 (DIP Guidelines) read with SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR Regulations) and SEBI (Merchant Bankers) Regulations, 1992 ( SEBI Merchant Banker Regulations) - HELD THAT - In exercise of the powers conferred under section 19 of the Securities and Exchange Board of India Act, 1992 read with sections 11, 11(4), 11A and 11B of the SEBI Act, hereby issue the following directions, without prejudice to the force and effect of directions issued in respect of other entities mentioned in the order - (a) Legal Representatives of Late Sh. Y.N.Saxena, in discharge liability under section 73(2) of Companies Act,1956, jointly and severally with SICCL and other directors as per the Order dated October 31, 2018, forthwith refund the money collected by the Company through the issuance of OFCDs including the application money collected from investors, pending allotment of securities, if any, with an interest of 15% per annum, from the eighth day of collection of funds, upto the extent of the assets inherited, to the investors till the date of actual payment to the extent of assets inherited by the LRs. (b) Legal Representatives of Late Shri Y.N.Saxena, in discharge liability under section 62 of Companies Act,1956 are, jointly and severally with SICCL and other directors as per the Order dated October 31, 2018, directed to deposit the money collected by the Company through the issuance of OFCDs along with the interest on the foresaid amount calculated with an interest of 15% per annum, from the eighth day of collection of funds, till the date of actual payment, in an Escrow Account opened with a nationalized Bank, upto the extent of the assets inherited by them. Legal Representatives of Late Shri Y.N. Saxena are directed to compensate from the said deposit, the investors in accordance with their subscription money along with interest. (c) The repayments and interest payments to investors shall be effected only through Bank Demand Draft or Pay Order both of which should be crossed as Non-Transferable . (d) Legal Representatives of Late Shri Y.N.Saxena are directed to provide a full inventory of all the assets and properties including details of all the bank accounts, demat accounts and holdings of mutual funds/shares/securities, if held in physical form and demat form, inherited from Late Shri Y.N.Saxena. (e) Legal Representatives of Late Shri Y.N.Saxena are jointly and severally with SICCL and other directors mentioned in the order dated October 31, 2018, directed to issue public notice, in all editions of two National Dailies (one English and one Hindi) and in one local daily with wide circulation, detailing the modalities for refund, including the details of contact persons such as names, addresses and contact details, within 15 days of this Order coming into effect. (f) After completing the aforesaid repayments, Legal Representatives of Late Shri Y.N.Saxena, shall file a report of such completion with SEBI, within a period of three months from the date of this order, certified by two independent peer reviewed Chartered Accountants who are in the panel of any public authority or public institution. For the purpose of this Order, a peer reviewed Chartered Accountant shall mean a Chartered Accountant, who has been categorized so by the Institute of Chartered Accountants of India ( ICAI ) holding such certificate. (g) In case of failure of Legal Representatives of Late Shri Y.N.Saxena to repay as per applicable law as per the aforesaid applicable directions, SEBI, on the expiry of three months period from the date of this Order may recover such amounts to the extent of assets inherited by the Legal Representatives from Sh. Y. N. Saxena in accordance with section 28A of the SEBI Act including such other provisions contained in securities laws.
Issues Involved:
1. Whether any order finally adjudging the issues has been passed against deceased person Sh. Y.N.Saxena and the proceedings are against dead person. 2. Whether non-representation and no knowledge of the proceedings subsequent to SCN dated February 20, 2015 vitiates the present proceedings pursuant to the representation of the LRs. 3. Whether Late Sh. Y.N.Saxena is liable under Section 73(2) and under Section 62(1) of Companies Act. 4. Whether refund liability under section 73(2) is penal in nature or strict statutory liability of civil nature and what is the test of the liability based on any specific role of the officer in default. 5. Whether cause of action under section 73(2) and under Section 62(1) survive the demise of Sh. Y.N.Saxena, and if it survives, the extent of liability of Legal Representatives of Sh. Y.N.Saxena. Detailed Analysis: Preliminary Issues: 1. Order Against Deceased Person: - The LRs argued that proceedings against a dead person are null and void, citing several judgments. SEBI issued the SCN on February 20, 2015, without knowledge of Sh. Y.N. Saxena's death. SEBI was informed about his death on February 6, 2018. The order dated October 31, 2018, was essentially a show cause notice to the LRs, ensuring compliance with natural justice principles. Therefore, the proceedings are not null and void as the LRs were given notice and an opportunity to respond. 2. Non-representation and Knowledge: - The SCN dated February 20, 2015, was issued against Sh. Y.N. Saxena when SEBI was unaware of his death. The LRs were subsequently given notice and participated in the proceedings. Hence, non-representation and lack of knowledge prior to the service of the order dated October 31, 2018, do not vitiate the proceedings. Issues on Merits: 1. Liability under Section 73(2) and Section 62(1): - Late Sh. Y.N. Saxena was a director of SICCL from December 22, 1998, to November 30, 2012. The MCA records confirm his directorship. As per Section 5(g) of the Companies Act, 1956, he is considered an officer in default and is liable to refund the money collected by SICCL through OFCDs during his tenure. He also signed the RHP and Prospectus, making him liable for misstatements and untrue statements under Section 62(1). 2. Nature of Refund Liability: - The liability under Section 73(2) is not penal but a strict statutory liability of civil nature. It mandates the refund of money collected through OFCDs with interest. The liability is joint and several, not based on the specific role of the officer in default. 3. Survival of Cause of Action: - The cause of action under Sections 73(2) and 62(1) survives the demise of Sh. Y.N. Saxena. The liability is not personal but impacts the proprietary rights of the investors. Section 306 of the Indian Succession Act applies, and the liability extends to the assets inherited by the LRs. The fiduciary duty of directors to the company and its shareholders also supports the survival of the cause of action. Conclusion: - The legal representatives of Late Sh. Y.N. Saxena are liable to refund the money collected through OFCDs during his tenure as director, with interest, to the extent of the assets inherited. The liability is joint and several with other directors and SICCL. The cause of action survives his demise, and the proceedings are valid despite being initiated after his death. The LRs must provide a full inventory of inherited assets and comply with the refund directions issued by SEBI.
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