2020 (2) TMI 871 - AT - SEBI

Independent director liability in respect of acts of omission or commission by a company - Fraudulent issue of debentures - HELD THAT - Decision to issue debentures and consequent allotment was made by the company during the period when the appellant had never attended the Board Meeting. The decision making process done by the company was concluded in the absence of the appellant. The appellant had no say in the decision making process made by company and its directors with regard to the issuance of debentures. Thus, the finding of the WTM in paragraph no. 18.4.2 of the impugned order that the appellant was involved in the decision making process relating to the issuance of debentures is factually incorrect and based on surmises and conjectures. The said finding in the light of the aforesaid cannot be sustained. Admittedly, the appellant was appointed as an independent director and was not involved in the day to day affairs. Section 42(10) of the Companies Act, 2013 indicates that where the company makes an offer or accepts monies in contravention of this Section in that case the company and its promoters and directors shall be liable for penalty. The provision makes it apparently clear that the liability of director is only to the extent of penalty and not for the refund of the monies collected from the subscribers. The liability to refund the amount under Section 42(10) of the Companies Act, 2013 is fastened upon the company. Thus, the direction of the WTM directing the appellant to refund the money is wholly incorrect. 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, consent or connivance or where the independent director had not acted diligently. In the instant case, there is no finding that the appellant had given his consent or that he had connived with the other directors in the issuance of debentures or had not acted diligently and therefore the liability to refund the amount cannot be fastened. The impugned order in so far as it relates to the appellants cannot be sustained and is quashed. The appeal is allowed. The amount realised by the respondent pursuant to the impugned order from the accounts of the appellants shall be refunded within four weeks from today along with the interest @ 12% per annum.

Summary

Issues:
1. Appeal against Directors of a company dismissed for want of prosecution.
2. Ex-parte interim orders restraining directors from accessing securities market.
3. Allegations of contravention of Companies Act, ICDR Regulations, and SEBI Guidelines.
4. Liability of an independent director in the decision-making process.
5. Application of Sections 42(10) and 149(12) of the Companies Act, 2013.
6. Interpretation of provisions regarding liability for refund of collected monies.
7. Analysis of relevant case laws - Pritha Bag v. SEBI, Sayanti Sen v. SEBI, Adi Cooper v. SEBI.
8. Tribunal's decision and direction for refund of money collected.

Analysis:
1. The appeal was initially dismissed against the Directors of a company, but later restored for one appellant. The case involved ex-parte interim orders restraining directors from market access due to alleged contravention of various laws.
2. An independent director, Appellant No. 3, argued lack of involvement in the company's affairs during the issuance of debentures. The Whole Time Member (WTM) found him liable for refund based on his attendance at board meetings.
3. The Tribunal noted that the decision to issue debentures was made before the appellant attended any board meetings, concluding his non-involvement in the decision-making process.
4. Sections 42(10) and 149(12) of the Companies Act, 2013 were analyzed to determine the liability of directors, emphasizing the need for consent or connivance for liability.
5. Case laws such as Pritha Bag v. SEBI, Sayanti Sen v. SEBI, and Adi Cooper v. SEBI were cited to support the argument that liability for refund should be based on specific findings of involvement or responsibility.
6. Ultimately, the Tribunal quashed the order holding the appellant liable for refund, emphasizing the lack of evidence of his involvement in the company's affairs during the relevant period.

This detailed analysis covers the issues raised in the judgment, including the legal interpretations, application of relevant provisions, and the Tribunal's final decision.