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2023 (6) TMI 195 - HC - SEBIOffence under SEBI - person responsible for the commission of the offence - person responsible for the carrying out the business - liability of director - allegation of Fraudulent and Unfair Trade Practices - Additional Session Judge set aside the summoning order qua the Respondent No. 1 while observing that the Complaint filed did not contain any material to suggest that the Respondent No. 1 herein was responsible for the carrying out the business of IHIL - HELD THAT - It is now trite law that a Director cannot ipso facto, simply by virtue of being the director of a Company, be arraigned as an Accused by the SEBI Refer to SEBI v. Gaurav Varshney 2016 (7) TMI 642 - SUPREME COURT . By virtue of being a juristic person the acts attributed to a Company are attributed to the officers at the helm of affairs. Every person responsible for the commission of the offence or with the knowledge of whom the offence was committed, is liable for the offence. There is now burgeoning jurisprudence both under the SEBI Act, and under the Negotiable Instruments Act, 1881 which suggests that the liability is fastened upon an individual by virtue of being in charge, and being responsible when the offence was committed, and not merely on the basis of holding a designation or office in the company. Even an individual not holding a particular designation in the Company, but who was at the helm of affairs at the relevant time can be held liable. Hence, such vicarious criminality is not attributed to individuals simply by virtue of the position held by them in the company. The Director or officer of the company needs to have played a role in the functioning of the Company or in the commission of the offence, as recorded in the Complaint, to be arraigned as an Accused. There must be specific averments against the Accused Director detailing the manner in which the Director was responsible for the conduct of the business. A company may have numerous Directors, however, it is apposite to state that to make each of these Directors accused persons simply by virtue of their position in the Company is not the true import of Section 27 of the SEBI Act. As stated, there is not even a bald cursory averment which ties Respondent No. 1 to the allegations of price manipulation of IHILs stock. It appears that the Respondent No. 1 has been arraigned as an Accused solely by virtue of him being a Director in IHIL. On the contrary, the statements of Accused Nos. 16 and 10, categorically stated that the day to day affairs of IHIL were being handled by Mr. Prakash Gupta, Accused No. 16, Shri L.R. Maurya, Accused No. 10 and Shri. Shririam Maurya, Accused No. 11. It must also be noted that the Summoning Order dated 29.03.2000 was quashed qua similarly placed Accused Persons i.e., Mr. Vinod Kumar, also a Director of IHIL, Accused No. 12 and Mr. Pankaj Goel, Accused No. 20. In light of this, this Court does not find any reason to interfere with the order dated 24.03.2009 passed by the Learned Additional Session Judge in Revision Petition.
Issues Involved:
1. Legality of the summoning order against Mr. Arihant Jain. 2. Sufficiency of material in the complaint to establish a prima facie case. 3. Vicarious liability of a Director under Section 27 of the SEBI Act. Summary: Issue 1: Legality of the Summoning Order Against Mr. Arihant Jain The instant appeal was filed by SEBI under Section 401 of the CrPC, challenging the order dated 24.03.2009 by the Learned Additional Sessions Judge, which set aside the summoning order dated 20.03.2000 against Mr. Arihant Jain. SEBI had alleged that IHIL, where Mr. Jain was a director, was involved in artificially raising the price of its securities through buybacks by its group companies and associates. Issue 2: Sufficiency of Material in the Complaint SEBI's complaint under Sections 24 and 27 of the SEBI Act and various SEBI Regulations alleged price rigging and insider trading by IHIL. The Learned Additional Sessions Judge noted that the complaint lacked material suggesting Mr. Jain's responsibility for IHIL's business operations. SEBI argued that the complaint, when read in its entirety, established a prima facie case against Mr. Jain. However, the court found that the complaint did not contain specific averments detailing Mr. Jain's role, and the summoning order was unsustainable without such details. Issue 3: Vicarious Liability of a Director Under Section 27 of the SEBI Act The court emphasized that a Director cannot be held liable solely by virtue of their position. Section 27 of the SEBI Act requires that the individual must have been in charge of and responsible for the conduct of the business at the time of the offence. The court referred to jurisprudence indicating that liability is based on the individual's role in the company's functioning or the commission of the offence, not merely their designation. The complaint and statements from other accused indicated that Mr. Prakash Gupta and Mr. L.R. Maurya were managing IHIL's daily affairs, not Mr. Jain. Conclusion: The court found no reason to interfere with the order dated 24.03.2009, as the complaint did not incriminate Mr. Jain beyond his position as a Director. The petition was dismissed, and the summoning order against Mr. Jain was set aside.
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