9911796707
TMI Blog2011 (2) TMI 1258X X X X Extracts X X X X X X X X Extracts X X X X ..... ence was committed was in charge of and was responsible to the company for the conduct of the business of the company, shall also be deemed to be guilty of the offence along with the company. - Decided against the appellant. This statement of the Appellants does not absolve the Appellants of their criminal liability even if they have not floated any new C.I.S. after the public notice issued on 18-12-1997. In terms of Regulation 5(1) the Appellant was bound to make an application for grant of certificate within two weeks from the date of coming into force of the Regulation which mandatory requirement was not complied with by the Appellants. They did not even comply with Regulation 74 which provided for the procedure as contemplated under Regulation 73 to formulate the scheme of re-payment. Merely writing to the Respondent that the Appellant was desirous of taking benefit of scheme under section 12(1B), the Appellant was not absolved from the further liabilities. - CRL. APPEAL NO. 220 OF 2010 - - - Dated:- 8-2-2011 - MS. MUKTA GUPTA, J. Amit Kumar Ms. Nisha Neel for the Petitioner. Sanjay Mann and Rakesh Singh for the Respondent. JUDGMENT 1. By the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 read with section 27 of the Act. CW2 Ms. Jyoti deposed and exhibited various public notices and stated that the Appellant No. 1 did not get the scheme registered with the SEBI prior to mobilization of the fund and that till date i.e., till the date of her evidence, the Appellant No. 1 had neither applied for registration nor any provisional registration was granted to it. The Appellant No. 1 and its Directors did not even file the winding up and repayment reports despite being intimated regarding the statutory obligations. After recording of the statements of the accused, they led their defence evidence by examining Sh. Tarsem Saini, Appellant No. 2 as defence witness, who in his cross-examination admitted having not complied with the statutory provisions. 4. Learned counsel for the Appellant contends that the Appellant i.e., the Company and its Directors could not be prosecuted as the Company itself was wound up on 5-7-2001 pursuant to the order passed by the Hon ble Punjab and Haryana High Court and the complaint was filed on 21-12-2002 when the Company which was a juristic person was no more in existence and its Directors also had lost their identity. Despite section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson can be prosecuted if he is running an existing collective investment scheme. To comply with Regulation 71, the grounds for winding up of the same existed before the learned Trial Court. The winding up of the Company under the Companies Act is different from the winding up of the C.I.S. as contemplated under Regulation 73. The provision of section 11C of the Act conferring powers of investigation on SEBI came into effect on 29-10-2002 whereas the Company was directed to be wound up on 15-7-2001, thus no investigation could have been carried out by the SEBI in terms of section 11C of the Act. The directions in terms of section 11B of the Act were also passed on 7-11-2000. The violation of Regulation 73 is continuing in nature till the amount is not paid back to the investors and the scheme is not wound up in terms of Regulation 73. Reliance is placed on Vishnu Prakash Bajpai v. SEBI [2010] 98 SCL 258 (Delhi) to contend that the contravention of the provision of the Act by not refunding money collected by it from the persons who had invested the money in its collective investment schemes is a continuing offence till the time company complies with the Regulations and the direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) sub-section (2) of section 30. Regulations 68(1) provides that any person who has been operating a C.I.S. at the time of commencement of these regulations, shall be deemed to be an existing C.I.S. and shall also comply with the provisions of this chapter. Sub-clause (2) directs the applicant to give a written undertaking to the SEBI to comply with the conditions specified in Regulation (5). In terms of sub-regulation (3) of Regulation 71 the applicant who has been considered eligible for the grant of provisional registration by the SEBI shall pay provisional registration fee as per Second Schedule. Sub-Regulation (4) of Regulation 71 states that an applicant who after grant of provisional registration fails to comply with the conditions as specified in sub-regulation (1) and sub-regulation (9) shall not be considered eligible for the grant of certificate for registration under Regulation 10 and shall wind up the scheme in the manner specified in Regulation 73. Regulation 72 provides for grant of registration certificate to an existing C.I.S. which satisfies the SEBI that the requirements specified in Regulation 9 and the conditions specified under Regulation 71 have been fulfill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme shall file with the Board such reports, as may be specified by the Board. 74. Existing scheme not desirous of obtaining registration to repay. An existing collective investment scheme which is not desirous of obtaining provisional registration from the Board shall formulate a scheme of repayment and make such repayment to the existing investors in the manner specified in regulation 73." 9. Ms. Versha Aggarwal, Manager, SEBI who appeared as CW1 has deposed that she was working as Manager, SEBI and was authorized to continue this complaint by the delegation of power signed by the Chairman, SEBI. Mr. Sarad who had filed the complaint was authorized to file the same on behalf of the SEBI, identified his signature as she had seen him working during his duties. A public notice dated 18-12-1997 was issued that the companies which had issued instruments such as agro bonds, plantation bonds would be treated as C.I.S. coming under the provisions of SEBI Act. By the said notice companies were required to file their information i.e., details of Directors, fund mobilized, copy of memorandum and articles with SEBI. The Appellant No. 1 vide its letter received on 18-12-1997 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued direction under section 11B of the Act and directed the Company to refund the money collected under the scheme within a period of one month from the date of order failing which further action will be initiated. The contents of the said order was specifically brought to the notice of the Company vide letter dated 18-12-2000 and by way of public notice dated 14-1-2001 wherein a list of 523 entities along with the text of directions issued under section 11B of the Act was duly published. The name of the Company in the said list of 523 entities appeared at serial No. 37. According to CW1 till the date of her evidence i.e., 22-3-2007, the Company did not file the winding up and repayment report, thereby not complying with the Chairman s order and thus violated the provisions of the Act and the Regulations. 10. CW2 Ms. Jyoti Jindgar, Deputy General Manager, SEBI has deposed that she was competent to continue the said complaint in view of the delegation of powers dated 21-4-2003 exhibited as Ex. CW2/1. She further stated that non-compliance of SEBI directions and the violations of section 12(1B) of the Act and the Regulations made thereunder is attributable to accused Nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s at this stage it does not lie in the mouth of the Appellant to contend that the Regulations related to existing C.I.S. and did not apply to it because when the Regulations came into force i.e., on 15-10-1999 the Appellant was running a collective investment scheme and thus was running an existing collective investment scheme and could do so without any registration or without applying for the same. Moreover, Regulation 5(1) provides that prior to the date of coming into force of the Regulations, any person who was running an existing collective investment scheme should apply for grant of certificate within two months from such date. This Regulation was also not complied with by the Appellant. Thus, there is no merit in the contention of the learned counsel that there is no violation of Regulations 68(1), 68(2), 73 and 74. 12. I also do not find any force in the contention of learned counsel for the Appellant that since the Company was wound up vide order dated 5-7-2001 no complaint could have been filed by the SEBI in December, 2002 as the Company which was a juristic person was non-existent and its Directors had lost their identity. This contention of the Appellant is wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the eye of law." 13. Learned counsel has strenuously argued that since the Company was directed to be wound up pursuant to the order passed by the High Court of Punjab Haryana which fact has been proved by the testimony of DW1 Sh. Tarsem Saini who has exhibited vide Ex. DW1/1 the certified copy of the order of High Court of Punjab and Haryana dated 5-7-2001 in Company Petition No. 187/1999 passing the order of winding up of the Appellant No. 1, thus no separate winding up would be required under the provisions of Regulation 73. This contention of the learned counsel also deserves to be rejected. The winding up of the Company under the provisions of the Companies Act is not akin to the winding up contemplated under Regulation 73. Regulation 73 provides that an existing Collective Investment Scheme which has failed to make an application for registration to SEBI or which has not been granted provisional registration or which has failed to comply with the provisions of Regulation 71 shall wind up the existing scheme. In order to wind up the existing C.I.S. an information memorandum is required to be sent to the investors who have subscribed to the scheme, within two month ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of that Act, the Board of Directors of a Company shall be entitled to exercise all such powers and to do all such acts and things as the Company is authorized to exercise and do. Palmer described the position thus : A company can only act by agents, and usually the persons by whom it acts and by whom the business of the company is carried on or superintended are termed directors.... ." It is further stated in Palmer that: "Directors are, in the eye of the law, agents of the company for which they act, and the general principles of the law of principal and agent regulate in most respects the relationship of the company and its directors." The above two passages were quoted with approval in R.K. Dalmia v. Delhi Administration AIR 1962 SC 1821. In Guide to the Companies Act by A. Ramaiya (Sixteenth Edition) this position is summed up thus : "All the powers of management of the affairs of the company are vested in the Board of Directors. The Board thus becomes the working organ of the company. In their domain of power, there can be no interference, not even by shareholders. The directors as a board are exclusively empowered to manage and are exclusively responsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial dealings with a company, would satisfy himself about its creditworthiness and reliability by looking at its promoters and Board of Directors and the nature and extent of its business and its memorandum or articles of association. Other than that, he may not be aware of the arrangements within the company in regard to its management, daily routine, etc. therefore, when a cheque issued to him by the company is dishonoured, he is expected only to be aware generally of who are in charge of the affairs of the company. It is not reasonable to expect him to know whether the person who signed the cheque was instructed to do so or whether he has been deprived of his authority to do so when he actually signed the cheque. Those are matters pecularly within the knowledge of the company and those in charge of it. So, all that a payee of a cheque that is dishonoured can be expected to allege is that the persons named in the complaint are in charge of its affairs. The Directors are prima facie in that position. 15. ****** 16. In the light of the ratio in S.M.S Pharmaceuticals Ltd. what is to be looked into is whether in the complaint, in addition to asserting that the appellant an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs accused Nos. 2 to 6 were intimated regarding obligations under SEBI regulations and directions passed by Chairman SEBI through public notices dated 10-12-1999 and 7-12-2000, which was published on 14-1-2001 which are Ex. CW-2/2 and Ex. CW-2/3 respectively". No cross examination of this witness had been conducted on this aspect. Thus the testimony of this witness on this aspect has gone unchallenged. In response to the question No. 2 that the Appellant No. 1 that is the company had filed the details including the list of Directors, funds mobilized and memorandums and articles exhibited as Ex. CW1/1, the Appellant Nos. 2 to 5 in their statements under section 313 Cr.P.C. have stated that we did not file this information. They have shown ignorance even about the audited balance-sheets etc. However, the defence witness DW1 Tarsem Saini has stated in his testimony that the company was run by the Appellant Nos. 2 to 5 and Hemant Sharma as directors. The relevant part of the testimony of DW1 reads as under : "....Accused No. 1 company had mobilized only Re. 1 to 1.5 lac rupees and the same stand repaid. It is wrong to suggest that the accused No. 1 company has received Rs. 34,79,151 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent is only relying on the undertaking given by the Appellant No. 1 that they will comply with any further directions on collective investment scheme that may be issued by the SEBI from time to time but are not considering their explanation in the said exhibits that they had not floated any new collective investment scheme subsequent to public notice issued by SEBI on 18-12-1997 and they were not mobilizing any further funds under the existing schemes. This statement of the Appellants does not absolve the Appellants of their criminal liability even if they have not floated any new C.I.S. after the public notice issued on 18-12-1997. In terms of Regulation 5(1) the Appellant was bound to make an application for grant of certificate within two weeks from the date of coming into force of the Regulation which mandatory requirement was not complied with by the Appellants. They did not even comply with Regulation 74 which provided for the procedure as contemplated under Regulation 73 to formulate the scheme of re-payment. Merely writing to the Respondent that the Appellant was desirous of taking benefit of scheme under section 12(1B), the Appellant was not absolved from the further li ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
