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TMI Blog2019 (8) TMI 1441X X X X Extracts X X X X X X X X Extracts X X X X ..... is offer of NCDs was found to be in violation of the provisions of SEBI Act, 1992, the Companies Act, 1956 and SEBI (Issue and Listing of Debt Securities) Regulations, 2008 ('ILDS Regulations' for short). Accordingly, SEBI passed an order dated March 3, 2016 and issued certain directions including debarment and refund to the investors against SPIL and its Directors. Since the directions were not complied with, SEBI initiated recovery proceedings against the Company and its Directors. 2. Subsequently, it came to notice that the appellant along with Shri Shib Narayan Das and Ms. Antara Mukherjee were also Directors of SPIL during the issuance of the NCDs. SEBI also found that these persons were also engaged in fund mobilizing activity and also violated the provisions of SEBI Act, the Companies Act and ILDS Regulations and accordingly issued an interim order dated March 7, 2016, namely:- "i. The past Directors of SPIL viz. Mr. Shib Narayan Das (PAN: AGBPD7440C; DIN: 02414547), Ms. Antara Mukherjee (PAN: AWZPM5169R;DIN:02418378), Ms. Sayanti Sen (PAN: DGIPS5090H; DIN: 03442949), are prohibited from issuing prospectus or any offer document or issue advertisement for solicitin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the annual general meeting of member of the Company. 6. In the light of the aforesaid submissions the Whole Time Member ('WTM' for short) after considering the matter and after giving an opportunity of hearing passed the impugned order holding that the appellant is jointly and severally liable to refund the money collected by SPIL as she was a Director in the Company. The WTM further held that since Shri Shib Narayan Das was the key person of the Company, the recovery of the amount will be made from the assets of Shri Shib Narayan Das in the first instance and thereafter from the appellant and other Directors. The appellant being aggrieved by the aforesaid order has filed the present appeal. 7. We have heard Shri Vinay Chauhan, the learned counsel for the appellant and Shri Mustafa Doctor, the learned senior counsel for the respondent. 8. The WTM found that SPIL came out with an offer with NCDs which was in violation of Section 56, 60 read with Section 2(36), Section 73 and Section 117C of the Companies Act read with ILDS Regulations. The WTM held that even though the appellant may not be involved in the decision making process, nonetheless, the appellant cannot wriggle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of complying with that provision: Provided that the person so charged has given his consent in this behalf to the Board; (g) where any company does not have any of the officers specified in clauses (a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors: Provided that where the Board exercises any power under clause (f) or clause (g), it shall, within thirty days of the exercise of such powers, file with the Registrar a return in the prescribed form." Section 73 "73. Allotment of shares and debentures to be dealt in on stock exchange (1) Every company, intending to offer shares or debentures to the public for subscription by the issue of a prospectus shall, before such issue, make an application to one or more recognized stock exchanges for permission for the shares or debentures intending to be so offered to be dealt with in the stock exchange or each such stock exchange. (1A) Where a prospectus, whether issued generally or not, states that an application under sub-section (1) has been made for permission for the shares or debentures offered thereby to be dealt in one or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies Act, however, makes a slight departure from this conventional pattern. It gives an opportunity to the board of directors to distribute the work as between the members of the board or to appoint a managerial person like managing director or whole time director or manager. If nothing of this sort is done, only then the whole board is liable to be prosecuted. 13. As per Section 5 of the Companies Act it becomes clear that a managing director, whole time director, manager, secretary and any person who has been authorized by the board or by any director are now officers in default. Section 5(g) of the Companies Act makes it apparently clear that if there is a managing director appointed in a company, he would be an officer in default. Further, in the absence of any managing director, if the board has specified any particular director or manager or any other person as an officer in default in which case only that specified director or manager etc. as the case may be would be an officer in default. 14. Section 5(g) of the Companies Act further provides that apart from the directors any officer can also be penalized if his role can be attributed to be an officer in default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant was responsible for the acts of the Company and thereby in an indirect manner has introduced the concept of strict liability of vicarious liability under Section 11 or 11B of the SEBI Act. In this regard it would be, thus, relevant to peruse Section 27 of the SEBI Act which reads as follows:- "27(1) Where an offence under this Act has been committed by a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this subsection shall render any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in subsection (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r:- "vicarious liability being an incident of an offence under the Act. So far as the Directors are concerned, there is not even a whisper nor a shred of evidence to show, apart from the presumption drawn by the complainant, that there is any act committed by the Directors from which a reasonable inference can be drawn that they could also be vicariously liable. In these circumstances, therefore, we find ourselves in complete agreement with the argument of the High Court that no case against the Directors (accused 4 to 7) has been made out ex-facie on the allegations made in the compliant and the proceedings against them were rightly quashed." Sham Sunder and Ors. v. State of Haryana - (1989) 4 SCC 630 - paragraph 10:- "It is therefore, necessary to add an emphatic note of caution in this regard. More often it is common that some of the partners of a firm may not even be knowing of what is going on day to day in the firm. There may be partners, better known as sleeping partners who are not required to take part in the business of the firm. There may be ladies and minors who were admitted for the benefit of partnership. They may not know anything about the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that any person was authorized by the Board of Directors, the appellant could not escape the liability as per Clause (g) of Section 5 of the Companies Act. 24. In Pritha Bag vs. SEBI (Appeal No. 291 of 2017 decided on 14.02.2019) this Tribunal held that in the absence any finding that the appellant was entrusted to discharge his functions contained in Section 73 of the Companies Act and in the absence of any material to show that the said appellant was entrusted to discharge as an officer in default as set out in Clauses (a) to (c) of Section 5 of the Companies Act, the said appellant could not be penalized under Section 73(2) of the Companies Act. The said decision is squarely applicable in the instant case. 25. In SEBI vs. Gaurav Varshney, (2016) 14 SCC 430 the Supreme Court held that a company being a juristic person, all its deeds and functions are the result of acts of others. Therefore, officers of a company who are responsible for acts done in the name of the company are sought to be made personally liable for acts which result in criminal action being taken against the company. It makes every person who, at the time the offence was committed, was in charge of, and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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