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TMI Blog2020 (2) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to as Noticee ) in the matter of Sahara India Commercial Corporation Limited (hereinafter referred to as SICCL / the Company ). 2. SEBI vide said Order dated October 31, 2018 observed that SICCL had engaged in fund mobilising activity from the public, through the Offer of OFCDs (hereinafter referred to as 'Offer of OFCDs') during the financial years 1998-2009 and raised at least an amount of ₹ 14,106 Crores from at least 1,98,39,939 allottees, which was found to be in 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). 3. In the light of the observations and findings mentioned in Order dated October 31, 2018 (the details are not reiterated for the sake of brevity), the following directions were issued against the Noticee and other entities vide the Order dated October 31, 2018: ** ** ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subscription money along with interest. (c) The repayments, compensation amount 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) If the Company had repaid the investors as per their submissions as per section 73(2) of the Companies Act, the above directions in (a) and (b) shall be applicable as modified herein, for the amounts claimed to have been returned to the investors: Such prior repayments should have been made by the Company as per the requirements laid down in paragraph 87(c) above and the same shall be certified by peer reviewed Chartered Accountants, as directed in paragraph 87(j) below. (e) Shri Subrata Roy Sahara, Shri O.P.Shrivastava, Shri J.B.Roy, Lt.Gen.(Retd.) A.S. Rao, Shri Ranoj Das Gupta, Shri I. Ahmad, Shri O.P.Dixit, Shri. Asad Ahmad and Shri. A.N. Mukherjee and Shri C.B.Thapa are directed to provide a full inventory of all their assets and properties and details of all their bank accounts, demat accounts and holdings of mutual funds/shares/securities, if held in physical form and demat form. Legal Representatives of Late Lt. Col. (Retd) D. S. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details, within 15 days of this order coming into effect. (j) after completing the aforesaid repayments, siccl, shri subrata roy sahara, shri o.p.shrivastava, shri j.b.roy, lt.gen.(retd.) a.s. rao, shri ranoj das gupta, shri i. ahmad, shri o.p.dixit, shri. asad ahmad and shri. a.n. mukherjee, shri c.b.thapa, legal representatives of late lt. col. (retd) d. s. thapa as per applicable law, legal representatives of late shri p.s.mishra as per applicable law, legal representatives of late shri y.n.saxena as per applicable law, 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. (k) in case of failure of respective entities 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public company and any public company which intends to raise money from the public, or any intermediary registered with sebi for a period of 4 (four) years from the date of this order. (o) the entities who are subject to the order of hon'ble supreme court of india mentioned in paragraph 86 of this order shall, in accordance with the directions of the said order deposit the sale proceeds of the assets in the sebi sahara refund fund. the said fund shall be utilised for the repayment of the investors of this company with the prior permission of the hon'ble supreme court. 88. the above directions shall come into force with immediate effect subject to paragraph 86. 89. as noted above, shri y.n.saxena has expired on 1.11.2013, shri p.s.mishra has expired on 1.07.2012 and Lt. Col. (Retd.) D.S.Thapa expired on 5.9.2005. However, their legal representatives have not been brought on record. Therefore, the directions against Shri Y.N.Saxena, Shri P.S.Mishra and Lt. Col. (Retd.) D.S.Thapa are made contingent on SEBI serving this order to their legal representatives. Therefore, this order will take effect as final order against Legal Representatives of Shri Y.N.Saxena, Shri P.S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Representative availed the opportunity of inspection and copy of the documents were given to them in a Compact Disc (CD) during the Inspection and also through letter dated April 08, 2019. However, the CD sent through letter could not be delivered to the Authorised Representatives before the date of hearing, hence, another opportunity of hearing was granted to the LRs through their Authorised Representative on June 04, 2019 at SEBI. Personal Hearing and submissions: 6. On June 04, 2019 Mr. Anshumaan Sahni and Mr. Apurv Chandola, Advocates and Authorized Representatives (hereinafter referred to as ARs ) on behalf of legal representatives of Late Sh. Y.N.Saxena appeared for hearing and submitted reply on merits dated June 01, 2019 (furnished during the hearing on June 4, 2019) to the Order dated October 31, 2018 along with relied upon documents. ARs made oral submissions in line with their earlier preliminary submissions dated January 29, 2019 and Reply on merits dated June 01, 2019. AR was advised to submit their view as to the DIN issued in the name of Late Sh. Y.N. Saxena as a director of SICCL. ARs were granted time upto June 14, 2019 to submit the same and additional w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the orders passed by the Adjudication Officers of SEBI, WTM and SAT from 2006 till 2018 which held that the proceedings against persons who are dead are null and void and have abated said proceedings viz., Chandravadan J. Dalal: SAT Appeal No. 35/2005 dated 15.06.2005; Chandravadan J. Dalal: WTM: M0/54/IVD/11/2006 dated 02.11.2006: In Re: Late Mr. Mahalingam, in the matter of Mis. Shakti Finance Ltd.: Adj. Order No: AK/A0-3112016 dated 14.09.2016: In Re: Prabir Chakravarti, in the matter of M/s. Bhoruka Aluminium Limited: Adj. Order No. ORDER/ SRP/ HK.SI 2018-19/ 11888 dated 23.08.2018 In Re: Jaikumar Vishwanath Mishra (Deceased), in the matter of Bank of Rajasthan Ltd.: Adj. Order No. BM/ A0-46/ 2012 dated 12.09.2012; In Re: Ramnath Raman (Deceased), in the matter of M is. Inland Printers Ltd.: Adj. Order No. AKJ A0-67-73/2 014 dated 30.04.2014; and In Re: Late Mrs. Tribenidevi Poddar, in the matter of Govind rubber Ltd.: Adj. Order No. EAD/ PM-AB/ AO/ 2512018-19 dated 31.08.2018. B. Non-Representation and no Knowledge of proceedings: It is submitted that the Show-Cause Notice issued to Late Sh. Y.N. Saxena is unserved. It is reiterated that he could not have been serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings, Further reliance is placed on a decision of a Five Judge Bench of the Hon'ble Supreme Court in the case of Smt. Lila Vati Devi . ii. Girijanandini vs. Brijenra Narain: (1967) 1 SCR 93: AIR 1967 SC 1124: The Hon'ble Supreme Court observed that in case of personal actions, i.e. the actions where the relief sought is personal to the deceased, the right to sue will not survive to or against the representatives and in such cases the maxim, actio personalis moritur cum persona (personal action dies with the death of the person) would apply. In the instant case, the Impugned Final Order puts a penalty of refund/ recovery of money on Noticee No. 13, this is personal to Late Sh. Y.N. Saxena, and hence comes within the exceptions of S. 306 and thus the proceedings cannot continue when the person was already dead before the proceedings began. This decision cannot be used here to support stance of the SEBI that the refund liability is not personal in nature, it very much is personal in nature. Giving an order to extract the alleged liability from a deceased person's estate does not make it the liability of the estate or his Legal Representatives', it remains p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings and their abatement, the Madras High Court in the case of Savithiri Ammal vs. State of Tamil Nadu: 2006 (3) Mad LJ 389 has clearly held that when a land acquisition notification was issued in the name of a deceased person and the heirs informed the Authority that the said person was no more, yet the Authority went ahead to declare the lands of the person acquired; the Hon'ble High Court by holding that as a general principle of law, proceedings against a dead person are null and void, quashed the Notification and the Acquisition and the complete proceedings thereunder. D. Penalty Personal in Nature: It is submitted that the Impugned Final Order failed to discuss on any evidence about any wrongful gain made or loss averted to cause such disgorgement from Late Sh. Y.N. Saxena. There has been no enquiry done to even find out if he received any funds at all from SICCL. The Income-tax Returns of Late Sh. Y.N. Saxena show that he was an employee receiving salary from Sahara India Parivar. There is no financial reward/ amount either alleged or proved in the Impugned Final Order as against Late Sh. Y.N. Saxena. Thus, the foisting of liability on Late Sh. Y.N. Saxena to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the MCA i.e., the Annual Return and Balance Sheet for the period from 2008 to 2018, reveal that Late Sh. Y.N. Saxena was simply a non-Executive Director with SICCL and did not sign any financial statement nor any Annual Return nor Balance Sheet and neither were the same uploaded to MCA from his DIN ever. All these Returns have been uploaded either by Shri C.B. Thapa or Sh. O.P. Srivastava. iii. It is submitted that in the instant case, there has been no exercise conducted by the SEBI to find out who was the Director in Default, and without attributing to any knowledge or role of the other directors, especially that of the non- executive directors, the Board has held every director to be in default on an assumption of knowledge. This is wholly illegal and incorrect and against settled principles of law. Reliance is placed on decision of Division Bench of the Hon'ble High Court of Delhi in the case of Santanu Roy v. UOI: [1988] 38 ELT 201 (Del) observed the lifting of the corporate veil to find which Director had committed default, and following the ratio of the above case and in Krishan Kumar Bangar v. Director General of Foreign Trade: 2006 (88) DRJ 680, it was held in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t headings. I. Preliminary Issues: (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? II. Issues on Merits: (1) Whether Late Sh. Y.N.Saxena is liable under Section 73(2) and under Section 62(1) of Companies Act (2) 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 is based on any specific role of the officer in default. (3) Whether cause of action under section 73(2) and under Section 62(1) survive the demise of Sh. Y.N.Saxena, If it survives, the extent of liability of Legal Representatives of Sh. Y.N.Saxena. I. Preliminary Issues : (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 10. The LRs have placed reliance on several judgments such as Smt. Lila Vati Bai v. State o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for refund of illegally collected money of the investors, and therefore, the present proceeding cannot be said to be null and void as the LRs of Late Sh. Y.N.Saxena have been SCN through this present proceedings. In Savithiri Ammal v. State of Tamil Nadu, the notification under Land Acquisition Act has been issued against a dead person and declaration under section 6 of the Land Acquisition Act has been made that the land is required for a public purpose. In the said case the State had issued SCN to the deceased person irrespective of the knowledge of the death and in the present case SEBI had no knowledge of the death of Sh. Y.N.Saxena while issuing the SCN dated February 20, 2015. It may be noted that in the said case of Savithiri Ammal (supra) as the notification was against a dead person, the Hon'ble Court in this case has given liberty to the government to proceed with the acquisition by initiating fresh proceedings in accordance with law which in effect can be done by issuing fresh notification against the LRs. Therefore, I consider that the said judgment in Savithiri Ammal vs. State of Tamil Nadu does not help the case of the LRs. 14. Further, the observations made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the LRs that proceedings against the dead person or the order against the dead person are null and void is not applicable in the present state the proceedings. (2) Whether non of 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? 17. The SCN dated February 20, 2015 was in fact issued against Late Sh. Y. N. Saxena who was deceased at the time of issuance of SCN therefore, the said SCN has been issued against a dead person. LRs contended that the representation of SICCL on behalf of Late Sh. Y.N.Saxena is not a valid representation. It is accepted that a dead person cannot authorize any one to represent on his behalf. It is a matter of record. However, I note that at the time of issuing the SCN dated February 20, 2015 SEBI had no knowledge of the death of Sh. Y.N.Saxena and the said SCN has been issued based on the material available on record. As noted above, SEBI noticed about the death of Sh. Y.N. Saxena from the reply filed by SICCL on February 6, 2018 . SICCL had also sought time to produce death certificate of Sh. Y.N. Saxena vide reply filed on beha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf of a company, shall state the matters specified in Part I and set out the reports specified in Part II of Schedule II of that Act. Further, as per section 56(3) of the Companies Act, 1956, no one shall issue any form of application for shares in a company, unless the form is accompanied by abridged prospectus, containing disclosures as specified. Neither SICCL nor its directors produced any record to show that it has issued Prospectus containing the disclosures mentioned in section 56(1) of the Companies Act, 1956, or issued application forms accompanying the abridged prospectus. 21. Further, the order dated October 31, 2018 also held that SICCL contravened the provisions of section 117C of the Companies Act, 1956 which requires to create a debenture redemption reserve for the redemption of debentures. Further, the Offer of OFCDs was also found to be in violation of relevant provisions pertaining to the DIP Guidelines read with ICDR Regulations. 22. In view of the above violations of public issue norms, vide Order dated October 31, 2018 directions were issued against the Company and its directors, promoters, managers, company secretary and arranger viz., Shri I. Ahmad, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the death of the person, neither the enforcement agencies nor the legal representatives could avail the aspect of personal knowledge of the deceased against him or in favour of him. 24.2 Recognizing such difficult scenario in the context of rendition of accounts against legal representatives, the Hon'ble High court of Calcutta in Panmal Lodha and Ors. v. Omraomal Lodha and Ors. (05.08.1952 -CALHC) observed that If an accounting party is alive, he has to explain, or if necessary vouch for, every item of debit and credit in his books, if he is dead, it may be inordinately difficult for the other side to prove him in the wrong. .. In a long and complicated accounting, the other side might not even know, what credits to charge or what debits to allow and be placed in a position of great disadvantage. But this is a position which cannot be helped. No one can guarantee that the accounting party will be alive to render an account personally. If he is dead, the accounts must be taken in the best way that the exigencies of human affairs will allow 24.3 As observed earlier such difficulty is inherent in such situation. The contention of the LRs on whether there was coercion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ICCL, the said fact is proved by MCA documents. The fact that Shri Y.N. Saxena was a director of SICCL has not been disputed by SICCL as well. Therefore, based on the documents of MCA records, I find that Late Shri Y.N.Saxena was appointed as director of SICCL with effect from December 22, 1998 till November 30, 2012. In addition, as noted above, Late Sh. Y.N. Saxena was also authorized Sh. C.B. Thapa for carrying out all acts and deeds necessary for the purpose of RHP and Final Prospectus and as per the Directors Report of SICCL, Late Sh. Y.N. Saxena is shown as one of the members of Audit Committee and a Non-Executive Director of Remuneration Committee of SICCL. 24.6 In the present case, I observe that no material is brought on record to show that any of the officers set out in clauses (a) to (c) of Section 5 of the Companies Act, 1956 or any specified director of SICCL was entrusted to discharge the obligation contained in Section 73 of the Companies Act, 1956. Therefore, as per Section 5(g) of the Companies Act, 1956 Shri Y.N. Saxena, along with other directors of SICCL, is also an officer in default and is liable to make refund, jointly and severally, along with interest at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 60, the consent of a person named in a prospectus is required and he has given that consent, he shall not, by reason of having given such consent, be liable under this sub-section as a person who has authorised the issue of the prospectus except in respect of an untrue statement, if any, purporting to be made by him as an expert. 24.9 Late Sh.Y. N. Saxeena is a signatory to the RHP and Prospectus. Since he has given his consent to the prospectus/RHP, he is liable for violation of section 62 of Companies Act for the misstatement and untrue statements in the prospectus as elaborated in paragraphs 43, 48 and 49 of the Order dated October 31, 2018. The same is reproduced hereunder for reference: 43. One of the main investor protection measures in respect of a public issue is that the investors receive large scale disclosures about the company which would have material bearing on the decision making of those investors. For instance, the prospectus is to contain the credit rating obtained from a Credit Rating Agency and an undertaking by the issuer Company confirming firm arrangements of finance through verifiable means towards seventy-five percent of the stated means of fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d would realize ₹ 90,211Cr. from the same. However, MCA observed that as on the date of filing of the aforesaid prospectus, the company had already filed a petition with the Hon'ble High Courts of Bombay and Calcutta for Scheme of Arrangement for de-merger of the Aamby Valley undertaking to a separate company. MCA further observed that as per the statement of assets and liabilities of the said undertaking as on March 31, 2006 as given in the Scheme of Arrangement, the company was having assets and liabilities amounting to ₹ 7,695.86 Cr. respectively, which were transferred to the resulting company after passing of orders of Hon'ble High Court. The statement of investment, as mentioned in the prospectus were neither invested nor realized (ii) MCA has further stated that though the company submitted that the project costs and the receipts are 'estimated' as on the date of the prospectus, which is in line with the requirement of the Companies Act provisions, SICCL, as on the date of filing the prospectus, was aware of the proposal of demerger as well as the position of its assets and liabilities and when once being aware of that, the company makes a stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Valley despite being aware of the actual position of assets and liabilities of Aamby Valley undertaking and the proposal of demerger of the said undertaking at the time of filing prospectus, amounts to providing mis-statement in the prospectus and in violation of section 62 of the Companies Act. Further, the Company has also not substantiated as to how realization, even if any, from the investments in Aamby Valley will be obtained by the Company after demerger. The Company has not been able to substantiate the sharp variance between the actual state of investment in Aamby Valley and the estimated receipts given by SICCL in the Prospectus, that too after about 10 years from starting to collect money from the public. SICCL has not been able to substantiate the current status of the investments claimed to have been made by it in the different projects in the prospectus. Further, the Company has stated that the figures of investment and realizable receipts mentioned are on estimated basis, that too when the total project would be developed and because of demerger of SICCL into two companies, assets and liabilities as on appointed date, 31.3.2006 amounting to ₹ 7695 crores is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability created under section 73(2) is joint and several goes against the idea of penalty which as per the Companies Act,1956 comprises of fine and imprisonment which is in the nature of punishment. Perusal of Section 629A of the Companies Act, 1956 would further indicate separate penal provisions provided in the Statute for contraventions of the provisions of the Companies Act where no separate penalty is provided for violations of specific provisions. This further shows that in addition to the civil liability created under section 73(2) on the Company and directors who are 'officers in default', penal liability of 'fine' which may extend to five thousand rupees, and where the contravention is a continuing one, with a further fine which may extend to certain amount during which the contravention continues, has also been created. Therefore, I find that the liability created under section 73(2) of the Companies Act which is enforced under the present proceedings, is not penal in nature as per the Companies Act. Further, I note that in the present case the direction to refund the money with interest cannot be equated with penalty as it is investors' money which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal cases, the court is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade. So it is permissible to lift the corporate veil of Duncans to determine whether a particular director could be proceeded against in pursuance to the impugned show-cause notices or whether he is liable for the payment of all duties charged and to all penalties incurred. 12. We can only say this that after the veil of the corporate entity is lifted, the adjudicating authorities will determine as to which of the directors is concerned with the evasion of the excise duty by reason of fraud, collusion or willful mis-statement or suppression of facts, or contravention of the provisions of the Act and the Rules made there under. So far as individual liability of a director to the payment of excise duty and penalty is concerned, no liability can be fastened on him unless the department is able to show as to how and to what extent a particular director is liable. We wish to say no more at this stage. 28. Therefore, it is clear that the ratio is limited to the case where the statutory liability is not provided in the Statute and therefore, corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to refund which is not in the nature of punishment or penalty. Secondly, the facts covered in Krishan Kumar Bangur v. Director General of Foreign Trade on 17 April, 2006 deal with the situation where the statute does not expressly create any liability on the director for the subject matter of the violations dealt in the judgment. However, that is not the case in respect of the present facts and law of the extant matter. The Companies Act creates a separate refund liability under Section 73(2). Therefore, it is respectfully observed that the ratio of Krishan Kumar Bangur v. Director General of Foreign Trade is not attracted to the facts of the present case. 31. In view of the forgoing discussions, I observe that the ratios laid down in Santanu Roy v. UOI: (1988) 38 ELT 201 (Del), Krishan Kumar Bangar v. Director General of Foreign Trade: 2006 (88) DRJ 680, and Ved Kapoor v. UOI Ors.: (2014) 299 ELT 385 (Del) are not applicable to the instant case. 32. Keeping in mind that the case laws cited by the LRs do not support the present case, I note that there is a well laid down pre-requisite test as contemplated under Section 73(2) read with Section 5 of the Companies Act,1956. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any punishment or penalty, whether by way of imprisonment, fine or otherwise, the expression officer who is in default means all the following officers of the company, namely: (a) the managing director or managing directors; (b) the whole-time director or whole-time directors; (c) the manager; (d) the secretary; (e) any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act; (f) any person charged by the Board with the responsibility 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is sought to be enforced under the present proceedings, is a strict statutory liability of civil nature. Even assuming for a moment, any role is required to be considered for the purpose of deciding the liability of Late. Sh. Y.N. Saxena, I note the following specific material available on record: (i) Late Sh. Y.N. Saxena was a director of SICCL during the period 1998 to 2012 in which OFCDs were issued as per the directors records available on MCA portal (ii) Late Sh. Y.N. Saxena's signed Power of Attorney authorizing Mr. C.B. Thapa for carrying out all acts and deeds necessary for the purpose of RHP and Final Prospectus. This in fact establishes the director role of Sh. Y.N. Saxena as he has not only knowledge of the issue but also the contents of the prospectus. (iii) As per the Directors Report of SICCL, Late Sh. Y.N. Saxena is shown as one of the members of Audit Committee and a Non-Executive Director of Remuneration Committee of SICCL. 36. It is further noted that the basis of liability on the directors in the instant matter is flowing out of the provisions of Section 73(2) in respect of liability to refund. The said liability is not derived from Section 27 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while he was alive or as the right of enforceable action has not materialised before his demise? 39. The LRs contended that Section 306 of the Indian Succession Act is not applicable in the present case but applies only in the cases of 'torts'. No case law was cited by the LRs in support of their contention that Section 306 of the Indian Succession Act is applicable only in respect of torts. However, the analysis of the provisions of Section 306 would show that the provision is applicable to torts also and not exclusively to torts. The provision covers All demands whatsoever and all rights to prosecute or defend any action or special proceeding for the purpose of stipulating that those covered in Section 306 survive the death of the person and carves out two exceptions of cases which do not so survive the death of the persons. The first exception is cause of action for defamation, assault, as defined in the Indian Penal Code, 1860 (45 of 1860) or other personal injuries not causing the death of the party. The second exception is cases where, after the death of the party, the relief sought could not be enjoyed or granting it would be nugatory. The first exception is for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile quoting Lord Wright observed as follows, Breach of statutory duties, which gives rise to liability analogous to torts is treated as a group of torts which are sui generis . Further, as the liability under Section 73(2) and 62(1) of the Companies Act, 1956 springs from the breach of statutory duties the same are in the nature of 'statutory torts'. Therefore, even on the basis of arguments that the Section 306 covers torts alone, the present action in respect of the legal representatives is supported under section 306 of the Succession Act. 42. The difference in tort which is also a breach of duty imposed by law or statutory tort of this nature is in the enforcement. In a typical scenario, the enforcement of breach of duty in torts based on common law is through private enforcement of cause of action for damages. However, in case of public law breach of statutory duty, for instance as in the case of section 73(2) of the Companies Act, 1956, though the statutory obligation is imposed by the statute, the enforcement of the same is entrusted to the public law functionaries, as in this case to SEBI. However, the difference in enforcement of the rights through private enf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Cape Brandy Syndicate v. IRC, (1921) 1 KB 64 at 71, Rowlatt J. laid down: In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. 33. This Court has, in a plethora of judgments, referred to the aforesaid principles. Suffice it to quote from one of such judgments of this Court in Commissioner of Sales Tax Commissioner, Uttar Pradesh v. Modi Sugar Mills, 1961 (2) SCR 189 at 198:- In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any assumed deficiency. 44. The principles laid down by the Hon'ble Supreme court that without machinery provisions the tax to be paid by the deceased perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Indian Penal Code, or other personal injuries not causing the death of the party; and except also cases where, after the death of the party, the relief sought could not be enjoyed or granting it would be nugatory............ Section 306 further speaks only of executors and administrators but on principle the same position must necessarily prevail in the case of other legal representatives, for such legal representatives cannot in law be in better or worse position than executors and administrators and what applies to executors and administrators will apply to other legal representatives also. 46.2 In an earlier judgment in Girijanandini v. Bijendra Narain [1967 SCR (1) 93], Hon'ble Supreme Court observed that ..........The maxim 'actio personalis moritur cum persona' -a personal action dies with the person has a limited application. It operates in a limited class of actions ex delicto such as actions for damages for defamation, assault or other personal injuries not causing the death of the party........ 46.3 The Hon'ble Supreme Court had another occasion to deal with the meaning of the words other personal injuries not causing the death of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present proceedings is for defamation, or assault or other personal injuries not causing the death of the party and where, after the death of the party, the relief sought could not be enjoyed or granting it would be nugatory. The investors in a public issue like this have already parted with their money to the SICCL. The collection of the money has already been determined and is not disputed by the LRs. Section 73(2) of the Companies Act lays down when a director has to repay the money to the investors along with the interest. The liability to repay the investors is not in results of any injury caused to the person of the investors. Instead the liability arises as the investors have parted their 'property' in the form of money to the Company. Therefore, the liability for repayment by the director cannot be considered as arising out of injury to the 'person' of the investor as the same is arising out of the 'property' of the investors. Therefore, I hold that the cause of action under section 73(2) of the Companies Act is not a personal cause of action which dies with the person. It is a cause of action which has impact on proprietary rights of the inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t common law; there, unless the statute contains words which expressly or by necessary implication exclude the common law remedy, the party suing has his election to pursue either that or the statutory remedy. The second class of cases is, where the statute gives the right to sue merely, but provides no particular form of remedy; there, the party can only proceed by action at common law. But there is a third class, viz., where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it The remedy provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to cases of the second class. The form given by the statute must be adopted and adhered to.' 49. I note as observed by the Hon'ble High court in Kisan Mehta's case the compensation for the misrepresentation in the prospectus under section 62(1) of the Companies Act,1956 is founded plainly on the principle involved in the tort of deceit . Since Section 62(1) the Companies Act,1956 provides for a statutory remedy of compensation and SEBI is the administering authority for the said Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the affairs of the company, they are taken by the Board of Directors. The Directors of companies have been variously described as agents, trustees or representatives, but one thing is certain that the Directors act on behalf of a company in a fiduciary capacity and their acts and deeds have to be exercised for the benefit of the company. They are agents of the company to the extent they have been authorized to perform certain acts on behalf of the company. In a limited sense they are also trustees for the shareholders of the company. To the extent the power of the Directors is delineated in the Memorandum and Articles of Association of the company, the Directors are bound to act accordingly. As agents of the company they must act within the scope of their authority and must disclose that they are acting on behalf of the company. The fiduciary capacity within which the Directors have to act enjoins upon them a duty to act on behalf of a company with utmost good faith, utmost care and skill and due diligence and in the interest of the company they represent. They have a duty to make full and honest disclosure to the shareholders regarding all important matters relating to the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding against him. It is also argued that in cases where the proceedings have been initiated and subsequently the person dies before a decree/finding is given against him or in his favour, the suit has to mandatorily abate. In support of this proposition, they quoted the judgment of Meleurath Sankunni Ezhuthassan v. Thekittil Gopalankutty Nair: [1986] 1 SCC 118. As per their argument, the Hon'ble Apex Court has categorically held in Para 9 of the Judgment that when there is no decree given by the Court in a Civil Suit, and the Plaintiff dies prior to that the cause of action abates. But in a case, where a decree is given and he dies, only then the suit and its resultant appeal continues. Noticee argued that this finding gets amplified when applied to quasi judicial proceedings and quoted in support of that proposition judgment rendered by Hon'ble SC in Smt. Lila Vati Bai vs. State of Bombay: 1957 AIR SC 521. 55. Based on that, Noticees contended that the proceedings of SEBI should be pending at the time of death of Sh. Y.N. Saxena. In essence, it further contented that the right of enforceable action should have materialised before the death of Sh. Y.N. Saxena i.e., there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is filed by that person or LRs before the Hon'ble Supreme Court, the LRs are seeking to enforce in the appeal, their right to sue for damages for defamation and this right does not survive his death. In respect of the position where a decree for defamation has not been passed, when the plaintiff was alive, and there is a death of the party, the right to action does not survive applies only to defamation cases which in any case does not survive and the same does not apply to every case as a general rule as incorrectly argued by the Noticees. However, it may be seen even in such case of defamation which is essentially personal in nature, the Apex court observed, if the decree has been obtained by plaintiff then, in such case the action survives because the cause of action has merged in the decree and therefore, the legal representatives of plaintiff can defend the decree as the decree becomes a question of benefit or detriment to the estate of the plaintiff. In essence, the observation of the Hon'ble Apex court is that even in defamation cases the cause of action survives the death of the person if a decree has been passed in his favour. This ratio does not support, as incorr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s case relates to an aspect whether an order against dead person can be passed. The said case does not deal with a situation of whether proceedings can be initiated after the death of a person. It is apposite to make a distinction between two aspects. One is whether any proceedings can be initiated against a dead person. The other is whether any proceedings can be initiated after the death of a person. Any citation in support that proceedings cannot be initiated against a dead person does not hold good to support the contention that proceedings cannot be initiated after the death of a person. Smt. Lila Vati Bai's case deals with the situation of whether any proceedings can be initiated against a dead person and not on the point of whether any proceedings can be initiated after the death of a person. Therefore, Smt. Lila Vati Bai's case does not support the contention of the LRs that no proceedings can be initiated after the death of the person. 62. The plain reading of Section 306 of the Indian Succession Act as interpreted by Hon'ble Supreme court in Girijanandini v. Bijendra Narain [1967 SCR (1) 93], clearly states 'Demands and rights of action o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31, 2018 which is in the nature of SCN qua the noticees, does not vitiate the present proceedings in view of the subsequent representation of the legal representatives for the purpose of representing their case as the factum of the death of Late Sh. Y.N. Saxena was not brought on record at the time of issuance of SCN dated February 20, 2015. In the order dated October 31, 2018, opportunity is provided to the LRs and accordingly LRs have participated in the present proceedings. Thus, principles of natural justice have been followed in the present case. 65.2 SICCL came out with the Offer of OFCDs. The said OFCD issue opened on July 6, 1998 and closed on June 30, 2008, and during the financial years 1998-2009, SICCL through the Offer of OFCDs, had collected an amount of at least ₹ 14,106 Crores from various allottees. The said Offer of OFCDs was in violation of Section 56, Section 62, Section 73 and section 117C of the Companies Act, 1956. (a) Late Sh. Y. N. Saxena was a Director in SICCL from December 22, 1998 to November 30, 2012. As no material is brought on record to show that any of the officers set out in clauses (a) to (c) of Section 5 of Companies Act, 1956 or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73(2) and 62(1) of the Companies Act, 1956 are in the nature of 'statutory torts'. (f) Lack of knowledge on the part of the LRs that Late Sh.Y.N. Saxena was a director in SICCL will also not vitiate the present proceedings since there is uncontroverted documentary evidence from the records of MCA reflecting Late Sh. Y.N. Saxena was a Director during the period in which the impugned OFCDs were issued. (g) The creation of liability on the officers in default to repay the money with interest is nothing but the recognition of their fiduciary liability to the securities holders and the consequence of their failure to comply with their fiduciary duty. The fiduciary duty of disclosures also requires the directors not to make false or untrue statements to its security holders/prospective security holders. Whenever there is a relationship based on contract, quasi-contract, some fiduciary relation or a failure to perform a duty, there is no abatement of the liability on the death of the wrong-doer. Therefore, the cause of action survives on this ground as well to the extent of inheritance. (h) The LRs of Late Sh. Y. N. Saxena are liable in their capacity as legal representat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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