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TMI Blog2004 (9) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The father has been debarred from the securities market for three years. The father has not preferred the appeal and it is only the children who are the appellants before us. 3. The facts of the case are briefly as follows. SEBI observed that there was a spurt in the volume of the scrip of M/s. Zodiac Clothing Company with NSE. Investigation was conducted into trades from July 5th to August 22nd of 2000. It found one Vivenasri Financial Services Ltd. was a major net seller and M/s. Harsh Pranav Securities Pvt. Ltd. and M/s. Newfin Financial Services Pvt. Ltd. were the major buyers during the said period. It was the allegation that during the said period all three above mentioned persons indulged in deals and cross deals amongst themselves through Shalibhadra Securities Ltd., the said broker. During the period the scrip moved from ₹ 68.60 to a high of ₹ 95/- per share. The pattern can best be described in a graph which reads as follows: - Client Name Gross Purchase Gross Sales Gross Volume Net Purchase/ Net sale Vivenasri Financial Services Ltd. 165700 154500 320200 11200 M/s. Newfin Financial Services Pvt. Ltd. 238567 0 238567 238567 Harsh Pranav Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the day today management of the broker entity they are still liable as directors. SEBI at paragraph 8.5 held as follows. "Even though Shri Rahul H. Shah and Ms. Nimisha H. Shah were not involved in the day today management of the broker entity, they have to own the responsibility for the misdeeds committed by an entity to which they were the directors. However, the quantum of punishment may be different from the person who was in charge of and responsible for the day today management of the company." 7. We do not think that college going students who admittedly were not in charge of the day today affairs of the company could be held to be liable merely because they were directors although did not take part in the day to day affairs of the company. 8. Mr. Kumar Desai, learned senior counsel for the respondent submitted that even non-executive directors shall be made liable. He submitted that Non-executive directors are commonly appointed so as to watch and keep a check on the whole time directors, to provide a view of an impartial outsider to bring the benefit of their experience to the company, to act as a figure head (particularly in the case of a non-executive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible 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 the sub-section shall render 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 sub-section (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 neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other official shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly." 13. Section 27 of the Act states that a person is deemed to be guilty of an offence on condition that he was in charge and responsible to the company. The proviso to Section 27 states that "Provided tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Instruments Act. It may not be necessary to refer to all of them except some of them which we shall refer to later. 18. However, the principle set out by the Supreme Court and the spirit of Section 27 of the Act would indicate that if a finding is given that the appellants have nothing to do with the day today affairs of the company, they cannot be held guilty of any violation as there is no such thing as vicarious liability under Section 11B of SEBI Act read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995. 19. Section 27 of the SEBI Act, 1992 deals with offences by companies. Section 27 of SEBI Act is pari materia to Section 141 of the Negotiable Instruments Act and similar provisions are also contained under the Drugs and Cosmetics Act, Income Tax Act, Essential Commodities Act, Food Adulteration Act, Environment Protection Act etc. Dealing with the directors of the company who did not have anything to do with the day to day affairs of the company, the Supreme Court in a number of pronouncements held as follows. Municipal Corporation of Delhi v. Ram Kishan Rohtagi and Ors. (1983) 1 SCC 1 the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor of the company it does not necessarily mean that he fulfills both the above requirements so as to make him liable. Conversely, without being a director, a person can be in charge of and responsible to the company for the conduct of its business. From the complaint in question we, however, find that except a bald statement that the respondents were directors of the manufacturers, there is no other allegation to indicate, even prima facie, that they were in charge of the company and also responsible to the company for the conduct of its business." Appeal (Criminal) 850 of 2004 - Monaben Ketanbhai Shah v. State of Gujarat. "Section 141 does not make all partners liable for the offence. The criminal liability has been fastened on those who, at the time of the commission of the offence, was in charge of and was responsible to the firm for the conduct of the business of the firm. These may be sleeping partners who are not required to take any part in the business of the firm; they may be ladies and others who may not know anything about the business of the firm. The primary responsibility is on the complainant to make necessary averments in the complaint so as to make t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the complaint of actual participation of the director in the affairs of the company, he is roped in, that would be disastrous. For the acts of some unscrupulous persons, the directors who are not even remotely concerned with the issuance of cheque, who are not concerned with the day to day functioning of the company cannot be held responsible unless the active participation of the director is substantiated in the complaint itself by concrete material or instances or particulars. Not only that there must be specific averments but there must be description and particulars of the role played by such non-executive directors. The court issuing process must take care and issue process after examining this aspect because issuance of process is not a light matter. For the reasons which I have noted above, I am of the considered opinion that issuance of process on the instant complaint indicates non-application of mind." 20. The learned counsel for the appellant has also placed reliance on the judgment of the Supreme Court and High Court by making reference to the following: Ghirdharilal Gupta v. D.N. Mehta AIR 1971 SC 2162 it was held that the words "in charge of' m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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