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TMI Blog2022 (7) TMI 1477X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellants, one against the order dated 8th February, 2019 passed by the Whole Time Member ('WTM' for short) and other against the order dated 4th March, 2020 passed by the Adjudicating Officer ('AO' for short). The WTM has debarred the appellant from accessing the securities market for a period of five years and the AO has imposed a penalty of Rs. 5 lakhs for violation of the provisions of Section 12A(a), (b), (c) of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act') read with Regulation 3(a), (b), (c), (d) and 4(1) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as 'PFUTP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the funds so deposited in the aforesaid bank account as security in connection with loans if any as well as to enter into any Escrow Agreement or similar arrangements if and when so required."5 3. Investigation revealed that the Company had issued 50 lakh GDR amounting to USD 22.40 million on 20th May, 2010 and that one Vintage FZE (hereinafter referred to as 'Vintage') was the sole subscriber to the GDR issue. Investigation further revealed that Vintage was granted a loan by EURAM Bank by way of a loan agreement dated 7th May, 2010 for the purpose of making payment, transfer subscription of the GDR issue by the Company. The investigation further revealed that the Company stood guarantor in respect of the loan availed by EURAM Bank by de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the resolution for opening of a Bank account with EURAM Bank but was not part of any issuance of the GDR nor was part of the day to day affairs and management of the Company. It was further contended that he does not hold any shares of the Company nor received any remuneration from the Company for participating in the Board of Director's resolution as an Independent Director. The appellant further contended that he was not aware of the loan agreement or of the pledge agreement. The AO in the impugned order has imposed a penalty upon the appellant only on the ground that he had participated in the Board meeting of the Company on 16th March, 2010 and since he continued to be on the Board of Directors during the entire process of issuance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he was aware of the loan agreement or the pledge agreement. 8. We further find that a specific assertion was made by the appellant that he was not part of the day to day affairs and management of the Company. This fact has not been disputed by the respondent. Therefore, unless and until there is further evidence to indicate that the appellant had participated in the issuance of GDR and/or knew about the fraudulent scheme, in our opinion, the restraint order passed by the WTM and the penalty imposed by the AO on the ground that the appellant was part of the fraudulent scheme cannot be sustained. 9. The respondents have filed a reply in appeal no. 28 of 2022 contending that the appellant was the Chairperson of the audit committee and, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a was the Chairman of the Audit Committee does not mean that he was party to the fraudulent scheme, if any. The observations made by the authorities in the impugned orders that he should have raised questions as to why the GDR proceeds was not brought into the Company's account or why the loan was given to the Vintage from the GDR proceeds are not matters which comes under the purview of the audit committee. In any case, we find that there was no need to raise such questions as the loan in one case was paid immediately and in the other case was paid within a couple of months. Further, the evidence which has come on record indicates that the GDR proceeds were utilized for the purpose for which the resolution for issuance of the GDR was passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. In addition to the aforesaid, this Tribunal in Chromatic India Ltd., Appeal No. 393 of 2020 and other connected appeals decided on May 12, 2021 held that being part of the resolution by itself cannot make the incumbent liable and something further related to fraud committed by the incumbent is required to be shown. This Tribunal held: "Without dwelling on the aforesaid aspect, we are of the opinion that in order to implicate a person, namely, a director of any fraudulent act it is necessary for the authority to further find any evidence which would show that the said person or director was involved in the fraud with regard to the GDR issue or that he was involved in the defalcation of the funds which was raised through GDR issue. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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