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TMI Blog2025 (1) TMI 1454X X X X Extracts X X X X X X X X Extracts X X X X ..... yer of their choice is dated December 7, 2021. The appellant had informed the Independent Directors that the management was in the process of submitting a comprehensive report and therefore a separate legal consultation was pre-mature. On December 15, 2021 the independent directors conveyed to Noticee No. 1 that they were going ahead with the appointment of an Advocate and did so. The expenses incurred in that behalf were also informed to Noticee No. 1 on April 5, 2022. With regard to not calling meeting of NRC, it was urged that the Appellant was not a member of NRC and had no role to play. The RoC had addressed this issue and did not hold the Appellant responsible. It was also urged that the Management attempted to reconstitute the NRC through a resolution dated December 31, 2021, however the independent directors did not approve the same. It is relevant to record that firstly the independent directors had made their request to the Noticee No. 1 and not to the Appellant. Secondly, the independent directors went ahead and decided to appoint an Advocate themselves and obtain legal advice. The gap between their initial request and their decision to appoint an Advocate is about 8 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not take remedial steps. In our view, once the respondent holds that appellant is not responsible, nothing further survives for consideration. Hence charge in issue No.4 is also baseless.
On a careful perusal of the allegations leveled against the appellant and the contentions urged on both sides, for reasons recorded hereinabove, we are of the view that all the allegations against the appellant in Issues Nos. 1 to 4 are baseless. Therefore, the directions contained in paragraph No: 253 of the impugned order qua the appellant are unsustainable and liable to be quashed. The appellant, has suffered the order for about 6 months for no fault.
Appeal allowed. Orde passed by the WTM, SEBI qua the appellant is quashed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ment; and Limited or no information shared by the management with the Board. 4. In the wake of the issues raised by the out going independent directors, the SEBI examined the issues for the period between April 1, 2021 and December 31, 2022 from the perspective of possible violations of the provision of the SEBI Act and LODR Regulations LODR Regulations - SEBI (Listing Obligation and Disclosure Requirement) Regulations, 2015. Thereafter, SEBI issued a show cause notice on May 8, 2023 to the Managing Director Shri Pawan Singh and the appellant. Both noticees submitted their replies. The appellant-noticee No. 2 submitted his reply dated June 09, 2023, contending inter alia that he was 'not in charge' and 'responsible for Para 5.2 for of the reply' the conduct of the business of the Company. After considering the reply and affording personal hearing, the learned WTM, SEBI has passed the impugned order on June 12, 2024 which is the subject-matter of this appeal. 5. It is held in the impugned order that the appellant was acting as a willing accomplice Para 247 of the impugned order of the Noticee No. 1; that being the chairman of PFS, he had all the authority to set things right by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Non-Executive Chairman of PFS by virtue of he being the Chairman and Managing Director of PTC. As a Non-Executive Chairman, he was not involved in the day to day management of PTC. 11. Dealing with each issue, Shri Pandey for the appellant and Shri Kapadia, Learned Senior Advocate for the SEBI have made following submissions. 12. Re: Issue No:1: (Non acceding to request for legal advice in relation to appointment of Mr. Ratnesh etc., noted supra). 12.01 The first aspect in Issue No.1 is with regard to not acceding to the requests made by Independent Directors for legal advice. The learned Advocate for the appellant submitted that the appellant had informed the IDs that the management was in the process of submitting a comprehensive report. Therefore, a separate legal consultation was premature. However, the IDs did engage a law firm to obtain advice and the same was not objected to by the Company. He further submitted that the Registrar of Companies ('RoC' for short) had examined this issue and exonerated the appellant. The second aspect in issue No.1 is not providing documentation pertaining to appointment of Mr. Ratnesh. Learned Advocate for the appellant submitted that the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t directors. The first email from the independent directors to the Noticee No. 1 seeking independent legal advice from a lawyer of their choice is dated December 7, 2021. The appellant had informed the Independent Directors that the management was in the process of submitting a comprehensive report and therefore a separate legal consultation was pre-mature. On December 15, 2021 the independent directors conveyed to Noticee No. 1 that they were going ahead with the appointment of an Advocate and did so. The expenses incurred in that behalf were also informed to Noticee No. 1 on April 5, 2022. 12.04 It is also not in dispute that the Registrar of Companies (RoC) had examined this issue and exonerated the appellant of the charge of failing to discharge the obligation under Sec. 149 of the Companies Act. 12.05. With regard to withdrawal of Ms. Renu Narang from the Board of PFS, it was submitted by Shri Pandey that Ms. Narang was a Nominee Director of NTPC, - a joint venture partner of PTC, and her nomination was withdrawn by NTPC, therefore the Appellant cannot be held responsible on this count. This factual matrix is not in dispute. 12.06 With regard to not calling meeting of NRC, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors while raising certain issues in their emails sent during 2021 never sought for those issues to be discussed in the board meetings. Thus, there is no doubt that there was lack of clear communication between the Independent Directors and the management, however, we may note that the Independent Directors themselves had graded the flow of information between the management and the board as excellent in the meeting held on October 5, 2021. 13.04 In view of the above, we find no substance in the allegation contained in Issue No. 2. 14. Issue No.3 Re: Reconstitution of Audit Committee prior to submission of FAR 2022 14.01 Learned Advocate for the appellant contended that vide email dated May 13, 2022, the SEBI had directed PFS not to change the composition of the Board till the completion of forensic audit and the said direction does not apply to the reconstitution of the Audit Committee. It was further contended that the Board of PFS had re-constituted the audit committee in its meeting held on October 22, 2022 to ensure that the Financial statements for FY/Quarter ended March 31, 2022 were finalized. 14.02 Shri Kapadia for the SEBI contended that the Audit Committee is an ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat appellant is not responsible, nothing further survives for consideration. Hence charge in issue No.4 is also baseless. 16. It is relevant to record that the learned WTM in his order has recorded in the impugned order thus: "247. As regards Noticee 2, it has been found that he was acting as a willing accomplice of Noticee 1. Noticee 2, being the Chairman of PFS, had all the authority to set things right by looking into the issues raised by the IDs. He had a duty to ensure effective functioning of all Board Committees by enabling heathy discussions in meetings. Further, he was duty bound to ensure that the IDs were able to function independently in a conducive environment while at the same time ensuring that the Board decisions were effectively implemented. However, he looked the other way while Noticee 1 ran the Company as per his wishes, disregarding the concerns raised by the IDs. Accordingly, the role of Noticee 2 in flouting the norms of corporate governance in this matter is well established." 17. A careful perusal of the above observation shows that accordingly to the WTM, the appellant had acted as an accomplice of Noticee No.1 and the appellant ought to have ensured ..... 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