Dr Dhananjaya Y Chandrachud, CJI
1 Admit.
2 The appeal by the Securities and Exchange Board of India1 under Section 15Z of
the Securities and Exchange Board of India Act 19922 arises from a judgment
dated 1 November 2022 of the Securities Appellate Tribunal3.
3 The Tribunal, while allowing the appeal by the respondent, set aside an order
dated 22 March 2022 of the Whole Time Member4 under Section 15HA of the SEBI
Act by which a penalty of Rs Ten lakhs was imposed on the respondent for
violating of Sections 68 and 77A of the Companies Act 1956 and Regulations 3(a),
(b), (c), (d), 4(1), 4(2)(f), (k) and (r) of the Securities and Exchange Board of India
(Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities
Market) Regulations 20035 read with Sections 12A (a), (b) and (c) of the SEBI Act.
1 “SEBI” Signature2 Not Verified “SEBI Act” GULSHAN KUMAR 3 “Tribunal”
5 “PFUTP Regulations”
4 The respondent was a Company Secretary of Deccan Chronicle Holdings Limited6
for two years, 2009-10 and 2010-11.
5 On 3 August 2017, a notice to show cause was issued by the WTM of SEBI to
DCHL, its Chairperson, Vice-chairperson and the respondent to show cause as to
why an enquiry should not be held against them, followed by the imposition of a
penalty. The respondent participated in the enquiry. The WTM proceeded to hold
the respondent liable on the ground that he was a Company Secretary during the
Financial Year 2010-11 when a buyback offer worth Rupees 270 crores was made
by the company in violation of regulatory provisions.
6 The WTM found that the respondent had ascribed his signatures on the public
announcement for buyback in his capacity as a Company Secretary. The finding
against the respondent was that as a ‘statutory official’ of the company, he should
have exercised due diligence and checked the veracity of the buyback offer
documents and legal compliance before authenticating them and signing the
public announcement which was found to have violated the provisions of the
Companies Act 1956. The WTM held the respondent liable for the conduct of the
company in connection with the buyback of its equity shares without adequate
free reserves which was found to have misled the investors/shareholders. The
respondent was held liable for violating the provisions of Sections 68 and 77A of
the Companies Act 1956 and of the provisions of the PFUTP Regulations together
with cognate provisions of the SEBI Act.
7 In appeal, the order of the WTM has been set aside by the Tribunal on 1
November 2022. The findings which have been arrived at by the Tribunal are
6 “DCHL”
encapsulated in paragraphs 14 and 15 of the impugned order. The Tribunal has,
during the course of its decision held that once the offer and the balance sheet
were approved by the Board of Directors, the duty of the Company Secretary was
“only to authenticate the contents indicated in the balance sheet and in the offer
document”. In other words, according to the Tribunal, the respondent was not
required to enquire into the veracity of the buyback offer documents. In coming
to the conclusion that the obligation to comply was essentially placed on the
Board of Directors and not on the respondent as Company Secretary, the Tribunal
has relied on the provisions of Regulation 19(3) of the SEBI (Buyback of Securities)
Regulations 1998 which is in the following terms :
"19(3) The company shall nominate a compliance officer and
investors service centre for compliance with the buy-back
regulations and to redress the grievances of the investors."
8 The manner in which the Tribunal has construed the above regulation is indicated
in paragraph 18 of the impugned order which reads as follows :
“18. The aforesaid provision indicates that the company will
nominate a Compliance Officer to redress the grievances of the
investors. The appellant being a Company Secretary was also a
Compliance Officer and thus the role of the Compliance Officer
was only limited to redress the grievance to the investors.”
9 Mr Arvind Datar, senior counsel appearing on behalf of the appellant urges that :
(i) Ex facie, the interpretation which has been placed on Regulation 19(3) is
erroneous;
(ii) Section 77A of the Companies Act 1956 which deals with the power of the
company to purchase its own securities lays down various requirements;
(iii) In terms of Section 215 of the Companies Act 1956, the balance sheet and
profit and loss account have to be approved by the Board of Directors before
they are signed on behalf of the Board and before they are submitted to the
auditors for their report;
(iv) The duty of authentication cannot be confined to merely a signature on the
relevant statutory documents;
(v) There was a patent failure on the part of the respondent since as a Company
Secretary, it was his duty to duly certify statutory compliances;
(vi) The Tribunal was not justified in absolving him on the ground that it was for
the Board of Directors to ensure compliance; and
(vii) The observation in paragraph 18 of the impugned order to the effect that the
role of the Company Secretary is only confined to redressing the grievance of
investors is plainly contrary to Regulation 19(3).
10 On the other hand, Mr. Somasekhar Sundaresan, counsel appearing on behalf of
the respondent submitted that :
(i) The primary finding that has been arrived at is in regard to the failure of the
Board of Directors to ensure statutory compliance;
(ii) The respondent was acting as a Company Secretary and cannot be held
liable for the default on the part of the Board of Directors;
(iii) Moreover, the finding is that the accounts of the companies were found to
be erroneous and the default lies with the Board of Directors and not with
the Company Secretary.
11 Regulation 19(3) of the SEBI (Buyback of Securities) Regulations 1998 requires the
company to nominate a compliance officer and an investors’ service centre. The
purpose of the nomination is twofold, namely (i) to ensure compliance with the
buyback Regulations; and (ii) to redress the grievances of investors. There is a
patent error on the part of the Tribunal in interpreting the Regulations. The
Tribunal held that the role of the respondent, who was a Company Secretary,
compliance officer, was limited to redressing the grievances of investors. In
arriving at the finding, the Tribunal has relied upon the latter part of Regulation
19(3) which deals with redressal of the grievances of investors. The crucial point
which has been missed by the Tribunal is that the compliance officer is also
required to ensure compliance with the buyback regulations. Regulation 19(3) of
the Regulations expressly so stipulates. Since the interpretation which has been
placed by the Tribunal on the interpretation of 19(3) is contrary to the plain terms
of Regulation 19(3), we set aside the impugned decision and remit the
proceedings back to the Tribunal for consideration of the facts afresh in the light
of the interpretation which has been placed above on the provisions of Regulation
19(3).
12 Mr Arvind Datar, senior counsel, has placed reliance on the prior decisions of the
Tribunal in Mr Bhuwaneshwar Mishra Vs SEBI (decided on 31 July 2014 in
Appeal No 7 of 2014) and Brooks Laboratories Limited & Ors Vs SEBI
(decided on 21 March 2018 in Appeal No 266 of 2016). Mr Somasekhar
Sundaresan, counsel appearing on behalf of the respondent has urged that these
decisions are distinguishable. Since we are remitting the proceedings back for a
fresh consideration, we keep the rights and contentions of the parties including on
the prior decisions which have been relied upon in the present appeal open to be
urged before the Tribunal on remand.
13 For the above reasons, the appeal is allowed and the impugned order of the
Tribunal dated 1 November 2022 is set aside. Appeal No 283 of 2022 shall stand
restored to the file of the Tribunal for a decision afresh.
14 The Tribunal shall endeavour to decide the case within a period of six months
from the date on which a certified copy of this order is placed on its record.
15 Pending applications, if any, stand disposed of.
[Dr Dhananjaya Y Chandrachud]
[Pamidighantam Sri Narasimha]
[J B Pardiwala]
New Delhi; February 8, 2023. -GKA-
Civil Appeal No(s). 527/2023
SECURITIES AND EXCHANGE BOARD OF INDIA Appellant(s)
VERSUS
V. SHANKAR Respondent(s)
( IA No.18892/2023-EXEMPTION FROM FILING C/C OF THE IMPUGNED JUDGMENT and IA No.18888/2023-STAY APPLICATION )
Date : 08-02-2023 This appeal was called on for hearing today.
For Appellant(s) Mr. Arvind P. Datar, Sr. Adv.
Mr. Pratap Venugopal, Adv.
Ms. Surekha Raman, Adv.
Mr. Akhil Abraham Roy, Adv.
Mr. Abhishek Anand, Adv.
Ms. Unnimaya S., Adv.
M/S. K J John And Co, AOR
For Respondent(s) Mr. Somasekhar Sundaresan, Adv.
Mr. Lakshmeesh S. Kamath, AOR
Ms. Samriti Ahuja, Adv.
UPON hearing the counsel the Court made the following
O R D E R
1 Admit.
2 The appeal is allowed in terms of the signed reportable judgment and the
impugned order of the Tribunal dated 1 November 2022 is set aside. Appeal No
283 of 2022 shall stand restored to the file of the Tribunal for a decision afresh.
3 The Tribunal shall endeavour to decide the case within a period of six months
from the date on which a certified copy of this order is placed on its record.
15 Pending applications, if any, stand disposed of.
(Signed reportable judgment is placed on the file)