IN
THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal
No.49/2003 No.49A 49B 49C & 49D/2003
In the matter of:
Coram: ��������� Dr. B. Samal, Member ��������� N.L. Lakhanpal, Member Per:�
Dr. B. Samal, Member 1.������
All� these appeals are directed against a
common� impugned order�� and the appeals� are taken up for final disposal� with consent of both parties in the common
order. 2.������ The
appeals are� against
the impugned order dated �I, in exercise of powers conferred
under �Section 4(3) of SEBI Act1992, �read with Section� 11B of SEBI Act, 1992 �and Regulation 12 of SEBI (Prohibition of
Fraudulent and Unfair Trade Practices relating to Securities Market)
Regulations, 1995, �in the interest of
investors and the capital market as a whole debar Vijay Remedies Ltd., and its
directors viz. Shri B. K. Goyal, Chairman, Shri Vijay Kumar Aggarwal, Managing
Director and Shri Kamal Goyal, Executive Director, Shri Madanlal Aggarwal,
Director, Shri Ajay Satia �Director and
Shri Kapil Mehan, Director in any capacity whatsoever from associating with �the capital market related activities, dealing
in securities, accessing the capital market and associating with any of the
intermediaries in the capital market for a period of 5 years. This order shall
come into force with immediate effect.� 3.������ The
brief facts of the case are as under: ��������� M/s.
Vijay Remedies Ltd., (VRL) came up with a public issue of 29,00,000 equity shares
of Rs.10/- each for cash at par aggregating to Rs.2,90,00,000/-.� The public issue opened on 3.1���� Pursuant
to the listing the scrip of VRL opened at Rs.14/- on 3.2���� SEBI
initiated an enquiry in the case after a news item appeared in the New Delhi
Edition of the Hindustan Times on 18/12/1996 wherein it was mentioned that a
search was conducted by the Income-tax authorities at the premises of a 3.3���� On
(i) Photocopies of correspondence
between VRL, SPS and certain subscribers to the public issue who had made
applications accompanied by stock invests.�
As per the available evidence these subscribers had requested for
withdrawal of their applications which was duly acknowledged by SPS and VRL.� Despite withdrawals and their acceptance the
applications were considered for allotments. (ii)�
The agreements entered into by SKJ with B. K. Goyal and V. K. Aggarwal,
Chairman and Director of VRL respectively. 3.4���� The
agreement was in three parts viz. for grey market operations, for primary
market operations and for secondary market operations.� In pursuance of this agreement a total of
14,67,100 shares of VRL were purportedly procured by SKJ and his associate
concerns from the grey market.� Grey
market acquisition of VRL shares were made through Shri D. P. Gandhi member of
Ludhiana Stock Exchange and Mr. Praveen Goyal and M/s. Om Share Shoppe.� Similarly it is alleged that subscriptions to
the public issue of VRL were arranged on �subject to allotment� and �on
interest� basis by SKJ and his associates.�
For this purpose ante dated stock invests were procured and services of
various investors/brokers were utilized.�
Their identities were also provided to the respondent by SKJ. 3.5���� It
is alleged that payments were made by VRL out of funds raised in the public
issue.� The payment was made by VRL to
SKJ and his associate concerns. 3.6���� VRL
transferred 7,10,000 equity shares of VRL allotted to
associate concerns of SKJ out of promoter�s quota.� This was done despite the categorical
restriction on transfer of the shares in the Prospectus of VRL.� On an enquiry VRL confirmed having
transferred the shares. 3.7���� Pursuant
to the submission of investigation report, show cause notices dated 5/3/1999
were issued to VRL and its directors asking them to explain as to why
appropriate directions under section 11B of the SEBI Act, 1992 read with
Regulation 12 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices
relating to Securities Market) Regulations, 1995, be not issued.� Further opportunity of personal hearing was
given to VRL and its directors on 3.8.��� The
issues raised in the said notices are: ��������� (a)
Non disclosure in Prospectus. (b)
Mis-utilisation of proceeds of public issue for
acquisition of own shares with a view to manipulate the scrip price. ������������������ � Wrongful
allotment of shares. ������������������ ������������������ (d) Forfeiture of shares and
cornering of VRL shares. (e) Wrongful transfer of the shares
allotted in the promoters quota. 3.9���� VRL and its directors having been found
guilty of violating the provisions of law, the Respondent issued the impugned
order.� The main findings of the
violations of provisions of law are as under: (i) ����� Mis-statement and non-disclosures in the Prospectus which
were material to the issue and were made to induce the investors to subscribe
to the public issue & thus are in violation of section 63 & 68 of the
Companies Act, 1956. (ii) ���� The misutilisation
of issue proceeds cornering VRL shares with the intention of influencing its
prices to induce others to purchase or sell its shares which is in violation of
Regulation 4(a) SEBI (Prohibition of Fraudulent and Unfair Trade Practices
relating to Securities Market) Regulations, 1995. (iii)
Making
available proceeds of the Public Issue for purchase of own shares are also in
contravention of section 77 of the Companies Act, 1956. (iv)
VRL
and its directors are guilty of wrongful allotment of shares, forfeiture of
shares and cornering of the shares of VRL.�
VRL & its directors are responsible for wrongful transfer of shares
allotted in the promoter quota.� This was done with a view to corner the floating stock of VRL and
manipulate its share prices. 4.������ Heard
both parties.� The appellant NO.3 Shri Madan Lal
Aggarwal has submitted an affidavit which reads as
under: �I, Madan Lal Aggarwal, S/o. Late Sh. Rameshwar Dass
Aggarwal, resident of 84, New Grain Market, Muktsar (Punjab) � 152 026 do hereby solemnly affirm and
say as under: 1. That I am an old man of about 78 years
of age. 2. That I am a permanent resident of Muktsar, a place which is situated in the far of area in
the State of 3. That I was never associated with the
day to day business affairs of M/s. Vijay Remedies Limited.,������������ 4. That I was neither Managing Director
nor a Whole Time �Director of the said company nor did I
ever draw any remuneration from the company. 5. That I have no knowledge of any offence
committed by M/s. Vijay Remedies Limited or its directors.� Taking into account the facts of the
case that he was never associated with the day to day affairs of the company
and that he was neither a Managing Director nor a Whole Time Director of the
company,� and considering
the advanced age of this appellant,� we
feel it appropriate that if he wishes to exit before the period suspension of 5
years, he would approach the Respondents with a list of scrips
and the Respondent may pass appropriate orders taking into account his advanced
age. 5.������ The
appellant No.4, Shri Kapil Mehan and the Appellant No.5 Dr. Ajay Satia
have pleaded that they were independent directors and were not associated in
the day to day management and control of the company.� It is also pleaded that the Respondent has
found nothing against them except that their names were mentioned in the
prospectus as directors.� It was
submitted by the said appellants that they had neither made any mis-statements, nor could any disclosure be attributed to
them.� Mr. Mehan
was taken on the Board of Directors of appellant No.1 because of his experience
in the marketing.� He was not associated
with the day to day management or control of the affairs of the company.�� He was the director of the company from 6.������ So
also Dr. Ajay Satia.�
He� was
taken on the Board of Directors of appellant No.1 because of his experience in
the field of manufacturing.� He was not
associated with the day to day management or control of the affairs of the
company.�� He was the director of the
company from 7.������ The principle set out by the Supreme Court and the spirit of
section 27 of the SEBI Act would indicate that if� a finding is given that the appellants
had 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. 8.������ Section 27 of the SEBI Act, 1992 deals with offences by
companies.� Section 27 of SEBI Act is pari material 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. v
Municipal
Corporation of �vicarious liability being an incident of an offence under
the Act.� So far as the Directors are
concerned, there is not even a whisper nor a shred of
evidence to show, apart from the presumption drawn by the complainant, that
there is any act committed by the Directors from which a reasonable inference
can be drawn that they could also be vicariously liable.� In these circumstances, therefore, we find
ourselves in complete agreement with the argument of the High Court that no
case against the Directors (accused 4 to 7) has been made out ex-facie on the
allegations made in the compliant and the proceedings against them were rightly
quashed.� v
Sham
Sunder & Ors. vs. State of �It
is therefore, necessary to add an emphatic note of caution in this regard.� More often it is common that some of the
partners of a firm may not even be knowing of what is
going on day to day in the firm.� There
may be partners, better known as sleeping partners who are not required to take
part in the business of the firm.� There
may be ladies and minors who were admitted for the benefit of partnership.� They may not know anything about the business
of the firm.� It would be a travesty of
justice to prosecute all partners and ask them to prove under the proviso to
sub-section (1) that the offence was committed without their knowledge.� It is significant to note that the obligation
for the accused to prove under the proviso that the offence took place without
his knowledge or that he exercised all due diligence to prevent such offence
arises only when the prosecution establishes that the requisite condition
mentioned in sub-section (1) is established.�
The requisite condition is that the partner was responsible for carrying
on the business and was during the relevant time in charge of the
business.� In the absence of any such
proof, no partner could be convicted.� We
therefore, reject the contention urged by counsel for the State.� v
State
of �It
is thus seen that the vicarious liability of a person for being prosecuted for
an offence committed under the Act by a company arises if at the material time
he was in charge of and was also responsible to the company for the conduct of
its business.� Simply because a person is
a director 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.� 8.������ There
is no doubt in our mind that there must be some element of lack of due skill
and diligence on the part of the appellant No.4 and 5 for the Respondents to
hold that these two appellants are in violation of regulations.� It cannot be over emphasized that these two
directors Shri Mehan and
Dr. Satia were directors representing two different
technical disciplines and had nothing to do with the day to day affairs of the
company and had not attended a single Board Meeting.� 9.������ Therefore, having held that the appellant No.4 and 5 i.e. Shri Mehan and
Dr. Satia have
not had anything to do with the day-to-day affairs of the company, we do not
think that these two�
appellants can be fastened with any liability.� We are, therefore, inclined to allow their
appeals. 10.������ We do not find
any merit in the case of other appellants and hence their appeals stand
dismissed. No order as to costs.
Place:
Mumbai Date:� //smn/10/02/ |
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