Manoj Kumar Agrawal vs Securities And Exchange Board Of India

Tarun Agarwala, Presiding Officer

The present appeal has been filed against the order dated February 24, 2021 passed by the Adjudicating Officer (“AO†for convenience) of the

Securities and Exchange Board of India (“SEBIâ€​ for convenience) imposing a penalty of Rs. 7.5 lakhs.

On the same issue, proceedings were initiated by the Whole Time Member (“WTM†for convenience) which culminated in an order dated

September 05, 2017 whereby the appellant along with other entities were debarred from accessing the securities market for a period of ten years.

Other entities (except the appellant) were also directed to refund the funds mobilized by the Company and its directors.

Against the order of the WTM dated September 05, 2017 the appellant filed Appeal No. 346 of 2017 which was connected with the other appeals

of other entities. These appeals were decided by an order dated 26.09.2019 wherein the contention of the appellant was dealt with in paragraph no. 40

which is extracted hereunder:-

“40. We do not agree with the submissions made by the learned counsel for the appellant Manoj Kumar Agrawal (Appellant in Appeal

No. 346 of 2017). His submission that he was neither the CFO nor discharging the function of CFO cannot be accepted in the absence of

any record to show that there was another CFO in Kassa. On the contrary all other appellants have contended that he was discharging the

functions of CFO in Kassa. Moreover, we note that he has been Vice President/ Senior Vice President of Finance for a long period in the

company and his involvement in mobilising funds from various clients is quite clear from the impugned order and other documents including

copies of agreements signed with clients where the appellant is signatory for Kassa as Senior Vice President, Finance produced before us.

As Compliance Officer he was, according to law expected to be in-charge of all the provisions relating to regulatory compliance. However,

since he was not found to have made any illegal gain the impugned order does hold him liable for refund of the funds mobilised from

various clients/ investors. Therefore, we find some merit in the submission that a uniform period of 10 years of debarment from the securities

market imposed on the appellant appears disproportionate, given the fact that he was only an employee, though a senior one, and was

working under the overall direction of the Managing Director who is considered the key person in the entire episode.â€​

In paragraph 44 of the said judgement the Tribunal partly allowed the appeal of the appellant and directed the WTM to reconsider the period of

restraint in the light of the observation made in the order.

In view of the directions and the findings given by this Tribunal, the WTM passed a fresh order dated 11.11.2019 holding that since the appellant

was only an instrument in the hands of the Company and its directors who were perpetuating the fraud and that the appellant had not made any illegal

gain, the WTM accordingly reduced the debarment from ten years to five years.

The grounds taken in the present appeal is the same as taken by the appellant in Appeal No. 346 of 2017. We are of the opinion that since the issue

was the same and the grounds taken by the appellant in the present appeal is the same the controversy is squarely covered by our decision in the

appeal of the appellant in Appeal No. 346 of 2017 decided on 26.09.2019.

The only contention raised by the appellant was that the quantum of penalty of Rs. 7.5 lakhs is harsh and excessive in the circumstances of the

present case.

Having heard the learned counsel for the parties and having perused the impugned order as well as the order of the WTM dated 11.11.2019 we find

that the appellant was the Chief Financial Officer (“CFOâ€) and therefore a paid employee till the year 2014 and thereafter was made a Senior

Vice President. The AO has given a finding in the impugned order that the appellant was not responsible for the fraudulent act of the company and

had not made any illegal gain. The AO has further observed that the appellant was only an instrument in the hands of the Company and its directors

who were perpetuating the fraud. The AO however, observed that even though the appellant was not responsible for the fraudulent act committed by

the Company nonetheless the appellant should have exercised due diligence and should have taken steps to remedy the violation. Since the same was

not done a penalty of Rs. 7.5 lakhs was imposed.

We are of the opinion that the penalty of Rs. 7.5 lakhs does not commensurate with the misconduct committed by the appellant especially when

there is a specific finding that he was not responsible for the fraudulent act committed by the company nor had he made any illegal gain. Considering

the fact that he was a paid employee and was only an instrument in the hands of the company and its directors we are of the opinion, that the

appellant could not have done much since he was under the control of the managing director of the Company. However, considering the violation, we

are of the opinion that the penalty of Rs. 7.5 lakhs should be reduced in the given case to Rs. 4 lakhs. The appeal is partly allowed. In the

circumstances of the case, parties shall bear their own costs.

The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor

a certified copy of this order could be issued by the Registry. In these circumstances, this order will be digitally signed by the Private Secretary on

behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally

signed copy sent by fax and/or email.