Manoj Kumar Singhal vs Securities And Exchange Board Of India

M. T. Joshi, J

Aggrieved by the direction vide final order of the learned Whole Time Member (hereinafter referred to as ‘WTM’) of respondent Securities

and Exchange Board of India (hereinafter referred to as ‘SEBI’) vide order dated November 29, 2018 to make refund of the money collected

by Neesa Technologies Ltd. (hereinafter referred to as ‘the company’) alongwith other directors and other consequential orders as detailed in

the order, the present appeal is preferred.

Earlier interim orders were already passed and, in fact, final order was also passed against the appellant and the other directors. The appellant had

challenged the said order before this Tribunal. Vide order dated March 7, 2018, the case was remanded back to the learned WTM on the ground that

the submissions made by the present appellant were neither recorded nor considered in the impugned order. Thereupon, the learned WTM held the

proceedings afresh as against the present appellant only and the present impugned order is passed. Hence the present appeal.

The record would show that the company had issued Non-Convertible Debentures (NCDs) in violation of Sections 56, 60 read with Sections (2)36,

73 and Section 117C of the Companies Act, 1956 (hereinafter referred to as ‘Companies Act’) as well as under the Securities and Exchange

Board of India (Issue of Listing of Debt Securities) Regulations, 2008 (hereinafter referred to as ‘ILDS Regulations’). Therefore, investigation

was carried and proceedings were held against the company, the appellant, other directors, managing directors, etc.

It was found that an allotment of NCDs worth Rs. 5.96 crore was made to 341 investors between April 8, 2013 to August 22, 2013. Since it

contravened the provisions of Companies Act and ILDS Regulations, the directions were issued.

So far as the present appellant is concerned, his case in short is as under :-

During the relevant period, he was appointed as an independent additional director being an employee of the one of the group companies. He was

neither in-charge of the affairs of the company nor responsible for the conduct of the business of the company. Mr. Sanjay Gupta, director of the

company, had sent office orders from the month of February 2013 onwards, thereby informing the employees that the eligible employees would be

appointed as additional directors in the group companies. The appellant was as such appointed as an independent additional director. He was holding

the said post only for a period of six months. During this period, he did not receive any notice, agenda or minutes of any board meeting of the

company. He has not signed any of the financial statements, balance-sheets, or any documents pertaining to the issuance or an allotment of NCDs.

He had received minutes of the board meeting in which erroneously it was shown that he had attended the said board meeting. In fact, he had not

signed any minutes nor he attended any meeting. Hence he sought discharge from the proceedings.

Before us, he further submitted that he had even resigned from the directorship on July 15, 2013. However, no copy of the same was filed on record.

The learned WTM noted that though Form No. 32 uploaded by the company on the website of the Registrar of Companies showed that the

appellant was appointed as an independent director, the consent letter of the appellant and the board resolution appointing him does not state him as an

independent director but simply an additional director. This being a primary document, the learned WTM placed reliance on this document, than the

Form No. 32 extracted from the website of the Registrar of Companies. The learned WTM further found that the minutes of the board meetings

dated April 8, 15, 25, 30 of 2013, May 20, 2013, June 15, 2013 and July 10, 2013 would show that the appellant was present in these meetings wherein

issuance of NCDs was discussed and approved. Therefore, the learned WTM did not believe the case of the appellant that he has not received any

notice, agenda, minutes of any board meeting. In view of the above facts, the learned WTM relied on the ratio of Manoj Agarwal vs. SEBI decided by

this Tribunal in its order in Appeal No. 66 of 2016 dated July 14, 2017 that the director of the company being an officer in default shall refund jointly

and severally the amount with interest.

We have heard Mr. Rakesh Puri, the learned counsel with Ms. Rinku Valanju, Mr. Pratham Masurekar, Mr. Aditya Shah, the learned counsel for

the appellant and Mr. Kevic Setalvad, the learned senior counsel with Mr. Manish Chhangani, Mr. Ravishekhar Pandey, the learned counsel for the

respondent through video conference.

The learned counsel for the appellant submitted before us that as per the provisions of Section 260 of the Companies Act, the additional director can

hold office only up to the next annual general meeting of the company. He further submitted that the appellant was merely an independent director

rather forced to accept the post being an employee from the group companies. He was not, anyway, involved in the issue of NCDs as the appellant

did not attend any meeting and the minutes of the meetings wrongly recorded his presence. He further submitted that one Mr. Nimain Charan Biswal

was the Managing Director of the Company during the relevant period and as such responsible for the business of the Company.

He alternatively submitted that even if the appellant held to be a director, merely because of the said office, he would not be liable for the act of the

company. He, therefore, relied on the cases of Adi Cooper vs. SEBI (Appeal No. 124 of 2019 decided on November 5, 2019), Dr. Uppal Devinder

Kumar vs. SEBI (Appeal No. 220 of 2017 decided on September 25, 2019), G. Unnikrishnan Nair & Ors. vs. SEBI (Appeal No. 5 of 2018 decided on

November 27, 2019), Inventure Growth and Securities Ltd. & Ors. vs. SEBI (Appeal No. 361 of 2018 decided on October 10, 2019), Mr. Yogesh G.

Gemawat vs. SEBI (Appeal No. 227 of 2016 decided on April 16, 2019), Pritha Bag vs. SEBI (Appeal No. 291 of 2017 decided on February 14,

2019), Sayanti Sen vs. SEBI (Appeal No. 163 of 2018 decided on August 9, 2019).

On the other hand, the learned counsel for the respondent submitted that it has been clearly proved by the board’s minutes of the various dates

(as detailed supra) that the appellant was present in the said meeting where the issue of NCDs were discussed and approved. He, therefore,

submitted that since there was an active participation of the appellant in the process of the issuing NCDs against the provisions of the Companies Act,

the appellant would be very well liable for the action. He, therefore, submitted that the cases cited by the appellant are distinguishable on the facts of

participation / non-participation of the director in the same.

He further submitted that Mr. Nimain Charan Biswal, the alleged Managing Director of the Company had challenged the order passed against him in

the present episode vide appeal no. 156 of 2020. This tribunal vide order date August 18, 2020 found that Mr. Biswal was not the Managing Director.

Therefore his appeal was allowed. Hence according to the learned counsel the case of the present appellant that said Managing Director was

responsible does not hold any water.

Having heard both the sides, in our view, the appellant cannot escape the liability. The minutes of the board meeting of various dates clearly shows

that the appellant has attended the relevant meetings and had approved the issuance of NCDs as against the clear prohibition under the provisions of

Companies Act. Mr. Biswal the alleged Managing Director of the Company was declared by this tribunal to be not the Managing Director in view of

the decision of Gujarat High Court. It is nobody’s case that any officer in default was appointed by the Company. Therefore, the directors of the

Company would be liable in view of Section 73(2)(g) of the Companies Act, 1956.

In each of the cases cited before us by the appellant, it was either found that there was officer in default to hold him liable for the acts of the

Company or found that the appellant therein was not to be blamed for the business of the company in various issues like issuing of Global Depository

Receipts or other violations. Thus, it would be a question of fact in each of the cases. Here, the minutes of the board meeting clearly show that the

appellant had actively participated in the matter of issuance of NCDs and, therefore, he cannot escape the consequences. In the circumstances, the

following order :-

ORDER

The appeal is hereby dismissed without any order as to 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.