P. A. Murali vs Securities And Exchange Board Of India

M. T. Joshi, J

Aggrieved by the 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') dated June 1, 2018 restraining the present appellant- the original noticee no. 5, from accessing the securities market, in any manner, for a further period of one year and holding any position as a director or key managerial person of a listed company for the similar period from the date of order under Section 19 read with Sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act'), the present appeal is preferred.

The learned WTM had initially passed an interim order in the similar fashion on January 25, 2017 during the pendency of the proceedings. After hearing the parties, the final order came to be passed. The period of restraint is now over.

The impugned order would show that the proceedings were initiated against seven noticees. Out of those seven noticees, noticee No. 1 Dr. Vijay Mallya, noticee No. 2 Shri Ashok Capoor and the present appellant were finally indicted vide the impugned final order while rest of the noticees were exonerated.

The matter is concerned to the illegal diversion of the funds of United Spirits Ltd. (hereinafter referred to as 'USL / the company') when Dr. Vijay Mallya was the Non-Executive Chairman of the company as well as the holding company- United Breweries Holdings Ltd. (hereinafter referred to as 'UB Group').

On July 4, 2013, one Relay B. V., a public limited company incorporated in England and Wales along with other companies had acquired 25.02% equity shares of the company. There were further acquisitions which went up to 58.77% as on December 31, 2015. Dr. Vijay Mallya continued to be Non-Executive Chairman of the company. In the circumstances, certain transactions were flagged in the audit report for the financial year 2013-14 by the statutory auditor. Therefore, the company appointed Pricewaterhouse Coopers, United Kingdom (PWC-UK) to examine these transactions. It gave initial inquiry report on March 24, 2015. The details of the transactions are given in the order. The essence of the same is that there was diversion of Rs. 655.55 crore from the coffers of the company to another companies of UB group out of which Kingfisher Airlines Ltd. (hereinafter referred to as 'KAL') was the principal one, under the guise of advances to certain service providers, etc. Due to certain disputes and subsequent settlement between the acquirer and Dr. Vijay Mallya, ultimately Dr. Vijay Mallya resigned from the post of the Non-Executive Chairman and thereafter the company has commissioned Ernst & Young for further inquiry which had also endorsed the initial inquiry report.

In view of this diversion of the funds from the company, respondent SEBI took the note of the same and the proceedings were initiated. As noted earlier, an interim order was passed by the learned WTM on January 25, 2017 against the appellant and other six noticees to show cause as to why the order should not be made absolute. After hearing the parties, the learned WTM continued the restraint by the final order against the three noticees including the appellant and exonerated the four noticees. Hence the present appeal by the original noticee No. 5.

The inquiry report as well as the correspondence between the appellant with Dr. Vijay Mallya and others would show that through various methods Dr. Vijay Mallya caused the appellant who was the Chief Financial Officer of the company to get diverted the funds of the company to KAL. Advances due from the service provider were directed to be paid to KAL by withholding the payments to the company, etc. The record shows that initially the appellant had reservation about carrying instruction of Dr. Vijay Mallya in this regard. He had written a lengthy email to Dr. Vijay Mallya as Dr. Vijay Mallya vide email dated March 25, 2012 asked the appellant and another noticee Shri Ashok Capoor that as KAL had significant dues over the Income Tax Appellate Tribunal, the company would have to come up with Rs. 44 crore, if needed. Thereafter also, from time to time vide email to the present appellant Dr. Vijay Mallya impressed upon the appellant that as KAL was required to be flying and any slippage would be a disastrous for the group, the provision for arranging the funds for KAL will have to be made and made it clear that he was confirming by the said email that the appellant was acting under his direct authorization, for which Dr. Vijay Mallya took the responsibility vide the said e-mail.

The appellant took a stand before the learned WTM that the diversion was not illegal; that he had protested about the diversion still as he was forced to carry out the instructions of the Chairman of the UB Group, he should not be blamed for any of the transactions. The learned WTM however did not agree with the submissions, therefore, the final order came to be passed. Hence the present appeal.

We have heard Mr. Vinay Chouhan, the learned counsel with Mr. K. C Jacob, the learned counsel for the appellant and Mr. Rafique Dada, 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 that the diversion of the funds was not illegal. In the alternative, he submitted that admittedly the appellant had protested for diversion of the funds. He further submitted that the rest of the noticees except Dr. Vajay Mallya, himself and Shri Ashok Capoor were exonerated by the learned WTM. He submitted that the similar standard which was applied by the learned WTM to exonerate others also should have been applied to him as he was merely Chief Financial Officer of the company and for certain period was Executive Director.

On the other hand, the learned senior counsel for the respondent submitted that the appellant as a Chief Financial Officer was directly responsible for the transactions and he himself was involved in the same. The rest of the noticees who were exonerated were found to be not aware of the transactions and, therefore, there is no parity in the cases. He further submitted that the admitted correspondence between the appellant and Dr. Vijay Mallya would show that the appellant was aware that the diversion was illegal.

Having heard both the sides, in our view, there is no merit in the appeal. The appeal is, therefore, liable to be dismissed for the following reasons.

E-mail dated June 11, 2012 sent by the appellant to another noticees Mr. Ashok Capoor would show that the appellant communicated that in view of the direction of Dr. Vijay Mallya, both of them would be constrained to divert the funds. Vide e-mail dated July 10, 2012, Dr. Vijay Mallya had instructed the appellant that non-payment of salaries to the KAL's staff had become a serious issue and, therefore, the appellant would do the needful to keep the show on the road. Appellant had also sent an e-mail on November 29, 2011 to KAL and sent a copy to Dr. Vijay Mallya and others which would show that the appellant was working with service providers to release the money of the company to KAL.

It thus can be seen from the above record that the appellant was the Chief Financial Officer of the company as well as the Executive Director who was directly involved in the diversion of the funds.

In so far as the another noticee Shri Ashok Capoor is concerned, he was the Managing Director of the company and had knowledge of the diversion of the funds. Another noticee Dr. Vijay Mallya was directly instrumental in carrying these activities and, therefore, the learned WTM found all these three noticees guilty in the affairs.

In so far as the other noticees are concerned, the impugned order notes as under :-

a) As regards the noticee No. 6, Shri Paramjit Singh Gill, it was noted that he was the President of All India Operations of the company. The learned WTM after analyzing the correspondence from record, came to the conclusion that Mr. Gill was not involved in the decision making process pertaining to the disputed transactions. Further, his position did not involve him in the transactions or give him access to the information relating to the transactions.

b) In so far as the noticee No. 3 Shri Sowminarayanan, noticee No. 4 Shri S. N. Prasad, noticee No. 2 Shri Ainapur S. R. are concerned, those were Assistant Vice President (Accounts), Senior Vice President (Finance & Accounts) and Divisional Vice President (Accounts) respectively in the company. Their case was that they merely carried out the instructions from their higher authorities i.e. the appellant. They were not involved in the decision making process neither they had any power to do so. The internal committee had also found that all these noticees were apparently acting under the direction of senior officers and had not independently undertaken the action.

c) In so far as the appellant is concerned, during the relevant period he was the Chief Financial Officer of the company. The record would show that Dr. Vijay Mallya was impressing upon him for diversion of the funds to which ultimately the present appellant was agreed, though on July 9, 2012, he had written a long letter and had protested against providing funds to KAL. Considering all these facts on record, we do not find any merit in the appeal. Hence 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.