Securities Appellate Tribunal
Devendra Kumar Sharma vs Sebi on 5 July, 2023
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Decision : 05.07.2023
Appeal No. 893 of 2022
1.Devendra Kumar Sharma
2. Kishori Sharma 398, Singapore Township, Talawali Chanda, Indore, Madhya Pradesh - 453 771. ..... Appellants Versus Securities & Exchange Board Of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent Mr. Sahil Monga, Advocate i/b Mr. Ruturaj Bankar, Advocate for the Appellants.
Mr. Ravishekhar Pandey, Advocate with Ms. Shefali Shankar, Ms. Rasika Ghate, Advocates i/b. MDP & Partners for the Respondent. CORAM : Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member Per : Justice Tarun Agarwala, Presiding Officer (Oral) 2
1. The appellants have challenged the order dated December 21, 2017 passed by the Whole Time Member (hereinafter referred to as 'WTM') of Securities and Exchange Board of India (hereinafter referred to as 'SEBI') issuing a slew of directions, namely, that the appellants alongwith other noticees were directed to refund the amount collected through application money towards Redeemable Preference Shares with an option to convert into equity shares (hereinafter referred to as 'RPS'). The appellants were also restrained from accessing the securities market for a period of four years from the date of completion of refund to the investors.
2. The facts leading to the filing of the present appeal is, that the appellants are directors in BNP Real Estate and Allied Ltd. (hereinafter referred to as 'BNP'). This company made an offer of RPS with an option to convert it to equity shares which was found to be in violation of Companies Act, 1956 (hereinafter referred to as 'Companies Act') and Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (hereinafter referred to as 'ICDR Regulations'). It was found that BNP issued an offer of RPS in the financial years 2008-09, 2009-10, 2011-12, 2012-13 and 2013-14 and raised an amount of Rs. 9.85 crore from 2993 allottees. The said offer of RPS and equity shares was found to be in violation of Securities and Exchange Board 3 of India Act, 1992 (hereinafter referred to as 'SEBI Act') and Companies Act and, accordingly, an interim order dated December 29, 2015 was passed restraining the company and its directors from mobilizing funds through issue of convertible RPS and equity shares or through any form of securities from the public. The interim order also directed to show cause as to why suitable direction under Section 11(1), 11(4), 11A and 11B of the SEBI Act read with Section 73 of the Companies Act should not be issued against them.
3. After hearing the parties and after considering the material evidence on record, the WTM came to the conclusion that the company BNP was engaged in fund mobilizing activity from the public through offer of RPS and equity shares and contravened the provisions of Sections 56(1), 56(3), 2(36) read with Sections 60, 73(1), 73(2) and 73(3) of the Companies Act as well as the ICDR Regulations. The WTM further found that the appellants who were directors were responsible for compliance of the provisions of the Companies Act.
4. We have heard Mr. Sahil Monga, the learned counsel with Mr. Ruturaj Bankar, the learned counsel for the appellants and Mr. Ravishekhar Pandey, the learned counsel with Ms. Shefali Shankar, Ms. Rasika Ghate, the learned counsel for the respondent. 4
5. The only contention raised by the learned counsel for the appellants is, that even though they were named as directors they were not involved in the day to day affairs of the company and, therefore, the direction to refund the money raised by the company cannot be fastened upon them. This contention is patently erroneous and cannot be accepted. Every director and other persons responsible for the affairs of the company are required to comply with the provisions of the Companies Act. Section 56(1), 56(3) and 56(4) of the Companies Act imposes the liability on the company. The liability for non-compliance of Section 60 of the Companies Act is on the company and every person who was the party to the non- compliance is also liable. The directors are responsible for the acts of the company and if the company fails to comply with certain provisions of the Companies Act, then the liability fails upon the directors. Thus, the company and its directors including the appellants are liable for the violation of Section 56(1), 56(3) and 56(4) of the Companies Act. The liability for non-compliance of Section 73 of the Companies act is also upon the company and other directors of the company who is an officer in default shall be liable to pay jointly and severally or repay the money with interest. 5
6. In the instant case, we find that the company had allotted 252 RPS for the year 2009-10, 1806 RPS for the year 2011-12 and 896 RPS for the year 2013-14 which was in excess of the maximum number of 50.
7. In view of the aforesaid, we do not find any error in the impugned order. The appeal is dismissed.
8. 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. Certified copy of this order is also available from the Registry on payment of usual charges.
Justice Tarun Agarwala Presiding Officer Ms. Meera Swarup PRAMILA Digitally signed by PRAMILA TANAJI Technical Member 05.07.2023 TANAJI MISAL Date: 2023.07.05 PTM MISAL 17:02:50 +05'30'