Delhi District Court
Rashmi Verma vs . Sebi on 31 August, 2010
IN THE COURT OF MS.POONAM CHAUDHARY ASJ
(CENTRAL01):DELHI
CC No. 14/09
Unique ID No. 02401 R0239842003
SECURITIES AND EXCHANGE
BOARD OF INDIA , (a statutory body
established under the provisions of
Securities and Exchange Board of India
Act, 1992) Having its Head office at
Mittal Court, B - Wing, 224 Nariman
Point, Mumbai 400 021 represented by
its Asst. General Manager Sh. Rakesh
Bhanot.
VERSUS
1. Prime Green Forest Ltd. a
company incorporated under the
Companies Act, 1956, having its
Regd. Office at: Jalandhar Road,
Opp. Star Petrol Pump,
Hoshiarpur, Punjab. And having
office at: Gurdawara Nanaksar, 1st
Floor, Basti Jodjewal Chowk,
Ludhiana, Punjab.
2. Sh. Kuldip Singh, Managing
Director of Accused No. 1, R/o:
Village Rampur Khhalyan, P.O.
Narur, Tehsil Phagwara, Distt.
Kapurthala, Punjab.
CC No. 14/09 Page No 1
3. S. Charan Singh, Director of
Accused No. 1, R/o: Village & PO
Nasaria, Distt. Hoshiarpur,
Punjab.
4. Sh. Harbhajan Singh, Director of
Accused no. 1, R/o: House No.
1302, Mohalla Janakpuri,
Ludhiana. (Punjab).
Date of Institution : 17.04.2004
Judgments reserved on : 26.08.2010
Judgments announced on : 31.08.2010
J U D G M E N T
1. In brief the case of the Securities and Exchange Board of India (herein after referred to as 'SEBI') a statutory body established under the provisions of Securities and Exchange Board of India Act 1992 (herein after referred to as the Act) as disclosed in the complaint is that accused no. 2 to 4 being the director of accused no. 1 (herein after referred to as accused company) floated Collective Investments Scheme (for short 'CIS') and collected Rs 58,17,840/ from the general public as on 31.03.97. It is also averred that for the Regulations of CIS, being run by entrepreneurs, SEBI notified the Securities and Exchange Board of India Regulation 1999 (herein after referred to as the 'Regulations').
CC No. 14/09 Page No 2 However, accused company neither applied for registration nor took any steps for winding up its CIS and repayment to the investors as per the Regulations. Therefore, according to the SEBI, accused company committed violations of Sections 11(B), 12(1B) of the Act read with Regulations 5(1), 68(1), 68(2), 73 & 74 punishable under Section 24(1) of the Act. SEBI also claimed that accused no. 2 to 8 being the directors of the accused no.1 company were responsible for the conduct of its business and, therefore, are liable for the said violations under Section 27 of the Act.
2. After filing of the complaint, all the accused were summoned vide order of Ld. ACMM, Delhi dated 16.12.2003. On appearance of the accused notice of accusation was given to them to which accused no. 4 pleaded not guilty and claimed trial. As accused no. 2 and 3 absconded they were declared Proclaimed Offenders.
3. In support of its case SEBI examined CW 1 Sh. Rakesh Bhanot, AGM SEBI and thereafter closed its evidence.
4. The statement of accused no. 4 was thereafter recorded U/s 313 Cr.P.C. In his defence accused no. 4 entered the witness box and examined himself as DW 1 and thereafter closed his evidence.
5. I have heard the Ld. counsel for parties and perused the record.
6. The question for consideration is whether SEBI has been able to prove its case against the accused beyond reasonable doubt or CC No. 14/09 Page No 3 not.
7. The case hinges more or less on the documents issued by SEBI and accused company prior to the institution of the present case.
8. CW 1 Sh. Rakesh Bhanot, AGM SEBI had deposed that he was authorized to pursue the complaint by virtue of delegation of power Ex. CW 1/1. He further stated that during 199798 a large number of entities floated agro bonds schemes, plantations schemes, investment schemes, promising high returns to investors. He further stated in order to check mushrooming of such firms which could harm the interest of investors, the Government of India issued press release dated 18.11.1997 mandating that all entities floating plantation agro bonds schemes would fell under the provisions of Section 11 of the SEBI Act. Thereafter, SEBI issued press release and public notice on 26.11.1997 and 18.12.1997 requiring all such entities to avail the benefit of Section 12 of the SEBI Act and file information with SEBI. In response to the same accused no. 1 furnished letter dated 22.04.1998 Ex. CW 1/3, the said letter was signed by accused no. 2 Sh. Kuldeep Singh, Chairman of the accused no. 1 company. The letter was accompanied a copy of the application form, format of receipt agreement certificate agency application form brochure etc.
9. CW 1 further stated that accused company sent another letter CC No. 14/09 Page No 4 dated 25.08.1998 Ex. CW 1/4 furnishing the list of directors of accused no. 1 company namely accused no. 2 to 4. CW 1 also stated that along with this letter the accused company sent a certified copy of the memorandum and articles of association and balance sheet of the company. As per the memorandum and articles of association of the company the directors of accused no. 1 were accused no. 2 to 4. CW 1 also deposed that as per the photocopy of the balance sheet appended with Ex. CW 1/4 accused company had mobilized 58,17,840/ as on 31.03.1997.
10. CW 1 further stated that accused company also sent a letter Ex. CW 1/5 stating therein that the accused company had come to know from the newspapers regarding submitting of documents of investment schemes to SEBI and in pursuance thereto accused company had sent information to SEBI but SEBI had not responded to the information sent by accused company. CW 1 further stated that accused company had also sent letter dated 08.06.1998 Ex. CW 1/6 furnishing the names of the promoters of the accused company to SEBI namely Kuldeep Singh M. D., Chanan Singh and Harbhajan Singh. The said letter was on the letterhead of the accused no. 1 company signed by the accused no. 2 who was the CMD of the accused company. CW 1 also testified that vide the said letter the accused company also informed SEBI that it had mobilized approximately 35 lakhs under its various schemes as per CC No. 14/09 Page No 5 its balance sheet for the year 199596.
11. CW 1 further testified that vide letter dated 30.04.1998 SEBI directed accused company not to raise further funds under its scheme until credit ratings were obtained by the accused company and vide another letter dated 30.04.1998 and thereafter 30.06.1998 Ex. CW 1/7 directed the accused no. 1 company to furnish details i.e. information regarding the memorandum and articles of association, audited balance sheet, names, addresses occupation of the directors, compliance report and statement of deployment of funds.
12. CW 1 further stated that SEBI CIS Regulations were notified on 15.10.1999 and SEBI vide letter dated 21.10.1999 Mark C forwarded to the accused company. He also stated that the letter was served upon the accused as it was not returned back. The acknowledgment card of the registered post sent in the record.
13. CW 1 also stated that SEBI vide letter dated 10.12.1999 Mark D informed the accused company about its statutory regulations and the same were communicated to accused vide public notice dated 10.12.1999, which was published in all major national and vernacular newspapers. CW 1 further stated that it was published in "Hindustan Times" dated 19.12.1999 Ex. CW 1/8. CW 1 also deposed that SEBI vide letter dated 29.12.1999 Mark E informed accused about the statutory obligations.
CC No. 14/09 Page No 6
14. CW 1 further stated that as the accused company and persons incharge of its day to day affairs i.e. accused no. 2 to 4 did not comply with the statutory obligations SEBI issued show cause notice to accused dated 12.05.2000 Ex. CW 1/9 however accused company did not send any communication in response to the same, neither accused company applied for registration of its CIS. Thereafter SEBI forwarded a format of winding up and repayment report as prescribed under Regulation 73 of the SEBI CIS Regulation 1999, which is Ex. CW 1/10 however despite service of the same accused did not file the winding up and repayment report. Thereafter SEBI issued directions U/s 11 of the Act directing accused company to pay the investors as per the original terms of offer vide directions dated 07.12.2000 Ex. CW 1/11. The same were forwarded to the accused company through registered post. The office copy of letter dated 18.12.2000 is Ex. CW 1/12. CW 1 also deposed that the directions issued by SEBI were also communicated to accused through public notice Ex. CW 1/13 and name of accused company appeared on Mark A. However accused company did not comply with the SEBI 'CIS' Regulations till date.
15. In his cross examination CW 1 denied that he had no authority to file and pursue the complaint. He admitted that he had not placed on record the copy of SEBI CIS Regulations or notification thereof. He denied that the complaint was barred by CC No. 14/09 Page No 7 limitation.
16. CW 1 further stated that the accused company had applied for registration vide letter 08.06.1998 but till then SEBI CIS Regulations had not been notified. He denied that registration was being done by SEBI prior to notification of regulations. He further stated that the letter dated 22.04.1998 of accused company bears the endorsement "entered in our data base".
17. CW 1 also admitted that accused company had sent a letter dated 25.08.1998 Ex. CW 1/DA furnishing information as desired vide letter of SEBI dated 20.07.1998. CW 1 also stated that accused company had filed compliance report dated 25.08.1998 Ex. CW 1/DB stating that they were not mobilizing funds under existing schemes.
18. CW 1 further stated that he could not tell whether communication and balance sheet and compliance certificate Memorandum and articles of Association were forwarded on behalf of accused company under the signatures of accused no. 4, as some of the signatures of the directors were in Punjabi which he could not read. He denied that accused no. 4 was not responsible for the day to day affairs of the accused company even as per the memorandum and articles of association of the company. He further stated that occupation of accused no. 4 was stated to be cutter master in the list of the directors dated 25.08.98. He denied CC No. 14/09 Page No 8 that accused no. 4 was a sleeping director and resigned on 01.05.2001 as per form no. 32 Ex. CW 1/DC issued by ROC. He further stated as per the records available with him there was no complaint against the accused company by any investor. He further stated that accused company had intimated to SEBI vide letter dated 04.05.2005 that accused no. 4 had resigned from the company and was not liable for the liability of the company.
19. The Act came into force with effect from 30.01.1992 Chapter V of the Act relates to registration certificate. Section 12 (IB) was incorporated in the Act w.e.f. 25.01.1995 and reads as follows:
"1 (B) no person shall sponsor or cause to be sponsored or carry on or cause to be carried on any venture capital funds or collective investment scheme including mutual funds, unless he obtains the certificate of registration from the Board in accordance with the regulations."
20. According to Section 12(IB) of the Act no person could sponsor CIS without obtaining a registration from SEBI in accordance with the Regulations. The regulations came into force with effect from 15.10.1999.
21. 'CIS' has been defined in Section 11AA of the Act.
CC No. 14/09 Page No 9 According to subsection (1) thereof any scheme or arrangement which satisfied the conditions referred to in subsection (2) shall be a collective investment scheme. The conditions specified in sub section (2) thereof as under: "(2) Any scheme or arrangement made or offered by any company under which:
(i) The contributions, or payment made by the investors, by whatever names called, are utilized for the purpose of the scheme or arrangement;
(ii) The contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement;
(iii) The property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors;
The investors do not have day to day control over the management and operation of the scheme or arrangement."
CC No. 14/09 Page No 10
22. The object of the Securities and Exchange Board of India Act 1992 was to provide for establishment of Securities and Exchange Board of India i.e. SEBI to protect the interest of the investors in securities and to promote the development of, and to regulate the Securities Market and matters connected therewith.
23. A perusal of the provisions of the Act reveals that CIS had not been defined therein even till 25.01.1995 when Section 12 (1B) was incorporated. The definition of CIS was defined in the Act on 22.02.2000 when Section 11AA was incorporated therein.
24. CW 1 had stated that Government of India issued press release dated 18.11.1997 directing that all entities floating plantation agro bond schemes would fall under the provision of Section 11 of the Act and would be considered as collected investment schemes as stipulated U/s 11 of the Act.
25. CW 1 further stated that SEBI issued press release dated 26.11.1997 and 18.12.1997 requiring all entities running CIS to avail the benefit of Section 12 of the SEBI Act and file information with SEBI regarding their schemes such as the funds mobilized names of the directors promoters U/s 12 (1B) of the Act. According to the complainant/SEBI the plantation and live stock schemes which are subject matter of the present complaint came to be considered CIS because of the press release dated 18.11.1997 CC No. 14/09 Page No 11 and public notice dated 26.11.1997 and 18.12.1997.
26. As per the proviso of Section 12 (1B) of the act all the collective investment schemes including the present scheme of accused no. 1 which were in existence as on 26.11.2007 and 18.12.2007 could continue their activities till the Regulations were notified. The regulations were notified on 15.10.99.
27. The Ld. Defence counsel vehemently argued that accused company had furnished information to SEBI vide Ex. CW 1/3 dated 22.04.1998 in response to the press release and applied for registration vide Ex. CW 1/DA and also submitted compliance certificate Ex. CW 1/DB as such it was not liable for the violations of the regulations as SEBI CIS Regulations which were notified on 15.10.1999 since accused no.1 company had furnished information much prior to the notification of regulations and even applied for registration. It is submitted on behalf of accused that the regulations were not applicable to the accused company therefore the question of violation of Regulations does not arise.
28. On the other hand Ld. Counsel for SEBI argued that after notification of the Regulations the accused company failed to comply with the provisions of Regulations 5, 68, 73, 74 thereof as such they are liable to be convicted and punished for the violation of the Regulations.
29. The Ld. Defence counsel however alleged that accused CC No. 14/09 Page No 12 company applied for registration vide letter dated 08.06.1998 Ex. CW 1/6 prior to the notification of the regulations.
30. The question for consideration is whether the Regulations were applicable to the accused at the time of their notification on 15.10.1999. It was for SEBI to prove the same.
31. A perusal of the aforesaid Regulations would reveal that they would apply to a person only if at the time of commencement of thereof accused had been running CIS. Although asper the press release issued by government of India the plantation bonds floated by accused no. 1 came to be included with the term CIS but the term CIS was defined in the Act. w.e.f. 12.12.2000 after incorporation of section 11 AA.
32. Now to find out whether the Regulations were applicable to the accused company after notification it would be relevant to refer to Regulation 5, 68, 73 and 74 of the regulations which are as under:
Section 5(1) of the regulations is as follows:
"Any person who immediately prior to the commencement of these regulations was operating a scheme, shall subject to the provisions of Chapter IX of these regulations make an application to the Board for the grant of a certificate within a period of two CC No. 14/09 Page No 13 months from such date. "
33. Section 68 of the regulations is as follows:
Section 68 (1) Any person who has been operating a collective investment scheme at the time of commencement of these regulations shall be deemed to be an existing collective investment scheme and shall also comply with the provisions of this Chapter. Explanation: The expression 'operating a collective investment scheme' shall include carrying out the obligations undertaken in the various documents entered into with the investors who have subscribed to the scheme. (2) An existing collective investment scheme shall make an application to the Board in the manner specified in regulation 5.
(3) The application made under sub regulation (2) shall be dealt with in any of the following manner:
(a) by grant of provisional registration by the Board under subregulation (1) of regulation 71;
(b) by grant of a certificate of registration by CC No. 14/09 Page No 14 the Board under regulation 10;
(c) by rejection of the application for registration by the Board under regulation 12.
34. Regulations 73 and 74 of SEBI Act reads as under
73 (1) An existing collective investment scheme which :
(a) has failed to make an application for registration to the Board ;or
(b) has not been granted provisional registration by the Board; or
(c) having obtained provisional registration fails to comply with the provisions of regulation 71;
shall wind up the existing scheme.
(2) The existing Collective Investment Scheme to be wound up under sub regulation (1) shall send an information memorandum to the investors who have subscribed to the scheme, within two months from the date of receipt of intimation from the Board, detailing the state of affairs of the scheme, the amount repayable to each investors and the manner CC No. 14/09 Page No 15 in which such amount is determined.
(3) The information memorandum referred to in subregulations (2) shall be dated and signed by all the directors of the scheme.
(4) The Board may specify such other disclosure to be made in the information memorandum, as it deems fit.
(5) The information memorandum shall be sent to the investors within one week from the date of the information memorandum.
(6) The information memorandum shall explicitly stated that investors desirous of continuing with the scheme shall have to give a positive consent within one month from the date of the information to continue with the scheme.
(7) The investors who give positive consent under subregulation (6) shall continue with the scheme at their risk and responsibility:
Provided that if the positive consent to CC No. 14/09 Page No 16 continue with the scheme, is received from only twentyfive per cent or less of the total number of existing investors, the scheme shall be wound up.
(8) The payment to the investors, shall be made within three months of the date of the information memorandum.
(9) On completion of the winding up the existing collective investment scheme shall file with the Board such reports, as may be specified.
74. An existing collective investment scheme which is not desirous of obtaining provisional registration from the Board shall formulate a scheme or repayment and make such payment to the existing investors in the manner specified in regulations 73.
35. It is significant to note that accused company prior to the institution of the present case, had intimated SEBI vide Ex. CW 1/3 dated 22.04.1998 about its schemes and subsequently accused company sent another letter dated 25.08.1998 Ex. CW 1/4 CC No. 14/09 Page No 17 furnishing the list of directors. As per the balance sheet appended with Ex. CW 1/4 the accused company had mobilized Rs. 58,17,840/ as on 31.03.1997. CW 1 stated in his cross examination that accused company applied for registration vide Ex. CW 1/ 6 dated 8.06.98 and Ex. CW 1/DA dated 25.08.1998. The above said documents were not disputed by SEBI. Thus accused company applied for registration prior to the notification of regulations.
36. Now if accused company applied for registration and SEBI did not grant a certificate of registration to accused company neither SEBI respond to the letters sent by accused company Ex. CW 1/ 6 and Ex. CW 1/DA for registration with SEBI accused no. 4 could not be held liable for the violations of section 12 (1B) of the Act. Moreover vide Ex. CW 1/DB accused company informed SEBI that it had not floated any new CIS after the issuance of public notice by SEBI and had not mobilized any further funds under its existing CIS. No document was filed by SEBI to show that accused company continued its schemes till the filing of the complaint.
37. The defence of accused no. 4 is that the accused company had furnished compliance report to SEBI Ex. CW 1/3 dated 22.04.1998 in pursuance of the press release dated 26.11.1997 and 18.12.1997.
38. The next contention of Ld. counsel for accused is that CC No. 14/09 Page No 18 accused no. 4 had resigned from the company on 01.05.2001 as per form 32 Ex. CW 1/DC issued by ROC.
39. The Ld. counsel for SEBI argued that SEBI CIS Regulations were notified on 15.10.1999 and as per the admitted document Ex. CW 1/4 dated 25.08.2009 issued by accused company accused Harbhajan Singh was one of the directors of the accused company at the time of notification of the regulations. It is further contended by Ld. counsel for SEBI that as per the undisputed document Ex. CW 1/4 on the date 25.08.1998 of its issue i.e. accused no. 4 was one of the directors of the company. The Act also came into force on 30.01.1992 Chapter V of the Act relates to registration certificate and provides that no person could sponsor CIS without obtaining registration from SEBI in accordance with the regulations. The Regulation came into force on 15.10.1999. It is further alleged by Ld. counsel for SEBI that as per the admitted document Ex. CW 1/6 dated 08.06.1998 accused company had investors fund to the tune of Rs. 35 lakhs according to the balance sheet for the year 199596 so it is admitted fact that accused company had been running CIS even as on 08.06.1998 when Ex. CW 1/ 4 and CW 1/ 6 were issued by accused company. It is further contented by Ld. counsel for SEBI that CW 1 had deposed that accused no. 2 to 4 were the persons incharge of the affairs of the company and accused company had not applied for registration CC No. 14/09 Page No 19 of its CIS. It is also contended by Ld. counsel for SEBI that CW 1 had further stated that violations of SEBI CIS Regulations continued till filing of the complaint as accused company had not complied with the regulations till date. It is further alleged by Ld. counsel for SEBI that after notification of the regulations SEBI sent a letter to accused company dated 21.10.1999 which was duly served on the accused company as it was never returned back undelivered. It is further submitted that as per Regulations (5) of the Regulation
40. Regulation 5 of the Regulation pertains to making of an application by an existing CIS to SEBI for grant of certificate. Regulation no. 68 relates to existing CIS to obtain provisional registration and applies to a person who has been operating CIS at the time of commencement of the regulations. The explanation appended thereof provides that expression operating the CIS would include carrying out the obligation undertaken in various documents entered into with the investors.
41. Thus, the above provisions reveal that they apply to a person who at the time of commencement of regulations had been operating CIS. Thus although as per the press release issued by Government of India plantation bonds floated by accused no. 1 came to included within the term CIS but the said term came to be defined in the act w.e.f. 22.12.2000 after incorporation of section CC No. 14/09 Page No 20 11 AA therein. Accused company had applied for registration vide letter Ex. CW 1/ 6. CW 1 stated that a copy of SEBI CIS Regulations, 1999 or any notification thereof was not placed on record. He also admitted that last day to apply for registration was 31.03.2000. Thus SEBI failed to prove violation of section 12 (1B) of the Act by accused no. 4.
42. It is further contended by Ld. counsel for SEBI is that the accused company had not filed WRR till the date, thus it incurred liability for violation of SEBI CIS Regulations.
43. The next contention of Ld. Counsel for accused is that accused no. 4 had not sent any communication to SEBI under his signature. He also stated that balance sheet, compliance certificate, MOA and AOA were not forwarded under his signature. In his defence he examined himself as DW 1. He stated that he was doing the job of cutter master (tailor) at Ludhiana and he was the sleeping director and was not responsible for the day to day affairs of the accused company. He also stated that he had not signed any letter or communication on behalf of the company. He further stated that he was not aware whether any amount was collected from the investors. He also stated that he had resigned on 1.05.2001. He placed on record form no. 32 of the Companies act Ex. DW 1/A in support of his contention that he had resigned from the accused company on 1.05.2001. In his cross examination he stated that he CC No. 14/09 Page No 21 could not say whether balance sheet which was appended to Ex. CW 1/ 7 was of the accused company. He further stated that he did not remember when he became the director of the accused company and further stated that he had not purchased shares of the accused company. He further stated that he did not know if accused company had mobilized funds to the tune of Rs. 58,17,840/ up till 31.03.97. He also stated that he could not tell whether balance sheet for the year up to 31.03.97 was signed by the auditor of the accused company. Ld. Counsel for accused further contended that accused no. 4 was not incharge of the affairs of the accused company and was also not responsible for the conduct of its business. Ld. Counsel for accused further contended that SEBI did not challenge the testimony of accused no. 4 regarding the fact that he was doing the job of cutter master at the time when he was appointed as a director of the accused company. Ld. Counsel for accused has alleged that there was no averments in the complaint regarding role played by accused no. 4. It is alleged that as accused no. 4 was a cutter master when he was appointed as director, he could not have actively participated in the day to day affairs of the accused company and therefore could not be said to be responsible for the conduct of the day to day affairs of the company. In support of his said contention Ld. Counsel for accused has placed reliance upon:
157 (2009) DLT 417 CC No. 14/09 Page No 22 Rashmi Verma Vs. SEBI wherein it has been held as follows:
Securities and Exchange Board of India act. 1992 Sections 11B, 12(1B), 27 SEBI (Collective Investment Schemes) Regulations, 1999 Regulation (5) 1 r/w Regulation 68(1), 68(2), 13 14 Criminal Procedure Code, 1973 Section 482 Non repayment of amount to investors Violation of provisions of SEBI Act and Regulations No case made out Quashing of complaint and summoning order qua petitioner Initial burden is on complainant to show accused was in charge of affairs of company and responsible for conduct of its business or offence committed with his consent or connivance or attributable to any neglect on his part Necessary averments in this behalf lacking in complaint Mere bald averments in complaint do not make directors offender Person is arrayed as accused only on ground that he was Directorin charge of affairs of company and responsible for conduct of its day to day business No further elaboration as to how petitioner was incharge of affairs of company and responsible for conduct of CC No. 14/09 Page No 23 its business Even without taking care of requirements of law whether prima facie case made out against petitioner, Magistrate acted mechanically in passing impugned order against petitioner and its is quashed"
44. Ld. Counsel for accused has contended that to launch a prosecution against a director there must be specific allegations in the complaint regarding role played by him in the affairs of the company. However no specific role of accused no. 4 has been mentioned in the complaint. Accused no. 4 has been arrayed as an accused in the complaint on the averments that he was a director/ promoter of the accused company. Para 20 of the complaint which relates to accused no. 4 is as follows:
"The Accused No. 4 is director of the accused No. 1 and person incharge of the affairs of the accused no. 1 and responsible to the Accused No. 1 for the conduct of its business and has deliberately, intentionally and knowingly violated the provisions of SEBI Act and is liable for the violations of provisions of the SEBI Act by the accused no. 1, as provided under section 27 of Securities and Exchange Board of India Act. 1992"
CC No. 14/09 Page No 24
45. It is further alleged on behalf of accused no. 4 that in the absence of specific allegations in the complaint against him, he cannot be held vicariously liable for the offence attributed to the company.
46. On the other hand Ld. Counsel for SEBI has alleged that accused no. 4 was the director of the accused company as per the admitted documents Ex. CW 1/ 3 and CW 1/ 4 when the offence was committed by the accused company and he was incharge and responsible to the company of its business and he is vicariously liable for the offence attributed to the accused company.
47. Ld. Counsel for SEBI has also contended that accused no. 1 company had submitted information regarding its scheme and directions to SEBI vide letter Ex. CW 1/ 4 and the name of accused no. 4 was mentioned in the list of directors.
48. On perusal of the complaint I find that averments made therein are that accused company had committed violations of regulations and act as such all the directors are liable to the as they were persons incharge of the affairs of the accused company and responsible for the conduct of its business. There are no specific allegations against the accused no. 4. It has been held in 157 (2009) DLT 417 that complainant is required to make specific allegations regarding the role played by the directors in committing the offence CC No. 14/09 Page No 25 and mere averments in the complaint that persons was a director hence would be vicariously liable were not sufficient.
49. In the present case I find that specific role of accused no. 4 has not been mentioned. There is no averments in the complaint that accused no. 4 had role to play in the incriminating acts.
50. The contention of Ld. Counsel for accused that occupation of accused no. 4 was shown as cutter master in the information supplied to SEBI has not been disputed. CW 1 admitted in his cross examination that occupation of accused no. 4 mentioned in the list of directors dated 25.08.98 Ex. CW 1/ 4 furnishing by accused company to SEBI was that of a cutter master. In view of the said admission of CW 1 accused no. 4 could not have actively participated in the day to day affairs of the accused company and therefore could not be said to be responsible for the conduct of the day to day affairs of the company.
51. The averments made in the complaint are that as the accused company committed offence all directors would be liable. However it has been held in 157 (2009) DLT 417 that there has to be a specific accusation against the director and each of the person arrayed as an accused in the complaint and mere narration of provisions of statute was not sufficient to make the director an accused. The director could be held liable only if the offence was committed with his consent or connivance.
CC No. 14/09 Page No 26
52. Moreover form no. 32 submitted by accused company to Registrar of Companies Ex. CW 1/DA was not disputed by complainant. As per form no. 32 accused no. 4 resigned from the accused company on 1.05.2001. Moreover the documents sent by accused company to SEBI were under the signature of accused no. 2 MD of accused no. 1. It is alleged by Ld. Counsel for SEBI that balance sheet bears the signature of accused no. 4. In this regard CW 1 stated that he could not confirm whether balance sheet bear the signature on behalf of accused company as one of the accused had signed in Punjabi. However SEBI did not verify the same. The balance sheet of accused company is a public document which could have been verified by SEBI for finding out the role played by accused no. 4 but it was not done. Thus I am of the view that SEBI has failed to prove that accused no. 4 had a role to play in the incriminating acts committed by the accused company.
53. The averments in the complaint are against the accused company. Thus I am of the view that SEBI has failed to prove its case against accused no. 4 beyond reasonable doubt, accordingly accused no. 4 is acquitted, his bail bond is cancelled and surety discharged. File is consigned to record room under section 299 Cr.P.C. to be revived as and when accused no. 1, 2 and 3 are arrested or appear.
Announced in the open Court (POONAM CHAUDHARY)
On this day of 31st August 2010 ASJ (Central01) : DELHI
CC No. 14/09 Page No 27