Delhi District Court
Sebi vs . Timber World Resorts & Plantation & ... on 29 November, 2014
SEBI vs. Timber World Resorts & Plantation & others
IN THE COURT OF SH. PAWAN KUMAR JAIN,
ADDITIONAL SESSIONS JUDGE-01(CENTRAL), THC: DELHI
Complaint Case No. 25/2014
ID No: 02401R0124632001
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 Mumbai and Regional office at Block
No. 321, Rajendra Bhawan, Rajendra Place, District Center, New Delhi-
110008 and represented by its Assistant General Manager, Sh. Arvind
Kumar.
Versus
1. Timberworld Resorts & Plantations India Ltd.
A company incorporated under the
provisions of Companies Act, 1956
and having its Registered office at:
M-42, First Floor, Market Commercial Complex,
Greater Kailash- Part II, New Delhi-110
........Accused no.1
2. Sh. Ashwani Sud
S/o Late Sh. Lekh Prakash Sud
Director of accused no.1
R/o C-159, East of Kailash
New Delhi
........Accused no.2
3. Sh. Sanjeev Sood
S/o Late Narender Nath Sood
Director of accused no.1
R/o 28, Southern Avenue,
Kolkata-700 026
........Accused no.3
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SEBI vs. Timber World Resorts & Plantation & others
4. Sh. Rajesh Sud
Director of accused no.1
R/o N-21, Chittaranjan Park,
New Delhi
........Accused no.4
5. Sh. A. V. Mahindra
Director of accused no.1
R/o as of accused no.1
........Accused no.5
Date of Institution : 15.10.2001
Date of Transfer to Sessions Court : 22.09.2014
Date of judgment reserved on : 17.11.2014
Date of pronouncement of judgment : 27.11.2014
Present: Sh. Sanjay Mann, Advocate, counsel for SEBI
Sh. Baldev Raj Advocate, counsel for accused no.1 & 2
Sh. Rajshree Advocate, counsel for accused no.3
JUDGMENT:
1. This criminal complaint was preferred by the Securities & Exchange Board of India (hereinafter referred to as "SEBI" or "the complainant"), on October 15, 2001 in the Court of Additional Chief Metropolitan Magistrate (ACMM), alleging violation of the provisions of Section 12 (1B) of Securities & Exchange Board of India Act, 1992 (hereinafter, "the SEBI Act") and Regulation Nos. 5 (1) read with 68(1), 68(2), 73 and 74 of the Securities & Exchange Board of India (Collective Investment Schemes) Regulations, 1999 (hereinafter referred to as "the CIS Regulations" or "the said Regulations"), constituting offence punishable under Section 24(1) read with Section 27 of the SEBI Act.
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2. Five persons were arrayed as accused in the criminal complaint preferred under Section 200 Cr. P.C., they being M/s Timber Resorts & Plantations Ltd. (hereinafter, "A1" or "the Company Accused"), accused No. 2 Sh. Ashwani Sud ("A2"), accused No.3 Sh. Sanjeev Sood ("A3"), accused No.4 Sh. Rajesh Sud ("A4") and accused No.5 Sh. A.V. Mahindra. It is alleged that A2 to A5 were Directors of the company accused and as such persons were in charge of, and responsible to, A1 for the conduct of its business within the meaning of the provision contained in Section 27 of the SEBI Act.
3. It was alleged that A1 had floated the Collective Investment Schemes (CIS) and raised amount approximately ` 22 crores from general public in violation of the provisions contained in Section 12 (1B) of the SEBI Act. It was also alleged that after coming into force of the CIS Regulations and in spite of public notice dated December 18,1997, the accused persons had failed to get the Collective Investment Schemes registered with SEBI or to wind up the said schemes or repay the amount collected from the investors in terms of the CIS Regulations, thus constituting violation of the law and regulations framed thereunder and thereby committing the offence alleged as above.
4 Cognizance on the complaint was taken by the learned ACMM vide order dated October 15, 2001 whereby process were issued under Section 204 Cr. P.C. against all the accused persons. Thereafter, vide order dated January 10, 2005, the case was transferred to the Court of Ms. Asha Menon, the then learned ASJ, Delhi.
5. Vide order dated December 8, 2011, A4 & A5 were declared CC No. 25/2014 Page 3 of 40 SEBI vs. Timber World Resorts & Plantation & others proclaimed offenders on account of their non-appearance. Vide order dated February 16, 2012, A3 was also declared proclaimed offender.
6. Vide order dated March 15, 2012, a notice for the offence punishable under Section 24 read with section 27 of the SEBI Act was served upon the A1(company) and A2. Since company accused was represented by A2, he also responded the notice on behalf of company accused. A2 pleaded not guilty and claimed trial. Since, A3 put his appearance later on, a separate notice was served upon A3 vide order dated November 21, 2012 to which he pleaded not guilty and claimed trial.
7. To prove its case, complainant has examined only one witness i.e. CW1 Sh. Arvind Kumar, Asstt. General Manager of SEBI. On culmination of complainant's evidence, A2 and A3 were examined under Section 313 Cr. P.C.
8. In his statement under Section 313 Cr. P.C, A3 admitted that he was one of the directors of company accused but took the plea that he had resigned from the directorship in February 1995 and denied all other incriminating evidence led by SEBI and submitted that he had been falsely implicated in this case. A2 took the plea that during the relevant period, he was in judicial custody and the landlords of the office namely Ishwar Dayal Gupta and Kiran Gupta had taken away all files and other material illegally which were lying in the office at that time and got forcibly vacated the premises, hence he was not having any other means of communication either with the investors or with the any other authorities including SEBI. Qua other questions, A2 either expressed his ignorance or stated that it was the matter of record.
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9. In order to prove their innocence, A3 examined himself as DW1 and Sh. Hemant Kumar Pandey as DW2.
10. Both counsel appearing for accused No. 1 to 3 raised a common contention that present criminal complaint is bad due to lack of jurisdiction because as per the Securities Law (Amendment) Ordinance 2013, all the offences were exclusively triable by the Special Court and where Special Court was not constituted, the offences shall be triable by the Court of Sessions. It was contended that since, in the present matter all evidences were recorded by the Court of learned ACMM, hence the proceedings conducted by learned ACMM are void ab-initio. It was contended that matter is required a fresh trial.
(i). Per contra counsel appearing for SEBI refuted the said contention by arguing sagaciously that Section 26 of SEBI Act was amended by way of Amendment Act 59 of 2002 w.e.f October 29, 2002 stating that no Court inferior to that of Court of Sessions shall try any offence punishable under the Act. It was contended that by virtue of the amendment, all the cases instituted after October 29, 2002 shall become triable by the Court of Sessions. It was further contended that since the case in hand was instituted on October 15, 2001, thus, the case was required to be tried by the Court of Metropolitan Magistrate. It was further contended now the Section 26 has been further amended by Legislature by way of Amendment Act 27 of 2014 wherein it has been clarified that all the cases whether instituted prior to amendment or thereafter shall be tried by the Court of Sessions. It was argued that in view of the latest amendment, the matter has been transferred to this Court for further trial. It was further CC No. 25/2014 Page 5 of 40 SEBI vs. Timber World Resorts & Plantation & others contended that the proceedings cannot be declared null and void mere on the ground that amendment had taken place in a procedure law.
11. Before proceedings further, I deem it appropriate to refer the Amendment Act of 59 of 2002 by which Section 26 of SEBI Act was amended and same reads as under:-
26 Cognizance of offences by courts:- (1) No court shall take cognizance of any offence punishable under this Act or any rules or regulations made thereunder, save on a complaint made by the Board.
(2) No court inferior to that of (a court of session) shall try any offence punishable under this Act.
(emphasis supplied)
12. By the enactment of Amendment Act 27 of 2014 Section 26A to 26E have been inserted after Section 26 of SEBI Act and same read as under:-
26A.
(1) The Central Government may, for the purpose of providing speedy trial of offences under this Act, by notification, establish or designate as many Special Courts as may be necessary.
(2) A Special Court shall consist of a single judge who shall be appointed by the Central Government with the concurrence of the Chief Justice of the High Court within whose jurisdiction the judge to be appointed is working.
(3) A person shall not be qualified for appointment as a judge of a Special Court unless he is, immediately before such appointment, holding the office of a Sessions Judge or an Additional Sessions Judge, as the case may be.CC No. 25/2014 Page 6 of 40
SEBI vs. Timber World Resorts & Plantation & others 26B. Notwithstanding anything contained in the Code of Criminal Procedure, 1973, all offences under this Act committed prior to the date of commencement of the Securities Laws (Amendment) Act, 2014 or on or after the date of such commencement, shall be taken cognizance of and tried by the Special Court established for the area in which the offence is committed or where there are more Special Courts than one for such area, by such one of them as may be specified in this behalf by the High Court concerned.
26C. The High Court may exercise, so far as may be applicable, all the powers conferred by Chapters XXIX and XXX of the Code of Criminal Procedure, 1973 on a High Court, as if a Special Court within the local limits of the jurisdiction of the High Court were a Court of Session trying cases within the local limits of the jurisdiction of the High Court.
26D.
(1) Save as otherwise provided in this Act, the provisions of the Code of Criminal Procedure, 1973 shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a Court of Session and the person conducting prosecution before a Special Court shall be deemed to be a Public Prosecutor within the meaning of clause (u) of section 2 of the Code of Criminal Procedure, 1973.
The person conducting prosecution referred to in sub- section (1) should have been in practice as an Advocate for not less than seven years or should have held a post, for a period of not less than seven years, under the Union or a State, requiring special knowledge of law.
26E. Any offence committed under this Act, which is triable by a Special Court shall, until a Special Court is established, be taken cognizance of and tried by a Court of Session exercising jurisdiction over the area, notwithstanding anything contained in the Code of Criminal Procedure, 1973:
CC No. 25/2014 Page 7 of 40SEBI vs. Timber World Resorts & Plantation & others Provided that nothing contained in this section shall affect the powers of the High Court under section 407 of the Code of Criminal Procedure, 1973 to transfer any case or class of cases taken cognizance by a Court of Session under this section.''.
(emphasis supplied)
13. Perusal of Section 26 (2) makes it clear that w.e.f October 29, 2012, no Court inferior to the Court of Sessions shall be competent to try any offence punishable under the SEBI Act. The question arises as to whether the cases pending before the Court of learned Metropolitan Magistrate on or prior to October 29, 2002 were also required to be dealt with by the Court of Sessions or not? This issue was dealt with by the High Court of Delhi in case Harman Deep Singh vs. Union of India, Writ petition (Crl) 461 2005 decided on January 14, 2005 wherein it was held that the cases filed prior to the date of amendment i.e. October 29, 2002 were not required to be withdrawn and transferred to the Court of Sessions. Admittedly, the present complaint was filed on October 15, 2001 and at that time in terms of pre amended Section 26 of SEBI Act, Court of learned Metropolitan Magistrate was a competent Court to try the matter. Thus, I do not find any force in the contention that the proceedings conducted by learned Trial Court were without any jurisdiction.
14. From bare perusal of Section 26B which was inserted by way of amendment Act 27 of 2014, it becomes crystal clear that all the offences whether committed prior to the commencement of Amendment Act or after the date of its commencement, shall be triable by the Special Court i.e. Court of Sessions. Thus, by virtue of Section 26B of the Act, all SEBI cases whether instituted prior to the enactment of Amendment Act 27 of 2014 or thereafter become triable by the Court of Sessions, accordingly, this case CC No. 25/2014 Page 8 of 40 SEBI vs. Timber World Resorts & Plantation & others has been transferred to this Court.
15. In view of the above, I am of the considered opinion that there is no merit in the contention raised by both the counsel for accused persons.
16. Both learned counsels appearing for the accused persons raised next common contention that the complaint is not maintainable as the same was not filed by a duly authorised person. It was further contended that CW1 was not duly authorised person to appear in the witness box on behalf of SEBI. Said contention was refuted by learned counsel appearing for the SEBI by arguing sagaciously that the complaint was filed by Sh. Ajay Srivastav, the then Manager, who was authorised vide letter of authority Ex.CW1/2 and further contended that CW1 was also authorised by virtue of his designation in terms of delegation of power which is Ex.CW1/3.
17. Perusal of the record and testimony of CW1 makes it clear that the present complaint was filed by Mr. Ajay Srivastav, the then Manager of SEBI. CW1 categorically deposed that Mr. Ajay Srivastav was authorised by letter of authority dated September 20, 2001 which is Ex.CW1/2. SEBI had filed the copy of said letter along with complaint as Annexure 'A'. It is explicit from the letter, that Mr. Ajay Srivastav was a competent person to file the complaint on behalf of SEBI.
(i). CW1 also deposed that he has been working in the SEBI since February, 2002 and he is a competent person to continue the prosecution on behalf of SEBI vide delegation of power issued on May 03, 2010, which CC No. 25/2014 Page 9 of 40 SEBI vs. Timber World Resorts & Plantation & others is Ex.CW1/3. Admittedly, CW1 is working in the SEBI as Assistant General Manager. In his cross-examination, he admitted that the delegation of power was not executed in his individual name but swiftly deposed that the same was issued on the basis of designation. Perusal of the delegation of power Ex.CW1/3 makes it clear that the Manager of the OD with an approval of the DGM was competent to sign and affirm an affidavit on behalf of the SEBI and also competent to file reply, complaint, petition, statement etc. in the Court. Since, CW1 was above the rank of O.D of Manager, thus, by virtue of Ex.CW1/3, he was competent to affirm an affidavit or appear in the witness box on behalf of SEBI. Thus, I do not find any substance in the contention raised by learned counsel for the accused persons.
18. Now coming to the next contention raised by learned counsel appearing for the accused No. 3 Sanjeev Sood that accused No. 3 is not liable for any violations, if any, committed by company accused, as A3 ceased to be a director in the company accused with effect from March 24, 1995 when he submitted his resignation to Mr. Rajesh Sud, Managing Director of the company accused. It was astutely contended that since the resignation letter was accepted by Mr. Rajesh Sud, the then Managing Director of the company accused, he (A3) cannot be held liable for the violations, if any, committed by the company accused after March 24, 1995. It was sagaciously argued that it was the responsibility of the company accused to submit form No. 32 before ROC, thus, if company accused failed to submit the same before the ROC, accused No. 3 cannot be held liable for the same. It was further contended that the matter was also investigated by Serious Fraud Investigating Office (SFIO) and during investigation, it was concluded that A-3 Sanjeev Sood had resigned from CC No. 25/2014 Page 10 of 40 SEBI vs. Timber World Resorts & Plantation & others the company accused and he was not a director at the relevant time. It was further contended that even A-3 was not in-charge of and responsible for the conduct of the business of company accused, thus, he cannot be held liable for any violations, if any, committed by the company accused. In support of his contention, he relied upon by the judgments namely M.A.A Annamalai Vs State of Karnataka (2010) 8 SCC 524, S.M.S. Pharmaceuticals Ltd. Vs Neeta Bhalla (2005) 8 SCC 89, Rashima Verma Vs SEBI (2009) 95 SCL 1 Delhi and Virender Kumar Singh Vs SEBI (2011) 167 CompCas 105 Delhi.
19. Per contra learned counsel appearing for SEBI refuted the said contentions by sagaciously arguing that in Public Limited Company, minimum three directors are required and this fact is admitted by DW1 (A-3) in his cross-examination. Since, only three directors were in the board of directors of the company accused, A-3 was not even in a position to tender his resignation unless and until any new person was inducted as a director on the board. It was further contended that as per Memorandum of Association of company accused, resignation is to be accepted through ordinarily resolution and in the instant case, no such resolution was ever passed. Even the resignation letter Ex.DW1/A does not bear the seal of company. Nor any date is mentioned on the said resignation letter. Thus, there is no cogent evidence on record to show that A-3 had ever resigned from the company accused. It was further contended that A-3 was not only one of the signatories of the Memorandum of Association of company accused but he was also one of the directors of the company accused and company accused was unable to raise fund without the decision of board of directors, thus, he was also liable for the violations committed by the company accused.
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20. In this regard, the testimony of CW1, DW1 and Ex.DW1/A are relevant.
21. DW1 Sajeev Sood (A-3) in his examination-in-chief fairly conceded that he was one of the directors in the company accused and further deposed that he had submitted his resignation on March 24, 1995 and copy of the same is Ex.DW1/A. He further testified that the said resignation was duly accepted by Mr. Rajesh Sud, the then Managing Director of the company accused and he (Rajesh Sud) had also given ` 25,000/- in lieu of the share purchased by him which A-3 was holding at that time being the director. He further deposed that due to said reason his name was not mentioned in the report of official liquidator as a director that was submitted before the Hon'ble High Court and even his name is not figured in the charge-sheet filed by SFIO. During his cross-examination, he admitted that when he resigned from the directorship, Mr. Rajesh Sud and Ashwani Sud were active directors of the company. DW1 also admitted that he was aware that company accused was a public limited company and needed to have three directors as per law but swiftly added that Mr. A.K. Mahendra was appointed as a director in his place. Admittedly, no document has been filed by the accused persons on record to prove that Mr. A.K. Mahendra was inducted as director in place of A-3. Though DW1 admitted that any change in management or addition or removal or resignation of director is required to be informed to ROC but swiftly added that it was the duty of the company accused and not of individual director.
22. As per Clause 88 of Articles of Association, company accused shall not have less than three directors or more than 12 directors including CC No. 25/2014 Page 12 of 40 SEBI vs. Timber World Resorts & Plantation & others nominee directors. As per Clause 100 of Articles of Association of company accused, office of director shall ipso-facto be vacated on happening of any of the events provided for in Section 283 of Companies Act. Admittedly, resignation is not one of the grounds as mentioned in Section 283 of the Companies Act. As per Clause 111, company accused could increase or decrease the number of directors by way of an ordinarily resolution. Thus, as per the Articles of Association of company accused, two things become clear; first, that company accused could not have less than three directors on its board at any point of time and second that number of directors could be increased or decreased by way of an ordinarily resolution.
(i). As per Section 252 of Companies Act, in case of public limited company, there should be at least minimum three directors. As per Section 284 of Companies Act, a director can be removed by an ordinarily resolution. Thus, from the combined reading of provisions of Companies Act as well as Articles of Association of company accused, it becomes clear that a director can be removed from his office only by way of passing an ordinarily resolution and there cannot be less than three directors at any point of time because company accused was a public limited company.
(ii). In his entire deposition DW1 failed to depose that any ordinarily resolution was passed when he submitted his resignation to Mr. Rajesh Sud.
23. Now coming to the resignation letter Ex.DW1/A. This resignation letter is on non-judicial stamp paper and bears date February 24, 1995 below the signature of accused Sanjeev Sood. It means that he had tendered his resignation on February 24, 1995 whereas counsel CC No. 25/2014 Page 13 of 40 SEBI vs. Timber World Resorts & Plantation & others contended that A-3 ceased to be a director w.e.f. March 24, 1995. At the left side of the said letter, word "accepted" and below the said word "accepted", 'R. Sud' is written. But this resignation letter nowhere either bears the seal of the company accused or the designation seal of Rajesh Sud i.e. Managing Director. Even the date of acceptance of said resignation letter is not mentioned. Perusal of the letter Ex.DW1/A further reveals that the same is not even addressed to anyone, rather it is in the form of a declaration.
(i). From Ex.DW1/A it becomes clear that it neither bears the seal of company accused nor it bear the seal of MD of the company. Even it does not bear the date when it was accepted. Nor it is addressed either to the company or to the MD of the company or to the board of directors. As already stated that a director can be removed only by way of passing an ordinarily resolution but during the trial no such evidence is produced before the Court that any such resolution was ever passed. In fact there is no evidence except the bald statement of A3. In these circumstances, I am of the considered opinion that no reliance can be placed on the document Ex.DW1/A. In other words, accused No. 3 has failed to establish that he had ceased to be a director. Since, DW1 admitted in his examination-in- chief that he was one of the directors in the company accused, moreover SEBI has succeeded to establish that he was one of the directors in the company accused. This fact is also proved from the Articles of Association of company accused wherein accused No. 3 Sanjeev Sood is mentioned as one of the first directors. Moreover, he is also one of the signatories of the Memorandum of Association and Articles of Association of company accused. This shows that he was not only one of the first directors of the company accused but he was also one of the promoters of the company accused.
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24. Now coming to the citations relied upon by learned defence counsel.
25. I have perused the judgment Rashima Verma Vs SEBI (supra) and Virender Kumar Singh Vs SEBI (supra). To my mind, the said judgments are not helpful to the accused in any manner because in the former judgment, name of appellant was mentioned in the Memorandum of Association of company as a subscriber and in the form 32, her name was not mentioned as a director. As per information furnished by the company accused, petitioner was shown to be in service at the relevant time, thus she was not in a position to participate in day to day affairs of the company accused. Similarly, in Virender Kumar Singh Vs SEBI (supra), appellant had resigned from the company accused much earlier and it was proved by furnishing form No. 32 on record. But in the instant case, no such form 32 is ever produced. Moreover, in the instant case resignation letter is in dispute and there is no evidence that the said alleged resignation was ever accepted by an ordinarily resolution.
26. In National Small Industries Corp. Ltd. v. Harmeet Singh Paintal 2010 RLR 209 (SC). Apex Court reviewed all the earlier judgments on the vicarious liabilities of the directors of a company and summarized the legal position as follows:
39. From the above discussion, the following principles emerge:
(i) The primary responsibility is on the complainant to make specific averments as are required under the law in the CC No. 25/2014 Page 15 of 40 SEBI vs. Timber World Resorts & Plantation & others complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction.
(ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.
(iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with.
(iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred.
(v) If the accused is a Managing Director or a Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with.
(vi) If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint.
(vii) The person sought to be made liable should be in charge of and responsible for the conduct of the business of the CC No. 25/2014 Page 16 of 40 SEBI vs. Timber World Resorts & Plantation & others company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases."
(emphasis supplied)
27. Perusal of the above judgment makes it clear that a person can be held vicarious liable for the offence committed by company, if complainant made averments in the petition that accused was in-charge of and responsible to, for the business of company accused and by virtue of his position, he is liable to be proceeded with. In the instant case, accused No. 3 himself admitted that he was one of the directors in the company accused and his name is also figured in the list of first directors. He was also one of the signatories of the Memorandum of Association and Articles of Association of company accused. As per information provided by ROC vide its letter dated November 26, 2012 (Ex.CW1/55), the name of accused No. 3 Sanjeev Sood stands as a director in the company accused. As per ROC, there are only three directors in the company accused, namely, Ashwani Sud, Sanjeev Sood and Rajesh Sud. This shows that there was no communication to the ROC from company accused till November 26, 2012 that there was any change in the Member of Board of Directors of the company accused.
28. CW1 is his examination-in-chief categorically deposed that accused No. 2 to 4 were persons in-charge of for day to day affairs of the company accused and were individually and collectively responsible for the acts of the company accused. Though CW1 was cross-examined on behalf of accused No. 3 but even no suggestion was given to him that he was not person in-charge of and responsible to for the conduct of the business of company accused or that he was not responsible for day to day affairs of CC No. 25/2014 Page 17 of 40 SEBI vs. Timber World Resorts & Plantation & others the company accused. In other words, the testimony of CW1 to that extent remained unchallenged during trial. Thus, there is no reason to disbelieve the testimony of CW1.
29. In this regard, it is apposite to refer the judgement Ankur Forest and Project Development India Ltd. & Ors. V/s. SEBI (2011) III AD (Delhi) 16) , wherein Hon`ble High Court had dealt with a similar plea and held as under:-
14. I find no merit in the contention of the learned defence counsel that no role has been attributed to the Appellants Nos. 2 to 5. The Appellants were the promoters and Directors thus, the responsibility of day to day functioning of the Company as has been proved by the complainant witnesses from the memorandum and articles of association is also on them. The Hon‟ble Supreme Court in SMS Pharmaceuticals Ltd. v/s. Neeta Bhalla and others, 2005 (8) SCC 89 held that a clear, unambiguous and specific allegation against a person impleaded as an accused that he was in charge of and responsible to the company in the conduct of its business at the material time when the offence was committed is sufficient. This issue was also considered by the Hon'ble Supreme Court in N. Rangachari v/s. BSNL, 2007 Cri. L.J 2448, wherein it was held:
"13. A Company, though a legal entity, cannot act by itself but can only act through its directors. Normally, the Board of Directors act for and on behalf of the company. This is clear from Section 291 of the Companies Act which provides that subject to the provisions of that Act, the Board of Directors of a Company shall be entitled to exercise all such powers and to do all such acts and things as the Company is authorized to exercise and do. Palmer described the position thus: "A company can only act by agents, and usually the persons by whom it acts and by whom the business of the company is carried on or superintended are termed directors...."
It is further stated in Palmer that:
"Directors are, in the eye of the law, agents of the CC No. 25/2014 Page 18 of 40 SEBI vs. Timber World Resorts & Plantation & others company for which they act, and the general principles of the law of principal and agent regulate in most respects the relationship of the company and its directors."
The above two passages were quoted with approval in R.K. Dalmia & Ors. v. The Delhi Administration [(1963)1 SCR 253 at page 300] . In Guide to the Companies Act by A. Ramaiya (Sixteenth Edition) this position is summed up thus:
"All the powers of management of the affairs of the company are vested in the Board of Directors. The Board thus becomes the working organ of the company. In their domain of power, there can be no interference, not even by shareholders. The directors as a board are exclusively empowered to manage and are exclusively responsible for that management."
Therefore, a person in the commercial world having a transaction with a company is entitled to presume that the Directors of the company are in charge of the affairs of the company. If any restrictions on their powers are placed by the memorandum or articles of the company, it is for the Directors to establish it at the trial. It is in that context that Section 141 of the Negotiable Instruments Act provides that when the offender is a company, every person, who at the time when the offence was committed was in charge of and was responsible to the company for the conduct of the business of the company, shall also be deemed to be guilty of the offence along with the company. It appears to us that an allegation in the complaint that the named accused are Directors of the company itself would usher in the element of their acting for and on behalf of the company and of their being in charge of the company. In Gower and Davies Principles of Modern Company Law (Seventh Edition), the theory behind the idea of identification is traced as follows:
"It is possible to find in the cases varying formulations of the under-lying principle, and the most recent definitions suggest that the courts are prepared today to give the rule of attribution based on identification a somewhat broader scope. In the original formulation in Lennard's CC No. 25/2014 Page 19 of 40 SEBI vs. Timber World Resorts & Plantation & others Carrying Company case Lord Haldane based identification on a person 'who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation'. Recently, however, such an approach has been castigated by the Privy Council through Lord Hoffmann in Maridian Global case as a misleading "general metaphysic of companies". The true question in each case was who as a matter of construction of the statute in question, or presumably other rule of law, is to be regarded as the controller of the company for the purpose of the identification rule.
But as has already been noticed, the decision in S.M.S. Pharmaceuticals ltd. (supra) binding on us, has postulated that a director in a company cannot be deemed to be in-charge of and responsible to the company for the conduct of his business in the context of Section 141 of the Act. Bound as we are by that decision, no further discussion on this aspect appears to be warranted.
14. A person normally having business or commercial dealings with a company, would satisfy himself about its creditworthiness and reliability by looking at its promoters and Board of Directors and the nature and extent of its business and its memorandum or articles of association. Other than that, he may not be aware of the arrangements within the company in regard to its management, daily routine, etc. therefore, when a cheque issued to him by the company is dishonoured, he is expected only to be aware generally of who are in charge of the affairs of the company. It is not reasonable to expect him to know whether the person who signed the cheque was instructed to do so or whether he has been deprived of his authority to do so when he actually signed the cheque. Those are matters peculiarly within the knowledge of the company and those in charge of it. So, all that a payee of a cheque that is dishonoured can be expected to allege is that the persons named in the complaint are in charge of its affairs. The Directors are prima facie in that position.
15. .................................................................................. .......................................................................................... ..........................................................................................CC No. 25/2014 Page 20 of 40
SEBI vs. Timber World Resorts & Plantation & others
16. In the light of the ratio in S.M.S Pharmaceuticals Ltd. what is to be looked into is whether in the complaint, in addition to asserting that the appellant and another are the Directors of the company, it is further alleged that they are in charge of and responsible to the company for the conduct of the business of the company. We find that such an allegation is clearly made in the complaint which we have quoted above. Learned Senior Counsel for the appellant argued that in Saroj Kumar Poddar case this Court had found the complaint unsustainable only for the reason that there was no specific averment that at the time of issuance of the cheque that was dishonoured, the persons named in the complaint were in charge of the affairs of the company. With great respect, we see no warrant for assuming such a position in the context of the binding ratio in S.M.S Pharmaceuticals Ltd. and in view of the position of the Directors in a company as explained above."
15. Thus, testing of the facts of the present case in the light of the ratio laid down, it would be relevant to reproduce the relevant portion of the complaint filed by the respondent which is duly exhibited and proved by the statement of CW1 Versha Aggarwal:
"In view of the above, it is charged that the Accused No. 1 has committed the violation of Sec. 11B, 12 (1B) of Securities and Exchange Board of India Act, 1992 read with Reg. 5 (1) read with Reg. 68 (1), 68 (2), 73 and 74 of the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 which is punishable under Sec. 24 (1) of Securities and Exchange Board of India Act, 1992. The Accused No. 2 to 6 are the directors and/or persons in charge of the responsible to the Accused No. 1 for the conduct of its business and are liable for the violations of the Accused No. 1, in terms of Sec. 27 of Securities and Exchange Board of India Act, 1992."
Besides CW2 in her testimony has stated: "The non- compliance of the SEBI directions and the violations of Sec. 12(1B) of the Act and the Regulations is attributable to accused Nos. 2 to 6, who are the directors of accused No.1 company. Accused No.1 company did not get the schemes CC No. 25/2014 Page 21 of 40 SEBI vs. Timber World Resorts & Plantation & others registered with SEBI prior to mobilization of funds thereunder. Till date accused no.1 company has not applied for registration nor any provisional registration was granted to it. The accused No.1 company or its directors accused Nos. 2 to 6 have not filed any winding up and repayment report till now. The accused No.1 company and its directors accused Nos. 2 to 6 were intimated regarding obligations under SEBI regulations and directions passed by Chairman SEBI through public notices dated 10.12.1999 and 07.12.2000, which was published on 14.1.2001 which are Ex. CW-2/2 and Ex. CW-2/3 respectively." No cross examination of this witness had been conducted on this aspect. Thus the testimony of this witness on this aspect has gone unchallenged. In response to the question No. 2 that the Appellant No.1 that is the company had filed the details including the list of Directors, funds mobilized and memorandums and articles exhibited as Ex. CW1/1, the Appellant Nos. 2 to 5 in their statements under Sec. 313 Cr PC have stated that we did not file this information. They have shown ignorance even about the audited balance- sheets etc. However, the defence witness DW1 Tarsem Saini has stated in his testimony that the company was run by the Appellant Nos. 2 to 5 and Hemant Sharma as directors. The relevant part of the testimony of DW1 reads as under:
"....Accused No. 1 company had mobilized only Rs. 1 to 1.5 lac rupees and the same stand repaid. It is wrong to suggest that the accused no. 1 company has received Rs. 34,79,151/- as investment. I was the director of the accused company apart from me Sh. Hemant Sharma, Sh. Rajbir Singh, Sh. Jagjit Singh, Sh. Mohan Lal Saini were also directors of accused no. 1 company. I had stated that our company started few months before the filing of the petition for winding up. It is correct to suggest that the accused no. 1 company was incorporated on 22.09.1995 as per the certificate of incorporation however the commencement of business was from 22.08.1996. We started business in the year 1998 Ex. CW1/1 was not sent by the accused company. Ex. CW1/2 was also not sent by the accused company. I have taken oath therefore I am not lying and I am not deposing falsely. It is wrong to suggest that the accused company was wound up on account of non-payment to all the investors. The accused company had not filed winding up and repayment report with the same."CC No. 25/2014 Page 22 of 40
SEBI vs. Timber World Resorts & Plantation & others
16. The testimony of the complainant witnesses along with the relevant documents duly exhibited, together with the testimony of defence witness Sh. Tarsem Saini and the contradictory statements given by the Appellants under Section 313, Cr.P.C. it can be safely adduced that the case of the contention of the learned counsel for the Appellant is liable to be dismissed, as there is sufficient evidence on record i.e. the complaint, the memorandum of article of associations and the statement of DW1 Tarsem Saini which is cogent and sufficient to show that at the time when the violation of SEBI (CIS) Regulation was carried on by the Accused No.1 company, the Appellant Nos. 2 to 5 herein were the persons in-charge and responsible for the affairs of the company. As regards compliance of the Regulations and notices, they have stated that since their company was wound up, they were not aware of any such notices and compliance to be made. It would be relevant to note here that the order directing the winding up of the Company were passed on 5th July, 2001 whereas the SEBI (CIS) Regulations came into force on 15th October, 1999 where- after all the public notices and notices were sent to the company, which were all prior to the directions for winding up of the Company by the Hon‟ble High Court of Punjab & Haryana.
(emphasised supplied)
30. In view of the aforesaid discussion, I am of the considered opinion that accused No. 3 was also one of the directors of the company accused, thus, he is also liable along with other directors for the conduct of the business of company accused and violations, if any, committed by company accused.
31. Learned counsel appearing for accused No. 3 astutely contended that even in the investigation conduct by SFIO, it was found that accused No. 3 had resigned from company accused and he was not director at the relevant time and copy of charge-sheet is Ex.DW2/1 to Ex.DW2/3. Admittedly, no finding has been given till date by any competent CC No. 25/2014 Page 23 of 40 SEBI vs. Timber World Resorts & Plantation & others court to the effect that accused No. 3 was not a director at the relevant point of time. Mere fact that any investigating agency had reached at the conclusion that A3 was not a director at the relevant time is not sufficient to hold that accused No. 3 was not a director at the relevant time especially when this Court has held that the alleged resignation letter does not inspire any confidence. Thus, I do not find any substance in the plea taken by accused No. 3.
32. Now coming to the issue as to whether the schemes launched by company accused fall within the purview of collective investment schemes as defined under Section 11B of the SEBI Act and whether company accused had committed any violation of any mandatory provisions of SEBI Act or CIS Regulations or not?
33. SEBI vide its public notice dated November 18, 1997 informed that the entities issuing agro bonds, plantation bonds etc. that the same would be treated as collective investment schemes as per SEBI Act and certified copy of the said notice is Ex.CW1/4. SEBI also issued another press release dated November 26, 1997 wherein SEBI made a framework for recalling entities which issued instruments such as agro bonds etc. and the said press release is Ex.CW1/5. Pursuant to the press release, SEBI had issued public notice dated December 18, 1997 and sought detail from CIS entities in respect of various schemes and persons in-charge of and responsible to for such entities and the entities which were desirous of availing benefit of Section 12 (1B) of SEBI Act. The said public notice is Ex.CW1/6.
35. Pursuant to the notice Ex.CW1/6, company accused had CC No. 25/2014 Page 24 of 40 SEBI vs. Timber World Resorts & Plantation & others sent a letter dated December 12, 1997 (Ex.CW1/7) wherein company accused had furnished terms and conditions of schemes launched by it from time to time, detail of fund raised under the said schemes, copy of offer documents of the schemes and details of promoters/sponsors. As per information furnished by company accused under the said letter, company accused had launched four schemes, namely, Teak Old Scheme (Scheme No. 1), Teak New Scheme (Scheme No. 2), Orange Scheme (Scheme No.
3), Poplar Scheme (Scheme No. 4) and Prime Farms (Scheme No. 5). As per information supplied by the company accused, company accused had mobilised funds to the tune of ` 903.72 lacs in scheme No. 1, ` 414.96 lacs in scheme No. 2, ` 367.15 lacs in scheme No. 3, ` 67.67 lacs in scheme No. 4, ` 10 lacs in scheme No. 5. Thus, company accused had generated fund to the tune of ` 1763.5 lacs under the said five schemes. From the information furnished by the company accused, it can safely be culled out that the schemes launched by the company accused fall within the purview of Collective Investment Schemes. Moreover, this fact is not disputed during the course of arguments.
35. SEBI vide its letter February 06, 1998 (Ex.CW1/9) sought information from the company accused about the year-wise detail of the schemes; nature of assets created from the corpus of the said scheme and location of the said assets. In respect to the said letter, company accused sought time to furnish the information vide its letter dated February 10, 1998 (Ex.CW1/10), accordingly, SEBI permitted the company accused to furnish the information by February 16, 1998 vide its letter Ex.CW1/11.
(i) Company accused vide letter dated February 19, 1998 (Ex.CW1/12) furnished the detail of mobilisation of funds year-wise since CC No. 25/2014 Page 25 of 40 SEBI vs. Timber World Resorts & Plantation & others the inception of the schemes till February 15, 1998 and informed that company accused had mobilised funds to the tune of ` 21,65,71,000/- under its schemes with effect from 1994 till February 15, 1998. Company accused also furnished the detail of the assets generated from the funds raised by the company accused and its location. Thus, it becomes clear that company accused had generated funds to the tune of ` 21,65,71,000/- till February 15, 1998.
36. SEBI vide its letter dated February 27, 1998 (Ex.CW1/13) informed the company accused not to mobilise any fund under the existing schemes unless instruments of such schemes carry a rating from the authorised rating agency and also intimated the name of said agencies. Vide its letter dated March 10, 1998 (Ex.CW1/14), SEBI informed the company accused that M/s G.S. Mathur & Company had been appointed as auditor for the company accused and asked the company accused to co-operate with the auditor.
37. Now question is as to whether the company accused was competent to raise fund to the tune ` 21,65,71,000/- without obtaining certificate of registration or not?
38. In this regard Section 12 (1B) of the SEBI Act is relevant and same is reproduced as under:
Section 12 (1B): 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 a certificate of registration from the Board in accordance with the regulations:
Provided that any person sponsoring or cause to be CC No. 25/2014 Page 26 of 40 SEBI vs. Timber World Resorts & Plantation & others sponsored, carrying or causing to be carried on any venture capital funds or collective investment scheme operating in the securities marked immediately before the commencement of the Securities Laws (Amendment) Act, 1995 for which no certificate of registration was required prior to such commencement, may continue to operate till such time regulations are made under clause (d) of sub- Section 2 of Section 30.
(emphasis supplied)
40. Section 12 (1B) of SEBI Act was inserted in the Act by way of Amendment Act 9 of 1995 with effect from January 25, 1995. After insertion of Section 12 (1B), no person was competent to raise any fund through CIS unless it obtains a certificate of registration from SEBI. As per proviso to Section 12 (1B), companies were permitted to continue with the existing schemes which were in operation at the time of insertion of Section 12 (1B) in the Act till the time regulations are notified under Clause (d) of sub-section 30. In other words, companies were permitted to continue with those schemes which were already in operation as on January 25, 1995 till the time the regulations were notified by the SEBI.
41. As per Memorandum of Association of company accused, company accused was incorporated on February 24, 1994, it means that company accused was incorporated prior to insertion of Section 12 (1B). In other words, company accused was entitled to continue with those schemes which it was carrying as on January 25, 1995. As per information furnished by company accused, vide its letter Ex.CW1/12, company accused had mobilised funds to the tune of ` 2,57,52,000/- during the period 1994 to 1995. Except the said amount, remaining amount ` 19,08,19,000/- (` 21,65,71,000 - ` 2,57,52,000) was generated after January 25, 1995 for which company had not obtained any certificate of CC No. 25/2014 Page 27 of 40 SEBI vs. Timber World Resorts & Plantation & others registration in terms of Section 12 (1B) of SEBI Act, thus, company accused had violated mandatory provisions of Section 12 (1B) of SEBI Act.
42. Company vide its letter dated May 15, 1998 (Ex.CW1/19) intimated the SEBI that the Rating Agency had rated their schemes as Grade-5 which means "high uncertainty of return" from the collective investment schemes.
43. Company accused vide its letter dated September 21, 1998 (Ex.CW1/32) intimated the SEBI that company accused had mobilised fund till March 31, 1998 to the tune of ` 22,67,88,000/-. This shows that company accused continued to mobilise funds even after February 15, 1998.
44. Indisputably, CIS Regulations were notified w.e.f. October 15, 1999 and same were published by way of press release on October 20, 1999. The said Regulations were brought into the notice of the company accused vide letter dated October 21, 1999 but said the letter returned undelivered.
45. Regulations 5 reads as under :
5. Application by existing Collective Investment Schemes - (1) 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 months from such date.
(2) An application under sub-regulation (1) shall contain such particulars as are specified in Form A and shall be treated as an application made in the CC No. 25/2014 Page 28 of 40 SEBI vs. Timber World Resorts & Plantation & others pursuance of regulation 4 and dealt with accordingly.
(emphasis supplied)
46. By virtue of Regulations 5, SEBI had provided another opportunity to the companies/persons to continue with their existing collective investment schemes by obtaining a certificate of registration from the SEBI within two months from the date of notification of CIS Regulations. It is pertinent to state that under proviso to Section 12 (1B) of the SEBI Act, companies who were carrying on any collective investment scheme immediately prior to insertion of Section 12 (1B) in the Act, were permitted to continue to operate such schemes till the regulations were made under Clause (d) of sub-section (2) to Section 30. Since, the SEBI had notified the CIS Regulations, thus, it was the duty of the company accused to obtain a certificate of registration for its existing schemes, if it intended to continue with its schemes. It is explicit from Regulation 5 that the company accused was bound to move an application to obtain a certificate of registration from SEBI within two months from the date of notification. But admittedly company accused had not applied for any such certificate.
47. SEBI vide its letter dated December 15, 1999 brought into the notice of company accused about its statutory obligation under CIS Regulations, copy of the said letter is Ex.CW1/42 and also asked the company accused to submit a detail report about its winding up and repayment report to the SEBI. SEBI vide its public notice dated February 27, 2000 (Ex.CW1/45) intimated the entities who have not applied for registration or who had no desire of obtaining provisional registration certificate from SEBI had to compulsorily wound up the existing schemes and to make payment to the investors.
CC No. 25/2014 Page 29 of 40SEBI vs. Timber World Resorts & Plantation & others
48. From the above it becomes clear that the company accused had not applied for obtaining the certificate of registration in terms of Regulations 5, thus company accused was bound to comply with the Regulation 73 which reads as under:-
73. Manner of repayment and winding up -(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 schemes, 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 investor and the manner in which such amount is determined.
(3) The information memorandum referred to in sub- regulation (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 state that investors desirous of continuing with the scheme shall have to give a positive consent within one month from the date of information memorandum to continue with the scheme.
CC No. 25/2014 Page 30 of 40SEBI vs. Timber World Resorts & Plantation & others (7) The investors who give positive consent under sub- regulation (6), shall continue with the scheme at their risk and responsibility:
Provided that if the positive consent to continue with the scheme, is received from only twenty-five 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 collective investment scheme shall file with the Board (emphasis supplied)
49. As per Clause 2 of Regulation 73, company accused was bound to send the information of Memorandum to all the investors within two months from the date of receipt of intimation from the board detailing about the state of affairs of the schemes. The amount repayable to each investors and in the manner in which the said amount was determined. The said memorandum must be signed by all the directors of the schemes. The said memorandum was required to be sent to the investors within weeks from the date of information of memorandum. But company accused failed to comply with the provisions of Regulations 73, thus, company accused was bound to submit WRR to the SEBI in terms of Clause 9 of Regulation 73 and 74. The violation of the said Regulation is punishable under Section 24 (1) of SEBI Act.
50. Since, company accused failed to submit WRR with the SEBI, SEBI had issued a show-cause notice dated May 12, 2000 but said notice returned unserved. Undelivered envelope containing the letter is Ex.CW1/46 and copy of the said letter is Ex.CW1/47. SEBI vide its letter CC No. 25/2014 Page 31 of 40 SEBI vs. Timber World Resorts & Plantation & others dated July 31, 2000 sent the copy of WRR to the company accused which is Ex.CW1/48 but the said letter also returned undelivered. Undelivered envelope containing letter is Ex.CW1/49. At last, Chairman of SEBI passed the directions under Section 11B of SEBI Act on December 07, 2000 (Ex.CW1/51) and sent the same to company accused vide its letter dated December 18, 2000 through registered AD but the said letter also returned unserved and same is Ex.CW1/50. Since, company accused failed to comply with the directions, SEBI had filed the criminal complaint.
51. From the above discussion, it becomes cystal clear that the company accused had generated fund to the tune of ` 20,10,36,000/- (` 22,67,88,000 - ` 2,57,52,000) in violation of mandatory provisions of Section 12 (1B) of SEBI Act and also violated the Regulation 5 , 73 & 74 of CIS Regulations. Qua the amount ` 2,57,52,000/- company accused had violated CIS Regulation No. 5, 73 & 74 of CIS Regulations, thus, company accused is liable for the offence punishable under Section 24 (1) of SEBI Act.
52. As already discussed that accused No. 3 was one of the directors of company accused. Similarly, accused No. 2 was also one of the directors in the company accused as he was not only one of the signatories to the Memorandum of Association and Articles of Association of company accused but his name also figured in the list of first directors. CW1 in his testimony categorically deposed that accused No. 2 to 4 were persons in- charge of and responsible to for the conduct of business of company accused and were involved in day to day affairs of the company accused. Testimony of CW1 to that extent remained unchallenged. Being the directors they were persons in-charge of and responsible to the company CC No. 25/2014 Page 32 of 40 SEBI vs. Timber World Resorts & Plantation & others accused for the conduct of its business, thus, they are also liable for the violations committed by the company accused.
53. Pondering over the ongoing discussion, I am of the considered opinion that SEBI has succeeded to prove beyond the shadow of all reasonable doubts that company accused M/s Timber World Resort & Plantation (I) Ltd. had mobilized fund in violations of Section 12 (1B) of SEBI Act and also violated Regulation 5, 73 & 74 of CIS Regulations, thus, company accused is liable for the offence punishable under Section 24 (1) of SEBI Act. SEBI has also succeeded to establish beyond the shadow of all reasonable doubts that accused No. 2 Ashwani Sud and Accused No. 3 Sanjeev Sood were working as directors at the relevant time. Being the directors, they were also persons in-charge of and responsible to for the conduct of business of the company accused, thus, they are also liable for the said violations with the aid of Section 27 (1) and 27 (2) of SEBI Act, thus, I hereby, hold the accused No. 1 M/s Timber World Resort & Plantation (I) Ltd., Accused No. 2 Ashwani Sud, Accused No. 3 Sanjeev Sood guilty for the offence punishable under Section 24(1) of the SEBI Act read with Section 27(1) and 27(2) of the SEBI Act.
Announced in the open Court on this 27th day of November, 2014 (PAWAN KUMAR JAIN) ADDITIONAL SESSIONS JUDGE-01 CENTRAL/THC/DELHI/sv CC No. 25/2014 Page 33 of 40 SEBI vs. Timber World Resorts & Plantation & others IN THE COURT OF SH. PAWAN KUMAR JAIN, ADDITIONAL SESSIONS JUDGE-01(CENTRAL), THC: DELHI Complaint Case No. 25/2014 ID No: 02401R0124632001 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 Mumbai and Regional office at Block No. 321, Rajendra Bhawan, Rajendra Place, District Center, New Delhi- 110008 and represented by its Assistant General Manager, Sh. Arvind Kumar.
Versus
1. Timberworld Resorts & Plantations India Ltd.
A company incorporated under the provisions of Companies Act, 1956 and having its Registered office at:
M-42, First Floor, Market Commercial Complex, Greater Kailash- Part II, New Delhi-110 ........Convict no.1
2. Sh. Ashwani Sud S/o Late Sh. Lekh Prakash Sud Director of accused no.1 R/o C-159, East of Kailash New Delhi ........Convict no.2
3. Sh. Sanjeev Sood S/o Late Narender Nath Sood Director of accused no.1 R/o 28, Southern Avenue, Kolkata-700 026 ........convict no.3 CC No. 25/2014 Page 34 of 40 SEBI vs. Timber World Resorts & Plantation & others Present: Sh. Sanjay Mann and Sh. R.K. Pillai, Advocates, counsels for SEBI Sh. Baldev Raj Advocate, counsel for convict no. 1 & 2 Ms. Paroma, Advocate, counsel for convict no.3 ORDER ON THE POINT OF SENTENCE :-
1. Vide separate judgment dated November 27, 2014, accused no.1 M/s Timber World Resort & Plantation (I) Ltd., Accused No. 2 Ashwani Sud and Accused No. 3 Sanjeev Sood have been held guilty for the offence punishable under Section 24(1) of the SEBI Act read with Section 27(1) and 27(2) of the SEBI Act.
2. Learned counsels appearing for the convicts request for a lenient view on the ground that convicts are law abiding citizens and they have no criminal antecedents. It is submitted that they are the sole bread earner of their respective family and their family members are emotionally and financially dependent upon them. Counsels appearing for both the convicts further submit that the interest of investors had already been protected as the entire assets of the company are in the custody of official liquidator under the supervision of High Court of Delhi. Counsel appearing for convict No. 2 further submits that he is a heart patient. Similarly, counsel appearing for convict No. 3 submits that he is suffering from various diseases and he had already resigned from the company accused.
Counsel for the convicts placed on reliance on the judgments, K.I. Pavunny Vs Assistant Collector (HQ) Central Excise Collectorate Cochin, (1997) 3 SCC 721 and submits that in the said matter, accused was held guilty for the offence where sentence could be extended upto ten years imprisonment but Hon'ble Apex Court impose a fine of ` 10,000/- in CC No. 25/2014 Page 35 of 40 SEBI vs. Timber World Resorts & Plantation & others default four months simple imprisonment. Accordingly, request is made to impose token fine upon the convicts for the violations.
3. Per contra, learned counsel appearing for the SEBI refuted the said contentions by arguing sagaciously that company accused had raised more than ` 22 crores from gullible investors in the year 1994-1998 but till date convicts have not returned even a single penny to the investors. It is further sagaciously submitted that considering the fact that ordinarily unwary, gullible and unorganized investors used to become the victims of such schemes, legislature had enhanced the sentence from one year imprisonment to ten years and also enhanced the fine to the tune of ` 25 crores. It is submitted that enhanced punishment indicates the intent of legislature that such offenders should be dealt with an iron hands by the courts at the time of determining the sentence. Accordingly, it is submitted that convicts do not deserve any leniency and prayer is made to award maximum sentence.
4. I have heard rival submissions advanced by counsel for both the parties, perused the record carefully and gave my thoughtful consideration to their contentions.
5. Indisputably, by way of amendments Act 59 of 2002, Legislature had amended the Section 24 (1) of SEBI Act and enhanced the punishment from 1 year imprisonment to 10 years imprisonment and fine amount is enhanced to the tune of ` 25 crores, which shows how seriously legislature has taken the violations of provisions of SEBI Act. Thus, this Court is duty bound to keep in mind the intent of legislature at the time of CC No. 25/2014 Page 36 of 40 SEBI vs. Timber World Resorts & Plantation & others determining the quantum of sentence. But simultaneously, it is also true that the case in hand pertains to the period prior to the amendment, thus the sentence is required to be passed in terms of pre-amended provisions.
6. It has been held that the convicts had mobilized funds to the tune of ` 22,67,88,000/- during the period 1994-1998. As per the brochure of the schemes launched by convicts, convicts offered the investors that they had to make one time payment of ` 1750/- per unit of Teak tree along with an application form. As per brochure of schemes, convicts promised that as interim returns, investors would get ` 1400/- and ` 6500/- at the end of sixth years and twelfth years respectively. Besides that investors would also get final return at the end of 20th year. This shows that the convicts had promised the gullible investors for handsome returned on their investments. By giving such promises, convicts induced the gullible and unwary investors to invest their harden earned money in their lucrative schemes. But instead of getting such unrealistic return on their investments, investors had to bear the loss of their principal amount.
7. Had the amount of ` 22 crore be invested at simple interest @ 9% per annum, the said amount would have become ` 31.68 crores in the last 16th years. The said amount would have grown multiple times if the same had been deposited in a fixed deposit in a bank where principal amount carries compound interest but unfortunate investors even failed to get their principal amount.
8. It is also pertinent to state that lethargic approach on the part of Regulator and other law enforcing agencies also encourages such type CC No. 25/2014 Page 37 of 40 SEBI vs. Timber World Resorts & Plantation & others of persons to induce public at large. Though as per Section 12 (1B) of the SEBI Act, such companies were not supposed to raise even a single penny through collective investment schemes unless they obtained a certificate of registration from the SEBI but no immediate action was taken by the SEBI qua the schemes which were launched by the company after insertion of Section 12(1B) in the Act. SEBI had not only taken four years to notify the Regulations but it had also taken unnecessary long time to prosecute the accused persons. Had the SEBI taken the strict action in time against such persons, probably investors would not have lost their harden earned money. Such lethargic approach on the part of Regulator and law enforcing agencies embolden such unscrupulous persons to gather an impression that if they gobbled the hard earned money of common men of this country, law enforcing agency would not be able to apprehend them; or if they be apprehended, they would not be prosecuted; or if they be prosecuted their guilt would not be proved in the Court of law; or if their guilt be proved in the Court of law, they would be dealt with softly and with all leniency; and at the end, they would get only token sentence. But to my mind, now time has come to convey a loud and clear message to such wrongdoers that crime never pays and if their guilt is proved in the Court, they would be dealt with sternly. In my view, to curb such type of incidents, a clear message is required to be conveyed to the wrongdoers that if their guilt is proved they shall not only have to disgorge the ill-gotten amount but they shall also have to undergo imprisonment.
9. In the instant case, convicts had mobilized funds more than ` 22 crores from the unwary, gullible and unorganized investors and till date the investors have not received any amount from the convicts, thus I am of the considered opinion that the convicts do not deserve any leniency. To my CC No. 25/2014 Page 38 of 40 SEBI vs. Timber World Resorts & Plantation & others mind, the judgment K.I. Pavunny (supra) is not helpful to the convicts because the facts in the said case were totally different from the facts of the case in hand. In the said case, none was the victim of the wrongful act of the accused whereas in the instant case, numerous persons have suffered huge financial loss and even after 16 years of their investments, they failed to get their principal amount.
10. In the light of aforesaid discussion, I hereby sentence convict No. 2 Ashwani Sud and convict No. 3 Sanjeev Sood rigorous imprisonment for a period of one year and a fine of ` 5 crore each in default further three months simple imprisonment for the offence punishable under Section 24(1) of SEBI Act. Convict no.1 i.e. M/s Timber World Resort & Plantation (I) Ltd. is burdened with a fine of ` 15 crores for the offence punishable under Section 24(1) of SEBI Act. Benefit of Section 428 Cr. P.C, if any, be given to the convicts.
11. Since, the ultimate victims are the innocent, gullible and unwary investors, thus, the said fine amount, if realized, shall be utilized to compensate such investors. Accordingly, SEBI is directed to issue a public notice in print and electronic media and invite claims from investors. If any investor(s) approaches the SEBI, it shall verify the claim of such investor(s) and thereafter shall submit its report in the Court with recommendation to release the amount to such investor(s). If the amount of claim is found more than the realized fine amount, compensation shall be paid in proportionate basis. However, such compensation shall be released to the investor(s) only after the expiry of period of appeal or revision; and if any appeal or revision is filed, then after the decision of such appeal or revision.
CC No. 25/2014 Page 39 of 40SEBI vs. Timber World Resorts & Plantation & others
12. Counsel for SEBI submits that SEBI shall take appropriate steps for realisation of fine amount qua convict no.1.
13. Copy of judgement along with order on the point of sentence be given to the convicts/their counsel free of cost.
14. Since, two accused are proclaimed offender, case file be consigned to record room with direction to revive the same as and when they are apprehended or appear before the Court.
Announced in the open Court on of 29th day of November, 2014 (PAWAN KUMAR JAIN) Additional Sessions Judge-01 Central District, THC: DELHI/sv CC No. 25/2014 Page 40 of 40