BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
DATE : 14.02.2019
Appeal No. 291 of 2017
Pritha Bag
B-156/5/H/9,
A. P. C. Road,
Kolkata – 700006.
….. Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai – 400 051.
…… Respondent
Mr. Prakash Shah, Advocate with Mr. Chinmay Paradkar, Advocate
i/b Raju Mukharjee, Practicing Company Secretary for the Appellant.
Mr. Kumar S. Rai, Advocate with Mr. Abhiraj Arora, Advocate i/b
ELP for the Respondent.
CORAM : Justice Tarun Agarwala, Presiding Officer
Dr. C. K. G. Nair, Member
Per : Justice Tarun Agarwala, Presiding Officer (Oral)
1.
On receipt of a complaint in January 2013, Securities and
Exchange Board of India (hereinafter referred to as, ‘SEBI’)
conducted an investigation against MaxBe Green Provision Ltd.
(hereinafter referred to as, ‘MGPL’). Pursuant to the investigation,
SEBI observed that the company was offering Redeemable Preference
Shares (hereinafter referred to as, ‘RPS’) to the public during the
financial years 2011-2012 and 2012-2013 in violation of the
provisions of Sections 56, 60
[read with Section 2(36)], 67 and
Section 73 of the Companies Act, 1956 (hereinafter referred to as,
‘Companies Act’). Based on this investigation, SEBI passed an ex-
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parte interim order dated March 13, 2015 restraining the company and
its directors including the appellant from fund mobilizing activities
through the issuance of RPS. The appellant and other directors were
being given opportunity of hearing and after considering their
submissions, the Whole Time Member of SEBI (hereinafter referred
to as ‘WTM’) passed a final order dated January 15, 2016 restraining
the company and its directors including the appellant from accessing
the securities market. The company and the directors including the
appellant were jointly and severally directed to refund the money
collected by the company through issuance of RPS alongwith interest
at the rate of 15% p.a.
2.
The appellant being aggrieved by the order filed an appeal No.
184 of 2016 before this Tribunal which was dismissed as withdrawn
by an order dated September 7, 2017 passed by SAT permitting the
appellant to withdraw the appeal and given liberty to file afresh.
Based on the said order the present appeal has again been filed.
3.
We have heard Shri Prakash Shah, the learned counsel for the
appellant and Shri Kumar S. Rai, the learned counsel for the
respondent. It was contended that the submissions placed by the
appellant before the WTM was not considered nor any reasons given
for rejecting such submissions, nor the provisions of law has been
considered and that the WTM mechanically and without any
application of mind has held that the appellant was responsible for
affairs of the company and that since the RPS were allotted during the
time when she was the director, therefore, the company and the
appellant was responsible jointly and severally and for making the
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refund alongwith the interest as mandated under Section 73(2) of the
Companies Act read with Section 27 of the SEBI Act.
4.
It was urged that the appellant is not an “officer in default” as
contemplated under Section 73(2) of the Companies Act and could not
be responsible for the affairs of the company and, consequently, no
direction could be issued to the appellant for making the refund
alongwith the interest under Section 73(2) of the Companies Act.
5.
In order to appreciate the submissions of the learned counsel for
the appellant, it is essential to note a few facts. The company allotted
RPS on the following dates :Date of
Allotment
31/07/2011
10/10/2011
20/01/2012
20/01/2012
20/04/2012
6.
Year
2011-12
2012-13
Total
No. of
Persons
176
121
1
262
693
1,253
Amount ( )
19,08,000
13,05,500
6,000
48,02,000
56,65,500
1,36,87,000
The allotment of RPS admittedly, exceeded 49 persons and,
consequently, such allotment would be deemed to be a public issue in
terms of the first proviso of Section 67(3) of the Companies Act. The
appellant was admittedly, appointed as an additional director of the
company on March 22, 2012 and during her period admittedly, the
company allotted RPS to 693 persons for an amount of
Rs. 56,65,500/-. It has been brought on record that a Memorandum of
Agreement dated July 13, 2012 was executed between the outgoing
directors and the incoming directors pursuant to which the appellant
retired with effect from July 13, 2012 and Form 32 depicting the
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resignation of the appellant was duly filed before the Registrar of
Companies. Clause 4 of this agreement stipulated that the erstwhile
directors, including the appellant, shall not be liable for payment of
any interest or future liabilities of the business of the company.
7.
The appellant further submitted that she was not involved in the
management of the company, in any manner, and that the managing
director, Mr. Indranath Daw who was known to her had requested her
to become a director on account of resignation of two directors from
the company. It was further stated that during her tenure as a director
of the company, she had neither attended any Board meeting nor
received any sitting fees and had not benefited from any quarter either
directly or indirectly from the company.
8.
In the light of the aforesaid assertions, it becomes essential to
take a look at the provisions of Section 73 of the Companies Act
which states as under:
“73(1) Every company intending to offer shares or
debentures to the public for subscription by the issue of a
prospectus shall, before such issue, make an application to
one or more recognised stock exchanges for permission for
the shares or debentures intending to be so offered to be
dealt with in the stock exchange or each such stock
exchange.
(1A)Where a prospectus, whether issued generally or not,
states that an application under sub-section (1) has been
made for permission for the shares or debentures offered
thereby to be dealt in one or more recognized stock
exchanges, such prospectus shall state the name of the
stock exchange or, as the case may be, each such stock
exchange, and any allotment made on an application in
pursuance of such prospectus shall, whenever made, be
void, if the permission has not been granted by the stock
exchange or each such stock exchange, as the case may be,
before the expiry of ten weeks from the date of the closing
of the subscription lists:
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Provided that where an appeal against the decision of any
recognized stock exchange refusing permission for the
shares or debentures to be dealt in on that stock exchange
has been preferred under section 22 of the Securities
Contracts (Regulation) Act, 1956 (42 of 1956), such
allotment shall not be void until the dismissal of the
appeal.
73(2) Where the permission has not been applied under
sub-section (1), or, such permission having been applied
for, has not been granted as aforesaid, the company shall
forthwith repay without interest all moneys received from
applicants in pursuance of the prospectus, and, if any such
money is not repaid within eight days after the company
becomes liable to repay it, the company and every director
of the company who is an officer in default shall, on and
from the expiry of the eighth day, be jointly and severally
liable to repay that money with interest at such rate, not
less than four percent and not more than fifteen per cent,
as may be prescribed, having regard to the length of the
period of delay in making the repayment of such money.”
9.
A perusal of the aforesaid provisions indicates that where the
company intends to offer shares to the public for subscription has not
been done by issue of a prospectus or where permission has not been
sought from the stock exchange, in that event, the company and other
directors of the company who is an officer in default shall be jointly
and severally liable to repay that money alongwith interest at such rate
as may be prescribed. From the aforesaid, it is apparently clear that
the liability to repay the amount is upon that director of the company
who is an officer in default. “Officer in default” has been defined
under Section 5 of the Companies Act. For facility the said provision
is extracted hereunder:“Meaning of “officer who is in default”.
“5.
For the purpose of any provision in this Act which
enacts that an officer of the company who is in default
shall be liable to any punishment or penalty, whether by
way of imprisonment, fine or otherwise, the expression
“officer who is in default” means all the following officers
of the company, namely :
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(a) the managing director or managing directors;
(b) the whole-time director or whole-time directors;
(c) the manager;
(d) the secretary;
(e) any person in accordance with whose directions or
instructions the Board of directors of the company is
accustomed to act;
(f) any person charged by the Board with the
responsibility of complying with that provision:
Provided that the person so charged has given his consent
in this behalf to the Board;
(g) where any company does not have any of the officers
specified in clauses (a) to (c), any director or directors
who may be specified by the Board in this behalf or where
no director is so specified, all the directors:
Provided that where the Board exercises any power under
clause (f) or clause (g), it shall, within thirty days of the
exercise of such powers, file with the Registrar a return in
the prescribed form.”
10.
A perusal of the aforesaid provision indicates that the expression
“officer who is in default” would mean the following officers, namely,
the managing director or managing directors, whole time director or
whole time directors, the manager, the secretary or any person in
accordance with whose directions or instructions the Board of
Directors of the company accustomed to act and would also include
any person charged by the Board of responsibility of compliance with
the provisions of Act. Section 5(g) of the Act further stipulates that
where the company does not have any of these officers specified in
clauses (a) to (c) in which case all the directors would be deemed to
be an officer in default.
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11.
In the light of the aforesaid provision, the appellant had
categorically submitted before the WTM that she was appointed as an
additional director by the managing director and that she was not
responsible for the affairs of the company. The appellant further
stated that she did not attend any meeting and was never connected
with the issuance of RPS.
It was urged that the WTM without
considering the submissions of the appellant has mechanically and
without any application of mind has illegally held that since the
appellant was a director, and was responsible for affairs of the
company and was liable to the contravention found against the
company and, therefore, was jointly and severally responsible for
making a refund alongwith interest under Section 73(2) of the
Companies Act.
12.
Having heard the learned counsel for the parties, we are of the
view that the WTM has failed to consider the provisions of Section 5
of the Companies Act and has mechanically held that the appellant
was responsible jointly and severally for making the refund alongwith
interest under Section 73(2) of the Companies Act. Unless and until a
finding is given that the appellant is an officer in default, the mandate
provided under Section 73(2) cannot be invoked against the appellant.
In the instant case, the appellant has annexed documents to indicate
that the company had a managing director, namely, Mr. Indranath
Daw and, therefore, as per the provisions of Section 5 the managing
director would be an officer in default. We also find that there is no
finding given by the WTM that the appellant was the managing
director or whole time director or was a person charged by the Board
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with the responsibility of compliance with the provisions of the
Companies Act and, consequently, could not be made responsible for
refunding the amount under Section 73(2).
13.
Reliance on the judgment of this Court by the respondent in the
case of Manoj Agarwal vs. SEBI in Appeal No. 66 of 2016 decided on
July 14, 2017 is not applicable and is distinguishable. The Tribunal in
the case of Manoj Agarwal found that there was no material to show
that any of the officers set out in clauses (a) to (c) of Section 5 or any
specified director of the said company was entrusted to discharge the
application contained in Section 73 of the Companies Act.
In the
instant case, there is sufficient material on record to show that there
was a managing director and in the absence of any finding that the
appellant was entrusted to discharge the application contained in
Section 73 of the Companies Act, the direction to refund the amount
alongwith interest from the appellant is wholly illegal.
14.
For the reasons stated above, the appeal is allowed.
The
impugned order in so far as it relates to the appellant is quashed. In
these circumstances, there shall be no order as to costs.
Sd/Justice Tarun Agarwala
Presiding Officer
Sd/Dr. C. K. G. Nair
Member
14.02.2019
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