Amit Misra vs Sebi

Amit Misra S 201, Prayag Kunj, 3 Strachy Road, Civil Lines, Prayagraj-211001. ...Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No.C4-A, G Block, Bandra Kurla Complex, Mumbai-400051. ...Respondent

Mr. Amit Agrawal, Advocate with Mr. Sumit Agrawal, Mr. Kushagra Agarwal, Ms. G S Sreenidhi and Mr. Mohit Das, Advocates i/b. Regstreet Law Advisors for the Appellant.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Chirag Bhavsar and Ms. Vidhi Shah, Advocates i/b. MDP & Partners for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member

Per: Justice Tarun Agarwala, Presiding Officer 2

1.

The appellant has filed the present appeal

questioning the validity and legality of the order dated

29th May, 2019 passed by the Whole Time Member

('WTM' for short) by which the appellant had been

debarred from accessing the securities market for a

period of four years and has also been restrained from

taking any position as a Director in any public listed

company.

2. The facts leading to the filing of the present appeal

is, that as per the company records the appellant was

holding the post of a Director in Togo Retail

Marketing Ltd. (hereinafter referred to as 'TRML')

which is one of the numerous related companies of

Nixcil Pharmaceuticals Specialties Ltd. (hereinafter

referred to as 'NPSL'). It was found during the course

of investigation that NPSL had issued redeemable

cumulative preferential shares and mobilized funds

amounting to Rs.127.14 crores from 1,51,627 allottees

between 2005-2006 to 2011-2012. Based on the

investigation, an ex-parte interim order was passed on 3

24th April, 2015 which was confirmed by the impugned

order on 29th May, 2019.

3. We have heard Mr. Amit Agrawal, Advocate

assisted by Mr. Sumit Agrawal, Mr. Kushagra

Agarwal, Ms. G S Sreenidhi and Mr. Mohit Das,

Advocates for the Appellant and Mr. Pradeep Sancheti,

Senior Advocate assisted by Mr. Chirag Bhavsar and

Ms. Vidhi Shah, Advocates for the Respondent.

4. From a perusal of the impugned order we find that

the Company came out with the offer of redeemable

cumulative preferential shares in violation of section

56, 60 and 73 of the Companies Act, 1956. The WTM

found that there were three persons, namely, Mr. Prithi

Paul Singh Sethi, Mr. Vishwa Bandu Vashishta and

Mr. Kishan Pal Singh, who were the Managing

Directors between the periods 2004-2005 till 12th

March, 2015. The WTM further came to the

conclusion that the aforesaid three persons being the

Managing Directors at different point of time were in

control of the affairs of the Company and were in fact 4

officers in default as per section 5 of the Companies

Act, 1956 and being officer in default were responsible

and fully liable to refund the monies so collected along

with interest. The WTM further gave a categorical

finding that the appellant was not liable to refund the

monies which was mobilized and collected by the

Company.

5. The WTM however came to the conclusion that the

appellant being a Director cannot assume the role of a

Director in a casual manner. The position of a Director

is a post which carries a lot of responsibilities and is

liable to face the consequences and any violation or

default committed by the Company. Therefore being a

Director the appellant cannot wriggle out from his

liabilities. Based on this analogy, the WTM debarred

the appellant from the securities market and restrained

him from holding any position in any public listed

company.

6. In our opinion, the WTM has failed to consider the

provisions of section 73 of the Companies Act. 5 Section 73(2) of the Companies Act provides that the

Company and every director of the Company who is an

officer in default is liable jointly and severally to repay

the money. This Tribunal in Pritha Bag vs. SEBI

appeal no.291 of 2017 decided on 14th February, 2019

held that unless and until there is a finding that the

appellant is an officer in default, the mandate provided

under section 73(2) cannot be invoked. Admittedly, in

the instant case, there is a clear finding given by the

WTM that there were three persons at different point

of time who were the Managing Directors were fully

responsible for the violations committed. There is a

specific finding that these three persons were liable to

refund the monies collected through issue of

redeemable cumulative preferential shares given to the

allottees. Once this finding has been given the

appellant is outside the purview of section 73 and

cannot be held responsible in any manner.

7. Further, the decision of this Tribunal in Dr. Jugal

Kishore Satapati vs. SEBI appeal no.283 of 2018 6

decided on 28th June, 2019, G. Unnikrishnan Nair &

Ors. vs. SEBI, appeal no.5 of 2018 decided on 27th

November, 2019, Sayati Sen vs. SEBI, appeal no.163

of 2018 decided on 9h August, 2019, are applicable.

This Tribunal has held that the mere fact that a person

is a Director of a company cannot be held responsible

for the acts of the Company unless it is found that the

said person was responsible in some way for the

alleged violation. In Unnikrishnan Nair the restraint

on the Directors in accessing the securities market who

were not Managing Director in a case of deemed

public issue was set aside by this Tribunal. In the

instant case, there is no finding that the appellant had

attended any board meeting or was responsible for the

issuance of redeemable cumulative preferential shares

or that he was part of any resolution of the board of

directors in this regard.

8. Consequently, for the reasons stated aforesaid the

impugned order in so far as it relates to the appellant

cannot be sustained and is quashed. The appeal is 7

allowed with no order as to costs. Misc. Application

No.76 of 2021 is accordingly disposed of.

9. The present matter was heard through video

conference due to Covid-19 pandemic. At this stage it

is not possible to sign a copy of this order nor a

certified copy of this order could be issued by the

registry. In these circumstances, this order will be

digitally signed by the Private Secretary on behalf of

the bench and all concerned parties are directed to act

on the digitally signed copy of this order. Parties will

act on production of a digitally signed copy sent by fax

and/or email.

Justice Tarun Agarwala Presiding Officer

Justice M.T. Joshi Judicial Member

09.3.2021 RAJALA Digitally signed by

RHN KSHMI RAJALAKSHMI H NAIR

H NAIR Date: 2021.03.10 15:43:33 +05'30'