Dr. Venkadasamy Venkataramanujan vs Sebi

Order Reserved On: 22.01.2020 Date of Decision : 07.02.2020

Appeal No. 254 of 2019

Dr. Venkadasamy Venkataramanujan Old No. 2, New No. 22, 26th Cross Street, Besant Nagar, Chennai- 600 090 ...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

Ms. Shubharanjani Ananth, Advocate with Mr. Avik Sarkar, Advocate i/b Kamal & Co. for the Appellant. Mr. Anubhav Ghosh, Advocate i/b The Law Point for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member

Per: Justice Tarun Agarwala

1.

The present appeal has been filed against the order of the

Whole Time Member ("WTM" for convenience) of the

Securities and Exchange Board of India ("SEBI" for

convenience) dated May 09, 2016 holding that the scheme

floated by the company Assurre Agrowtech Limited was

nothing else but a Collective Investment Scheme ("CIS") in 2

terms of Section 11AA of the SEBI Act, 1992 without obtaining

certificate of registration as required under Section 12(1B) of

the SEBI Act and Regulation 3 of the SEBI (Collective

Investment Schemes) Regulations, 1999. The WTM

accordingly directed the company and its directors including the

appellant to abstain from collecting any money from the

investors or to carry out any Collective Investment Scheme

including the scheme which have been identified as a Collective

Investment Scheme and further return the money so collected

and further restrained the appellant and others from accessing

the securities market and prohibited them from buying, selling

or otherwise dealing in securities market for a period of 4 years.

The appellant being one of the directors and being aggrieved by

the impugned order has filed the present appeal.

2. The facts leading to the filing of the appeal is, that the

appellant was appointed on February 26, 2015 as an

independent director and within a few months resigned on July

21, 2015, which resignation was accepted by the company on

August 31, 2015 and intimated to the Registrar of Companies on

October 05, 2015.

3. The contention of the appellant before the WTM and

before us was that he was appointed as an independent director 3

in view of the requirements under CIS Regulations for

appointment of a professional as an independent director. The

appellant was not a shareholder in the company and was not

directly associated with the persons who were running the

aforesaid company nor was involved in the day to day running

of the aforesaid company. It was also urged that in view of the

Section 149(12) of the Companies Act, 2013 an independent

director cannot be held liable for such misfeasance which

occurred without his knowledge.

4. On the other hand, reliance was made on a decision of the

Madras High Court in Madhavan Nambiar vs. Registrar of

Companies [2002] 108 Comp Cas 1 (Mad) from where a

paragraph was extracted to show that "a director either full time

or part time, either elected or appointed or nominated is bound

to discharge the functions of a director and should have taken all

the diligent steps and taken care in the affairs of the company".

5. We also find from the impugned order that the appellant

has been held responsible only on the ground that part of the

mobilization of the fund was also collected during the period

when the appellant was appointed as a director and therefore

have been held liable.

4

6. Having heard the learned counsel for the appellant

Ms. Shubharanjani Ananth and learned counsel appearing for

the respondent Shri Anubhav Ghosh at some length we are of

the opinion that the impugned order in so far as it relates to the

appellant cannot be sustained. There is no dispute of the fact

that the appellant was appointed as an independent director by

the company in order to comply with the eligibility criteria for

CIS application under the relevant Regulations. We also find

that a specific assertion was made that he did not attend any

Board meeting which fact has not been disputed by the

respondent. We also find that the appellant was not directly

associated with the persons having control over the affairs of the

company nor was involved in the running of the company and

this fact has been stated by the company itself. We also find

that the appellant was not holding any shares in the company.

7. In the light of the aforesaid admitted facts, the mere fact

that the company had mobilized certain funds under the CIS

during the short period when the appellant was inducted as an

independent director will not by itself make the appellant liable

for the misfeasance committed by the company unless it is

shown that he was also involved in the decision making process 5

or in the collection of the funds. Neither of the two elements are

present in the instant case.

8. Further, Section 149(12) of the Companies Act, 2013

provides as under:-

"149(12) Notwithstanding anything contained in this Act,-

(i) an independent director;

(ii) a non-executive director not being promoter or key managerial personnel, shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently."

A perusal of the aforesaid provision makes it clear that an

independent director shall be held liable only in respect of such

acts of omission or commission by a Company which had

occurred with his knowledge, attributable through a Board

processes, and with his consent or connivance or where he had

not acted diligently. In the instance case, there is no finding by

the WTM that the acts of the Company in the collection of the

funds had occurred with the appellant's knowledge or that the

appellant was part of the decision making processes through

Board's resolution or that the funds and the activities of the 6

Company was being done with his consent or connivance.

Further, we find that there is no finding that the appellant had

not acted diligently. In fact, the record indicates the appellant

was only appointed for a period of 5 months and had not

attended any meeting of the Board.

9. We are also of the opinion that Madras High Court (Supra)

in its decision in fact exonerates the ex-officio chairman of the

company on the ground that there was no negligence committed

by the said ex-officio chairman. The said decision is clearly not

applicable to the facts and circumstances in the instant case.

10. In the light of the aforesaid, the impugned order in so far

as the appellant is concerned cannot be sustained and is

quashed. The appeal is allowed to that extent.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 07.02.2020 Prepared & Compared By: PK