Mr. Rajinder Singh vs Sebi

Date of Hearing: 06.12.2022 Date of Decision: 06.01.2023

Appeal No.467 of 2022

Mr. Rajinder Singh Jalan, TR 9/3, Tropicana, Petaling Jaya, Selangor. ...Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No.C-4A, G Block, Bandra Kurla Complex, Mumbai - 400 021. ...Respondent

Mr. Dikshat Mehra, Advocate with Ms. Honey Chandnani, Advocate i/b Rajani Associates for the Appellant.

Mr. Sumit Rai, Advocate with Mr. Mihir Mody, Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates i/b. K Ashar & Co. for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member

Per: Justice Tarun Agarwala, Presiding Officer 2

1.

The present appeal has been filed against the order

dated 4th May, 2022 passed by the Adjudicating Officer

(hereinafter referred to as the „AO‟) imposing a penalty

of Rs.20 lakhs for violation of Section 12A(a), (b) and

(c) of the Securities and Exchange Board of India Act,

1992 (hereinafter referred to as the „SEBI Act‟) read

with Regulations 3(a), (b), (c) and (d), 4(1) of

Securities and Exchange Board of India (Prohibition of

Fraudulent and Unfair Trade Practices Relating to

Securities Market) Regulations, 2003 (hereinafter

referred to as the „PFUTP Regulations‟).

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

is, that the MPS Infotecnics Ltd. („MPS‟ for short) is a

listed company and the shareholders in the

extraordinary general meeting held on January 30, 2007

resolved and approved the issuance of Global

Depository Receipts („GDR‟ for short). Based on the

aforesaid resolution, the process of issuance of GDR

was initiated and, on October 19, 2007, a resolution of 3

the board of directors was passed resolving to open a

bank account with Lisbon Bank for the purpose of

receiving the subscription money in respect of GDR.

The resolution also authorized Mr. Rajinder Singh

Negi, a director of the Company to sign all documents

and process the necessary transactions in relation to the

GDR issue. The resolution further authorized Banco

Efisa, S.F.E., S.A. („Banco‟ for short) a bank based in

Lisbon "to use the subscription money as security in

connection with loans if any".

3. It transpires that thereafter on October 29, 2007 the

Credit Agreement was executed between Clifford

Capital Partners A.G.S.A. („Clifford‟ for short) with

Banco wherein Banco agreed to give a loan to Clifford.

On October 30, 2007, Account Charge Agreement was

executed by the director of the Company Mr. Rajinder

Singh Negi with Banco on the basis of which it enabled

Clifford to avail a loan from Banco for subscribing to

the GDR. Based on the Credit Agreement and Account 4

Charge Agreement, a loan was availed by Clifford from

Banco which was used to subscribe to the GDR issue of

the Company for which the circular was issued on

December 4, 2007 and the public announcement was

made on BSE Limited („BSE‟ for short) on December

5, 2007. GDR of 4.65 million was issued amounting to

US $ 9.99 million. Further, Clifford was the sole

subscriber to the GDR issue on the basis of a loan taken

under the Credit Agreement.

4. After 11 years, a show cause notice dated January

31, 2018 was issued to various noticees including the

appellant alleging that Clifford was the sole subscriber

to the GDR issued by the Company and that the

subscription amount was paid by obtaining a loan under

a Credit Agreement dated October 29, 2007 from

Banco and that Mr. Rajinder Singh Negi signed an

Account Charge Agreement dated October 30, 2007

which was an integral part of the Credit Agreement and

on the basis of this agreement Clifford availed loan 5

from Banco for subscribing the GDR issue. It was

further alleged that the Company did not inform BSE

about the execution of the Account Charge Agreement

or the Credit Agreement and alleged that the GDR

proceeds were diverted to the extent of US $ 8.90

million. This act of concealing and suppressing the

material facts was in violation of the provisions of

Section 12A of SEBI Act, 1992 and Regulation 3 and 4

of the PFUTP Regulations.

5. On the same issue the AO also issued a show cause

notice and after considering the matter the AO passed

an order dated 27th January, 2021 imposing a penalty of

Rs.20 lakhs upon the appellant Mr. Rajinder Singh.

The appellant filed Appeal no.362 of 2021 contending

that show cause notice was never served and the order

of the AO was passed without giving an opportunity of

hearing. This Tribunal by an order of 22nd February,

2022 allowed the appeal of Mr. Rajinder Singh and 6

remanded the matter to the AO to pass a fresh order

after giving an opportunity of hearing.

6. Based on the aforesaid direction an opportunity of

hearing was given to the appellant and thereafter the

impugned order was passed finding the appellant guilty

of violating Regulations 3 & 4 of the PFTUP

Regulations and Section 12A of the SEBI Act. The AO

accordingly imposed a penalty of Rs.20 lakhs on the

appellant.

7. We have heard Mr. Dikshat Mehra, Advocate

assisted by Ms. Honey Chandnani, Advocate for the

appellant and Mr. Sumit Rai, Advocate assisted by Mr.

Mihir Mody, Mr. Arnav Misra and Mr. Mayur Jaisingh,

Advocates for the Respondent.

8. The appellant contends that he was Non-executive

Independent Director and was invited as an invitee in

the board‟s meeting of 19th October, 2007 when the

alleged resolution as passed wherein the appellant was

authorized to open an account on behalf of the 7

Company. It was contended that the appellant was

appointed on 19th October, 2007 and resigned on 9th

September, 2009. Based on the board resolution dated

19th October, 2007 the appellant merely signed the

Account Charge Agreement on 30th October, 2007 as

he was located in London at that point of time. It was

urged that apart from signing the Account Charge

Agreement he had no other role to play in the affairs of

the Company nor was involved in the fraudulent

scheme nor was involved in the day to day management

of the affairs of the Company.

9. It was also urged that the appellant‟s responsibility

has been placed higher than that of the executive

management and whereas the Managing Director of the

Company has been imposed a penalty of Rs.10 lakhs.

The AO has imposed a penalty of Rs.20 lakhs in spite

of noticing that the appellant was a Non-Executive

Independent Director.

8

10. It was urged that this Tribunal in Mr.

Venkaitaraman Iyer Subramoniam v. SEBI, Appeal

no.610 of 2019 decided on 9th October, 2020 after

noticing that the said appellant being a Non-Executive

and Independent Director and an employee who had

signed the Account Charge Agreement on the dictates

of the Company and had not benefitted from the

disputed transaction reduced the penalty from Rs.15

lakhs to Rs.5 lakhs. It was, thus, urged that in view of

the aforesaid, the appellant should be exonerated of the

charges leveled against him and in alternative the

quantum of penalty should be reduced proportionally.

11. On the other hand, the contention of the respondent

is that the appellant was not appointed as an Non-

Executive Independent Director but was appointed as

an Additional Director as is clear from the resolution of

the Board of Directors dated 19th October, 2007 and,

therefore, he cannot escape his liability on the ground

that he was only a Non-Executive Director or the fact 9

that he was not involved in the day to day affairs of the

Company.

12. Having heard the learned counsel for the parties, we

find that there appears to be some confusion with

regard to the position which the appellant held in the

Company. The resolution of the Board of Directors

dated 19th October, 2007 clearly indicates that the

appellant was invited as an invitee and on the same date

he was appointed as an Additional Director in the

Company. The WTM however has given a finding that

the appellant was appointed as a Non-Executive

Independent Director. Considering the finding given

by the WTM we proceed with the assumption that the

appellant was appointed as a Non-Executive

Independent Director.

13. We also find from the board resolution dated 19th

October, 2007 that the appellant was invited as an

invitee and, therefore, we can safely presume that prior

to 19th October, 2007 the appellant had no role to play 10

in the affairs of the Company in any capacity as a

Director or as an Non-Executive Independent Director.

14. Admittedly, the appellant was appointed on 19th

October, 2007 and continued in that capacity till 9th

September, 2009 i.e. after almost two years. The

contention that the appellant only signed the Account

Charge Agreement as he was based in London cannot

be believed in the absence of any evidence to show that

the appellant was based in London throughout this

period.

15. The appellant admits that he had signed the

Account Charge Agreement pursuant to the resolution

dated 19th October, 2007 which only authorized the

appellant to open a bank account and did not authorize

to execute an Account Charge Agreement. On what

basis did the appellant execute the Account Charge

Agreement is not known but the fact remains that he

did execute the Account Charge Agreement pursuant to

the resolution dated 19th October, 2007 and, therefore, 11

facilitated in the fraudulent activities of the Company.

Thus, the finding of the AO that the appellant was

involved in the fraudulent activities and had violated

Section 12A read with Regulations 3 and 4 of the

PFUTP Regulations does not suffer from any error of

law.

16. We however found that the Managing Director who

was responsible for the affairs of the Company was

found to be actively involved in the fraudulent scheme

hatched by the Company. The AO in the order of 27th

January, 2021 had imposed a penalty of Rs.10 lakhs

which order was affirmed by this Tribunal in the

Appeal no.361 of 2021 filed by the Managing Director,

Mr. Sanjiv Bhavnani decided on 22nd February, 2022.

We are of the opinion that the appellant being a Non-

Executive Independent Director cannot be placed on a

higher pedestal than that of the Managing Director

especially when there is only a finding that he had

signed the Account Charge Agreement and there is no 12

finding that he was involved in the day to day affairs of

the Company.

17. We also find that in a similar matter in the appeal of

Venkaitaraman Iyer Subramoniam v. SEBI, Appeal

no.610 of 2019 decided on 9th October, 2020, the said

appellant being Non-executive Director and an

employee had signed the Account Charge Agreement

this Tribunal had reduced the penalty from Rs.15 lakhs

to Rs.5 lakhs.

18. Considering the aforesaid, we are of the opinion

that even though the appellant is guilty of Regulations 3

and 4 of the PFTUP Regulations read with Section 12A

of the SEBI Act the quantum of penalty in the given

facts appear to be excessive and is required to be

reduced in consonance with the penalty imposed upon

the Managing Director.

19. Consequently, while affirming the violations

committed by the appellant we reduce the penalty from

Rs.20 lakhs to Rs.10 lakhs. In the circumstances of the 13

case, parties shall bear their own costs. The appeal is

partly allowed.

20. 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. Certified copy of this order is also

available from the Registry on payment of usual

charges.

Justice Tarun Agarwala Presiding Officer

Ms. Meera Swarup Technical Member

RAJALAKS Digitally signed by HMI RAJALAKSHMI 6.1.2023 HARISH HARISH NAIR Date: 2023.01.10

RHN NAIR 12:25:52 +05'30'