Mr. Venkitaraman Iyer Subramonian vs Sebi
- CitationAppeal No.610 of 2019
Ratio decidendi
The rule this decision rests on
Where a director's signature on a board resolution and an account charge agreement forms part of a fraudulent transaction, the director cannot escape liability for that participation merely on the ground that he was a non-executive director or an employee who put his signature at the direction of others, where the records show he attended the board meeting at which the decisions were taken and signed the resolution. The quantum of debarment from the securities market for a participant in the decision-making process of a fraudulent transaction is not rendered excessive by the absence of personal monetary gain, and a two-year debarment is sustained on the facts found. A penalty imposed on a non-executive director who was merely an employee and who did not gain from the transaction may be reduced where it is excessive in relation to his limited role and the absence of gain, and the court substitutes a reduced penalty accordingly.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
BEFORE THE SECURITIES APPELLATE TRIBUNALMUMBAIOrder Reserved on: 19.8.2020Date of Decision: 9.10.2020Appeal No.610 of 2019Mr. Venkitaraman Iyer Subramonian,181, Tower A-1, Ashoka CHS Ltd.,Station Road, Phirojshah Nagar,Vikhroli East, Mumbai - 400 079. ... AppellantVersusSecurities & Exchange Board of IndiaSEBI Bhavan, Plot No, C4-A, G Block,Bandra Kurla Complex, Bandra (East),Mumbai - 400051. ... RespondentMr. Venkitaraman Iyer Subramonian, Appellant inPerson.Mr. Kumar Desai, Advocate with Mr. Nishit Dhruva, Mr.Chirag Bhavsar and Mr. Harshad Vyas, Advocates i/bMDP & Partners for the Respondent.WithAppeal No.197 of 2020Mr. Venkitaraman Iyer Subramonian,181, Tower A-1, Ashoka CHS Ltd.,Station Road, Phirojshah Nagar,Vikhroli East, Mumbai - 400 079. ... AppellantVersusSecurities & Exchange Board of IndiaSEBI Bhavan, Plot No, C4-A, G Block,Bandra Kurla Complex, Bandra (East),Mumbai - 400051. ... Respondent2Mr. Venkitaraman Iyer Subramonian, Appellant inPerson.Mr. Kumar Desai, Advocate with Mr. Nishit Dhruva, Mr.Chirag Bhavsar and Mr. Harshad Vyas, Advocates i/bMDP & Partners for the Respondent.CORAM: Justice Tarun Agarwala, Presiding OfficerDr. C.K.G. Nair, MemberJustice M.T. Joshi, Judicial MemberPer : Justice M.T. Joshi, Judicial Member1.Aggrieved by the two different orders passed byrespondent Securities and Exchange Board of India(hereinafter referred to as 'SEBI') on the same set offacts under different provisions the present appealshave been preferred.2. In Appeal no.610 of 2019, the appellant ischallenging the order of the whole time member of therespondent SEBI debarring the present appellantalongwith other directors etc. of M/s. G.V. Films Ltd.(hereinafter referred as the Company) from accessingthe securities market in any manner for a period of twoyears for acting fraudulently in breach of the provisionof section 12A(a) to (c) of the Securities and Exchange3Board of India Act, 1992 (hereinafter referred to as'SEBI Act') read with Regulations 3(a) to (d) andRegulations 4(1) of the Securities and Exchange Boardof India (Prohibition of Fraudulent and Unfair TradePractices Relating to Securities Marker) Regulations,2003 (hereinafter referred to as 'PFUTP Regulations,2003').3. In Appeal no.197 of 2020, the adjudicating officerhad imposed a penalty of Rs.15 lakhs, on same set offacts, vide order dated 29th January, 2020 for violationof the provisions of Section 15 HA of SEBI Act,Section 23 of Securities Contract Regulation Act, 1956(hereinafter referred as 'SCRA 1956') and variousprovisions of SEBI PFUTP Regulations, 2003 andprovisions of Listing Agreement. In the circumstances,both the appeals were heard together and are beingdecided by the present common order.4. M/s. G.V. Films Ltd., the company issued 6.4million Global Depository Receipts (hereinafterreferred to as 'GDR') for raising 40 million US Dollaron 27th April, 2007. Earlier on 16th March, 2007 in the4board meeting of the company a decision was taken toopen an account with Banco Efisa S.A. Lisbon Bankand to authorise the said bank to receive the GDRproceeds in the account. The said Bank was authorizedinteralia to use the account as a security for loan if any.The present appellant alongwith other directors wereauthorised to sign, execute any application, agreementetc. in this regard with the Banco Bank.A day before, the said Bank granted a loan of equalamount of GDR to Whiteview Trading Corporation(hereinafter referred as Whiteview) and thereafter on27th April 2007 this Whiteview - the single entitysolely subscribed the GDR.An account charge agreement was already executedon 27th March 2007, by the appellant and otherauthorized directors on the basis of the resolutions forthe security of loan taken by the single subscribernamely Whiteview. Thereafter, the company hadconverted the GDRs into shares which were sold in theIndian capital market. However, at that time it was notdisclosed to the investors that the GDR was subscribed5by a single entity and that the GDR proceeds were usedto secure the loans availed by this single entity fromthe Banco bank. In the circumstances, the company,then directors including the present appellant wereissued show cause notices for violation of theprovisions of Regulation 12A of PFTUP Regulationsetc. and the impugned orders were ultimately passed.Similar notices were issued by the A.O in the next ofthe proceeding. Ultimately the impugned orders werepassed. Hence the present appeals.5. We have heard Mr. Venkitaraman IyerSubramonian, Appellant in Person and Mr. KumarDesai, Advocate assisted by Mr. Nishit Dhruva, Mr.Chirag Bhavsar and Mr. Harshad Vyas, Advocates forthe Respondent through video conference.6. The appellant during the relevant period was a non-executive director. He made his submissions before usin person. He submitted that he signed the accountcharge agreement when the same was sent to him atLondon for webcasting business. He was merely anemployee of the company and, therefore, on the6direction of the other directors he signed over the saidagreement. He did not seriously dispute that the acts ingeneral were in violation of the PFUTP Regulations.He submitted that he had no role to play in all theseactivities.7. On the other hand, Mr. Kumar Desai, the learnedcounsel for the respondent SEBI submitted that therecords would show that the present appellant was adirector at the relevant period and had attended themeeting of the board of directors in which all decisionswere taken. Further the records would also show thatat the time of signing of the account charge agreementthe appellant was in fact in London for meeting withcounsels on the same subject. It was further arguedthat the appellant admittedly did not object onexecution of the account charge agreement whereunder the entire GDR proceeds was utilized to securethe loan obtained by Whiteveiw from the said Bank,for subscribing the GDR the agreement and, therefore,it was submitted that the impugned orders need not beinterfered.78. Mr. Venkitaraman Iyer Subramonian appearing inperson had further submitted that he was merely anemployee of the company. He has not gained anymonetary benefit from the transactions. He was onlyasked to help the company and, therefore, he submittedthat the penalty imposed is very harsh.9. Upon hearing both the sides, according to us, it iscrystal clear that the entire transaction was a fraudulenttransaction wherein a single entity Whiteview hassubscribed to the GDRS by availing loan from Bancobank and in turn the company had pledged entire GDRproceeds for securing the said loan. The record wouldshow that these specific facts were never disclosed tothe shareholders or to the general investors who hadsubscribed to the conversion of the GDR into shares inthe Indian market. Though appellant Mr. VenkitaramanIyer Subramonian had submitted that his role was onlyto put signature on the disputed account chargeagreement, the copy of the resolution of the board ofdirectors would show that he had signed the resolutionand, therefore, he cannot escape the liability.810. As regards the quantum we find that debarment ofthe appellant from the securities market for 2 yearscannot be called as excessive in the stated facts for hisparticipation in the decision making process. Asregards the quantum of penalty however, we find thatthe appellant was merely an employee of the companyand a non-executive director. He apparently did notgain anything in the disputed exercise. In thecircumstances, penalty of Rs.15 lakhs imposed uponhim is excessive. In our view, penalty of Rs.5 lakhswould meet the ends of justice.11. In the circumstances Appeal no.610 of 2019 ishereby dismissed without any order as to costs.Appeal no.197 of 2020 is partly allowed to the extentof quantum of penalty. The direction of theadjudicating officer to pay penalty of Rs.15 lakhs isreduced to Rs.5 lakhs so far as the present appellant isconcerned.12. The present matter was heard through videoconference due to Covid-19 pandemic. At this stage itis not possible to sign a copy of this order nor a9certified copy of this order could be issued by theregistry. In these circumstances, this order will bedigitally signed by the Presiding Officer on behalf ofthe bench and all concerned parties are directed to acton the digitally signed copy of this order. Parties willact on production of a digitally signed copy sent by faxand/or email.
Justice Tarun Agarwala Presiding Officer
TARUN Digitally signed by TARUN AGARWAL DN: c=IN, o=PUBLIC WORKS DEPARTMENT UTTAR PRADESH, postalCode=221505, st=Uttar Pradesh, 2.5.4.20=30fcf68685192bbc53e6ff1608a83fb3881de7ac2a
AGARWAL b7954d509c85ed6e0f7c41, serialNumber=095f8b286bb0b1cd07ff676611f4f5e79997 27d404aa38ca422f9d3529bdb8a3, cn=TARUN AGARWAL Date: 2020.10.09 13:05:59 +05'30' Dr. C. K. G. Nair Member
Justice M.T. Joshi Judicial Member
09.10.2020 RHN
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