Nimain Charan Biswal vs Sebi

for short) directing the appellant to refund the amount collected

through Optionally Convertible Debentures (OCD) jointly and

severally along with other Directors together with interest @

15% per annum. By the said order, the appellant was also

restrained from accessing the securities market for a period of

four years from the date of refund of amount and was further

restrained from associating with any public listed company.

2. In this appeal, SEBI was arrayed as Respondent No1.

Union of India through the Ministry of Corporate Affairs,

Government of India was arrayed as Respondent No. 2 and the

State of Maharashtra through the Advocate General was arrayed

as Respondent No. 3. An affidavit has been filed by the

appellant stating that the Respondent Nos. 2 and 3 are formal

parties and since no relief has been claimed against them they

may be deleted from the array of parties. We accordingly accept

the prayer of the appellant and direct that the names of

Respondent Nos. 2 and 3 shall be deleted from the array of

parties in the memo of appeal. Necessary correction shall be

carried out by the appellant on the physical copies of the memo

of appeal.

3

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

there is a company known as Neesa Technologies Limited. It is

the case of the appellant that a recruitment interview was held

by the company on November 7, 2013 in which a consent letter

was obtained by the company which was misused and was

utilized showing the appellant as Managing Director of the

company. It was also contended that when the appellant came to

know about this mischief he submitted his resignation papers

and filed all compliances with the Registrar of Companies but

for reasons best known the Registrar of Companies did not

update its record for more than three years. As a result, the

appellant had to file a Writ Petition before the Gujarat High

Court for appropriate direction and that pursuant to the order of

the Gujarat High Court dated July 5, 2017 the period as a

Director / Managing Director was fixed from November 7, 2013

to March 6, 2014, based on which the Registrar of Companies

updated its record thereafter.

4. It is alleged that in relation to the issuance of NCDs by the

company and alleged violation of the Companies Act an

ex-parte interim order was issued by SEBI on June 3, 2015

which was consequently confirmed on June 2, 2016. The

appellant filed Appeal No. 204 of 2016 before this Tribunal 4

which was allowed by judgment dated July 14, 2016. The order

of SEBI was quashed on the ground that SEBI had travelled

beyond the show cause notice. This Tribunal while allowing the

appeal remitted the matter again to SEBI to decide the matter

afresh.

5. Pursuant to the order of this Tribunal, SEBI passed a fresh

order dated September 7, 2016 exonerating the appellant from

all the charges leveled in the show cause. A specific finding was

given by SEBI that the appellant did not attend any meetings of

the Board of Directors during the period when he is alleged to

have been appointed as the Director nor did he receive any

remuneration. Even otherwise the allotment of NCDs was

completed on August 22, 2013, that is, prior to the appointment

of the appellant as a Director. The relevant extract of the order

of SEBI dated September 7, 2016 exonerating the appellant is

extracted hereunder:-

"5. I note that in the interim order dated June 3, 2015, the main allegation levelled against NTL and other entities is that NTL had engaged in fund mobilizing activity from the public, through its offer and issue of NCDs and violated the provisions of sections 56, 60, 73 and 117C of the Companies Act, 1956and the relevant provisions of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008. In this regard, I note from the record that Mr. Biswal was a director of NTL only for a period of 5

approximately 4 months i.e. from November 7, 2013 to March 6, 2014. Further, it is also a matter of record that the allotment of NCDs by NTL was completed on August 22, 2013 i.e. before Mr. Biswal joined NTL as a director. In view thereof, I find that Mr. Biswal became a director of NTL after the offer, issue and allotment of NCDs by NTL was complete and therefore, he cannot be held responsible for violations of NTL regarding offer, issue and allotment of NCDs."

6. The appellant further contended that since the Registrar of

Companies continued to show his name as Managing Director

in the company and no effort was being made to update its

record, the appellant filed Writ Petition No. 4497 of 2017

praying for deletion of his name from the record of the Registrar

of Companies. The Gujarat High Court by judgment dated July

5, 2017 disposed of the Writ Petition holding that in the absence

of any evidence, the period of the appellant as a Director /

Managing Director in the company was confined from

November 7, 2013 to March 6, 2014.

7. The appellant further contends that in January 2017 the

Registrar of Companies filed 34 criminal cases before the

Magistrate for violation of the Companies Act implicating the

appellant for not complying with the orders of the Company

Law Board dated October 13, 2014 with regard to refund of 6

FDR to 17 investors, issuance of NCDs and issuance of OCDs.

The appellant filed Criminal Writ Petition No. 1117 of 2017

which was allowed by judgment of the Gujarat High Court

dated February 3, 2018 whereby all the 34 criminal cases filed

against the appellant were quashed. The Gujarat High Court

found that the complaints filed by the Registrar of Companies

relate to the alleged violations for the financial year ending

March 31, 2012, March 31, 2013 and March 31, 2014 in which

the appellant had no role to play and that the appointment of the

appellant as a Director / Managing Director was only a paper

arrangement and that too only for a period of less than four

months. The Gujarat High Court also found that there is no

material to show that the appellant attended any meeting of the

Board of Directors and that there was no involvement of the

appellant‟s role in any decision making process which would

attract the offence under the Companies Act. The Gujarat High

Court therefore held that the appellant was not an officer in

default u/s 5 of the Companies Act, 1956.

8. It is the case of the appellant that in spite of aforesaid

decision, SEBI issued a fresh show cause notice dated

December 13, 2018 against the appellant and other Directors of

the company with regard to the issuance of the OCDs by the 7

company. The allegation in the show cause notice, in a nutshell

is, that during the tenure of the appellant as Managing Director

of the company, the OCDs were issued and allotted and that the

appellant as a Managing Director, being an officer in default u/s

5 of the Companies Act, was responsible.

9. Before the WTM, the appellant contended that he had no

nexus with the company as he was neither a promoter or a

director or a shareholder or an employee and that in the

employment interview the consent letter was misused by the

company. The appellant vehemently submitted that in relation to

the issuance of the NCDs the respondent had exonerated him

and for the same period the issuance of a fresh show cause

notice involving the appellant for issuance of OCDs was a

misuse of the process of law and that he was unnecessarily

being harassed by the respondent for reasons best known to

them. It was contended that in view of the two decisions of the

Gujarat High Court the matter should be dropped and consigned

to the record insofar as the appellant is concerned.

10. The WTM after considering the aforesaid passed the

impugned order dated April 7, 2020 restraining the appellant

from accessing the securities market and from associating 8

himself with any public listed company and also directing the

appellant to refund the amount collected during his tenure along

with interest @ 15% per annum.

11. We have heard the appellant in person and Shri Mustafa

Doctor, the learned senior counsel along with Shri Ravishekhar

Pandey, the learned counsel for the respondent SEBI.

12. At the outset, the learned senior counsel Shri Mustafa

Doctor for SEBI made a submission and submitted that he has

received instructions from SEBI to intimate the Tribunal that the

direction relating to refund of the money will not be enforced

insofar as the appellant is concerned but submitted that the

restraint order debarring the appellant for a period of four years

should continue considering the fact that the appellant was a

Managing Director and during his period the OCDs were issued.

This concession was not accepted by the appellant and

accordingly we have heard the matter on merits.

13. The contention of the appellant was the same, namely, that

he was never appointed as a Director or Managing Director in

the company; that he had no nexus with the company; that he

had never issued any OCDs nor attended any meetings of the

Board of Directors nor singed any attendance register and 9

therefore u/s 283(1)(g) of the Companies Act, 1956 for not

attending the board meetings he is deemed to have been

removed as a Director of the company.

14. On the other hand, the respondent acknowledged the

judgment of the Gujarat High Court as well as the decision of

SEBI dated September 7, 2016 in relation to the appellant but

contended that as per the Gujarat High Court the tenure of the

appellant as Managing Director of the company was fixed from

November 7, 2013 to March 6, 2014 and therefore during this

period the appellant was the Managing Director which he

cannot escape and cannot contend that he was never a Managing

Director. It was also urged that in the financial year 2013-14 the

OCDs were issued and the appellant being the Managing

Director was responsible and was an officer in default u/s 5 of

the Companies Act. It was therefore contended that the order of

the WTM does not suffer from any error of law and the appeal

consequently should be dismissed.

15. Having head the appellant in person and the learned senior

counsel for the respondent and having perused the order of

SEBI dated September 7, 2016 and the two judgments of the

Gujarat High Court dated July 5, 2017 and February 3, 2018 and 10

upon a perusal of the show cause notice we are of the opinion

that the impugned order cannot be sustained. The only reason

given by the WTM implicating the appellant is that OCDs

appears (emphasis is ours) to have been issued and allotted

during the financial year 2013-14 when the appellant was the

Managing Director. The word "appears" is of importance. A

presumption has been drawn by the WTM that because the

appellant was the Managing Director for a limited period from

November 7, 2013 to March 6, 2014 it is presumed that the

OCDs were issued during the period when he was appointed as

a Managing Director.

16. This presumption is patently erroneous for the following

reasons:-

(i) The earlier order of SEBI dated September 7, 2016

in relation to the issuance of NCDs clearly indicate

that the appellant did not attend any meetings of the

Board of Directors nor was he paid any remuneration

and the allotment of NCDs were completed on

August 22, 2013;

(ii) A perusal of Exhibit - I to the memo of appeal

indicates that the resolution of the Board of Directors 11

for the issuance of allotment of OCDs was passed on

May 28, 2012 i.e. prior to the appointment of the

appellant as Managing Director;

(iii) Exhibit - J to the memo of appeal indicates that

OCDs were issued on various dates and the last OCD

was issued on September 30, 2013 i.e. prior to the

date of the alleged appointment of the appellant on

November 7, 2013. There is no evidence to show

that OCDs were issued during the period when the

appellant was appointed as a Managing Director.

(iv) The Gujarat High Court in its decision dated

February 3, 2018 has categorically held that the

appellant had no role to play and that the

appointment of the appellant as Managing Director

was only a paper arrangement. The Gujarat High

Court further held that there was no material to show

that the appellant attended any meeting of the Board

of Directors and that he was not involved nor had

any role in the decision making process for issuance

of OCDs / NCDs;

12

(v) The Gujarat High Court in the same decision dated

February 3, 2018 found that the appellant was not an

officer in default u/s 5 of the Companies Act;

17. In the light of the aforesaid admitted findings it was not

open to the WTM to implicate the appellant only on the sole

ground that the appellant was the Managing Director and during

his period OCDs were allotted. The WTM should have given a

specific finding that the OCDs were allotted during the period

when the appellant was appointed as the Managing Director.

The records suggests otherwise and merely on surmises the

WTM without looking into the records and without applying its

mind has wrongly and illegally implicated the appellant.

18. In view of the fact that the appellant did not attend any

meetings of the Board of Directors during the alleged period of

his tenure as Managing Director coupled with the fact that the

resolution of the Board of Directors for issuance and allotment

of OCDs was passed on February 28, 2012 that is much before

the alleged appointment of the appellant as Managing Director

and in the absence of any finding that the OCDs were issued

and allotted during the period when the appellant was the

Managing Director, we are of the opinion that the impugned 13

order insofar as it relates to the appellant cannot be sustained

and is quashed. The appeal is allowed.

19. In our view the appellant has been harassed since 2015

when an ex-parte interim order was passed against him in

relation to the issuance and allotment of NCDs. The said order

was set aside by the Tribunal in 2016 and thereafter SEBI

exonerated him on September 7, 2016. In spite of the decision

of the Gujarat High Court on February 3, 2018, a fresh show

cause notice dated December 13, 2018 was issued against the

appellant, which in our opinion, was issued without any

application of mind. We also find that there was enough

evidence to show that the appellant was not involved in the

issuance and allotment of OCDs which the WTM has

conveniently ignored and implicated the appellant on the basis

of presumption. Further, from the date of the impugned order

dated April 7, 2020 the appellant has been restrained from

accessing the securities market or from being associated with

any public listed company. In our opinion the appellant is entitle

for costs which we compute at Rs. 50,000/- (Rupees Fifty

Thousand Only) which the respondent shall pay to the appellant

by means of a demand draft or bank transfer within four weeks

from today.

14

20. 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 Presiding Officer 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.

Sd/-

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=30fcf68685192bbc53e6ff1608a83fb3881de7ac2ab7

AGARWAL 954d509c85ed6e0f7c41, serialNumber=095f8b286bb0b1cd07ff676611f4f5e7999727d 404aa38ca422f9d3529bdb8a3, cn=TARUN AGARWAL Date: 2020.08.18 10:58:04 +05'30' Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member

18.08.2020 msb