Yograj Singh Bhau vs Sebi

Order Reserved On: 05.07.2021 Date of Decision : 24.08.2021

Misc. Application No. 557 of 2021 (Exemption from filing certified copy) And Misc. Application No. 158 of 2021 (Delay Application) And Appeal No. 214 of 2021

Yograj Singh Bhau 22, Priyadarshini Lane, Patta, Paloura, Jammu ...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

Mr. Mohit Singhal, CS for the Appellant.

Mr. Suraj Chaudhary, Advocate with Mr. Nishit Dhruva, Mr. Hridhay Khurana, Mr. Chirag Bhavsar, Mr. Yash Garach and Ms. Aalisha Shah, Advocates i/b MDP & Partners for the Respondent.

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

Per: Justice M. T. Joshi, Judicial Member 2

1. Aggrieved by the impugned order dated June 29, 2020 of

the learned Adjudicating Officer (hereinafter referred to as

"AO") of respondent Securities and Exchange Board of India

(hereinafter referred to as "SEBI") directing to jointly and

severally pay the penalty of Rs. 25 lacs along with other

noticees, the present appeal is preferred.

Miscellaneous application for condonation of delay is allowed

for the reasons stated in the application.

2. Respondent SEBI has found that noticee no. 1 in the

proceedings, namely, Sheen Agro & Plantation Limited

(hereinafter referred to as "the company") had floated

Collective Investment Schemes ("CIS") without obtaining a

certificate of registration from SEBI as required under

Securities and Exchange Board of India (Collective Investment

Scheme) Regulations, 1999 (hereinafter referred to as "CIS

Regulations"). It was found that the said company along with

other noticees and the appellant had even after filing an

application for Winding up and Repayment report (hereinafter

referred to as "WRR") of such CIS continued to renew the

investments of the investors instead of repaying them. Thus, it

was found in violation of Section 12(1B) of SEBI Act and

regulation 3 of SEBI (CIS) Regulations. Therefore the show 3

cause notice dated November 27, 2018 was issued to 16

noticees including the present appellant.

3. The present appellant filed a short reply submitting that he

was not the Director of the company. Certain documents and

affidavits were obtained by his relatives from him on blank

papers. Even the Memorandum of Understanding and other

documents signed by him are null and void as those documents

were not accepted by the Registrar of Companies, Jammu and,

therefore, said documents cannot be relied to blame the present

appellant for continuing with CIS. Since, he was not the

Director in the company he cannot be held responsible for any

affairs of the company and therefore he wanted that the show

cause notice be withdrawn against him.

4. The AO continued with the proceeding. During hearing

the appellant submitted that the Memorandum of Understanding

was executed on May 16, 2004 between the then existing Board

of the company and the appellant wherein it was mentioned that

he would be appointed as Executive Director with effect from

May 16, 2004. However, the Registrar of Companies did not

accept the same. The appellant has enclosed a letter dated May

22, 2018 from the Registrar of Companies, wherein, it was 4

communicated that though the appellant had applied to the

Registrar of Companies, Delhi for certified copies of his

appointment and resignation as a Director the said documents

were not registered and, therefore, the Registrar of Companies

cannot issue the certified copies of the same. On this short

ground the appellant wanted that no order be passed against

him.

5. The learned AO however passed the impugned order,

hence the present appeal.

6. We have heard Mr. Mohit Singhal, CS for the Appellant

and Mr. Suraj Chaudhary, the learned counsel for the

respondent.

7. The Authorized Representative for the appellant submitted

before us that the Memorandum of Understanding was null and

void. The Registrar of Companies did not act upon it therefore

the appellant cannot be blamed for any of that activities carried

by the company. In fact, he was appointed for a short period

and had resigned thereafter. In the circumstances, relying on

the ratio of Laljibhai C. Kapadia vs. Lalji B. Desai AIR 1972 5

Bom 276 of the Bombay High Court submitted that the order of

the learned AO be set aside.

8. On the other hand, the learned counsel for the respondent

submitted that the issue in the present case is not whether the

appellant was appointed legally or illegally as Executive

Director but as to whether the appellant had indulged into a CIS

and had active participation in the affairs of the company. The

learned counsel has submitted that the appellant acted as

Executive Director and had signed numerous documents while

collecting the investment as found on the record. It would show

that the appellant had indulged into the CIS. He further

submitted that the learned AO had meticulously took into

consideration the role played by each of the noticees including

the present appellant in the affairs of the company. Therefore,

relying on the ratio of Suborno Bose vs. Enforcement

Directorate and Anr. (2020) 14 SCC 241 he wanted that appeal

be dismissed.

9. Upon hearing both the sides, in our view there is no merit

in the appeal. It is not disputed that the appellant had acted as

Executive Director for the relevant period. The numerous

documents of which appreciation was made by the learned AO 6

in the impugned order would show that the appellant was active

in continuing with the scheme. The provisions of Section

12(1B) of the SEBI Act while prohibiting continuation of any

CIS without registration specifically provides that no person

shall sponsor or cause to be sponsored or carry on or cause to be

carried on Collective Investment Scheme. Therefore, whether

the appointment of the appellant as a Executive Director was

legal or not is not the issue in the present case. The facts on

record would show that the appellant as an Executive Director

was instrumental in continuation of such scheme. In view of the

same, the decision of the Bombay High Court in the case of

Laljibhai C. Kapadia (supra) which relates to the legality of the

appointment of the Director of a company would not be

applicable. On the other hand, in the case of Suborno Bose

(supra) the Hon'ble Supreme Court has underlined that in

dealing with the violations with civil obligations of penalty, plea

of contravention by the company would not be applicable. The

issue would be as to whether the person has indulged into

violation ensuing into civil obligation, was done by the person

or not.

10. Considering all the facts on record, the following order: 7

ORDER

The appeal is hereby dismissed without any order as to

costs. All other miscellaneous applications disposed of.

11. 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 24.08.2021 RAJALA Digitally by signed

PK KSHMI RAJALAKSHMI NAIR H

Date: 2021.08.27 H NAIR 11:54:24 +05'30'