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2007 (8) TMI 444 - HC - Companies LawOffences by companies - What would be said sufficient averment ? - Held that - The complaint makes material averments sufficient to attract cognizance of the complaint and issuance of the summons to answer the charge. Qua petitioner No. 1 Sushila Devi I note it was informed that she was the managing director. As clarified in S.M.S. Pharmaceuticals Ltd. s case (2005 (9) TMI 304 - SUPREME COURT OF INDIA ) by its very nomenclature a person who holds the post of managing director would be presumed to be managing and controlling the affairs of the company. Appeal dismissed.
Issues:
1. Alleged violation of section 27 of the Securities and Exchange Board of India Act, 1992 and regulations by the petitioners. 2. Sufficiency of averments in the complaint against the petitioners to proceed with criminal liability. 3. Defense raised by petitioners claiming they were mere investors and not actively involved in the affairs of the company. Issue 1: Alleged violation of SEBI Act and regulations: The Securities and Exchange Board of India (SEBI) filed a complaint against the petitioners under section 200 of the Code of Criminal Procedure, 1973, along with sections 24(1) and 27 of the SEBI Act, 1992. The complaint alleged that the petitioners, as directors of a company, violated section 27 of the Act and regulations framed in 1997 related to plantation companies. The complaint highlighted the duty of SEBI to protect investors' interests and regulate the securities market through appropriate measures. Issue 2: Sufficiency of averments for criminal liability: The petitioners challenged the sufficiency of the averments in the complaint to establish their criminal liability. The court referred to legal principles and previous judgments to determine what constitutes sufficient averments against directors of a company to proceed with criminal charges. Citing the S.M.S. Pharmaceuticals Ltd. case, the court emphasized the need for clear and specific allegations that the accused directors were in charge and responsible for the company's affairs at the time of the alleged offense. The court held that the complaint contained material averments necessary to attract cognizance and issue summons against the petitioners. Issue 3: Defense raised by petitioners as mere investors: The petitioners argued that they were mere investors in the company, had signed directorship forms but were not actively involved in the company's affairs. They claimed to have been removed from directorship in September 1997, before the alleged violations took place. However, the court noted that this defense would need to be proven with evidence during the trial. The court also highlighted documentary evidence, including a letter and balance sheet signed by the petitioners, indicating their involvement in the company's affairs. The court rejected the defense raised by the petitioners and concluded that a managing director, like petitioner No. 1, would be presumed to be managing and controlling the company's affairs. In conclusion, the court dismissed the petition, finding no merits in the arguments presented by the petitioners and upholding the complaint's material averments as sufficient for further legal proceedings.
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