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2021 (6) TMI 1159 - AT - SEBIFraudulent issue of GDRs - Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market - Responsibility of directors - officers in default - Investigation in the issuance of the GDR revealed that the GDR was not issued with a proper consideration and without making adequate disclosure under the Listing Agreement - As alleged account charge agreement was an integral part of the loan agreement which allowed Whiteview to avail the loan in order to subscribe to the GDR issue which was fraudulent - charge against the appellant was that he was a Director and was part of the resolution by which the first resolution was passed by the Board of Directors for issuance of the GDR and for opening an account with Banco - HELD THAT:- Merely because the appellant was present when the resolution dated July 27, 2006 was passed, no conclusion can be drawn that this was the starting point of the fraudulent arrangement for issuance of GDR and for opening a bank account. Resolution does not given any indication that the appellant had knowledge beforehand that the GDR issue was the purpose to manipulate the price or the market or that a fraud would be played upon the shareholders and the investors. Finding of the WTM that the resolution of the Board of Directors dated June 27, 2006 provides execution of a pledge or execution of a charge agreement is wholly erroneous, perverse and based on no evidence. The resolution also does not stipulate that the proceeds could be utilized by the bank as security in connection with a loan taken by another entity. Appellant cannot be debarred only on the basis of being present in the resolution of the Board of Directors dated July 27, 2006. In the absence of any evidence that the appellant had a role to play in the issuance of the GDR, the mere presence of the appellant in the resolution of the Board of Directors dated July 27, 2006 does not make him liable for the alleged fraud that had been committed by the Company. After the judgment was reserved, the respondent have submitted a short note contending that the appellant was also chairman of the audit committee and remuneration committee which fact is reflected in the annual report of 2009-10 - As per MCA circular dated March 2, 2020 civil or criminal proceedings should not be unnecessarily initiated against the independent directors or non executive directors unless sufficient evidence exists to the contrary. We also find that Reserve Bank of India issued a circular dated April 23, 2015 indicating that non-whole time director should not be considered as a defaulter unless it is conclusively established that the default had taken place with his consent or connivance. Cogent evidence must come forward to the effect that a non executive non promoter independent director was aware of the fraud that had been played by the Company or that he was involved in the issuance of the GDR or that GDR was being issued with his connivance. Only then such non executive non promoter independent directors should be booked. Merely because he was part of the resolution of the Board of Directors would not make him liable. In the light of the aforesaid, the impugned order insofar as it relates to the appellant cannot be sustained and is quashed. The appeal is allowed. In the circumstances of the case, parties shall bear their own costs.
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