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TMI Blog2017 (7) TMI 1104X X X X Extracts X X X X X X X X Extracts X X X X ..... en the repayment became due (in terms of Section 73(2) of the Companies Act, 1956) to the investors till the date of actual payment. Further, by the impugned order, BREDL and its directors including the appellant are restrained from accessing the securities market for a period of 4 years. 2. Appellant became a Director of BREDL on 19th August, 2010 and resigned as Director of BREDL on 1.5.2012. 3. During the years 2011-12 and 2012-13 BREDL had collected Rs. 40 lac and Rs. 59.06 lac (total Rs. 99.06 lac) respectively from various preferential allottees. Since the aforesaid amounts were collected without complying with the 'public issue' norms stipulated under Section 56, 60 read with Section 2(36) and Section 73 of the Companies Act, 1956, ex-parte order was passed on 2.12.2014 directing BREDL and its directors not to mobilize funds from investors through the offer of Redeemable Preference Shares/equity shares till further orders. By the said order, BREDL and its directors including the appellant were prohibited from issuing prospectus or any document soliciting money from the public until further orders. Thereafter, by the impugned order dated 21.1.2016, BREDL and its dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such permission having been applied for, has not been granted as aforesaid, the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than four per cent and not more than fifteen per cent, as may be prescribed, having regard to the length of the period of delay in making the repayment of such money. 2(A) ............................. 2(B) .............................." 6. Arguments advanced by Mr. Subir Kumar, learned counsel for the appellant may be summarized as follows:- (a) Appellant was not the person responsible for issuance of redeemable preference shares of BREDL so as to attract the penal provisions contained in Section 56 and 73(2) of the Companies Act, 1956 read with Section 27 of the Securities and Exchange Board of India Act, 1992. (b) Appellant had no knowledge about the real esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 46 to 49 of the affidavit in reply filed by SEBI, Ms. Shipra Banerjee is shown as authorised person to submit returns on allotment. Therefore, when there was a authorised person appointed by BREDL, the WTM of SEBI could not have applied Section 5(g) of the Companies Act and hold that for violation of Section 73(2) of the Companies Act, 1956 committed by BREDL all the directors including the appellant were liable to be penalised. (g) In the complaint filed by a complainant which is set out at page 107 of the affidavit in reply filed by SEBI, Mr. Soumen Majumder is shown as Managing Director of BREDL. Therefore, for the violation of Section 73(2) the Managing Director of BREDL could be said to be an "officer in default" under Section 5 of the Companies Act, 1956 and not all the directors of BREDL. (h) BREDL had not intended to raise funds by issuing redeemable preference shares to the general public. However, on account of issuing redeemable preference shares to more than 50 entities, as per settled law, issuance of redeemable preferential shares became a deemed public issue covered under Section 56 of the Companies Act, 1956. Section 56 of the Companies Act, 1956 which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 73(2), the Company Secretary of BREDL ought to have been held to be an officer in default. As per the master circular, status of a director and the timing of commission of the offence are relevant factors to be taken into consideration for holding a person to be an officer in default. In the present case, it is submitted that neither the status of the appellant nor the timing of issuance of preferential allotment shows that the appellant could be considered as an officer in default. (k) As BREDL had not issued any notice of board meeting to the appellant, the appellant is deemed to have vacated the office of a director under Section 283(g) of the Companies Act, 1956. Therefore, the appellant who is deemed to have vacated the office of director could not be declared to be an officer in default. (l) In the website of Ministry of Corporate Affairs, BREDL is still shown as an active company and Mr. Soumen Majumder is still shown as a Director of BREDL. In these circumstances counsel for the appellant submitted that the impugned order be quashed and set aside qua the appellant and amount due to the investors be directed to be refunded jointly and severally by BREDL and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount collected from the investors with interest as set out in the impugned order. 11. Argument of the appellant that he could not be said to be an "officer in default" is without any merit. Section 5 of the Companies Act, 1956 defines the expression 'officer who is in default' to mean the officers named therein. Section 5(g) provides that where any company does not have any of the officers specified in clauses (a) to (c) of Section 5, then any director who may be specified by the Board in that behalf or where no director is so specified then all the directors would be "officer who is in default". In the present case, no material is brought on record to show that any of the officers set out in clauses (a) to (c) of Section 5 or any specified director of BREDL was entrusted to discharge the obligation contained in Section 73 of the Companies Act, 1956. In such a case, as per Section 5(g) of the Companies Act, 1956 BREDL and all the directors of BREDL are liable. Therefore, decision of the WTM that all directors of BREDL including the appellant would constitute "officer in default" cannot be defaulted. 12. Fact that appellant had merely lent his name to be a director of BRE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s through issuance of redeemable preference shares and Ms. Shipra Banerjee who had signed all the letters of allotment issued by BREDL would be covered under the expression "officer in default" set out in Section 5(e) and 5(f) of the Companies Act, 1956 is also without any merit. Specific case of the appellant is that BREDL had no intention to raise funds by offering redeemable preference shares to the general public. In such a case, authority given to Mr. Soumen Majumder and Ms. Shipra Banerjee to raise funds by issuing redeemable preference shares through private placement could not be considered as authority given for discharging the obligation arising on account of deemed public issue. 16. From the documents brought on record it is seen that BREDL had filed with the Registrar of Companies an annual return form, wherein, designation of all the persons named therein including the appellant are shown as directors of BREDL, which obviously means that BREDL had not appointed any person as Managing Director or Whole Time Director or Secretary or Manager. Moreover, there is no material to show that any director was authorised to discharge the obligation arising on account of deemed p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions relating to the deemed public issue. Hence the argument that the Company Secretary of BREDL ought to have been made liable cannot be accepted. 21. Argument advanced on behalf of the appellant that the appellant had not attended any board meeting of BREDL and therefore, the appellant is deemed to have vacated the office under Section 283(g) of the Companies Act and consequently no action could be taken against the appellant is also without any merit. Section 283(g) of the Companies Act, 1956 applies only to a director who inspite of notice absents himself from three consecutive meetings of the Board of Directors or absents himself from all the meetings of the Board for a continuous period of three months. In the present case, it is the case of the appellant that no notice of Board meeting was issued to him. In such a case, question of the appellant remaining absent from the Board meetings does not arise and consequently question of applying Section 283(g) of the Companies Act, 1956 to the case of the appellant does not arise. 22. For all the aforesaid reasons, we see no merit in the appeal and the same is hereby dismissed with no order as to costs. However, it is made clear ..... X X X X Extracts X X X X X X X X Extracts X X X X
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