TMI Blog2017 (7) TMI 1104X X X X Extracts X X X X X X X X Extracts X X X X ..... o suggest that Company Secretary was authorised to comply with the obligations relating to the deemed public issue. Hence the argument that the Company Secretary of BREDL ought to have been made liable cannot be accepted. 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. 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 that the liability of the appellant under the impugned order is restricted to refunding the amount of ₹ 40 lac with interest jointly and severally with BREDL and other directors of BREDL. - Appeal No. 66 of 2016 - - - Dated:- 14-7-2017 - J.P. Devadhar, J. (Presiding Officer), Jog Singh and Dr. C.K.G. Nair, Members For Appellant: Subir Kumar, Advocate For Respondents: Mustafa Doctor, Senior Advocate, Rakesh Puri and Rohan Agrawal, Advocates i/b. MDP Patners ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointly and severally with BREDL and other Directors set out in the impugned order may be limited to ₹ 40 lakh only, because, that was the amount collected by BREDL during the period when the appellant was a Director of BREDL. 5. Before setting out the arguments advanced by counsel on both sides, it would be appropriate to quote Section 5 and Section 73(2) of the Companies Act, 1956 which reads thus:- Meaning of officer who is in default . 5. For the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any punishment or penalty, whether by way of imprisonment, fine or otherwise, the expression officer who is in default means all the following officers of the company, namely: (a) the managing director or managing directors; (b) the whole-time director or whole-time directors; (c) the manager; (d) the secretary; (e) any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act; (f) any person charged by the Board with the responsibility of complying with that provision: Provided that the person so charged has given h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BREDL. In these circumstances, the appellant could not be said to be an officer in default under Section 73(2) of the Companies Act, 1956. (c) Section 2(26) of the Companies Act, 1956 defines the expression Managing Director to mean a director who exercises substantial power of management of the company. In the present case, the substantial power of management of BREDL was always with Mr. Soumen Majumder and Ms. Shipra Banerjee. Relying on various documents signed and filings made by Mr. Soumen Majumder and Ms. Shipra Banerjee it is submitted by counsel for the appellant that Mr. Soumen Majumder and Ms. Shipra Banerjee would alone fall within the purview of 'Officer who is in default' defined under Section 5(a) of Companies Act, 1956. (d) In the absence of a designated Managing Director appointed by BREDL, admittedly Mr. Soumen Majumder and Ms. Shipra Banerjee pursuant to the responsibility cast on them had signed and filed various documents with the Registrar of Companies. On all the letters of allotment issued by BREDL, Ms. Shipra Banerjee had signed as Authorised Signatory and therefore Mr. Soumen Majumder and Ms. Shipra Banerjee would only be the officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s shall not incur any liability by reason of any non compliance or any contravention if he satisfies the three conditions set out therein. In the present case, appellant had no knowledge about issuance of redeemable preference shares and therefore the appellant could not be penalized for the failure on part of BREDL and other directors. (i) Before issuance of redeemable preference shares, it was obligatory on part of the authorised person of BREDL to make an application to the stock exchanges seeking permission for issuance of redeemable preference shares, however, no such application was made. Thus, there was contravention of Section 73(2) of the Companies Act, 1956, which is akin to Section 27 of the SEBI Act. In the present case the appellant had neither participated in any of the board meetings nor any notice of such meeting were received by the appellant and therefore the appellant was neither aware of the acts done by other directors nor the appellant was signatory to any of the board resolution or documents. In such a case, for failure of BREDL to refund the amount to the investors, the appellant could not be held to be an officer in default and made liable to refund the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. In view of the fact that BREDL failed to follow the public issue norms contained in Section 56 of the Companies Act, 1956 before issuance of redeemable preference shares to more than 50 entities and no officer was authorised by BREDL to comply with the public issue provisions contained in the Companies Act, 1956 including the obligation to refund the amount under Section 73(2), the WTM of SEBI has held that all directors of BREDL were officer in default and accordingly directed BREDL and all its directors including the appellant to refund the amount collected from the investors with interest at the rate as more particularly set out in the impugned order. 10. Argument that the appellant was not a person responsible for issuance of redeemable preference shares and therefore for failure on part of BREDL and its directors to comply Section 73(2) of the Companies Act, 1956 the appellant could not be made liable is without any merit. In the present case, even though the intention of BREDL was to collect ₹ 40 lac by issuance of redeemable preference shares through private placement and not by the general public, admittedly allotments were made to more than 50 entities an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DL in contravention of the public issue norms and there is nothing on record to suggest that any particular officer/director was authorised to comply with the public issue norms. In such a case, all directors of BREDL including the appellant would be officer in default under Section 73(2) read with Section 5 of the Companies Act, 1956. 13. Fact that Mr. Soumen Majumder and Ms. Shirpa Banerjee had signed various documents and made filings before various authorities as authorised representatives of BREDL would not mean that they were authorised to discharge the obligation arising on account of deemed public issue. In other words, fact that Mr. Soumen Majumder and Ms. Shipra Banerjee were authorised to perform various other functions could not be a ground to infer that they were also authorised to discharge the public issue obligation contained in Section 56 73 of the Companies Act, 1956. Therefore, fact that Mr. Soumen Majumder and Ms. Shipra Banerjee had signed certain documents as authorised person of BREDL cannot be a ground to presume that they were authorised to discharge the obligation arising on account of deemed public issue. 14. Fact that the impugned order does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th any complainant. 18. Reliance was placed by counsel for appellant on a decision of Bombay High Court in case of H. Nanjundiah (supra). That decision has no relevance to the present case, because that decision was rendered in context of Section 5 of the Companies Act as it stood prior to its amendment in the year 1988. Section 5 of the Companies Act, 1956 as amended in the year 1988 does not contain the words knowingly and wilfully to describe the officer of the company who is deemed to be an officer in default . Hence the decision of the Bombay High Court in case of H. Nanjundiah (supra) rendered in the context of unamended Section 5 of the Companies Act, 1956 is not relevant to the facts of present case. 19. Reliance was also placed by the counsel for the appellant on a decision of the Supreme Court in case of S.M.S. Pharmaceuticals Ltd. (supra). That decision dealt with the expression officer in default referred to in Section 141 of the Negotiable Instruments Act, 1881. In the present case we are concerned with the expression officer who is in default as defined under Section 5 of the Companies Act, 1956. Since the expression officer in default defined under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
