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2019 (2) TMI 1742

..... ficer who is in default” - HELD THAT:- WTM has failed to consider the provisions of Section 5 of the Companies Act and has mechanically held that the appellant was responsible jointly and severally for making the refund alongwith interest under Section 73(2) of the Companies Act. Unless and until a finding is given that the appellant is an officer in default, the mandate provided under Section 73(2) cannot be invoked against the appellant. In the instant case, the appellant has annexed documents to indicate that the company had a managing director, namely, Mr. Indranath Daw and, therefore, as per the provisions of Section 5 the managing director would be an officer in default. We also find that there is no finding given by the WTM tha .....

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..... curities and Exchange Board of India (hereinafter referred to as, SEBI ) conducted an investigation against MaxBe Green Provision Ltd. (hereinafter referred to as, MGPL ). Pursuant to the investigation, SEBI observed that the company was offering Redeemable Preference Shares (hereinafter referred to as, RPS ) to the public during the financial years 2011-2012 and 2012-2013 in violation of the provisions of Sections 56, 60 [read with Section 2(36)], 67 and Section 73 of the Companies Act, 1956 (hereinafter referred to as, Companies Act ). Based on this investigation, SEBI passed an ex2 parte interim order dated March 13, 2015 restraining the company and its directors including the appellant from fund mobilizing activities through the issuanc .....

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..... for making the refund alongwith the interest as mandated under Section 73(2) of the Companies Act read with Section 27 of the SEBI Act. 4. It was urged that the appellant is not an officer in default as contemplated under Section 73(2) of the Companies Act and could not be responsible for the affairs of the company and, consequently, no direction could be issued to the appellant for making the refund alongwith the interest under Section 73(2) of the Companies Act. 5. In order to appreciate the submissions of the learned counsel for the appellant, it is essential to note a few facts. The company allotted RPS on the following dates :- Date of Allotment Year No. of Persons Amount ( ) 31/07/2011 2011-12 176 19,08,000 10/10/2011 121 13,05,500 2 .....

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..... ther directly or indirectly from the company. 8. In the light of the aforesaid assertions, it becomes essential to take a look at the provisions of Section 73 of the Companies Act which states as under: 73(1) Every company intending to offer shares or debentures to the public for subscription by the issue of a prospectus shall, before such issue, make an application to one or more recognised stock exchanges for permission for the shares or debentures intending to be so offered to be dealt with in the stock exchange or each such stock exchange. (1A) Where a prospectus, whether issued generally or not, states that an application under sub-section (1) has been made for permission for the shares or debentures offered thereby to be dealt in one .....

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..... making the repayment of such money. 9. A perusal of the aforesaid provisions indicates that where the company intends to offer shares to the public for subscription has not been done by issue of a prospectus or where permission has not been sought from the stock exchange, in that event, the company and other directors of the company who is an officer in default shall be jointly and severally liable to repay that money alongwith interest at such rate as may be prescribed. From the aforesaid, it is apparently clear that the liability to repay the amount is upon that director of the company who is an officer in default. Officer in default has been defined under Section 5 of the Companies Act. For facility the said provision is extracted hereun .....

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..... any person in accordance with whose directions or instructions the Board of Directors of the company accustomed to act and would also include any person charged by the Board of responsibility of compliance with the provisions of Act. Section 5(g) of the Act further stipulates that where the company does not have any of these officers specified in clauses (a) to (c) in which case all the directors would be deemed to be an officer in default. 11. In the light of the aforesaid provision, the appellant had categorically submitted before the WTM that she was appointed as an additional director by the managing director and that she was not responsible for the affairs of the company. The appellant further stated that she did not attend any meetin .....

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..... ible for refunding the amount under Section 73(2). 13. Reliance on the judgment of this Court by the respondent in the case of Manoj Agarwal vs. SEBI in Appeal No. 66 of 2016 decided on July 14, 2017 is not applicable and is distinguishable. The Tribunal in the case of Manoj Agarwal found that there was no material to show that any of the officers set out in clauses (a) to (c) of Section 5 or any specified director of the said company was entrusted to discharge the application contained in Section 73 of the Companies Act. In the instant case, there is sufficient material on record to show that there was a managing director and in the absence of any finding that the appellant was entrusted to discharge the application contained in Section 73 .....

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