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TMI Blog2019 (12) TMI 480X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 12 (1B) of the SEBI Act, 1992. Based on the show cause notice an order dated August 22, 2014 was passed by SEBI under Section 11 & 11B of the SEBI Act directing the company to refund the amount collected under the Collective Investment Schemes ("CIS") and further restrained the directors including the appellant from accessing the securities market till such time the amount was refunded. The Company and other Directors filed an appeal before this Tribunal which was dismissed by judgement dated August 12, 2015. The appellant did not file any appeal against the order of SEBI dated August 22, 2014. 2. Penalty proceedings were also initiated against the Company and its Directors. The Adjudicating Officer ("AO" for convenience) of SEBI passed an order dated September 22, 2015 against the Company and its Directors imposing a penalty of Rs. 7269.49 crores to be paid jointly and severally by the Company and its Directors. The AO found that the said directors were at the helm of the affairs in the collection of the monies under CIS and were also directly involved and instrumental in the implementation of the scheme and collection of the monies. The appellant was not a party in these pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion is bereft of merit in as much as the documents which had been sent by the company to the RoC's have not been disputed. The question of allowing cross examination thus does not arise. 7. Before us a new stand has been taken by the appellant that he has now turned 79 years and has no memory of having consented to be on the Board of Directors of the company. Such contention cannot be raised by the appellant at this stage. Having considered the show cause notice and the documents that has been brought on record, it becomes clear that the appellant was appointed as a director though for a brief period from August 10, 1998 to September 29, 1998. 8. The appellant has been penalized a sum of Rs. 1 crore for sponsoring the scheme and for being instrumental in carrying out that scheme without registration under Regulations 3 & 4 of the CIS Regulations, 1999. Even though a categorical finding has been given that the appellant was a director only for 50 days, the appellant has however been made responsible for sponsoring the scheme and for being instrumental in carrying out the scheme. In our opinion, these findings are perverse and against the material available on record. 9. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r another; contribute to or bear the expenses of an event; support in a fund-raising activity by pledging money in advance. / Black's Law Dictionary 6th edition defines "sponsor" as a surety; one who makes a promise or gives security for another, particularly a godfather in baptism. In the civil law, one who intervenes for another voluntarily and without being requested. 12. From the aforesaid, it is clear that the appellant has not made a promise or given surety for another. The appellant has not sponsored not pledged any money in advance. There is no evidence to indicate that he had contributed to bear the expenses of the scheme in return for some gain. Section 12(1B) read with Regulations 3 & 4 further states that no person shall carry on or cause to be carried on any collective investment scheme. There is no specific finding by the AO that the appellant was involved in carrying on the CIS or was involved in the execution of the scheme or was involved in the collection of the money pursuant to the scheme. There is no evidence brought on record to show that the appellant attended any meeting of the Board of Directors nor there is any document to show that the appellant had a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging director appointed in a company, he would be an officer in default. Further, in the absence of any managing director, if the board has specified any particular director or manager or any other person as an officer in default in which case only that specified director or manager etc. as the case may be would be an officer in default. 14. Section 5(g) of the Companies Act further provides that apart from the directors any officer can also be penalized if his role can be attributed to be an officer in default. If any officer has played some role in bringing about the default or he might have performed the duties assigned to him then he could be penalized as an officer in default. Section 5(g) of the Companies Act thus makes it clear that in the absence of any managing director or any specific order of a board, then by a deeming fiction, all the directors of the company would be officers in default." Thus, if a company is liable to refund the monies received from the investors and if the company fails to pay the amount then the amount can be recovered jointly and severally from every Director of the Company who is an officer in default. Therefore, when the company is the offen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... designation or office in a company. Conversely, a person not holding any office or designation in a company may be liable if he satisfies the main requirement of being in charge of and responsible for the conduct of business of a company at the relevant time. Liability depends on the role one plays in the affairs of a company and not on designation or status. 16. In the instant case, a penalty of Rs. 1 crore has been imposed which is wholly excessive and against the provision of Section 15D of the SEBI Act. Section 15D which was applicable at the point of time when the appellant was a director is extracted hereunder: 15D.If any person, who is- "(a) required under this Act or any rules or regulations made thereunder to obtain a certificate of registration from the Board for sponsoring or carrying on any collective investment scheme, including mutual funds, sponsors or carries on any collective investment scheme, including mutual funds, without obtaining such certificate of registration, he shall be liable to a penalty not exceeding ten thousand rupees for each day during which he carries on any such collective investment scheme including mutual funds, or then lakh rupees which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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