TMI Blog2004 (9) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... t for three years. The father has not preferred the appeal and it is only the children who are the appellants before us. 3. The facts of the case are briefly as follows. SEBI observed that there was a spurt in the volume of the scrip of M/s. Zodiac Clothing Company with NSE. Investigation was conducted into trades from July 5th to August 22nd of 2000. It found one Vivenasri Financial Services Ltd. was a major net seller and M/s. Harsh Pranav Securities Pvt. Ltd. and M/s. Newfin Financial Services Pvt. Ltd. were the major buyers during the said period. It was the allegation that during the said period all three above mentioned persons indulged in deals and cross deals amongst themselves through Shalibhadra Securities Ltd., the said broker. During the period the scrip moved from ₹ 68.60 to a high of ₹ 95/- per share. The pattern can best be described in a graph which reads as follows: - Client Name Gross Purchase Gross Sales Gross Volume Net Purchase/ Net sale Vivenasri Financial Services Ltd. 165700 154500 320200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he clients mentioned in the show cause notice did not make the payment to them and put them in heavy loss. 5. The only question that arises for consideration was whether the two college going students, who admittedly were directors but not in charge of the company could be visited with any penalty. 6. The finding of SEBI that even though the appellants were not involved in the day today management of the broker entity they are still liable as directors. SEBI at paragraph 8.5 held as follows. Even though Shri Rahul H. Shah and Ms. Nimisha H. Shah were not involved in the day today management of the broker entity, they have to own the responsibility for the misdeeds committed by an entity to which they were the directors. However, the quantum of punishment may be different from the person who was in charge of and responsible for the day today management of the company. 7. We do not think that college going students who admittedly were not in charge of the day today affairs of the company could be held to be liable merely because they were directors although did not take part in the day to day affairs of the company. 8. Mr. Kumar Desai, learned senior counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while exercising the powers under the sweep of Section 11 or 11B of the SEBI Act. 12. In this context, we have perused Section 27 of the Securities Exchange Board of India Act, 1992. Section 27 reads as follows. 27(1) Where an offence under this Act has been committed by a company, every person who at the time the offence was committed was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in the sub-section shall render such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the entire responsibility has been accepted by the father and that is also accepted by SEBI and when it is admitted by SEBI that the appellants who are children had nothing to do with the day today affairs of the company, any punishment would cast a stigma on their career as students. 17. A number of judgments were cited by the learned counsel for the appellant under Section 138 of the Negotiable Instruments Act. It may not be necessary to refer to all of them except some of them which we shall refer to later. 18. However, the principle set out by the Supreme Court and the spirit of Section 27 of the Act would indicate that if a finding is given that the appellants have nothing to do with the day today affairs of the company, they cannot be held guilty of any violation as there is no such thing as vicarious liability under Section 11B of SEBI Act read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995. 19. Section 27 of the SEBI Act, 1992 deals with offences by companies. Section 27 of SEBI Act is pari materia to Section 141 of the Negotiable Instruments Act and similar provisions are also co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion urged by counsel for the State. State of Haryana v. Briji Lal Mittal (1998) 5 SCC 343 - paragraph 8 It is thus seen that the vicarious liability of a person for being prosecuted for an offence committed under the Act by a company arises if at the material time he was in charge of and was also responsible to the company for the conduct of its business. Simply because a person is a director of the company it does not necessarily mean that he fulfills both the above requirements so as to make him liable. Conversely, without being a director, a person can be in charge of and responsible to the company for the conduct of its business. From the complaint in question we, however, find that except a bald statement that the respondents were directors of the manufacturers, there is no other allegation to indicate, even prima facie, that they were in charge of the company and also responsible to the company for the conduct of its business. Appeal (Criminal) 850 of 2004 - Monaben Ketanbhai Shah v. State of Gujarat. Section 141 does not make all partners liable for the offence. The criminal liability has been fastened on those who, at the time of the commission of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed therein is committed with the consent or connivance of, and is committed on account of neglect on the part of the accused 2 to 6 and they are also guilty of the offence and are liable to be proceeded in accordance with law, no particulars of the alleged connivance or neglect is given in the said complaint. If on the basis of such stereotype statements without there being any other indication in the complaint of actual participation of the director in the affairs of the company, he is roped in, that would be disastrous. For the acts of some unscrupulous persons, the directors who are not even remotely concerned with the issuance of cheque, who are not concerned with the day to day functioning of the company cannot be held responsible unless the active participation of the director is substantiated in the complaint itself by concrete material or instances or particulars. Not only that there must be specific averments but there must be description and particulars of the role played by such non-executive directors. The court issuing process must take care and issue process after examining this aspect because issuance of process is not a light matter. For the reasons which I have not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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