TMI Blog2022 (6) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... for any act committed by the company unless they have any interest in the affairs of the company or they have involved themselves in the day to-day affairs of the company. However, it is the stand of the respondents that the petitioners were the Chairman/Member of the audit team, which is one of the very crucial teams in the whole of the organisational setup and without whose knowledge and concurrence financial transactions of the nature as pointed out in the show cause notice would not have taken place. However, the said fact is disputed by the learned counsel for the petitioners. Such being the case, this being a disputed question of fact, this Court cannot adjudicate the same in a petition under Article 226 of the Constitution. Therefore, this Court refrains itself from deciding the issue in exercise of its inherent jurisdiction, as this Court is precluded from deciding such disputed questions pertaining to the status of the petitioners as non-executive directors. In the case on hand, the GDRs pertain to the period 2002, whereas, action has been taken on the petitioners only in the year 2018, after a delay of 16 years. However, it is the case of respondents 1 and 2 that whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the show cause notice and it would not be right on the part of this Court to assume the robes of the adjudicating authority at the initial stage of show cause notice. SAT is fully competent to decide the issue, including appreciation of disputed facts and the petitioners can place both oral and documentary evidence before SAT, which can go in-depth into the issue to render a finding. This Court, in any way, going into the issues, as raised above, would be nothing but usurping the powers of SAT, which has been vested in it on the basis of a statute. Therefore, the submission of respondents 1 and 2 that the petitioners should ventilate their grievances first before SAT deserves acceptance. One aspect, which lingers in the mind of this Court is the fact concerning inordinate delay in issuing the show cause notice. Though respondents 1 and 2 have placed certain reasons before this Court, which are the cause for the delay, however, this Court cannot brush aside the fact that the delay is so enormous that the reason assigned by respondents 1 and 2 could be taken merely at face value, without putting it through proper appreciation in the manner known to law. Therefore, this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further averment of the petitioners that their involvement is very limited pertaining only to some strategic and key decisions that were taken by the said company. In the year 2009, the said company amalgamated with the 4th respondent and is no longer in existence. It is the further case of the petitioners that over the past 14 years, they are in no way connected with the company or had any dealings with the company. In such a backdrop, it is the averment of the petitioners that after such a long passage of time, the show cause notice was issued by the respondents 1 and 2 relating to certain GDR issue that was done by the company. 3. It is the further case of the petitioner that the impugned notice proceeds on the footing that the company issued 16.2 million GDRs amounting to USD 6.48 million on 3.5.02 to one Teigh Holdings Ltd., which is a company incorporated in the British Virgin Islands. The impugned notice further proceeds that the said Teigh Holdings entered into a Credit Agreement of even date with Banco Efisa, S.A., Lisbon, relating to a dollar term facility upto USD 6.48 million in order to subscribe to the GDR issue of the company. Further to the above, Account Charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was passed allotting 16.2 Million GDRs to Teigh Holdings, which was nearly 17 years ago and the respondents 1 and 2 decided to investigate the allotment a decade later by issuing the impugned notice after a period of 16 years, which is not governed by any limitation period and that the said notice is wholly unreasonable, arbitrary and impermissible, as it is not open to respondents 1 and 2 to conduct investigation after a decade of the occurrence and charge the petitioner for the violation under the relevant regulations. In the aforesaid backdrop, the present petitions have been filed by the petitioner to quash the impugned show cause notice issued by respondents 1 and 2. 7. Learned senior counsel appearing for the petitioners submitted that the inordinate delay in launching the prosecution renders the show cause notice unreasonable. It is the further submission of the learned senior counsel that the offence is alleged to have taken place in the year 2002, yet action was launched after a delay of 16 years in the year 2018. No plausible and reasonable explanation has been given by respondents 1 and 2 for the aforesaid delay. It is further submitted by the learned senior coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Civil Appeal Nos.8444-8445 of 2019); xii) Chintlapati Srinivasa Raju - Vs - SEBI (2018 (7) SCC 443); xiii) N.Magesh - Vs - State of TN (2019 SCC OnLine Mad 38922); xiv) Institute of Chartered Accountants of India - Vs - L.K.Ratna Ors. (1986 (4) SCC 537); and xv) Om Prakash Chautala - Vs - Kanwar Bhan Ors. (2014 (5) SCC 417). 11. Per contra, learned senior counsel appearing for respondents 1 to 3 submitted that the writ petition is premature and is not maintainable as the case is at the show cause stage. Show cause notice dated 7.9.18 has been issued with regard to certain discrepancies in the issuance of GDRs by the company. The impugned show cause notice has provided the findings of the investigation in the matter and the alleged role played by various persons, including the petitioners and by no stretch could it be construed to be a categorical finding against the petitioners. 12. Learned senior counsel further submitted that it is a mere show cause notice issued to the petitioners calling for their replies along with supporting documents and also affording them an opportunity of personal hearing by indicating their willingness to appear before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of respondents 1 and 2. Therefore, the delay cannot be put against the respondents as immediately on knowledge of the transaction, the respondents 1 and 2 have taken swift action. 16. It is the further submission of the learned senior counsel that insofar as the contention relating to the petitioners being non-executive directors and not involved in the day to-day affairs of the company, it is the submission of the learned senior counsel that the petitioners are non-executive directors of the company is not disputed, however, reliance is placed on the annual report of the company in which it has been specifically stated that the petitioners were members of the audit committee. It is therefore the submission of the learned senior counsel that merely because the petitioners are non-executive directors cannot be a ground to absolve them from the rigours of investigation, as the annual report of the company itself reveals that the petitioners were members of the audit committee, which position of the petitioners have wider ramifications. 17. It is therefore the submission of the learned senior counsel that only show cause notice has been issued to the petitioners, the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned senior counsel appearing on either side and perused the materials available on record as also the decisions on which reliance was placed. 20. A careful perusal of the submissions advanced on behalf of the petitioners reveal that the contentions advanced stand broadly classified under three heads, viz., i) Maintainability of writ petition challenging show cause notice; ii) Vicarious liability of a non-executive director; and iii) Inordinate delay in the issuance of show cause notice which renders the same unsustainable. 21. On the first contention relating to the interference of the Courts in respect of challenge made to a show cause notice, it is trite that normally courts would not interfere with the show cause notice, except under two circumstances, viz., either the show cause notice has been issued without authority or that the show cause notice is patently illegal. In the case on hand, it is not the case of the petitioners that the show cause notice has been issued by an authority, who has no authority to issue the same nor is it the case of the petitioners that the said show cause notice is patently illegal. In fact, the said show cause notice has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, no vicarious liability could be fastened on them, attention of this Court was drawn to the decision of the Hon'ble Apex Court in Srinivasa Raju's case (supra) , wherein, the Hon'ble Apex Court held as under :- 16. In Pooja Ravinder Devidasani v. State of Maharashtra, it is stated: 17. There is no dispute that the appellant, who was wife of the Managing Director, was appointed as a Director of the Company- M/s Elite International (P) Ltd. on 1-7- 2004 and had also executed a letter of guarantee on 19-1- 2005. The cheques in question were issued during April 2008 to September 2008. So far as the dishonour of cheques is concerned, admittedly the cheques were not signed by the appellant. There is also no dispute that the appellant was not the Managing Director but only a non-executive Director of the Company. Non-executive Director is no doubt a custodian of the governance of the company but is not involved in the day-to-day affairs of the running of its business and only monitors the executive activity. To fasten vicarious liability under Section 141 of the Act on a person, at the material time that person shall have been at the helm of affairs of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for any act committed by the company unless they have any interest in the affairs of the company or they have involved themselves in the day to-day affairs of the company. However, it is the stand of the respondents that the petitioners were the Chairman/Member of the audit team, which is one of the very crucial teams in the whole of the organisational setup and without whose knowledge and concurrence financial transactions of the nature as pointed out in the show cause notice would not have taken place. However, the said fact is disputed by the learned counsel for the petitioners. Such being the case, this being a disputed question of fact, this Court cannot adjudicate the same in a petition under Article 226 of the Constitution. Therefore, this Court refrains itself from deciding the issue in exercise of its inherent jurisdiction, as this Court is precluded from deciding such disputed questions pertaining to the status of the petitioners as non-executive directors. 26. Insofar as the contention of the petitioners relating to inordinate delay in issuing the show cause notice after more than 16 years, reliance is placed on the decision in Narsing Rao's case (supra) , wherei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions pertaining to other companies, it came to light from the submissions made by Banco Efisa, with whom the company had the Credit Charge Agreement, that similar transaction of this nature has been done by the company in the year 2002, which fact was not within the knowledge of respondents 1 and 2 at any earlier point of time. Though it is pointed out that permission of SEBI is not required for floating GDRs, however, for finalising the process, certain procedural aspects codified by the Reserve Bank of India have to be followed of which one is information to be shared with SEBI. However, the petitioners dispute the said fact. 29. The fact remains that respondents 1 and 2 have come out with explanation as to the reason for the delay in issuing the show cause notice. True it is that the delay is enormous, but coupled with the reason assigned for the delay in issuing the notice, this Court is of the considered view that the stand of respondents 1 and 2 with regard to the reason for the delay cannot be brushed aside and has to be taken into consideration holistically. 30. Be that as it may. Contra to the aforesaid submissions of the petitioners, with equal vehemence, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed . 10. In other words, existence of an adequate alternative remedy is a factor to be considered by the writ court before exercising its writ jurisdiction (see Rashid Ahmed v. Municipal Board, Kairana [AIR 1950 SC 163 : 1950 SCR 566] ). 11. In Whirlpool Corpn. v. Registrar of Trade Marks [(1998) 8 SCC 1] this Court held: (SCC pp. 9-10, para 15) 15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the fundamental rights or where there has been a violation of the principles of natural justice or where the order or proceedings are wholly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatute. Therefore, the submission of respondents 1 and 2 that the petitioners should ventilate their grievances first before SAT deserves acceptance. 36. However, one aspect, which lingers in the mind of this Court is the fact concerning inordinate delay in issuing the show cause notice. Though respondents 1 and 2 have placed certain reasons before this Court, which are the cause for the delay, however, this Court cannot brush aside the fact that the delay is so enormous that the reason assigned by respondents 1 and 2 could be taken merely at face value, without putting it through proper appreciation in the manner known to law. Therefore, this Court, in the interest of justice, feels that the interest of both the parties to the lis requires to be safeguarded. 37. In such circumstances, this Court while disposes of the writ petitions, is inclined to issue the following directions :- i) The show cause notice issued to the petitioners by respondents 1 and 2 is kept in abeyance for a period of twelve weeks from today. In the meantime, the petitioners are directed to file appropriate petitions/applications before SAT with regard to the issues raised before this Court. i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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