TMI Blog2022 (6) TMI 991X X X X Extracts X X X X X X X X Extracts X X X X ..... of incorporation of the company. In the impugned order it has been stated that on the basis of submissions made by accused Kanwal Prakash Singh, Gajendra Pal Singh and Virendra Kumar, the Adjudicating Officer of SEBI found that during the tenure of the petitioners as directors the company issued redeemable preference shares to 3558 persons and collected an amount of Rs. 11,42,63,000/- in the financial years froms 2010-2013 without complying with public issue norms as mandated under sections 56, 60 and 73 of the Companies Act, 1956, read with the Companies Act, 2013. The Adjudicating Officer of SEBI directed the accused persons to refund the money collected by the company to the investors with interest of 15% per annum, compounded at half yearly intervals from the date when the repayments became due till the date of actual payment along with other compliance to be made. It is therefore apparent that the accused petitioners were fully aware and had knowledge about the activity of the company and also the contraventions of law made by it. The onus therefore shifts upon the petitioners under proviso to section 27(1) of SEBI Act that they had no knowledge about the contravention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out in the trial. It therefore emerge from the available facts and circumstances and the position of law that there is material averment in the petition of Complaint to disclose that the directors of the accused company were responsible for the conduct of its business. Since the petitioners were adequately notified before the enquiry proceedings were held by the Whole Time Member of SEBI and that they did not comply the order thereafter, learned Judge Special Court, has committed no error in holding that there is a prima facie case against the petitioners to constitute charge against them and thereby the prayer for discharge was rejected. In view of my foregoing discussion find and the impugned order suffers from no illegality, impropriety or irregularity and calls for no interference. Both the revisional applications filed by the petitioners are accordingly dismissed on contest. - C.R.R. 3004 of 2018 and C.R.R. 3171 of 2018 - - - Dated:- 17-6-2022 - HON BLE JUSTICE ANANDA KUMAR MUKHERJEE For the Petitioners: Mr. Akhilesh Shrivastava, Adv. Mr. Abhishek Sikdar, Adv. For the O.P. No. 2/SEBI: Mr. Sandipan Ganguly, Adv. Mr. Prasanta Kumar Dutt, Adv. Mr. Susanta Kumar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act and the SEBI (disclosure and investor protection) guidelines, 2000 read with SEBI (issue of capital and disclosure requirements) Regulation 2009. 5. Due to such violations of the extant laws by the accused persons SEBI issued an order bearing no. WTM/PS/66/ERO/IMD/OCT/2015 dated October 13, 2015, directing the accused company to comply with the SEBI directions and make repayments to the investors. As the accused company did not comply with the said Regulations and with dishonest intentions evaded repayment of the amounts collected by it from the investors, a Complaint case has been lodged against the accused company and its directors/promoters/managers/key management/personnel and persons in charge of the business of accused company s scheme who are responsible for the day to day affairs of the company for offence punishable under section 24 and 27 of the SEBI Act, 1992, tribal under section 26A, 26B and sections 26E of the SEBI Act for violation of section 56, 60 and 73 of the Companies Act, 1956. 6. For such violations the Whole Time Member of Securities and Exchange Board of India held an enquiry under section 11(1), 11(4), 11A and 11B of the SEBI Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne local Bengal daily. They were directed to provide a full inventory of all of their assets. The order was however not complied by the accused company and its directors, as a result SEBI filed a complaint case before the Learned Judge, Special Court, Kolkata though the Assistant General Manager of SEBI duly authorized by the Board. Cognizance of the offence was taken under section 26 of the Act. 8. The alleged offence is punishable with imprisonment for a term which may extend to ten years or with fine upto 25 crore or both. The offence being an offence of continuing nature, the complaint was lodged before Learned Judge Special Court at Kolkata on 8.12.2016. It is alleged that the accused person have been served with the order passed by SEBI but they have failed to comply making them jointly and severally liable to the offence under section 24 read with section 27 of the SEBI Act, 1992. 9. The present petitioners filed Appeals bearing no 151 of 2017 and 152 of 2017 before the Securities Appellate Tribunal, Mumbai wherein by order dated 06.04.2018 the Hon ble Tribunal Judge upheld the decision of the SEBI dated 13.10.2015 and on the basis of the submission made by counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings. 14. Two separate revisional applications have been filed by the petitioners espousing the same cause, that simply being directors of the accused company, without having any knowledge or role to play in the day to day activity of the company, they cannot be liable for the offence and the impugned order dated 20.8.2018 passed by Learned Judge, Special 5th Court Kolkata is liable to be set aside. 15. Learned advocate for the petitioners commenced his argument, referring to the portion of the impugned order in page 7 and 8 where the learned Trial Court observed, So far as the allegations made by the accused persons regarding not having knowledge of the act of the companies is concern I am of the opinion that the same cannot be adjudicated at the time of framing of charge and that can be properly adjudicated in the trial of this case . It is argued on behalf of the petitioners that from such observations it would be apparent that learned Trial Court in a way admitted that no ground exists to proceed against the applicants. In support of such contention reliance is placed upon the decision in the case of Century Spinning and Manufacturing Company Limited and oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejecting the prayer of the petitioner for their discharge is liable to be set aside and the proceeding quashed. 17. To reinforce his argument learned advocate for the petitioners placed reliance upon the following decisions: (1) Century Spinning and Manufacturing Company Limited and others Vs. State of Maharashtra: 1972(3) SCC 282 it has been held therein that, Under Sub-section (2), if upon consideration of all the documents referred to in Section 173, Criminal P.C. and examining the accused, if considered necessary by the Magistrate and also after hearing both sides, the Magistrate considers the charge to be groundless, he must discharge the accused. This sub-section has to be read along with Subsection (3), according to which, if after considering the documents and hearing the accused, the Magistrate thinks that there is ground for presuming that the accused has committed an offence triable under Chapter XXI of the Code within the Magistrate's competence and for which he can punish adequately, he has to frame in writing a charge against the accused. Reading the two sub-sections together it clearly means that if there is no ground for presuming that the acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are a movable property and their transfer is regulated by the Articles of Association of the company. Whether under Companies Act or Transfer of Property Act, the shares are therefore transferable like any other movable property. The only restriction on the transfer of the shares of a company is as laid down in its Articles, if any. A restriction which is not specified in the Article is, therefore, not binding either on the Company or on the shareholders. 18. Mr. Ganguli, learned advocate for the SEBI argued that the complaint has been filed against the petitioners for violation of certain provisions of the Companies Act. It is submitted that the petitioners Kanwal Prakash Singh, Gajendra Pal Singh and Virendra Kumar as directors of the accused company invested at the time of incorporation of the company, for subscribing the Memorandum of the accused company. The petitioners are the directors and they are responsible for the management and conduct of day to day affair of the company. The petitioners along with other directors in the company during the financial year 2010-2013 have raised an amount of Rs.11.426 crores through issuance of preference shares to 3,558 entities wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f charge the defence of the accused cannot be put forth. Learned advocate for SEBI argued that while refusing the prayer for their discharge, learned Judge observed that the defence of the petitioners that they had no knowledge about the acts of the accused company cannot be adjudicated at the time of framing of charge as the same has to be proved during trial and this clearly indicates that learned Judge has applied his mind and cited cogent reasons for rejecting the applications. It is therefore argued that there is no illegality, irregularity or perversity in the impugned order and the present petitions are liable to be rejected. 20. I have traversed the impugned order dated 20.8.2018, wherein learned judge has considered the allegations made against the petitioners in details and found a prima facie case against the accused person regarding violation of provisions under section 56, 60 and 70 of the Companies Act, 1956 read with section 2(36), 73 of the Companies Act. Learned Trial Judge observe that the claim of the accused person of not having knowledge of the act of the concern company, could not be adjudicated at the time of framing of charge and it can properly be adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention 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 contravention and shall be liable to proceed against and punish accordingly. Therefore, the petitioners who were the directors of the company from its very incorporation on 16.12.2009 and at the time of issuance of public redeemable preference shares for raising an amount of Rs. 11,42,63,000/- during the financial years 2010-2013 are prima facie responsible and liable to make good the amount. The proviso to section 27(1) lays down that nothing contained in section 27 shall render any such person liable to any punishment provided in this Act, if he proves that the contravention was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such contravention. Once a prima facie case is established that there is a contravention of the provisions of SEBI Act, committed by the company, every person who at the time the contravention was committed was in charge of, and responsible to the company, for the conduct of the business shall be deemed to be guilty of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve decisions and is of the opinion that the said judgments relate to civil proceedings. Therefore, it would not have any application at this stage of a criminal proceeding. The question of the petitioners having knowledge has to be considered at the stage when evidence is adduced and the same can be imputed from various circumstances and source. 25. Order dated 13.10.2015 passed by SEBI reveals that M/s Just-Reliable Projects India Limited has mobilized fund of Rs. 11.43 crores by floating of shares in the market. This Act of the company was not done furtively and surreptitiously. Therefore, the plea of the petitioners that they had no knowledge about the activity of the company is also prima facie unacceptable at this stage. 26. Gajendra Pal Singh and Kanwal Prakash Singh admitted before the SEBI authorities that they had sent a notice dated 18.6.2010 and 22.6.2010 to Swarup Dutta regarding alleged unilateral decisions taken by him to open bank account, increase share capitals of the company without holding Annual General Meeting and also change in the address of the registered office of the company. The aforesaid acts alleged to have been carried out by Swarup Dutta require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to dispute of facts which lies in the realm of evidence and can be taken up in course of trial. If it is to be assumed that all such detail facts have to be consider by the court at the time of framing of charge, it would be like putting the cart before the horse. In a like manner detail evidence cannot be considered at the time of adjudication of the question whether prima facie case exists against a person for framing of charge. Only after such charge is denied the trial will commence. Therefore, prima facie case having been found to exist against the accused petitioners, the case cannot be foreclosed on the basis of simple claim that the petitioners had no knowledge of the Company s activity. At this stage I have no hesitation to refer on the decision cited by the opposite party no.2, in the case of M.E. Shivalingamurthy Vs. CBI, Bengaluru (2020) 2 SCC 768, where it has been laid down that it is erroneous to discharge an accused on the basis of the version of the accused, all of which are matters of defence that cannot be looked into while considering a discharge petition. 31. The petitioners have claimed that they have been held vicariously liable for the offence commit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cused No. 2 to 13 are the directors/promoter/key management personnel and/or persons in charge of and responsible to the Accused No.1 for the conduct of its business and are liable for the violations of the Accused No. 1, as provided under section 27 of Securities and Exchange Board of India Act, 1992. In this regard it is salutary to refer to the decision in the case of Gunmala Sales Pvt. Ltd Vs Anu Mehta and Ors (2015) 1 SCC 103 (para 30, 31), wherein it is held that a complaint cannot be quashed merely on the ground that apart from the basic averment no particulars are given in the complaint about his role, because ordinarily the basic averment would be sufficient to send him to trail and it could be argued that his further role could be brought out in the trial. It therefore emerge from the available facts and circumstances and the position of law that there is material averment in the petition of Complaint to disclose that the directors of the accused company were responsible for the conduct of its business. Since the petitioners were adequately notified before the enquiry proceedings were held by the Whole Time Member of SEBI and that they did not comply the order t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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