Person in control of Company is vicariously liable for an offence committed by a company under SEBI Act; he need not necessarily be a Director of that company
SUMMARY OF THE CASE LAWS
Even if the accused was not a director of the Company but was one of its promoters, it is open to the SEBI, to prove, during trial that being a promoter of the company, he was a person in charge of and responsible to the company for conduct of the business of the company.
CASE LAWS DETAILS
DECIDED BY: HIGH COURT OF DELHI, IN THE CASE OF : Vishnu Prakash Bajpai v. SEBI, APPEAL NO: Crl. M. C. 1182/2009, DECIDED ON: February 10, 2010
1. This is a petition under Section 482 of the Code of Criminal Procedure, for quashing criminal complaint filed by the respondent against the petitioner under Sections 24(1) and 27 of the Securities and Exchange Board of India Act, 1992. Quashing has been sought primarily on the ground that the petitioner was neither a director nor a person in charge of and responsible to the Company N.R.Plantations (India) Limited, for conduct of its business and, therefore, he is not vicariously liable for the offence committed by the company. The petitioner claims that he only subscribed to the Memorandum and Articles of Association of the Company, which does not make him a person in charge of and responsible to the Company for conduct of its business.
2. In order to regulate entities, which used to issue instruments such as Agro Bonds, Plantation Bonds, etc., Government of India decided to treat such schemes as Collective Investment Schemes and brought them under the purview of SEBI Act, 1992, with the object of protecting the investors and promoting legitimate investment activities. Securities & Exchange Board of India (Collective Investment Schemes) Regulations, 1999 were thereafter framed by SEBI. Vide its letter dated December 15, 1999/December 29, 1999 and also by way of a public notice, SEBI directed M/s N.R.Plantations (India) Limited, which was operating Collective Investment Schemes and had raised a sum of Rs.2,80,000/ – from the general public, to send an information memorandum to all the investors, detailing the state of affairs of the Schemes, the amount repayable to each investor and the manner in which such amount was determined.
The information was required to be sent latest by February 28, 2000, which was later extended to March 31, 2000. In terms of Regulation 73(1) of the above-referred Regulations, the Collective Investment Schemes, which failed to apply for registration with SEBI, were required to wind up the existing schemes and repay the amount, collected from the investors. Regulation 74 required the company to formulate a scheme of repayment and make repayment to the investors, in case it was not desirous of obtaining provisional registration from SEBI. N.R.Plantations (India) Limited, however, neither applied for registration with SEBI, nor did it take steps for winding up the Scheme and making repayment to the investors and thereby violated the provisions of Section 12(1B) of SEBI Act, 1992 and Regulation 5(1), read with Regulation 68(1), 68(2), 73 and 74 of the above-referred regulations. Thereupon, in exercise of powers conferred upon it by Section 11(B) of SEBI Act, SEBI directed the company to refund the money collected from the persons, who had invested money in its Collective Investment Schemes, within a period of one month from the date of the order. However, the company failed to comply with the directions given by the SEBI.
3. It was alleged in the complaint that accused Nos.2 to 13, which includes the petitioner, were persons in charge of and responsible for day-to-day affairs of the Company and all of them actively connived with each other for the commission of the offence.
4. In support of his contention that he was neither a director nor the person in charge of and responsible to the company for conduct of its business, the petitioner has relied upon the Memorandum and Articles of Association of N.R.Plantations (India) Limited, as also on the copy of Form-32 submitted by the Company to Registrar of Companies. He has also relied upon copy of Form 29 submitted by three persons, namely, Naresh Kumar Mishra, Shyam Badan Singh and Ajay Kumar Pandey as first Directors of the Company and the copy of Statement in lieu of Prospectus.
12. While exercising jurisdiction under Section 482 of the Code of Criminal Procedure, the High Court is not expected to appreciate and weigh the evidence sought to be produced by the complainant or to compare one set of evidence with the other set of evidence available before it. The appreciation of evidence being the function of the trial court and not of the High Court exercising jurisdiction under Section 482 of the Code of Criminal procedure, it would not be appropriate for this Court to say, at this stage in these proceedings, as to whether the evidence produced by the complainant should be preferred or the evidence produced by the petitioner is more reliable. For the purpose of proceedings under Section 482 of Code of Criminal Procedure, the allegations made in the complaint have to be taken as correct and on their face value and if on consideration of the allegations it appears to the High Court that ingredients of the offence or offences alleged to have been committed by the petitioners are made out and there is no material to show that the prosecution is mala fide, frivolous or fictitious, it would not be appropriate for it to interfere with the prosecution, in exercise of extraordinary power conferred upon it under Section 482 of the Code of Criminal Procedure. Ordinarily, an accused against whom criminal proceedings are instituted needs to face trial in accordance with procedure prescribed in the Code of Criminal Procedure and it is only in extreme cases that the High Court would be justified in interfering, at an interim stage, in exercise of its powers under Section 482 of the Code. The exercise of jurisdiction envisaged in Section 482 of the Code, to quash the complaint or a chargesheet being an exception, the petitions for quashing need to be entertained with care and circumspection.
13. In the present case, if the trial court finds that as alleged in the complaint, the petitioner, in fact, was a promoter and a director of N.R.Plantations (India) Limited, at the time offence was committed by the Company, and was a person in charge of and responsible to the Company for conduct of its business, he would be vicariously liable for the offence attributed to the Company. In fact, the petitioner will be vicariously liable even if he was not a director of the Company, provided, of course, that he was a person in charge of and responsible to the Company for conduct of its business, at the time offence is alleged to have been committed by the Company. For a person to be vicariously liable for an offence of this nature, he need not necessarily be a Director of the Company. Even without being a Director he can be shown to be a person in charge of and responsible to the Company for conduct of its business. Therefore, even if the petitioner was not a director of the Company but was one of its promoters, it is open to the complainant/ respondent, to prove, during trial that being a promoter of the company, he was a person in charge of and responsible to the Company for conduct of the business of the Company.