ABTRACT
The Securities Appellate Tribunal’s historic decision in V. Shankar vs. Securities and Exchange Board of India (SEBI), rendered on 5th May 2025, represents a significant re-evaluation of compliance officers’ responsibility under the Indian securities law. The matter started when V. Shankar, a former DCHL corporate secretary officer, was fined Rs. 10 lakhs for allegedly making a false financial statement in the company’s repurchase announcement. Through his position and signature on the announcement, Shankar was held accountable by SEBI’s adjudicating officer for confirming the substantial correctness of financial disclosure, in accordance with the broad “gatekeeper” paradigm.
By rejecting SEBI’s attempt to impose broad vicarious liability on compliance officers who carry out ministerial and procedural duties-ensuring regulatory adherence, coordinating filings, and resolving grievances, rather than managerial or auditing responsibility, the SAT firmly overturned this penalty. This ruling underlined that the Board of Directors, Audit Committee, and statutory auditor have the primary responsibility for the accuracy of financial statements, not compliance officers who are not authorised by law or qualified to independently confirm or re-audit financial data.
By separating compliance control from substantive judgment and establishing that culpability must originate from explicit statutory responsibilities, apparent knowledge of wrongdoing, or active involvement in misconduct, this decision constitutes a crucial doctrinal clarification. By striking a balance between regulatory goals and the concepts of justice and proportionality, the ruling keeps compliance officers from being used as scapegoats for managerial wrongdoing while also upholding their obligation to act with diligence. By defining professional responsibility limits and guaranteeing that enforcement proceedings target key decision-makers rather than procedural facilitators, the ruling has important ramifications for the corporate governance system.
Keywords: Compliance Officers, SEBI Regulations, Gatekeeping Theory, Financial Disclosures, Securities Appellate Tribunal.
1. INTRODUCTION
The landmark ruling in V. Shankar v. Securities and Exchange Board of India (SEBI) by the Securities Appellate Tribunal (SAT) on May 5, 2025, represents a significant recalibration of the liability of corporate compliance officers under Indian securities law. The case, which went through the Adjudicating Officer (“AO”) and the Supreme Court before its final resolution by the SAT, stemmed from a penalty of Rs. 10 lakhs imposed on V. Shankar, the former Company Secretary and Compliance Officer of Deccan Chronicle Holdings Limited (“DCHL”). SEBI’s AO had held him liable for financial misstatements in the company’s buyback announcement, arguing that by signing the announcement, he had a duty to verify the underlying financial data.
The SAT’s final judgment overturned this penalty, directly challenging SEBI’s expansive “gatekeeper” theory. SEBI had consistently sought to hold compliance officers as active intermediaries responsible for the veracity of corporate disclosures, akin to auditors or key managerial personnel. The tribunal, however, adopted a narrower, more procedural interpretation of the compliance officer’s role. It held that the compliance officer’s duties are ministerial, focused on ensuring procedural and formal compliance with regulations like the SEBI (Buyback of Securities) Regulations, 1998. The responsibility for the substantive accuracy of financial statements, the SAT clarified, remains with the Board of Directors, the Audit Committee, and statutory auditors.
The ruling is notable for several key interactions with prior jurisprudence. It explicitly rejects the notion of per se vicarious liability for compliance officers, emphasising that accountability must be tied to a clear statutory duty, demonstrable knowledge of wrongdoing, or participation in the misconduct. The SAT’s decision reinforces the established corporate governance structure where different entities have distinct responsibilities. It also serves as a crucial refinement of a Supreme Court remand in the same case, which had instructed the SAT to interpret the compliance officer’s duties more broadly. While acknowledging this, the SAT maintained that a broader interpretation did not automatically impose a duty to re-audit or independently verify financial statements. The judgment ultimately balanced regulatory objectives with principles of fairness and proportionality, preventing compliance officers from being made scapegoats for management’s fraudulent actions and ensuring that accountability rests with the primary decision-makers.
2. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
For two years, from 2009 to 2011, the appellant, V. Shankar, served as the company secretary and compliance officer for the DCHL, a publicly traded company. During this time, the company announced a buyback of equity shares. The company knew about the outstanding loans and interest in finance charges, etc., in the annal reports for the years 2008-2009, 2009-2010, and 2010-2011, and as a signatory to the company’s public announcement for the buyback of its equity shares without having adequate free reserve, the appellant allegedly misled investors/shareholders, according to a 2017 investigation into DCHL’s stock by SEBI.
In an order dated March 22, 2022, SEBI’s AO fined the appellant Rs. 10 lakhs for violating Section 15HA of the SEBI Act by breaking Sections 12A(a)–(c) of the SEBI Act, as well as Sections 68 and 77A of the Companies Act, 1956, and Regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practice) Regulation, 2003 (“PFUTP”). Regulation 19(3) of the SEBI (Buyback of Securities) Regulation 1998 (“Buyback Regulation”) was the pertinent clause that anchored the Compliance Officer’s liability. It reads as follows:
19(3): The company shall nominate a compliance officer and an investors’ centre for compliance with the buyback regulations and to redress the grievances of the investors.
The penalty effectively treated the compliance officer as responsible for the substantive accuracy of the buyback-related disclosures.
Following an intermediate hearing in 2024, the appellant filed an appeal, and on May 5, 2025, the SAT (Mumbai) issued its final ruling, nullifying the penalty imposed on him. The Tribunal emphasised that, unless the law imposes a specific verification obligation or there is evidence of collusion or knowledge of falsity, the board of directors and management bear responsibility for the accuracy of financial statements and the merits of a buyback, not compliance officers whose duties are essentially procedural and co-ordinative.
A. ISSUES BEFORE SAT
- If the board-approved financial numbers are later shown to have been altered, can a complex officer be punished for allegedly making a false statement in a buyback announcement?
- Whether a compliance officer is required to independently confirm the financial statement supporting a corporate activity in the absence of a clear statutory obligation or proof of knowledge.
- If being named a “compliance officer” alone entails vicarious culpability for wrongdoing by promoters or management.
3. THE REGULATORY ARCHITECTURE: WHERE DO COMPLIANCE DUTIES BEGIN AND END?
A. THE EMERGING ‘GATEKEEPER’ THEORY AND ITS OVERREACH RISKS
SEBI’s recent enforcement posture has developed a tendency to treat compliance officers as quasi-managers of truth in corporate disclosures, drawing analogies from auditors or key managerial personnel. Securities markets have long employed “gatekeepers”-independent professionals who pledge their reputational capital to protect the interests of dispersed investors who cannot easily take collective action. The clearest examples of such reputational intermediaries are auditors and securities in different ways. For example, orders in insider-trading situations positioned compliance officers as the default guardians of UPSI protocol, sometimes going so far as to assume culpability in situations where there was no trading, but a trading window may have been closed. The gatekeepers, who include compliance officers, merchant bankers, auditors, and attorneys, are seen to play a vital part in maintaining business integrity and safeguarding investors. They are supposed to serve as a check on management by confirming the veracity of a company’s public disclosures using their reputation and professional experience. This argument is frequently used in SEBI’s regulatory strategy, which aims to hold these experts responsible for corporate wrongdoing.
The gatekeeping principle also applied in this instance by SEBI to the compliance officers and the company secretary. According to SEBI, the appellant’s broad duty as the designated compliance officer was to guarantee the company’s complete adherence to all applicable laws. The regulator basically said that they had an active oversight role rather than just a ministerial one. SEBI argued that by signing the buyback announcement, they should have known or had cause to suspect that the data was fake and effectively attested to the accuracy of the underlying financial facts. This was a traditional use of the “gatekeeper” idea, which aims to hold a middleman accountable for the actions of the company’s management, the main offender.
The case serves as a judicial “reality check” on SEBI’s evolving gatekeeper theory. While the principle of holding key professionals accountable is valid and necessary for market integrity, the application must be carefully calibrated.
B. THE REGULATORY ARCHITECTURE: WHERE DO COMPLIANCE DUTIES BEGIN AND END?
The architecture governing compliance duties in India is multi-layered, built through an intersection of statutory obligations, delegated regulations, and evolving jurisprudence. Understanding where a compliance officer’s responsibility begins and ends requires unpacking this regulatory network, especially under the SEBI Act, 1992, the Companies Act, 2013, and the various SEBI regulations that operationalise these statutes.
I. The Statutory Foundation-SEBI Act, 1992
The SEBI Act, 1992, establishes SEBI’s mandate to protect investors and regulate securities markets.
- Sections 11and 11B of the SEBI Act empower SEBI to issue directions to any intermediary or listed company to ensure market integrity.
- Sections 15Ato 15B create a framework for monetary penalties for non-compliance.
However, none of these provisions impose individual liability on compliance officers per se unless a clear statutory duty, act of omission, or connivance is demonstrated. SEBI must prove mens rea or wilful default, consistent with the principle reaffirmed in Sahara India Real Estate Corp. Ltd. vs. SEBI (2013).
Compliance officers are not “statutory officers” under the SEBI Act but rather regulatory designees, performing procedural coordination. Their liability arises only when they personally participate in or neglect compliance procedures expressly entrusted to them.
II. The Companies Act, 2013: Governance and Accountability Framework
Under the Companies Act, compliance responsibility is distributed between the Board of Directors, Key Managerial Personnel (KMPs), and the Company Secretary/
- Section 205(1)(b): defines the Company Secretary’s function to ensure compliance with the applicable laws and to “advise the Board” on governance matters.
- Section 134(5): assigns responsibility for the trustworthiness of financial statements to the Board.
- Section 448: penalise false statements made “knowingly”, which implies that without knowledge or intent, liability cannot be imputed.
Thus, a compliance officer’s function is supervisory and advisory, not substantive. Courts have held that “ministerial functions cannot attract penal consequence unless an independent duty exists.”
III. SEBI Regulations Defining Compliance Roles
a. SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015(LODR)
- Regulation 6(2)(a) mandates the appointment of a qualified company secretary as a compliance officer.
- Duties include coordinating with exchanges, certifying filings, and monitoring grievance redressal.
- Substantive accuracy of disclosures rests with the Board and management [Reg 4(2)(f)].
b. SEBI (Prohibition of Insider Trading) Regulations, 2015(PIT)
- Compliance officers are custodians of unpublished price-sensitive information (UPSI), responsible for window closures, pre-clearance, and maintaining internal codes.
- Their functions are preventive and procedural, not investigative or financial verification in nature.
c. SEBI (Buyback of Securities) Regulation. 2018
- Regulation 19(3) provides that a company must nominate a compliance officer “for compliance with the buyback regulations and redressal of investor grievances”.
- The SAT in Shankar vs. SEBI interpreted this as procedural oversight-not a mandate to independently verify financial data underlying the buyback.
d. SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003(PFUTP)
- Liability under Regulations 3 and 4 arises only with the evidence of “fraud” or “inducement”.
- Compliance officers can be implicated only upon proof of knowledge, connivance, or omission despite awareness.
IV. Jurisprudential Delimitation: Ministerial vs. Substantive Duties.
Indian jurisprudence increasingly distinguishes between ministerial (procedural) and substantive (judgment-based) responsibilities:
- Dushyant Dalal vs. SEBI (SAT, 2019):Compliance officers cannot be penalised for board-level misstatement without evidence of their participation.
- Price Waterhouse Coopers vs. SEBI (SAT, 2019):liability arises when the officers assume gatekeeping functions voluntarily or by statutory mandate.
Thus, compliance officers act as process custodians, not as guarantors of managerial truth.
4. THE SAT’S REASONING: MINISTERIAL, NOT MANAGERIAL
A. NO PER SE VICARIOUS LIABILITY
The idea that the compliance officers’ titles make them strictly or indiscriminately accountable for corporate misrepresentation was rejected by SAT. The Tribunal emphasised that the board of directors is ultimately in charge of ensuring that financial statements and business decisions are substantively sound. Although the legislation does not impose a free-standing duty to audit or rebuild financial accounts in the absence of specific red flags or legal requirements, compliance officers make sure that procedures are followed.
B. DISTINGUISHING COMPLIANCE CONTROL FROM SUBSTANTIVE JUDGMENTS
The Tribunal underscored a functional distinction:
- Compliance control (timely filings, adherence to formats, dissemination to exchanges)- compliance officer domain
- Substantive judgement (availability of free reserve, solvency metrics, valuation assumptions)- Board/management/auditor/merchant/merchant banker domain.
Unless regulation expressly requires the compliance officer to certify the truth of such judgments (they generally do not), penalties cannot be premised on hindsight disagreement with that judgment.
C. PROPORTIONALITY AND FAIRNESS IN ENFORCEMENT
Lastly, proportionality was emphasised by SAT. By shifting responsibility away from the actual decision-makers, penalising a compliance officer without proving mens rea (when necessary), or a blatant violation of a particular duty, compromises regulatory fairness.
5. DOCTRINAL CONTEXT: HOW V. SHANKAR INTERACTS WITH PRIOR JURISPRUDENCE
The function and responsibility of a company’s compliance officers are made clearer by the SAT ruling in V. Shankar vs. SEBI, especially concerning financial disclosures. In contrast to SEBI’s long-standing drive for a more expansive, proactive “gatekeeper” position, the verdict adopts a narrower, more ministerial understanding of the compliance officer’s obligations, which notably interacts with and sets itself apart from earlier jurisprudence.
A. KEY JURISPRUDENTIAL INTERACTION
The appellant directly confronts and re-interprets a critical area of corporate law, specifically the extent of a compliance officer’s personal liability for a company’s financial misstatement. The doctrinal context is shaped by the following:
1. Differentiating the role of the compliance officer: the SAT’s ruling sets the compliance officers apart from the statutory auditor and the board of directors. According to the ruling, a compliance officer’s responsibilities are ministerial rather than management or auditing. Accordingly, their function is to guarantee formal and procedural adherence to regulations, like the SEBI (Buyback of Securities) Regulation, 1998, rather than to independently confirm or re-audit the accuracy of financial statements that have already received board approval and auditor certification.
2. The Rebuttal of SEBI’s “Gatekeeper” Doctrine: In the past, SEBI has argued for a broad definition of the compliance officer’s job, seeing them as an essential “gatekeeper” duty to stop corporate fraud and guarantee legal compliance. This is countered by the V. Shankar ruling, which holds that a compliance officer cannot be held accountable for fraud committed by the director or management in the absence of a particular statutory provision requiring them to review financial records.
3. Reliance on Corporate Governance structure: The decision upholds the conventional corporate governance framework, which places the Board of Directors, the Audit Committee, and the Statutory Auditors in charge of ensuring the accuracy of financial statements. The compliance officers have the right to depend on the due diligence carried out by these other capable organisations, according to the SAT.
4. Refinement of Supreme Court’s remand: In SEBI v. V. Shankar, the Supreme Court of India remanded the matter to the SAT after concluding that the SAT had construed Regulation 19(3) of the Buyback Regulations, which regulates the compliance officer’s responsibilities, too narrowly. The Supreme Court made it clear that the position involves more than just addressing investor complaints; it also involves making sure that the rules are followed. Although the SAT acknowledged the Supreme Court’s more expansive reading upon remand, it insisted that this did not impose an obligation to independently examine or re-audit the financial statements. The tribunal determined that SEBI had the burden of proving a direct, personal violation by the compliance officer, which it was unable to do.
6. CONCLUSION
The decision in V. Shankar vs SEBI marks an important recalibration of the scope of liability of the compliance officers under the Indian Securities Law. By emphasising that liability cannot be imposed in a sweeping or vicarious manner, the judgment restored the principle that accountability must flow from the clear statutory duties, demonstrable lapses, and evidence of culpable conduct. It underscores that compliance officers are facilitators and monitors of regulatory adherence, not guarantors of a company’s every action.
This clarification is particularly significant in the evolving landscape of corporate governance, where SEBI has been expanding the role of compliance officers. The ruling safeguards them from disproportionate liability while still preserving their duty to act diligently and in good faith. Ultimately, the case balances regulatory objectives with fairness, ensuring that compliance officers remain effective watchdogs without being turned into scapegoats.
The broader implication is a more precise demarcation of responsibility within the corporate framework, fostering accountability at the right levels of management while preventing a chilling effect on professionals who serve as the backbone of compliance in listed entities.
Notes:
1. Affluence, Compliance Officer not liable for promoter fraud-key ruling by SAT,
2. https://affluence.net.in/compliance-officer-not-liable-for-promoter-fraud-key-ruling-by-sat/
3. SEBI Act, 1992, § 15HA, No. 15, Acts of Parliament, 1949 (India)
4. SEBI Act, 1992, § 12A, No. 15, Acts of Parliament, 1949 (India)
5. Companies Act, 1956, § 68, No. 1 of 1956, Acts of Parliament, 1949 (India)
6. Companies Act, 1956, § 77A, No. 1 of 1956, Acts of Parliament, 1949 (India)
7. SEBI (Prohibition of Fraudulent and Unfair Trade Practice) Regulation, 2003, Gazette of India, Part (II) Sec. 3 (17th July 2003)
8. SEBI (Buy Back of Securities) Regulation, 1998, Gazette of India, (14th November 1998)
9. Reena Zachariah, SAT ruling protects compliance officers from liability in corporate fraud cases, The Economic Times [May 15, 2025],
10. https://economictimes.indiatimes.com/markets/stocks/news/sat-ruling-protects-compliance-officers-from-liability-in-corporate-fraud-cases/articleshow/121173866.cms?utm_source=chatgpt.com&from=mdr
11. John C. Coffee Jr. ‘Gatekeeper Failure and Reform: The Challenge of Fashioning Relevant Reform’, 84 B. U.L Rev. 301 (2004). Available at: https://scholarship.law.columbia.edu/cgi/viewcontent.cgi?params=/context/faculty_scholarship/article/1583/&path_info=84_B.U._L._Rev._301.pdf
12. CS Vallabh M Joshi, “The Compliance Officer’s Role: Upholding the Code of Conduct under Insider Trading norms”, (June 3, 2024), [2024] 163 Taxmann.com 57 (Article),
13. https://www.taxmann.com/research/company-and-sebi/top-story/105010000000024040/the-compliance-officers-role-upholding-the-code-of-conduct%C2%A0under%C2%A0insider-trading-norms-experts-opinion
14. John MacLeod Heminway, The Role of Business Counsel as Compliance Gatekeepers: Toward Understanding and Combatting Reckless Disregard for Legal and Ethical Compliance in Business Entities, 62 WAYNE L. REV. 7 (2016). https://ir.law.utk.edu/cgi/viewcontent.cgi?article=1844&context=utklaw_facpubs
15. Jeevanandham Rajagopal and Jinal Jain, Buyback Fraud: SAT’s take on compliance officer’s liability, (June 19, 2025), https://foxmandal.in/buyback-fraud-sats-take-on-compliance-officers-liability/?utm_source=chatgpt.com
16. Compliance officer not liable for promoter fraud-key ruling by SAT, (May 23, 2025)
17. https://www.caclubindia.com/articles/compliance-officer-not-liable-for-promoter-fraud-key-ruling-by-sat-53528.asp#:~:text=Regulation%2019(3)%20of%20the,it%20was%20responsibility%20of%20V.
18. SEBI Act, 1992, § 11, No. 15, Acts of Parliament, 1949 (India)
19. SEBI Act, 1992, § 11B, No. 15, Acts of Parliament, 1949 (India)
20. SEBI Act, 1992, § 15A, No. 15, Acts of Parliament, 1949 (India)
21. SEBI Act, 1992, § 15B, No. 15, Acts of Parliament, 1949 (India)
22. Sahara Real Estate Corporation Ltd. vs. SEBI, (2012) 10 SCC 603, 116
23. Price Waterhouse Coopers vs SEBI (2019) SCC OnLine SAT 192
24. Companies Act, 2013, § 205, No. 18, Act of Parliament, 2013 (India)
25. Companies Act, 2013, § 134, No. 18, Act of Parliament, 2013 (India)
26. Companies Act, 2013, § 448, No. 18, Act of Parliament, 2013 (India)27.27.
27. Narayanan vs. Adjudicating Officer, SEBI, (2013) 12 SCC 152
28. SEBI (Listing Obligation and Disclosure Requirements) Regulation, 2015, Gazette of India, pt. III- Sec.4 (Sept. 2nd, 2015)
29. SEBI (Prohibition of Insider Trading) Regulations, 2015, The Gazette of India, pt. III-Sect. 4 (January 15th, 2015)
30. SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, The Gazette of India, pt. II- Sect. 3 (July 17th, 2003)
31. Dushyant Dalal vs. Securities and Exchange Board of India (2017) 9 SCC 660
32. Yogitha S. Yogesh, ‘Compliance Officer Not Liable for Fraudulent Accounts: SAT’, (May 25, 2025), TaxScan, https://www.taxscan.in/compliance-officer-not-liable-for-fraudulent-accounts-sat/522232
33. Trisha Shreyashi, SAT Lays down the company secretary’s liability in the Deccan Chronicle Case, NDTV Profit, (11th Nov. 2022), https://www.ndtvprofit.com/law-and-policy/sat-lays-down-the-company-secretarys-liability-in-the-deccan-chronicle-case
34. Rohit Subramanian, Role and Responsibilities of Compliance Officers under SEBI Regulation, Lakshmikumaran Sridharan Attorneys, (August 8, 2019), https://www.lakshmisri.com/insights/articles/roles-and-responsibilities-of-compliance-officers-under-sebi-regulations/
35. Tejas Mundley, ‘SEBI’s order against Price Waterhouse entities: an appraisal’, The RMLNLU Law Review Blog, https://rmlnlulawreview.com/wp-content/uploads/2020/05/sebis-order-against-pricewaterhouse-entities-an-appraisal.pdf
36. SAT Rules compliance officers not liable for corporate fraud by the Promoter, (May 16, 2025), https://boardstewardship.com/sat-rules-compliance-officers-not-liable-for-corporate-fraud-by-promoters/?utm_source=chatgpt.com
37. Jeevandham Rajagopal & Jinal Jain, ‘Buyback Fraud: SAT’s take on compliance officer’s liability’, Foxmandal, (June 19, 2025), https://foxmandal.in/buyback-fraud-sats-take-on-compliance-officers-liability/
Author Bio
The decision in V. Shankar vs. Securities and Exchange Board of India (SEBI), delivered on May 5, 2025, represents a historic and landmark judgment. It not only safeguards professionals but also ensures that those in higher positions do not misuse their authority recklessly, thereby preventing undue harm to others. Thank you for sharing this insightful article.