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2019 SCC OnLine SAT 256

†
In the Securities Appellate Tribunal
(BEFORE TARUN AGARWALA, PRESIDING OFFICER AND C.K.G. NAIR, MEMBER
(JUSTICE) AND M.T. JOSHI, MEMBER (JUDICIAL))

Appeal No. 227 of 2016

Yogesh G. Gemawat … Appellant;
Versus
Securities and Exchange Board of India …
Respondent.
With
Appeal No. 228 of 2016
Kamlendra Chunilal Joshi … Appellant;
Versus
Securities and Exchange Board of India …
Respondent.
With
Misc. Application No. 90 of 2018 with Appeal No. 156 of 2017
Sanjay Raghunathprasad Gupta … Appellant;
Versus
Securities and Exchange Board of India …
Respondent.
And
Misc. Application No. 91 of 2018 and Appeal No. 159 of 2017
Arvind Kumar Jagannath Prasad Gupta … Appellant;
Versus
Securities and Exchange Board of India …
Respondent.
Appeal No. 227 of 2016, Appeal No. 228 of 2016, Misc. Application
No. 90 of 2018, Appeal No. 156 of 2017, Misc. Application No. 91
of 2018 and Appeal No. 159 of 2017
Decided on April 16, 2019, [Date of Hearing: 27.03.2019]
Advocates who appeared in this case :
Appeal No. 227 of 2016
Mr. Pulkit Sharma with Mr. Sumit Agrawal and Mr. Mahaveer
Rajguru, Advocates i/b Regstreet Law Advisors for the Appellant;
Mr. Mustafa Doctor, Senior Advocate with Mr. Anubhav Ghosh, Ms.
Vidhi Jhawar, Advocates i/b The Law Point for the Respondent.
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Appeal No. 228 of 2016

Mr. J.J. Bhatt with Ms. Hiral Shah, Advocate i/b Keval Ponkiya &
Associates for the Appellant;
Mr. Aditya Chitale with Mr. Anubhav Ghosh and Ms. Vidhi Jhawar,
Advocates i/b The Law Point for the Respondent.
Misc. Application No. 90 of 2018 with Appeal No. 156 of 2017
Mr. Piyush Raheja, Advocate i/b Santosh Thakur for the Appellant.
Mr. Aditya Chitale with Mr. Anubhav Ghosh and Ms. Vidhi Jhawar,
Advocates i/b The Law Point for the Respondent.
Misc. Application No. 91 of 2018 and Appeal No. 159 of 2017
Mr. Piyush Raheja, Advocate i/b Santosh Thakur for the Appellant.
Mr. Aditya Chitale with Mr. Anubhav Ghosh and Ms. Vidhi Jhawar,
Advocates i/b The Law Point for the Respondent.
The Judgment of the Court was delivered by
M.T. JOSHI, MEMBER (JUDICIAL):— Aggrieved by the order of Whole
Time Member (for short ‘WTM’) of Securities and Exchange Board of
India (for short ‘SEBI’) dated June 2, 2016 holding the present
appellants jointly and severally liable for contravention of the provisions
of Sections 56, 60, 73, 117C of the Companies Act, 1956 (hereinafter
referred to as, Companies Act) and Regulations in respect of offer and
issue of the Non-Convertible Debentures (NCDs) by the Neesa
Technologies Ltd. (hereinafter referred to as, ‘NTL’) without complying
with the listing provisions, all the present appellants allegedly being
directors, the present appeals are preferred.
2. So far as the present appellants are concerned by the impugned
order they are restrained from accessing securities market and further
prohibited from buying, selling or otherwise dealing in the securities
market, directly or indirectly in whatsoever manner, with immediate
effect. They are also restrained from issuing prospectus, offer document
or advertisement soliciting money from the public and associating
themselves with any listed public company and any public company
which intends to raise money from the public, or any intermediary
registered with SEBI. It was also directed that NTL as well as the
present appellants along with other directors who were not before us
jointly and severally refund the money collected by NTL through
issuance of NCDs to the investors with interest at the rate of 15% p.a.
compounded at half yearly intervals till the date of actual payment in
the method as provided by the said order.
3. It appears from the record that some investors complained to
SEBI vide complaint dated September 15, 2014, wherein it was alleged
of non-payment of amounts arising from subscription of NCDs by NTL.
Thereupon, the WTM took investigation which ultimately led to the
passing of an ex-parte order dated June 3, 2015 and issuing notices to
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NTL as well as present appellants. Upon hearing the above order came
to be passed therefore, the present appeals are filed.
4. As per the WTM the NTL had offered NCDs during the financial
year 2013-2014 for an amount of Rs. 5.96 crores and issued to 341
persons, hence it was a public issue of NCDs in term of first proviso of
Section 67 of the Companies Act. However, since the provision of
compulsorily listing such securities in compliance with Section 73(1) of
the Companies Act was not made by the NTL as well as its directors of
relevant period, were liable and, therefore, the impugned order came to
be passed.
5. Before us, there is no dispute that the NCDs were offered and
issued by NTL without complying with the provisions of the Companies
Act, etc. The appeal filed by Neesa Technologies Ltd. bearing Appeal
No. 311 of 2016 was dismissed by this Tribunal by judgment dated
April 28, 2017. The main thrust of the present appellants is that they
are not liable for the action of NTL for the separate facts placed by them
before the WTM and additionally placed before this Tribunal. Their cases
are as under:—
Appeal No. 227 of 2016 Mr. Yogesh G. Gemawat
6. Appellant Mr. Yogesh Gemawat has contended before the WTM
that in fact he was an employee of the Neesa Group of which present
NTL is a member company and was appointed as a director on April 1,
2013 in NTL. He had however resigned on May 15, 2014. He sent his
resignation letter to NTL and filed necessary e-form DIR11 to the
Registrar of Companies (ROC) through MCA portal on May 24, 2014
vide SRN: S30043103.
7. According to him, in fact Sanjay Gupta, Appellant in Appeal No.
156 of 2017 is the key promoter of Neesa group of companies including
the NTL. The appellant had no knowledge regarding the mobilization of
funds and, therefore, requested the WTM to remove his name from the
proceedings.
8. In the appeal, the appellant filed an additional affidavit and
submitted that in fact one Mr. Manoj Singhal was the managing director
of NTL as can be seen from the information he has received from M/s.
IDBI Trusteeship Services Limited (ITSL) which was the debenture
trustee appointed by NTL. ITSL has sent a copy of the letter sent by it
to the Ministry of Corporate Affairs on October 29, 2014 wherein said
Mr. Manoj Singhal was described as a managing director of NTL. Vide
the said letter, it is clarified that Debenture Trust cum Hypothecation
Deed (DTD) was entered into by NTL with ITSL only after ITSL was
provided with the security of Rs. 11,50,78,019/- by way of assets and
the said fact is not taken into consideration by WTM.
9. Further, in additional affidavit in rejoinder filed by the appellant
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dated September 6, 2017, the appellant additionally submitted that in

fact, the whole scheme was started by Chairman Mr. Sanjay Gupta,
appellant in Appeal No. 156 of 2017 and his family members. He
additionally submitted that he was merely non-executive director for a
short period without holding any share in the company, and this fact
was not considered in the impugned order.
10. Learned counsel for the appellant submitted that in view of the
above facts, the appellant had no role in fund raising. Before the
appellant was appointed as a director fund raising through NCDs was
already started. The appellant being an employee was appointed as a
director. He further submitted that in fact, one Mr. Manoj Singhal was
the managing director and the appellant never attended the Board
meeting during 15 months of his tenure. The WTM merely finding that
the appellant was director held him liable. The learned counsel relied on
the judgment of this Tribunal in Manoj Agarwal v. SEBI [Appeal No. 66
of 2016 dated July 14, 2017] wherein a director was held liable for the
collection of amount for the period he was director and not further.
Appeal No. 228 of 2016 Mr. Kamlendra Chunilal Joshi
11. The appellant submitted before WTM that he was also an
employee of the Neesa Venture Holding Ltd. and was appointed as an
additional director of the NTL on August 6, 2012. He resigned with
effect from July 15, 2013 and, therefore, he cannot be termed as a
director for the disputed period. In fact, since September 2012 he
expressed his unwillingness to be in the board. Only in 2013 he was
allowed to resign. The appellant did not participate in the affairs of the
company. The control of the company vested with Mr. Sanjay Gupta
Appellant in Appeal no. 156 of 2017 and his team. Financial decision
was taken only by Mr. Sanjay Gupta. The appellant never participated
or consented to any resolution for issue of debentures or other
connected matters. He never attended any board meeting and no board
agenda was circulated to him. He was not concerned with the day to
day operations of the company. He therefore, requested the WTM to
discharge him from the proceedings.
12. SEBI filed an affidavit in reply to the Appeal memo. In rejoinder,
the appellant submitted that he was merely additional non-executive
director of the company. There is no document on record to show the
appellant is responsible for financial affairs. In fact, all group level fund
raising through FD, OCD, NCD and other financial products was given to
one Mr. Rahul Shah under the supervision of Mr. Sanjay Gupta. Hence,
he submitted that the appeal be allowed.
Appeal No. 156 of 2017 Mr. Sanjay Raghunath Prasad Gupta
13. The appellant replied to the WTM as under:—
1. The Company is the IT arm of the Neesa group and NCDs were
issued by NTL through private placement and cannot be termed
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as public issue.
2. The NCDs were issued under various series. Though the total
number of investors may be more than 300, NTL had issued this
through private placement which would be less than 49 in
numbers only per series, and as such cannot be called as public
issue.
3. Thereafter, NTL suffered acute financial crisis. Income tax
department also started taking action. NTL has made a MOU with
the group of NCD investors for making the payments though with
some delay.
4. NTL is in constant contact with NCD investors. Payments have
been made to the investors to the extent possible during the
financial crunch.
5. During the period of private placement, appellant Mr. Sanjay
Gupta was not on the board of the company. Financial affairs of
NTL were being looked after by Mr. Yogesh Gemawat (Appellant in
Appeal No. 227 of 2016) and other directors.
6. He had joined NTL as an additional director on July 12, 2013 and
resigned from the additional directorship on November 8, 2013.
NCDs were issued on April 1, 2013 to July 11, 2013 to the extent
of 80%.
Appeal No. 159 of 2017 Arvind Kumar Jagannath Prasad Gupta
14. Appellant Arvind Kumar Gupta at Annexure ‘D’ filed a copy of
the letter dated March 8, 2016 which according to him was sent to
SEBI. This copy records the claim of Appellant Arvind Kumar Gupta that
he was appointed as an independent director and was not involved in
the day to day affairs and policy making decisions of the company.
Exhibit ‘C’ in his appeal is the copy of the letter claims to have been
sent to Hon'ble Presiding Officer of Securities Appellate Tribunal,
Mumbai dated August 16, 2016 wherein he had applied to join him as a
party in the appeal filed by NTL bearing Appeal no. 222 of 2016.
FINDINGS OF WTM:
15. The WTM at the time of passing of the ex-parte order had
already collected information from the Registrar of Companies (ROC)
regarding the directors and the resignations if any of the director. He
found that all the present appellants alongwith other persons were
directors at the time NCDs were issued in the year 2013-2014 and
continued to remain directors. Therefore, relying on the provision of
Sections 5 and 73(2) of the Companies Act read with Section 27 of the
SEBI Act, the present appellant's alongwith NTL and the other directors
were held responsible as detailed (supra).
16. Heard the respective learned senior counsel, learned counsel for
the appellants and the respondent. In our view, there is no merit in any
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of the appeal for the following reasons:—

REASONS
17. The thrust of the submissions from the side of all the appellants
is that none of them is liable. In fact, each director has blamed the
other director. On the other hand, Mr. Mustafa Doctor, the learned
senior counsel for the respondent submitted that in view of the
provisions of Section 5 and 73(2) of the Companies Act read with
Section 27 of the SEBI Act, the present appellants cannot escape the
liability.
18. The submissions of all the appellants would show that during the
financial year 2013-2014 they were directors for some period. Some of
them stated that they discontinued to remain directors by tendering
resignations or that they did not participate in the Board meeting. The
learned counsel for the appellants submitted that some other persons
as detailed in the facts above were appointed specifically for generating
funds by various means including NCDs and, therefore, in view of the
Sections 5 and 73(2) of the Companies Act the appellants would not be
liable.
19. The relevant provisions read as under:—
“5. MEANING OF “OFFICER WHO IS IN DEFAULT”
For the purpose of any provision in this Act which enacts that an
officer of the company who is in default shall be liable to any
punishment or penalty, whether by way of imprisonment, fine or
otherwise, the expression “officer who is in default” means all the
following officers of the company, namely:
(a) the managing director or managing directors;
(b) the whole-time director or whole-time directors;
(c) the manager;
(d) the secretary;
(e) any person in accordance with whose directions or instructions
the Board of directors of the company is accustomed to act;
(f) any person charged by the Board with the responsibility of
complying with that provision: Provided that the person so
charged has given his consent in this behalf to the Board;
(g) where any company does not have any of the officers specified
in clauses (a) to (c), any director or directors who may be
specified by the Board in this behalf or where no director is so
specified, all the directors:
Provided that where the Board exercises any power under clause
(f) or clause (g), it shall, within thirty days of the exercise of such
powers, file with the Registrar a return in the prescribed form.”
73. ALLOTMENT OF SHARES AND DEBENTURES TO BE DEALT ON
STOCK EXCHANGE
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(1)……………………………………………………………………..
(2). Where permission has not been applied under subsection (1)
or, such permission, having been applied for, has not been
granted as aforesaid, the company shall forthwith repay
without interest all moneys received from applicants in
pursuance of the prospectus, and, if any such money is not
repaid within eight days after the company becomes liable to
repay it, the company and every director of the company who
is an officer in default shall, on and from the expiry of the
eighth day, be jointly and severally liable to repay that money
with interest at such rate, not less than four per cent and not
more than fifteen per cent, as may be prescribed, having
regard to the length of the period of delay in making the
repayment of such money.”
20. The reading of the provisions of Section 5 of the Companies Act
would show that in the absence of any of the officers specified in
Clauses (a) to (c) any director or directors who may be specified by the
Board would be called as “officer who is in default” and in absence of
such specification all the directors would be termed as “officers who are
in default”. The necessary consequence of Section 73(2) of the
Companies Act would therefore follow.
21. The learned counsel for the appellant Yogesh Gemawat merely
pointed out certain emails under which purportedly one Mr. Rahul Shah
was directed to look after the work of raising funds as detailed (supra)
and, thus, according to the appellants as there was a person charged
by the Board with the responsibility as provided by Clause (f) of Section
5 of the Companies Act, the appellants would not be liable. However, it
is merely an e-mail purported to have been sent by Mr. Sanjay Gupta.
There is no regular appointment as such as per the provisions of the
Companies Act nor there is anything to show that Mr. Rahul Shah has
given his consent in this behalf. The prescription is found in this regard
in Rule 4BB(2) and (3) under Companies (Central Government's)
General Rules and Forms, 1956 and Form of consent is Form 1AB. In
the absence of any document to show that any director was specified as
per Clauses (a) to (c) of Section 5 of the Companies Act or any valid
document to show that any person was authorized by the Board of
Directors, the appellant cannot escape the liability as per Clause (g) of
Section 5 of the Companies Act.
22. Similar is the case regarding the other appellants. The WTM in
his order dated June 3, 2015 has relied on the ratio of the decision of
High Court of Madras in the matter of Madhavan Nambiar v. Registrar of
Companies (2001 108 Comp Cas 1 Mad) which reads as under:—
“13. It may be that the petitioner may not be a whole-time
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director, but that does not mean he is exonerated of the statutory

obligations which are imposed under the Act and the rules and he
cannot contend that he is an ex officio director and, therefore, he
cannot be held responsible. There is substance in the contention
advanced by Mr. Sridhar, learned counsel since the petitioner a
member of the Indian Administrative Service and in the cadre of
Secretary to Government when appointed as a director on the orders
of the Government to a Government company or a joint venture
company, he is expected not only to discharge his usual functions,
but also take such diligent care as a director of the company as it is
expected of him not only to take care of the interest of the
Government, but also to see that the company complies with the
provisions of the Companies Act and the rules framed thereunder.
Therefore, the second contention that the petitioner cannot be
proceeded against at all as he is only a nominee or appointed
director by the State Government, cannot be sustained in law. A
director either full time or part time, either elected or appointed or
nominated is bound to discharge the functions of a director and
should have taken all the diligent steps and taken care in the affairs
of the company.
14. In the matter of proceedings for negligence, default, breach of
duty, misfeasance or breach of trust or violation of the statutory
provisions of the Act and the rules, there is no difference or
distinction between the whole-time or part time director or
nominated or co-opted director and the liability for such acts or
commission or omission is equal. So also the treatment for such
violations as stipulated in the Companies Act, 1956.
15. Section 5 of the Companies Act defines the expression “officer
who is in default”. The expression means either (a) the managing
director or managing directors; (b) the whole-time director or whole-
time directors; (c) the manager; (d) the secretary; (e) any person in
accordance with whose directions or instructions the board of
directors of the company is accustomed to act; (f) any person
charged by the board with the responsibility of complying with that
provision; (g) any director or directors who may be specified by the
board in this behalf or where no director is so specified, all the
directors.
16. Section 29 of the Companies Act provides the general power
of the board and such power has been exercised by the petitioner as
a member of the board or the chairman of the board with respect to
the affairs of the company. Therefore it follows there cannot be a
blanket direction or a blanket indemnity in favour of the petitioner or
other directors who have been nominated by the Government either
ex officio or otherwise. Hence the second point deserves to be
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answered against the petitioner.

17. As regards the first contention, it is contended by Mr. Arvind
P. Datar, learned senior counsel appearing for the petitioner that the
company or its board had resolved that Thiagaraj S. Chettiar shall be
the director in charge of the company of all its day-today affairs and,
therefore, the petitioner, an ex officio chairman and director, cannot
be expected to attend to the affairs on a dayto-day basis. This
contention though attractive cannot be sustained as a whole. There
may be a delegation, but ultimately it comes before the board and it
is the board and the general body of the company which are
responsible.”
23. In this view of the matter, we do not find merits in any of the
appeals. The same are, therefore, dismissed with no order as to costs.
The Misc. Application Nos. 90 and 91 of 2018 for the stay of the
impugned order are also stand disposed of.
———
†
Mumbai Bench.

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