Allowed

Roopram Sharma

SAT19 Sept 2002

Case brief

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What is this about?

The Securities Appellate Tribunal set aside SEBI's order prohibiting the appellant from accessing the capital market. The Tribunal held that the prohibition was effectively a penalty, which Section 11B does not empower SEBI to impose being preventive or remedial only. The appellant, an appointed director, was found associated with the securities market.

What did the court decide?

The Respondent's direction prohibiting the Appellant from accessing the capital market and dealing in securities for three years is set aside.

Roopram Sharma — Securities and Capital Markets | SAT (2002)

Allowed

Roopram Sharma

SAT19 Sept 2002

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Case brief

AI extract

What is this about?

What did the court decide?

The Respondent's direction prohibiting the Appellant from accessing the capital market and dealing in securities for three years is set aside.

¶16

Letter dated 6.10.94 addressed to the Appellant by the company’s managing director Shri Gandhi, refers to the Board resolution dated 5.10.94 appointing him as the Company Law Consultant on retainership basis that he was to guide the company on all company law matters except public issue. The Appellant was appointed as a non executive director of the company with effect from 30.12.1994 and he resigned from the Board vide his letter addressed to the company on 7.5.95, that his resignation from the Board was acknowledged by the company vide letter dated 8.5.95, that it is the date of submission of resignation to the company and not the date of acceptance of the same by the Board of Directors of the company that matters in the light of the provisions in the company’s Articles of Association that the director will cease to hold his office upon giving the notice of resignation in writing, that this view has the support of two decisions of the Hon’ble Madras High Court in T. Murari V State (1976) 46 Co. Cases 613 and S.S. Lakshmana Pillai V. Registrar of Companies (1977) 47 Co. Cases 652. The Appellant resigned from the Board as he was not satisfied with the manner in which its affairs were conducted, that during his tenure as director between 31.12.1994 and 7.5.95, he was neither given any notice of Board Meetings nor he attended any Board meeting or participated in the transaction of the company’s business in any manner except that he gave a limited power of attorney to late Shri U. N. Gandhi, for and on his behalf. The Respondent has wrongly viewed that the Appellant being a qualified person should have taken care to inform the Merchant Banker, the Respondent and other appropriate agencies and also published a notice about his disassociation with the company when there was no such requirement for an ordinary director to comply with either in the Companies Act or in the Act or Guidelines; that in any case the Appellant could do nothing much as he was under threat from Shri Gandhi.

¶41

The Appellant was advising the company in his capacity as a company law consultant since October, 1994 and subsequently with effect from 30.12.1994 he was appointed as a director of the company. He claims to have resigned from the company on 7.5.1995 by sending his resignation to the company on 8.5.1995. But there is evidence on record to show that he had actually resigned only on 1.8.1995. Apart from the entry in the From No.32 notifying his resignation showing the date of resignation as 1.8.1995, the Appellant himself had stated in his letter dated 11.1.99 addressed to the Respondent that he “was a non executive professional director, for a period of about 7 months and had resigned from 1.8.1995.” This position is further corroborated in the Appellant’s statement before the Respondent’s investigating Officer, a copy of the statement is found filed along with the appeal, that he became a director of the company in December 1994 and resigned from directorship and retainership in August 1995. In these circumstances, the Appellant’s version that he resigned on 7.5.1995 before the public issue opened is difficult to accept. In the light of the authentic documentary proof as produced by the Respondent – certified copy of the From No-32 made available to it by the Appellant himself and his written / oral statement - the version now raised by the Appellant appears to be of after thought to get himself extricated out of the trouble in which has landed up. In view of the clear factual, position that he resigned on 1.8.1995, the case laws cited by him have no relevance. The credibility of the Appellant’s version is suspect as one could see from his own statement. To a question from the investigating officer as to how the Appellant knew Shri U.N. Gandhi, his answer was “we were appointed as the company law consultants to guide the company on company law matters. That is how I know him”. But there is something more. It is noticed from the copy of the prospectus filed in the proceedings that the Appellant was a director of Wizma Securities Ltd, of which Chairman was Shri Gandhi. Further Shri Gandhi has been described as a financial consultant and not as a company law consultant. In this context it is also to be noted that the said Wizma Securities Ltd was one of the applicants (out of the 27 applicants put in position) who had paid 31 lakhs for the shares to save the public issue.

¶44

statement is also relevant to the Respondent’s charge that he was associated with the public issue. He says “the Registrars to the issue came to may office to collect details of public issue in the offing”. If he was not associated with the public issue as he now claims, the details of the public issue would not have been available in his office. He has not explained as to why the details of the public issue were kept in his office, if he was not associated with it. In the context of the Appellant’s version that he did not associate with the public issue operation he was asked by the investigating officer to state as to why he accompanied Shri Gandhi in his meetings with the Merchant Bankers/Registrar and Stock Exchanges? His answer –“Once or twice I Went to PNB office along with Shri U.N. Gandhi and once I attended Bombay Stock Exchange on 28.7.1995. It is now difficult to tell why I accompanied him.” Though he cannot deny the factual position, he preferred to be evasive in explaining the visit. The Appellant, to another question from the investigating officer had stated that “I did not associate with the public issue operation”, “I guided the company only on company law matters.” The Appellant’s version gives an impression that a public issue has no requirement of any guidance from the company law angle. This statement is coming from a practicing company secretary claiming to have 31 years of experience in the filed of company law. The Appellant in his deposition has admitted that he “knew that the issue was not fully subscribed and that it was managed.” In that context when he was asked as to why he did not complain about it to any of the authorities, his answer was “I was threatened of dire consequences”. It was stated that the threat was form Shri Gandhi - a person who was a co-director in another company and whom he had accompanied to different office / authorities for the purpose of public issue. The fact that he had accompanied Shri Gandhi when he went to Madras to mobilize funds from VFS has been reasonably established by the Respondent. During the course of the arguments, the Tribunal had asked the Appellant’s Counsel as to how the courage which the Appellant was stated to be lacking earlier to resign, got subsequently Learned Counsel could not give any convincing explanation.

Roopram Sharma

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Roopram Sharma

Case brief

What is this about?

What did the court decide?

Issues for consideration

Cases cited

Parties & counsel

Coram

Case details

Similar cases

What the court decided

A compact analysis

Statutes considered