Full Text
HIGH COURT OF DELHI
Date of Decision: 16th April, 2025
SECURITIES AND EXCHANGE BOARD OF INDIA (A statutory body established under the provisions of Securities and
Exchange Board of India Act, 1992) having its Head Office at SEBI
Bhavan, C-4 A, “G” Block, Bandra
Kurla Complex, Bandra East, Mumbai- 400 051 and having its
Regional office at:- 8th Floor, Plate B, Office Tower -1, NBCC Complex, East Kidwai Nagar, New Delhi, through its Manager
Mr. Bohnimaan Dutta .....Petitioner
Through: Mr. Sanjay Mann, Advocate.
JUDGMENT
1. Dharam Narayan Parashar (D. N. Parashar) S/o Satya Narayan Parashar, R/o: Nandi Basti, Pushkar, Ajmer, Rajasthan.....Respondent No.1.
2. Ishwar Parihar S/o T.R. Parihar, R/o: Khazana Gali, Ajmer, Rajasthan....Respondent No.2. Through: CORAM: HON'BLE MS.
JUSTICE NEENA BANSAL KRISHNA JUDGMENT (oral) CRL.M.A. 10615/2025 (Seeking Exemption)
1. Allowed, subject to just exceptions.
2. The Application stands disposed of.
1. A Criminal Leave to Appeal under Section 419(3) (4) BNSS read with Section 528 BNSS has been filed against the impugned Judgment dated 29.11.2024 vide which Respondent No.1 and 2 have been acquitted.
2. Considering the grounds sought for seeking Leave to Appeal, the Leave Petition is allowed. Leave granted and Appeal be registered. CRL.A. …………/2025 (to be numbered)
3. Briefly stated, a Complaint was filed by the Petitioner herein, before the Ld. ASJ alleging that the Accused No.1/Company and the co-accused persons sponsored a Collective Investment Scheme (CIS) without obtaining the mandatory registration from the Complainant SEBI as provided under (Collective Investment Scheme) Regulations, 1999 (hereinafter referred to as the “CIS Regulations, 1999”), notified on 15.10.1999.
4. It was submitted that despite the accused being time and again informed by SEBI through Public Notices / Press Releases/ letters about their statutory obligations, they, failed to obtain the requisite registration under Regulation 5(1) of the CIS Regulations. Moreover, in absence of obtaining a mandatory registration, they were required to wind up the said scheme and submit a duly audited Winding Up and Repayment Report (hereinafter referred to as “WRR’) as required under Regulations 73 & 74 of the CIS Regulations, 1999.
5. However, even after repeated reminders when the accused persons neither applied for registration of the aforesaid scheme nor complied with the provisions of Section 73 and 74 of the CIS Regulations, and resultantly, a Show cause Notice came to be issued to them on 12.05.2000, to show cause as to why the action stated therein be not initiated against them.
6. Subsequently, On December 7, 2000 SEBI by exercising its powers conferred upon it under Sec.11B of Securities and Exchange Board of India Act, 1992 directed the accused no.1 to refund the money collected under the aforesaid collective investment schemes to the persons who invested therein within a period of one month from the date of the said directions. However, when no information was received regarding compliance of the aforesaid directions, the complaint was filed for violating of Sec.11B, 12 (IB) of Securities and Exchange Board of India Act, 1992 read with Reg.[5] (1) read with Reg. 68(1), 68(2), 73 and 74 of the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 which is punishable under Sec.24 (1) of Securities and Exchange Board of India Act,
1992.
7. All the accused persons i.e. 1 to 12 including accused No.1 Company were summoned for the offences vide Order dated 24.12.2001. Accused Nos.2, Sh. R. Bahadur Singh; accused No.4, Sh. Sudipta Sen; accused No. 6, Sh. Jagrao Singh Yadav, accused Nos. 9 to 11; Sh. A. Kumar Choudhary, Sh. Singh R. Bahadur and Sh. Anil Daima were declared as Proclaimed Offenders. Accused No.3, N.K. Mishra; accused No.7, D.N. Parashar (Respondent No.1); accused No.8, Sh. Ishwar Parihar (Respondent No.2) and accused No.12, Smt. Savita Dutta appeared pursuant to the process though accused No.1, Company was not represented by anyone. The notice under Section 11(B) and 12(1B) of SEBI Act and Regulation 5 (1), 68(1), 68(2), 73 and 74 of the CIS Regulations punishable under section 24 (1) of SEBI Act was framed against the accused No.1, Company and separate notice for the offence under Section 24 and 27 of SEBI Act was framed against the accused No.3, 7, 8 and 12 on 04.07.2012 to which they all pleaded not guilty and claimed trial.
8. The Complainant in support of its assertions examined CW-1, Sh. Arvind Kumar, Assistant General Manager, SEBI to depose on similar lines as the Complaint and proved the requisite documents. He was cross examined only on behalf of the Respondent No.12. Respondent Nos.[7] & 8 failed to cross examine him despite an opportunity. Thereafter, the statement under Section 313 read with Section 281 Cr.P.C were recorded of accused Nos.3, 7, 8 and 12 to which they all pleaded innocence. Accused No.7, Sh. D.N. Parashar in his statement under Section 313 Cr.P.C stated that he used to receive money from the investors and receipts were issued by the Company. He further stated that he himself and his family had invested in the Company. He used to explain the plans of the Company to the investors and the receipts were issued at the office of Company by its employees.
9. Accused No.8, Ishwar Parihar in his Section 313 Cr.P.C statement stated that was the agent of the Company who used to explain the plans of the Company to the investors and receipts were issued at the office of the Company by its employees. He further stated that he has not received any remuneration from the Company. Thereafter, accused No.7, D.N. Parashar (Respondent No.1) appeared as DW-1 and deposed that he was appointed as Assistant Development Officer vide Letter dated 28.09.1993 and that he never worked as the Director of the Company. Likewise Accused No.8, Ishwar Parihar as DW-2 deposed similarly that he had been appointed as Assistant Development Officer vide letter dated 28.07.1995 Exh.DW-2/A and was also Development Representative in the Company vide letter Exh.DW-2/B and was drawing a salary of Rs.1000/- per month along with other benefits. He had also invested a sum of Rs.20,000/- in the Company on 05.04.1995. He further deposed that he never remained as a Director with the accused company.
10. Learned ASJ in its impugned Order referred to the testimony of Respondent Nos.[1] & 2 and observed that from the appointment date of Respondent No.1, D.N. Parashar as 16.02.1995 and Respondent No.2, Ishwar Parihar as 21.07.1996, it is evident that they were not the initial Directors of the accused Company when the CIS was launched. They were not instrumental in floating the Collective Investment Scheme. It was further noted that the testimony of D.N. Parashar as DW-1 reflected that he being kept on a remuneration of Rs.1400/- per month and that his Appointment Letter Ex.DW-1/D was not challenged in cross examination. Form 32 of this accused was not found in ROC record. There was not a single document to show that he ever participated in the affairs of the accused No.1 Company. Likewise, in regard to Ishwar Parihar a reference was made to his Appointment Letter dated 28.07.1995 Exh.DW-2/A which reflected that he was kept on a remuneration of Rs.1400/- per month. His Appointment Letter had not been challenged in the cross examination and his name was not mentioned in Form 32 in the ROC records. It was further observed that he had been appointed as Development Representative and he also took investment in the various schemes of accused Company.
11. It was thus concluded that only a person in the capacity of a Director who has participated in the affairs of the Company is liable for violation of the offences under Section 27 SEBI. The evidence on record did not show that he was involved in the day-to-day affairs or could be vicariously made liable for the violation committed by the accused Company. Both the Respondents were, therefore acquitted. Against the order of the Ld. ASJ, the present appeal has been filed.
12. Submissions heard and Record perused.
13. The short question for consideration is whether the Respondents have been rightly acquitted by the learned ASJ vide his Order dated 29.11.2024?
14. The contentions raised on behalf of the Respondents, were that they were the employees and never became the Directors of the Accused Company, namely, Hindustan Forestry A.D. Pvt. Ltd. To appreciate these contentions, the reference being made to the evidence led on behalf of the Parties.
15. The Respondent No. 1, namely, Mr. Dharam Narayan Parashar in his testimony as DW-1 had proved that he was appointed as an Assistant Development Officer vide Letter dated 28.09.1993, Ex.DW-1/D. The copy of his ration card is Ex. DW-1/E. He deposed that he belongs to BPL (below poverty line) and that he had never been appointed as a Director of the Accused Company or was ever involved in the day-to-day affairs of the Accused Company or in mobilization of funds from the date of its incorporation of the Accused Company. He further clarified in his crossexamination that he used to draw a salary of Rs.1,400/- per month and that he had worked in the Ajmer Office of the Accused Company. He further clarified that his Appointment Letter, Ex.DW-1/B though was not on the Letter Head of the Company but had been signed by the Chairman of the Company and had the seal of the Company. Likewise, he further deposed that he had resigned from the service of the Company on 16.02.1995. He further denied that he had been forwarded the documents, Ex.DW-1/A dated 12.04.1997, in the capacity of the Director.
16. Likewise, DW-2, Mr. Ishwar Parihar deposed that he had been appointed as a Assistant Development Officer, vide Appointment Letter dated 28.07.1995 Ex.DW-2/A in the Accused Company, Hindustan Forestry A.D. Pvt. Ltd. He further deposed that he was also appointed as Development Representative on a salary of Rs.1,000/- per month, Ex.DW- 2/B along with the other benefits as per the Development Circular of the Accused Company. He had also invested a sum of Rs.20,000/- in the Accused Company on 05.04.1995. He asserted that he was never a Director in the Accused Company.
17. The testimony of both the Respondents consistently was that they were appointed in the Accused Company as Development Officers and were only the employees under fixed salary. However, the Complainant had examined CW-1, Mr. Arvind Kumar, Assistant General Manager, SEBI, who had deposed that the Accused No. 1 Company vide Letter dated 15.01.1998, had furnished the details to SEBI of the amount mobilized under CIS. According to the information, it had mobilized funds of Rs.1,34,80,000/- till 31.12.1997. The Company also furnished the details of promoters, Sponsors and Directors of the Accused Company.
18. The significant documents as submitted on behalf of the Accused along with their response dated 15.01.1998, was the list of Board of Directors as on 03.04.1993. The perusal of which shows that the two Respondents were not the Directors in 1993 when the CIS Scheme had been launched by the Accused Company. They also forwarded the List of Board of Directors as on 29.04.1998 wherein the Respondent, Mr. D.N. Parashar was reflected at Serial No. 6 and Mr. Ishwar Parihar at Serial No. 7 of the List of Directors. Pertinently, according to the list, Mr. D.N. Parashar was inducted as Director on 16.02.1995 while Mr. Ishwar Parihar joined as a Director on 21.07.1996.
19. This List of Directors when considered in the light of the testimony of Mr. D.N. Parashar and Mr. Ishwar Parihar, clearly establishes that though they both had been inducted as employees of the Accused Company but on resignation of Mr. D.N. Parashar on 16.02.1995, he joined the Company as the Director on the same date. Likewise, Mr. Ishwar Parihar on resignation from his appointment, joined the Company as Director on 21.07.1996. Pertinently, in this List of Directors as submitted to ROC, there is no date indicated of they having resigned from the post of Directors. Therefore, the documents of the Accused Company itself establishes that Mr. D.N. Parashar and Mr. Ishwar Parihar had joined the Company as Directors in 1995 and 1996 respectively.
20. Most pertinent question which arises, is whether being the Directors, they were involved in the day-to-day affairs of the Company.
21. In S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla, (2005) 8 SCC 89, the Apex Court held that the legislature is well aware that in case of a criminal liability, serious consequences follow and therefore, only those persons who are connected to the commission of the offence should only be made liable. Resultantly, mere designation as a Director is not sufficient; specific role and responsibility must be established in the Complaint.
22. The Apex court in the case of N.K. Wahi v. Shekhar Singh, (2007) 9 SCC 481 further explained that to launch a prosecution against the alleged Directors, there must be a specific allegation in the Complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are in-charge and responsible for the conduct of the business of the Company. While the exact words of the Section may not be reproduced, but the role of the Director must be discernible from the averments made in the Complaint. In the absence of any averment or specific evidence, the Complaint would not be entertain-able.
23. The Apex court has reiterated in the case of Anita Malhotra Vs. Apparel Promotion Council and Another (2012) 1 SCC 520 that in case of a Director, the complaint should specifically spell out how and in what manner was the Director was in charge of and responsible for the conduct of business, mere bald statement that he was In charge of business of the company is not sufficient.
24. In the light of the aforestated judgements, there is nothing specifically averred against the respondents nor there is any cogent material that suggests that the respondents were responsible for the day-to-day affairs of the Company.
25. In view of the aforesaid, there is no error in the findings of the Ld. ASJ in arriving at the conclusion that although the respondents herein may be involved in taking investments for the Company as an employee, but cannot be held vicariously liable for an offence committed by the Company as its Director.
26. The impugned Order dated 29.11.2024 passed by the Ld. ASJ does not suffer from any infirmity. Appeal is accordingly dismissed. The pending Application(s) are disposed of accordingly.
NEENA BANSAL KRISHNA)
JUDGE APRIL 16, 2025 rk/RS