2015 (3) TMI 461 - HC - Companies Law

Revision petition dismissed, directors vicariously liable, limitation period met.

The court dismissed the revision petition, ruling in favor of the respondent on all issues. It held that the complaint was within the limitation period, ... Period of limitation - Violation of Regulation 6(d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Related to Securities Market) Regulations, 1995 and Section 11(3), Section 24 & 27 of the SEBI Act, 1992 - Validity of summon - Held that:- The Supreme Court in Udai Shanker Awasthi [2015 (3) TMI 21 - SUPREME COURT] while reiterating the proposition that a criminal offence is considered as a wrong against the State and the society as a whole, even though it is committed against an individual, inter alia in the context of delay in launching of a criminal prosecution noted herein that The question of delay in launching a criminal prosecution may be a circumstance to be taken into consideration while arriving at a final decision, however, the same may not itself be a ground for dismissing the complaint at the threshold. Moreover, the issue of limitation must be examined in light of the gravity of the charge in question. The second submission of the learned counsel for the petitioner that there is no specific role attributed to the present petitioners is also negatived. Petitioner no.1 is the company of whom admittedly petitioner nos.3 and 4 are directors. Para 5 specifically states that accused no.1 is a company incorporated under the Indian Companies Act of whom the three petitioners before this Court are the persons in-charge and responsible for the conduct of its affairs. They, admittedly, are the working directors of the company. It is also not the case of the petitioners that they were not the directors of the company during the period when the alleged offence was committed. Here is no merit in the revision petition - Decided against the appellants. Issues Involved:1. Bar of limitation for taking cognizance of the offence.2. Vicarious liability of the directors.3. Competency of the Board to file the complaint.Detailed Analysis:1. Bar of Limitation for Taking Cognizance of the Offence:The petitioners argued that the cognizance order suffers from a legal bar due to the limitation period. They contended that the offence, punishable with imprisonment up to 1 year, had a limitation period of one year under Section 468(2)(b) of the Cr.P.C. The SEBI was aware of the offence on 04.01.2000, making the limitation period expire on 04.01.2001. However, the cognizance was taken on 08.04.2004, which is time-barred. The petitioners cited several judgments, including *State of Maharashtra Vs. Sharadchandra Vinayak Dongre* and *Prashant Goel Vs. State and Anr.*, to support their claim.In response, the respondent argued that the Board approved the investigation report on 09.10.2003, making the complaint within the limitation period. The respondent also filed an application under Section 473 of the Cr.P.C. for condonation of delay, if necessary. The court agreed with the respondent, stating that the period of limitation should be counted from 09.10.2003, the date when the Board approved the investigation report. Hence, the complaint was within the limitation period, and the question of limitation was answered in favor of the respondent.2. Vicarious Liability of the Directors:The petitioners contended that the complaint did not disclose the specific role of petitioner nos. 3 and 4, making their summoning unjustified. They argued that a mere statement that the petitioners were in charge of the company's day-to-day affairs was insufficient. They relied on judgments like *N.K.Wahi Vs. Shekhar Singh and Anr.*, *Central Bank of India Vs. Asian Global Limited and Ors.*, and *Sham Sunder and Ors. Vs. State of Haryana* to support their argument.The court rejected this argument, stating that petitioner nos. 3 and 4 were directors of the company and responsible for its conduct. The complaint specifically mentioned that they were in charge and responsible for the company's day-to-day business. The court found the judgments cited by the petitioners inapplicable, as they dealt with different factual scenarios. The court emphasized that vicarious liability could be fastened on the directors if they were actively involved in the company's business.3. Competency of the Board to File the Complaint:The court examined the provisions of the SEBI Act and the relevant regulations. It noted that under Section 26 of the SEBI Act, only the Board could file a complaint. Regulation 7 allowed the Board to order an investigation, and Regulation 10 required the Investigating Officer to submit a report to the Board. The court found that the Board approved the investigation report on 09.10.2003, making it competent to file the complaint thereafter.The court concluded that the Board's competency to file the complaint arose only after the investigation report was approved on 09.10.2003. Therefore, the impugned order taking cognizance on 08.04.2004 was not time-barred.Conclusion:The court dismissed the revision petition, holding that the complaint was within the limitation period, the directors were vicariously liable, and the Board was competent to file the complaint. The court emphasized that the arguments regarding the delay in the Board's actions and the specific roles of the directors were matters to be examined during the trial.