Tribunal quashes CIS designation, director not liable for misfeasance

The Tribunal overturned the order holding the company's scheme as a Collective Investment Scheme (CIS) and restricting its activities. The appellant, an independent director, was found not liable for misfeasance due to limited involvement and lack of negligence. The Tribunal emphasized the director's duty to oversee diligently and ruled in favor of the appellant, quashing the liability order.

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Issues:
1. Whether the scheme floated by the company was a Collective Investment Scheme (CIS) under SEBI regulationsRs.
2. Liability of an independent director for misfeasance committed by the company during their tenure.
3. Interpretation of Section 149(12) of the Companies Act, 2013 regarding the liability of independent directors.

Analysis:
1. The appeal was filed against an order holding the company's scheme as a CIS without proper registration, directing to abstain from collecting money, and restricting securities market activities for 4 years. The appellant, an independent director, resigned shortly after appointment. The appellant argued lack of involvement in company affairs and reliance on CIS Regulations for appointment.

2. The appellant contended that being an independent director without shareholding or direct association with company operations, they should not be held liable for misfeasance. A reference was made to a Madras High Court decision emphasizing a director's duty to diligently oversee company affairs.

3. The Tribunal noted the appellant's limited role, non-attendance at board meetings, and lack of involvement in decision-making or fund collection. Section 149(12) of the Companies Act, 2013 was analyzed to establish liability criteria for independent directors based on knowledge, consent, or connivance in company acts. The Tribunal found no evidence of the appellant's involvement in the company's activities or lack of diligence.

4. The Tribunal differentiated the case from the Madras High Court decision, emphasizing the lack of negligence on the part of the appellant. Consequently, the impugned order regarding the appellant's liability was quashed, and the appeal was allowed in favor of the appellant.

This detailed analysis of the judgment addresses the issues raised, including the classification of the scheme as a CIS, the liability of an independent director, and the interpretation of relevant legal provisions.

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