Supreme Court affirms SEBI's bar on ex-Director for market fraud, stresses duty of directors

The Supreme Court upheld SEBI's decision to restrain a former whole-time Director from securities market activities for facilitating fraudulent transactions. The Court reinstated SEBI's order, emphasizing directors' duty to act diligently and rejecting the Tribunal's narrow interpretation of the resolution. Acknowledging the respondent's served prohibition period, the Court considered it as compliance and permitted raising issues in pending proceedings. The appeal was disposed of without costs.

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Issues:
Appeal against SEBI's decision to restrain respondent from securities market activities.

Analysis:
The Supreme Court heard an appeal challenging the Securities Appellate Tribunal's decision to set aside SEBI's order restraining the respondent from securities market activities for two years. SEBI found the respondent, a former whole-time Director, responsible for facilitating fraudulent transactions by passing a resolution enabling the use of GDR proceeds as security for a loan without disclosure to shareholders or investors. SEBI held the respondent liable even after his resignation, emphasizing the duty of directors to act diligently. The Tribunal, however, focused on a narrow interpretation of the resolution, disregarding the fraudulent nature of the transaction and lack of disclosure. The Supreme Court found the Tribunal erred in its assessment, reinstating SEBI's decision.

The Supreme Court acknowledged the respondent had already served a substantial part of the SEBI-imposed prohibition period. Thus, the Court accepted the respondent's request to consider the served period as compliance with SEBI's order. The Court also allowed the respondent to raise issues in other pending proceedings. The appeal was disposed of without costs.

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