Proportionality in GDR violations led to reduced sanctions, while independent directors escaped liability absent proof of participation.

In GDR-related violations, the Tribunal applied proportionality and held that sanctions were excessive where the breaches were sustained but there was no finding of fund diversion or wrongful gain, the proceeds were repaid for the stated corporate purpose, and no investor loss was shown. The debarment period and penalties on the company and active directors were therefore reduced, while the violation findings remained intact. It further held that independent directors could not be penalised or debarred merely because they signed the board resolution; absent evidence of participation in the fraudulent scheme, involvement in the funding arrangement, or role in the alleged defalcation, liability could not be inferred. The sanctions against the independent directors were set aside.

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Issues: (i) whether the directions of debarment and the monetary penalties imposed for the GDR-related violations were disproportionate and discriminatory; (ii) whether the independent directors could be penalised and debarred merely because they were signatories to the board resolution, in the absence of further evidence of involvement in the fraudulent scheme.

Issue (i): whether the directions of debarment and the monetary penalties imposed for the GDR-related violations were disproportionate and discriminatory.

Analysis: The violations were sustained in substance, including non-disclosure of the pledge agreement and the loan arrangement and the misleading disclosure regarding subscription of the GDR issue. At the same time, the material also showed that the GDR proceeds were ultimately repaid and transferred for the stated corporate purpose, there was no finding of diversion of funds or wrongful gain, and no investor complaint or loss was shown. The punitive measures were compared with orders in similar GDR matters, where larger issues had attracted lower debarment periods and lower penalties. Applying the doctrine of proportionality and the requirement that punishment must not be arbitrary or shocking in its severity, the Tribunal found the sanctions imposed on the company and the active directors to be excessive.

Conclusion: The debarment period and penalties were reduced as excessive, while the findings of violation were not disturbed.

Issue (ii): whether the independent directors could be penalised and debarred merely because they were signatories to the board resolution, in the absence of further evidence of involvement in the fraudulent scheme.

Analysis: The only basis for fastening liability on the independent directors was their signature on the board resolution. No further material was shown to establish participation in the alleged fraudulent scheme, involvement in the GDR funding arrangement, or role in the alleged defalcation. The Tribunal reiterated that mere approval of or signature on a resolution does not, by itself, establish fraudulent involvement, particularly where the directors were not shown to be part of day-to-day management or the execution of the impugned financial arrangement.

Conclusion: The penalty and debarment imposed on the independent directors were set aside.

Final Conclusion: The appeals succeeded in part: the violations were affirmed, but the sanctions were substantially reduced and the liability of the independent directors was quashed.

Ratio Decidendi: Punitive regulatory action must be proportionate to the proven misconduct, and liability for fraud cannot be inferred merely from signing a board resolution without independent evidence of participation in the wrongful scheme.

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