2025 (11) TMI 868 - AT - SEBI

Exchange ordered to specify exact end date of appellant's directorship in Annexure A after communication implied ongoing status

Soumen Chatterjee Versus National Stock Exchange of India Ltd., Mumbai, Securities and Exchange Board of India, Mumbai

The AT held that the impugned communication gave the impression the appellant remains a current director of the expelled trading member. Noting terminals ... Inaccurate portrayal of the appellant as a current Director - continuance of appellant’s name as a Director of an expelled entity - Whether the date of default, expulsion of the trading member and the date on which the Director of such entity was functional can be displayed - HELD THAT:- Perusal of ‘Annexure A’ to the impugned communication gives an impression that the appellant continues to be a Director of the expelled entity as on date. It is not in dispute that the terminals at Guiness Securities were terminated on November 7, 2018 and the said entity was expelled on May 6, 2019. Thus, admittedly as on the date of default i.e. November 5, 2018 and the date on which the terminals were disabled i.e. November 7, 2018, appellant was a Director of Guiness Securities. It is also an admitted position that he has tendered his resignation on November 27, 2018. In our considered view, it would be just and appropriate to qualify and limit the exact period during which appellant was one of the Directors of Guiness Securities. We agree with the appellant’s contention that continuance of appellant’s name as a Director of an expelled entity in perpetuity adversely affects his career. Thus, we direct the NSE to clearly mention the date till which appellant was a Director of the expelled entity namely ‘Guiness Securities’ in Annexure A to the impugned Circular dated March 23, 2021. ISSUES PRESENTED AND CONSIDERED 1. Whether the appellant is inaccurately portrayed as a current director of an expelled trading member on the Exchange's published list. 2. Whether the Exchange's disclosure of the list of directors of an expelled/defaulting trading member, without indicating the specific period of directorship (date of cessation), is permissible under the applicable regulatory framework and as a matter of fairness to the individual concerned. 3. Whether corrective relief in the form of amendment/qualification of the published list to state the date until which the appellant was a director is appropriate and should be granted. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Accuracy of portrayal as current director Legal framework: The Tribunal examined the Exchange's publication (Annexure A to the impugned communication) and the factual timeline: alleged default date (5 November 2018), disabling of trading terminals (7 November 2018), resignation tendered by the appellant (27 November 2018), and formal expulsion of the trading member (6 May 2019). The regulatory provisions invoked by the Exchange for disclosing directors of expelled defaulter entities were identified as sub-rule 4A(iv) and sub-rule 5 of Rule 8 of the Securities Contracts (Regulation) Rules, 1957 (SCRR). Precedent Treatment: No external judicial precedent was relied upon or applied in the reasons; the Tribunal's reasoning is fact-driven and built on the regulatory provisions cited by the Exchange and the admitted chronology. Interpretation and reasoning: The Tribunal accepted that the appellant was a director on the date of default and when terminals were disabled, and that he resigned thereafter. The impugned annexure, as published, gives an impression that the appellant continues to be a director of the expelled entity at present. The Court found that such a portrayal, if unqualified, is misleading in light of the admitted resignation and could adversely affect the appellant's career. Ratio vs. Obiter: The determination that the publication, as it stood, inaccurately portrayed the appellant as a current director and required qualification is ratio decidendi insofar as it forms the basis for the remedial direction issued. Conclusion: The Tribunal concluded that the Exchange's list, as published, must be corrected to reflect the date until which the appellant was a director, to avoid an ongoing misleading impression. Issue 2 - Permissibility of Exchange disclosure practices under SCRR and fairness considerations Legal framework: The Exchange relied on sub-rule 4A(iv) and sub-rule 5 of Rule 8, SCRR, which the Exchange contended permit disclosure of directors associated with expelled/defaulting trading members and render such directors ineligible to hold directorships in other member entities. Precedent Treatment: The Tribunal did not overrule or distinguish any prior decisions; it addressed the Exchange's statutory argument in the context of the admitted facts and the implications of an unqualified publication. Interpretation and reasoning: While recognizing the Exchange's statutory/regulatory entitlement to disclose the list of directors of an expelled entity, the Tribunal balanced that entitlement against the prejudice caused by indefinite or perpetually framed listings where a director's tenure had ceased by resignation before expulsion. The Court observed that disclosure practice that fails to indicate the period of directorship may be factually misleading even if based on a permissible regulatory disclosure. Ratio vs. Obiter: The conclusion that regulatory disclosure must, in circumstances where it gives a misleading impression about continued directorship, be qualified by dates of tenure is part of the operative reasoning (ratio) supporting the remedial order; observations about career prejudice and fairness are explanatory but closely linked to the ratio. Conclusion: The Exchange's practice of publishing a list of directors is not impermissible per se under the SCRR as relied upon; however, in this case fairness and accuracy require that the publication be qualified to state the period of directorship to avoid a misleading impression. Issue 3 - Appropriateness and scope of corrective relief Legal framework: Remedies considered were limited to correction/qualification of the published material and related directions to the Exchange, grounded in the Tribunal's authority to grant appropriate relief to prevent ongoing prejudice. Precedent Treatment: No distinct authorities were invoked to prescribe the exact remedy; the Tribunal exercised its discretion based on the facts, admissions, and regulatory context provided to it. Interpretation and reasoning: Given the admissions concerning dates and the Exchange's power to publish lists, the Tribunal found that the least intrusive, proportionate remedy was to direct a clear annotation in Annexure A specifying the date until which the appellant remained a director of the expelled entity. The remedy was tailored to correct the inaccuracy without impugning the Exchange's broader disclosure regime. Ratio vs. Obiter: The directive to amend Annexure A to indicate the end date of directorship is the dispositive ratio of the judgment. Ancillary observations (e.g., potential career impact) are supportive reasoning but not separate holdings. Conclusion: The Tribunal allowed the appeal in part and directed the Exchange to amend the impugned annexure to clearly state the date until which the appellant was a director, to be implemented within two weeks. No costs were imposed. Cross-references and Interrelationship of Issues 1. Issues 1 and 2 are interlinked: the regulatory basis for disclosure (Issue 2) does not negate the requirement for factual accuracy and non-misleading presentation (Issue 1). 2. Issue 3 flows from Issues 1 and 2: because the disclosure without tenure dates created a misleading impression despite regulatory permissibility, remedial correction was warranted and proportionate.