Penalty under Section 15C quashed as appellant proved not a company director; appeal allowed, order set aside

SAT allowed the appeal and set aside the penalty imposed u/s 15C against the appellant. It held that there was no evidence that the appellant was a Director on the Board of the concerned company. The record, including Form 32 produced by the appellant, did not show the appellant's name in the list of Directors and this evidence was not disputed. SAT found that the CGM had incorrectly treated the appellant as a Director. Consequently, the impugned order was quashed qua the appellant.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the appellant was a Director on the Board of the concerned company and thereby liable for monetary penalty under Section 15C of the SEBI Act.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Status of the appellant as Director and consequent liability under Section 15C of the SEBI Act

Legal framework (as discussed)

2.1.1 The penalty was imposed under Section 15C of the SEBI Act on the basis that the appellant was a Director of the company and thus responsible for the violations attributed to the company.

Interpretation and reasoning

2.1.2 The Tribunal noted that the core question was whether the appellant was a Director on the Board of the company (Noticee No. 1). The adjudicating authority assumed and recorded that the appellant was a Director of the company.

2.1.3 The appellant specifically asserted that he was not a Director on the Board, but only an "employed Director" in the fund structure and had left the company in 2016. He produced Form No. 32 (Exhibit B) showing the list of Directors, in which his name did not appear.

2.1.4 The Tribunal observed that SEBI produced no material to show that the appellant was a Director of the company's Board. The adjudicating authority's observation that the appellant was a Director was found to be incorrect and unsupported by evidence.

2.1.5 On a specific query from the Tribunal as to how the appellant could be made liable for acts of the company, SEBI contended that the appellant was a part of the investment committee and was involved in decision-making and execution of investment decisions, and that the CGM had referred to him as Director of the investment committee. The Tribunal held that this did not establish that he was a Director of the company's Board.

Conclusions

2.1.6 There being no material on record to show that the appellant was a Director on the Board of the company, the foundational basis for fastening liability under Section 15C of the SEBI Act failed.

2.1.7 The finding of the adjudicating authority that the appellant was a Director of the company was held to be factually incorrect and unsustainable.

2.1.8 The impugned order, insofar as it imposed monetary penalty on the appellant jointly and severally with others, was quashed as unsustainable in law, with no order as to costs.

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