2026 (1) TMI 1236 - HC - SEBI

Personal liability of directors in regulatory proceedings: attachment challenge refused; pursue statutory appeal under SEBI Act

Personal liability of directors cannot be imposed merely by designation; specific averments or findings showing individual participation in company ... Personal liability of directors versus mere designation - attachment of personal bank accounts as well as Demat and trading accounts - violation of the principles of natural justice - Principles of natural justice - Scope of judicial review under Article 226 of the Constitution of India - Availability of alternative statutory remedy before the Securities Appellate Tribunal - Recovery and attachment powers u/s 28A - HELD THAT:- There can be no dispute with the settled legal position that personal liability cannot be fastened merely on the basis of designation, and that a director cannot be held vicariously liable in the absence of specific averments or findings demonstrating his role in the conduct of the business of the company. At the same time, it is equally well settled that proceedings under regulatory statutes such as the SEBI Act, 1992 often deal with collective conduct of the management, particularly where the alleged violation arises out of a course of action undertaken by the company and its directors acting in concert. The correctness or adequacy of the findings recorded by the regulatory authority, the extent of individual involvement of a particular director, and the question whether such involvement was merely nominal or substantive are matters that would necessarily require an examination of facts, appreciation of evidence and scrutiny of the conclusions drawn by the regulator. Such an exercise would entail a detailed factual enquiry, which this Court does not ordinarily undertake in exercise of its jurisdiction under Article 226 of the Constitution of India. On a careful reading of the impugned orders, this Court is not persuaded to hold that the conclusions recorded by Opposite Party No. 1 suffer from a total absence of reasons or non-application of mind. The orders deal with the nature of the violations alleged, the statutory provisions invoked, and the basis on which directions have been issued against the company and its directors. Whether such findings ultimately withstand appellate scrutiny is a matter beyond the scope of the present proceedings. It is also of relevance that the SEBI Act, 1992 provides a comprehensive statutory mechanism for redressal of grievances arising from orders passed by the Board. Section 15T of the Act provides for an appeal to the Securities Appellate Tribunal against orders passed under the Act, including orders relating to recovery under Section 28A. While the existence of an efficacious alternative remedy does not, by itself, operate as an absolute bar to the exercise of writ jurisdiction, it is well settled that where the impugned action is taken in exercise of statutory powers, the orders are reasoned, and the challenge involves disputed questions of fact and evaluation of regulatory findings, this Court would ordinarily decline to exercise jurisdiction under Article 226 of the Constitution of India. The present case does not present circumstances warranting a departure from the said restraint. This Court, therefore, is of the considered view that the petitioner ought to pursue the statutory remedy available under the SEBI Act, 1992. All contentions raised by the petitioner are left open to be urged before the appropriate forum, which shall consider the same on their own merits, in accordance with law. Writ Petition is, accordingly, disposed of, granting liberty to the petitioner to avail the alternative statutory remedy in accordance with law. Issues: (i) Whether the writ petition under Article 226 challenging the SEBI final order dated 24.09.2018 and consequential attachment notices dated 13.04.2023 is maintainable, or whether the petitioner ought to be relegated to the statutory remedy under the SEBI Act, 1992.Analysis: The impugned regulatory orders record findings against the company and its directors for alleged illegal issuance of Redeemable Preference Shares and consequent recovery proceedings under Section 28A of the SEBI Act, 1992. The dispute involves evaluation of regulatory findings of fact and the extent of individual involvement of a director. The statutory scheme provides an appellate remedy under Section 15T of the SEBI Act, 1992. Judicial interference under Article 226 is confined to cases of perversity, manifest arbitrariness, absence of reasons, or breach of principles of natural justice. Where reasoned regulatory orders exist and disputed factual questions and evidence appreciation arise, writ jurisdiction is ordinarily declined in favour of the statutory appellate process.Conclusion: The writ petition is not maintainable; the petitioner is directed to pursue the alternative statutory remedy under the SEBI Act, 1992. The petition is dismissed and interim orders, if any, are vacated.