TaxTMI 
TaxTMI 
TaxTMI 
2020 (2) TMI 101
X X X X Extracts X X X X
X X X X Extracts X X X X
....visions of the SEBI Act, 1992, the Companies Act, 1956, and Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000 (DIP Guidelines) read with SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR Regulations) and SEBI (Merchant Bankers) Regulations, 1992 ("SEBI Merchant Banker Regulations). 3. In the light of the observations and findings mentioned in Order dated October 31, 2018 (the details are not reiterated for the sake of brevity), the following directions were issued against the Noticee and other entities vide the Order dated October 31, 2018: "** ** ** 87. In view of the aforesaid observations and findings, I, in exercise of the powers conferred under section 19 of the Securities and Exchange Board of India Act, 1992 read with sections 11, 11(4), 11A and 11B of the SEBI Act, hereby issue the following directions: (a) SICCL, Legal Representatives of Late Lt. Col. (Retd) D. S. Thapa as per applicable law, Legal Repr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....b) shall be applicable as modified herein, for the amounts claimed to have been returned to the investors: Such prior repayments should have been made by the Company as per the requirements laid down in paragraph 87(c) above and the same shall be certified by peer reviewed Chartered Accountants, as directed in paragraph 87(j) below. (e) Shri Subrata Roy Sahara, Shri O.P.Shrivastava, Shri J.B.Roy, Lt.Gen.(Retd.) A.S. Rao, Shri Ranoj Das Gupta, Shri I. Ahmad, Shri O.P.Dixit, Shri. Asad Ahmad and Shri. A.N. Mukherjee and Shri C.B.Thapa are directed to provide a full inventory of all their assets and properties and details of all their bank accounts, demat accounts and holdings of mutual funds/shares/securities, if held in physical form and demat form. Legal Representatives of Late Lt. Col. (Retd) D. S. Thapa, Late Shri P.S.Mishra, Late Shri Y.N.Saxena as per applicable law are directed to provide a full inventory of all the assets and properties and details of all the bank accounts, demat accounts and holdings of mutual funds/shares/securities, if held in physical form and demat form, inherited from the Late Lt. Col. (Retd) D. S. Thapa, Late Shri P.S.Mishra, Late Shri Y.N.Saxena res....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aw, legal representatives of late shri p.s.mishra as per applicable law, legal representatives of late shri y.n.saxena as per applicable law, shall file a report of such completion with sebi, within a period of three months from the date of this order, certified by two independent peer reviewed chartered accountants who are in the panel of any public authority or public institution. for the purpose of this order, a peer reviewed chartered accountant shall mean a chartered accountant, who has been categorized so by the institute of chartered accountants of india ("icai") holding such certificate. (k) in case of failure of respective entities to repay as per applicable law as per the aforesaid applicable directions, sebi, on the expiry of three months period from the date of this order may recover such amounts, from respective entities to repay, in accordance with section 28a of the sebi act including such other provisions contained in securities laws. (l) siccl, shri subrata roy sahara, shri o.p.shrivastava, shri j.b.roy, lt.gen.(retd.) a.s. rao, shri ranoj das gupta are directed not to, directly or indirectly, access the securities market, by issuing prospectus, offer document ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of the assets in the sebi sahara refund fund. the said fund shall be utilised for the repayment of the investors of this company with the prior permission of the hon'ble supreme court. 88. the above directions shall come into force with immediate effect subject to paragraph 86. 89. as noted above, shri y.n.saxena has expired on 1.11.2013, shri p.s.mishra has expired on 1.07.2012 and Lt. Col. (Retd.) D.S.Thapa expired on 5.9.2005. However, their legal representatives have not been brought on record. Therefore, the directions against Shri Y.N.Saxena, Shri P.S.Mishra and Lt. Col. (Retd.) D.S.Thapa are made contingent on SEBI serving this order to their legal representatives. Therefore, this order will take effect as final order against Legal Representatives of Shri Y.N.Saxena, Shri P.S.Mishra and Lt. Col. (Retd.) D.S.Thapa only on the expiry of 60 days from the date of service of this order to their Legal Representatives, unless legal representatives of Shri Y.N.Saxena, Shri P.S.Mishra and Lt. Col. (Retd.) D.S.Thapa, file reply or seek, by a written request, personal hearing receivable by SEBI within such period of 60 days from the date of service of this order. If reply/req....
X X X X Extracts X X X X
X X X X Extracts X X X X
....presentative on June 04, 2019 at SEBI. Personal Hearing and submissions: 6. On June 04, 2019 Mr. Anshumaan Sahni and Mr. Apurv Chandola, Advocates and Authorized Representatives (hereinafter referred to as "ARs") on behalf of legal representatives of Late Sh. Y.N.Saxena appeared for hearing and submitted reply on merits dated June 01, 2019 (furnished during the hearing on June 4, 2019) to the Order dated October 31, 2018 along with relied upon documents. ARs made oral submissions in line with their earlier preliminary submissions dated January 29, 2019 and Reply on merits dated June 01, 2019. AR was advised to submit their view as to the DIN issued in the name of Late Sh. Y.N. Saxena as a director of SICCL. ARs were granted time upto June 14, 2019 to submit the same and additional written submissions if any, in the matter. 7. The submissions of the LRs made vide letter dated January 29, 2019 and reply dated June 01, 2019 furnished during the hearing on June 04, 2019 summarized as under: A. Preliminary Objection to Proceedings instituted against Late Sh.Y.N. Saxena being null and void: i. LRs submitted that Sh. Y.N. Saxena retired as an employee of Sahara India on 30.10.2012 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dj. Order No: AK/A0-3112016 dated 14.09.2016: In Re: Prabir Chakravarti, in the matter of M/s. Bhoruka Aluminium Limited: Adj. Order No. ORDER/ SRP/ HK.SI 2018-19/ 11888 dated 23.08.2018 In Re: Jaikumar Vishwanath Mishra (Deceased), in the matter of Bank of Rajasthan Ltd.: Adj. Order No. BM/ A0-46/ 2012 dated 12.09.2012; In Re: Ramnath Raman (Deceased), in the matter of M is. Inland Printers Ltd.: Adj. Order No. AKJ A0-67-73/2 014 dated 30.04.2014; and In Re: Late Mrs. Tribenidevi Poddar, in the matter of Govind rubber Ltd.: Adj. Order No. EAD/ PM-AB/ AO/ 2512018-19 dated 31.08.2018. B. Non-Representation and no Knowledge of proceedings: It is submitted that the Show-Cause Notice issued to Late Sh. Y.N. Saxena is unserved. It is reiterated that he could not have been served either, as he was already dead at the time of issuance of the Show-Cause Notice. There is no acknowledgment on the file regarding service attempts/efforts made by SEBI for serving the Show-Cause Notice dated 20.02.2015 on Late Sh. Y.N. Saxena. The SCN was published in newspapers by SEBI in November 2016 and January 2017, three years after the passing of Sh. Y.N. Saxena. This cannot be considered as ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ainst the representatives and in such cases the maxim, actio personalis moritur cum persona (personal action dies with the death of the person) would apply. In the instant case, the Impugned Final Order puts a penalty of refund/ recovery of money on Noticee No. 13, this is personal to Late Sh. Y.N. Saxena, and hence comes within the exceptions of S. 306 and thus the proceedings cannot continue when the person was already dead before the proceedings began. This decision cannot be used here to support stance of the SEBI that the refund liability is not personal in nature, it very much is personal in nature. Giving an order to extract the alleged liability from a deceased person's estate does not make it the liability of the estate or his Legal Representatives', it remains personal to his name. There is no right of SEBI to claim the estate or from the estate of the deceased and that in itself guides the ratio to holding that the alleged refund liability is personal in nature. Thus, as per the case cited above, these proceedings have to abate..." iii. M. Veerappa vs. Evelyn Sequeira & Ors.: (1988) 1SCC 556: "...As per the findings of this case, the genesis of the issue needs ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....holding that as a general principle of law, proceedings against a dead person are null and void, quashed the Notification and the Acquisition and the complete proceedings thereunder. D. Penalty Personal in Nature: It is submitted that the Impugned Final Order failed to discuss on any evidence about any wrongful gain made or loss averted to cause such disgorgement from Late Sh. Y.N. Saxena. There has been no enquiry done to even find out if he received any funds at all from SICCL. The Income-tax Returns of Late Sh. Y.N. Saxena show that he was an employee receiving salary from Sahara India Parivar. There is no financial reward/ amount either alleged or proved in the Impugned Final Order as against Late Sh. Y.N. Saxena. Thus, the foisting of liability on Late Sh. Y.N. Saxena to refund the amounts collected by the company simply by virtue of his being a Non-Executive Director without proving he was a Director in charge of the affairs of SICCL is entirely illegal and the liability thus foisted on him, is Personal and Penal in nature, which cannot be passed against a dead person. Furthermore, the finding of joint and several liability on the Directors including on Late Sh. Y.N....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t is submitted that in the instant case, there has been no exercise conducted by the SEBI to find out who was the Director in Default, and without attributing to any knowledge or role of the other directors, especially that of the non- executive directors, the Board has held every director to be in default on an assumption of knowledge. This is wholly illegal and incorrect and against settled principles of law. Reliance is placed on decision of Division Bench of the Hon'ble High Court of Delhi in the case of Santanu Roy v. UOI: [1988] 38 ELT 201 (Del) observed the lifting of the corporate veil to find which Director had committed default, and following the ratio of the above case and in Krishan Kumar Bangar v. Director General of Foreign Trade: 2006 (88) DRJ 680, it was held in the case of Ved Kapoor v. UOI & Ors.: [2014] 299 ELT 385 (Del) wherein it was held that in order to sustain the imposition of a punishment on an individual Director it was incumbent on the Respondents to allege and assert the existence of a duty or obligation cast on one or all of the Directors of the defaulting company and the contumacious failure to fulfil it. 8. In addition to the above, the submissi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hether Late Sh. Y.N.Saxena is liable under Section 73(2) and under Section 62(1) of Companies Act (2) Whether refund liability under section 73(2) is penal in nature or strict statutory liability of civil nature and what is the test of the liability is based on any specific role of the officer in default. (3) Whether cause of action under section 73(2) and under Section 62(1) survive the demise of Sh. Y.N.Saxena, If it survives, the extent of liability of Legal Representatives of Sh. Y.N.Saxena. I. Preliminary Issues: (1) Whether any order finally adjudging the issues has been passed against deceased person Sh. Y.N.Saxena and the proceedings are against dead person 10. The LRs have placed reliance on several judgments such as Smt. Lila Vati Bai v. State of Bombay: 1957 AIR SC 521; CIT, Bombay v. Amarchand N. Shroff: 1963 AIR SC 1448; Vipin Walla Vs. ITO: (2016) 382 ITR 19 (Del-DB); CIT v. Shri. M Hemanathan, Tax Case Appeal No.199 of 2016; Rasid Lala v. Income Tax Officer, Ward-I (3) (6) in Special Civil Application No.18987 of 2016; Chandreshbhai Jayantibhai Patel v. The Income Tax Officer, Special Civil Application No.15172 of 2018; and Alamelu Veerappan v. ITO: WP No. 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....equired for a public purpose. In the said case the State had issued SCN to the deceased person irrespective of the knowledge of the death and in the present case SEBI had no knowledge of the death of Sh. Y.N.Saxena while issuing the SCN dated February 20, 2015. It may be noted that in the said case of Savithiri Ammal (supra) as the notification was against a dead person, the Hon'ble Court in this case has given liberty to the government to proceed with the acquisition by initiating fresh proceedings in accordance with law which in effect can be done by issuing fresh notification against the LRs. Therefore, I consider that the said judgment in Savithiri Ammal vs. State of Tamil Nadu does not help the case of the LRs. 14. Further, the observations made by the Hon'ble Supreme court in Smt. Lila Vati Bai vs. State of Bombay: AIR 1957 SC 521 is also not applicable to the present case. In that case an order of requisition was directed against the person who was dead at the time of the order. The Hon'ble Court dismissed the SLP challenging the said order of requisition. In fact, the Apex court held that an order like the one passed under Section 6(4)(a) of the Bombay Land Req....
X X X X Extracts X X X X
X X X X Extracts X X X X
....na who was deceased at the time of issuance of SCN therefore, the said SCN has been issued against a dead person. LRs contended that the representation of SICCL on behalf of Late Sh. Y.N.Saxena is not a valid representation. It is accepted that a dead person cannot authorize any one to represent on his behalf. It is a matter of record. However, I note that at the time of issuing the SCN dated February 20, 2015 SEBI had no knowledge of the death of Sh. Y.N.Saxena and the said SCN has been issued based on the material available on record. As noted above, SEBI noticed about the death of Sh. Y.N. Saxena from the reply filed by SICCL on February 6, 2018 . SICCL had also sought time to produce death certificate of Sh. Y.N. Saxena vide reply filed on behalf of all the Noticees dated February 6, 2018. Accordingly, LRs have been given fresh SCN vide Order dated October 31, 2018. Therefore, the question of Late Sh. Y. N. Saxena was unrepresented does not arise as the order which is final in nature is to be passed only in the present proceedings qua the LRs after consideration of the case of the LRs.Therefore, I hold that non representation and no knowledge of the proceedings subsequent to SC....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the disclosures mentioned in section 56(1) of the Companies Act, 1956, or issued application forms accompanying the abridged prospectus. 21. Further, the order dated October 31, 2018 also held that SICCL contravened the provisions of section 117C of the Companies Act, 1956 which requires to create a debenture redemption reserve for the redemption of debentures. Further, the Offer of OFCDs was also found to be in violation of relevant provisions pertaining to the DIP Guidelines read with ICDR Regulations. 22. In view of the above violations of public issue norms, vide Order dated October 31, 2018 directions were issued against the Company and its directors, promoters, managers, company secretary and arranger viz., Shri I. Ahmad, Shri O.P.Dixit, Shri. Asad Ahmad and Shri. A.N. Mukherjee and Shri C.B.Thapa and directors namely, Shri Subrata Roy Sahara, Shri O.P.Shrivastava, Shri J.B.Roy, Lt.Gen.(Retd.) A.S. Rao and Shri Ranoj Das Gupta, who were found to be liable to refund the investors of SICCL. 23. I also note that considering the fact that Lt. Col. (Retd) D. S. Thapa, P.S.Mishra, Y.N.Saxena were deceased the said Order dated October 31, 2018 was in the nature a show cause notic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lain, or if necessary vouch for, every item of debit and credit in his books, if he is dead, it may be inordinately difficult for the other side to prove him in the wrong." ".. In a long and complicated accounting, the other side might not even know, what credits to charge or what debits to allow and be placed in a position of great disadvantage. But this is a position which cannot be helped. No one can guarantee that the accounting party will be alive to render an account personally. If he is dead, the accounts must be taken in the best way that the exigencies of human affairs will allow..." 24.3 As observed earlier such difficulty is inherent in such situation. The contention of the LRs on whether there was coercion or whether there was any sort of fraud in respect of signature of documents by Sh. Y.N. Saxena would be solely answerable by the person in that situation and by no other person comes within the difficulty inherent in the situation which works disadvantageously to both the enforcement agency and the legal heirs who are subjected to those proceedings in their representative capacity. However, the very recognition of the principle of survival of cause of action by law e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and Final Prospectus and as per the Directors Report of SICCL, Late Sh. Y.N. Saxena is shown as one of the members of Audit Committee and a Non-Executive Director of Remuneration Committee of SICCL. 24.6 In the present case, I observe that no material is brought on record to show that any of the officers set out in clauses (a) to (c) of Section 5 of the Companies Act, 1956 or any specified director of SICCL was entrusted to discharge the obligation contained in Section 73 of the Companies Act, 1956. Therefore, as per Section 5(g) of the Companies Act, 1956 Shri Y.N. Saxena, along with other directors of SICCL, is also an officer in default and is liable to make refund, jointly and severally, along with interest at the rate of 15 % per annum, under section 73(2) of the Companies Act, 1956 for the non-compliance of the above mentioned provisions. Since, the liability of the company to repay under section 73(2) is continuing and such liability continues till all the repayments are made, Shri Y.N. Saxena is co-extensively responsible along with the Company for making refunds along with interest under section 73(2) of the Companies Act, 1956 read with rule 4D of the Companies (Central ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....made by him as an expert." 24.9 Late Sh.Y. N. Saxeena is a signatory to the RHP and Prospectus. Since he has given his consent to the prospectus/RHP, he is liable for violation of section 62 of Companies Act for the misstatement and untrue statements in the prospectus as elaborated in paragraphs 43, 48 and 49 of the Order dated October 31, 2018. The same is reproduced hereunder for reference: "43. One of the main investor protection measures in respect of a public issue is that the investors receive large scale disclosures about the company which would have material bearing on the decision making of those investors. For instance, the prospectus is to contain the credit rating obtained from a Credit Rating Agency and an undertaking by the issuer Company confirming firm arrangements of finance through verifiable means towards seventy-five percent of the stated means of finance excluding the amount to be raised through the proposed public issue. However, no such disclosures have been made. Since there was a misstatement that the issue was private placement while it was in fact public issue, the investors have lost the advantage of taking informed decision which an investor in a pub....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A further observed that as per the statement of assets and liabilities of the said undertaking as on March 31, 2006 as given in the Scheme of Arrangement, the company was having assets and liabilities amounting to Rs. 7,695.86 Cr. respectively, which were transferred to the resulting company after passing of orders of Hon'ble High Court. The statement of investment, as mentioned in the prospectus were neither invested nor realized (ii) MCA has further stated that though the company submitted that the project costs and the receipts are 'estimated' as on the date of the prospectus, which is in line with the requirement of the Companies Act provisions, SICCL, as on the date of filing the prospectus, was aware of the proposal of demerger as well as the position of its assets and liabilities and when once being aware of that, the company makes a statement of investment and realization in the prospectus, which can neither be made or realized, it is nothing but false in material particular. As per MCA, the company was collecting funds for the project for a long time and once an estimated amount of investment and realization is given in the prospectus, the same needed to be a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted as to how realization, even if any, from the investments in Aamby Valley will be obtained by the Company after demerger. The Company has not been able to substantiate the sharp variance between the actual state of investment in Aamby Valley and the estimated receipts given by SICCL in the Prospectus, that too after about 10 years from starting to collect money from the public. SICCL has not been able to substantiate the current status of the investments claimed to have been made by it in the different projects in the prospectus. Further, the Company has stated that the figures of investment and realizable receipts mentioned are on estimated basis, that too when the total project would be developed and because of demerger of SICCL into two companies, assets and liabilities as on appointed date, 31.3.2006 amounting to Rs. 7695 crores is on actual basis. However, the Noticee has still not substantiated as to whether the investment, as mentioned in the prospectus was actually invested or realized. Therefore, I find that SICCL has made false statements in the prospectus." These facts/findings were not disputed by the LRs in the present proceeding. Hence, the same as considered and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions of the Companies Act where no separate penalty is provided for violations of specific provisions. This further shows that in addition to the civil liability created under section 73(2) on the Company and directors who are 'officers in default', penal liability of 'fine' which may extend to five thousand rupees, and where the contravention is a continuing one, with a further fine which may extend to certain amount during which the contravention continues, has also been created. Therefore, I find that the liability created under section 73(2) of the Companies Act which is enforced under the present proceedings, is not penal in nature as per the Companies Act. Further, I note that in the present case the direction to refund the money with interest cannot be equated with penalty as it is investors' money which is illegally collected and at no stretch of imagination, the said refund with interest can be said to be in the nature of a penalty. 26. Further, the LRs relied upon the judgments passed in Santanu Roy v. UOI: [1988] 38 ELT 201, Krishan Kumar Bangar v. Director General of Foreign Trade: 2006 (88) DRJ 680, Ved Kapoor v. UOI & Ors.: (2014) 299 ELT 385 (Del....
X X X X Extracts X X X X
X X X X Extracts X X X X
....all duties charged and to all penalties incurred. 12. We can only say this that after the veil of the corporate entity is lifted, the adjudicating authorities will determine as to which of the directors is concerned with the evasion of the excise duty by reason of fraud, collusion or willful mis-statement or suppression of facts, or contravention of the provisions of the Act and the Rules made there under. So far as individual liability of a director to the payment of excise duty and penalty is concerned, no liability can be fastened on him unless the department is able to show as to how and to what extent a particular director is liable. We wish to say no more at this stage." 28. Therefore, it is clear that the ratio is limited to the case where the statutory liability is not provided in the Statute and therefore, corporate veil is lifted on permissible grounds for the purpose of imposing personal liability on the directors of the company whose corporate veil is lifted, for instance on the grounds of "fraud, collusion or willful mis-statement or suppression of facts, or contravention of the provisions of the Act and the Rules...". It is noted that the instant proceedings are fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....respect of the present facts and law of the extant matter. The Companies Act creates a separate refund liability under Section 73(2). Therefore, it is respectfully observed that the ratio of Krishan Kumar Bangur v. Director General of Foreign Trade is not attracted to the facts of the present case. 31. In view of the forgoing discussions, I observe that the ratios laid down in Santanu Roy v. UOI: (1988) 38 ELT 201 (Del), Krishan Kumar Bangar v. Director General of Foreign Trade: 2006 (88) DRJ 680, and Ved Kapoor v. UOI & Ors.: (2014) 299 ELT 385 (Del) are not applicable to the instant case. 32. Keeping in mind that the case laws cited by the LRs do not support the present case, I note that there is a well laid down pre-requisite test as contemplated under Section 73(2) read with Section 5 of the Companies Act,1956. The same is examined in detail as under: Section 73(2) of Companies Act,1956 reads as follows:- "Where the permission has not been applied under sub- section (1) or, such permission, having been applied for, has not been granted as aforesaid, the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ector or whole-time directors; (c) the manager; (d) the secretary; (e) any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act; (f) any person charged by the Board with the responsibility of complying with that provision: Provided that the person so charged has given his consent in this behalf to the Board; (g) where any company does not have any of the officers specified in clauses (a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors: Provided that where the Board exercises any power under clause (f) or clause (g), it shall, within thirty days of the exercise of such powers, file with the Registrar a return in the prescribed form" 35. Section 5(g) of the Companies Act, 1956 provides that where any company does not have any of the officers specified in clauses (a) to (c) of Section 5, then any director who may be specified by the Board in that behalf or where no director is so specified then all the directors would be "officer who is in default". The examination of the provision shows that the officer in def....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... which OFCDs were issued as per the directors records available on MCA portal (ii) Late Sh. Y.N. Saxena's signed Power of Attorney authorizing Mr. C.B. Thapa for carrying out all acts and deeds necessary for the purpose of RHP and Final Prospectus. This in fact establishes the director role of Sh. Y.N. Saxena as he has not only knowledge of the issue but also the contents of the prospectus. (iii) As per the Directors Report of SICCL, Late Sh. Y.N. Saxena is shown as one of the members of Audit Committee and a Non-Executive Director of Remuneration Committee of SICCL. 36. It is further noted that the basis of liability on the directors in the instant matter is flowing out of the provisions of Section 73(2) in respect of liability to refund. The said liability is not derived from Section 27 of the SEBI Act. It is noted that the said provision, as it stood on the relevant dates of violation of "public issue" norms is on the liability of "persons in charge of and was responsible to the company for the conduct of the business of the company" and director, manager, secretary or other officer of the company. The first proviso to section 27(1) provides for a defense to "persons in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... torts. However, the analysis of the provisions of Section 306 would show that the provision is applicable to torts also and not exclusively to torts. The provision covers "All demands whatsoever and all rights to prosecute or defend any action or special proceeding" for the purpose of stipulating that those covered in Section 306 survive the death of the person and carves out two exceptions of cases which do not so survive the death of the persons. The first exception is cause of action for defamation, assault, as defined in the Indian Penal Code, 1860 (45 of 1860) or other personal injuries not causing the death of the party. The second exception is cases where, after the death of the party, the relief sought could not be enjoyed or granting it would be nugatory. The first exception is for cause of action which are essentially in the nature of tort. This exempted category of actions which is essentially in the nature of tort as stipulated in the provision does not survive the death of the person. Therefore, Section 306 of succession Act covers torts also by stipulating those categories of torts which do not survive the death of the person. The second category of exempted cases ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts that the Section 306 covers torts alone, the present action in respect of the legal representatives is supported under section 306 of the Succession Act. 42. The difference in tort which is also a breach of duty imposed by law or statutory tort of this nature is in the enforcement. In a typical scenario, the enforcement of breach of duty in torts based on common law is through private enforcement of cause of action for damages. However, in case of public law breach of statutory duty, for instance as in the case of section 73(2) of the Companies Act, 1956, though the statutory obligation is imposed by the statute, the enforcement of the same is entrusted to the public law functionaries, as in this case to SEBI. However, the difference in enforcement of the rights through private enforcement of law in the case of common law torts and public law enforcement is not a relevant distinction from the perspective of succession of cause of actions, as the said principles laid down in section 306 of the Succession Act is not based on the forum of enforcement but based on different parameters such as, whether cause of action is for defamation, or assault or other personal injuries not caus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rred to the aforesaid principles. Suffice it to quote from one of such judgments of this Court in Commissioner of Sales Tax Commissioner, Uttar Pradesh v. Modi Sugar Mills, 1961 (2) SCR 189 at 198:- "In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any assumed deficiency." 44. The principles laid down by the Hon'ble Supreme court that without machinery provisions the tax to be paid by the deceased person cannot be collected from the legal heirs is applicable to the taxing statutes. The Hon'ble Supreme court observed that the decision of Girja Nandini Devi & Ors. v. Bijendra Narain Choudhury, [1967] 1 S.C.R. 93 and Shri Rameshwar Manjhi (deceased) through his son Shri Lakhiram Manjhi v. Management of Sangramgarh Colliery & Ors., (1994) 1 SCC 292 cited in support of "the general principle that an action b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....epresentatives cannot in law be in better or worse position than executors and administrators and what applies to executors and administrators will apply to other legal representatives also." 46.2 In an earlier judgment in Girijanandini v. Bijendra Narain [1967 SCR (1) 93], Hon'ble Supreme Court observed that "..........The maxim 'actio personalis moritur cum persona' -a personal action dies with the person has a limited application. It operates in a limited class of actions ex delicto such as actions for damages for defamation, assault or other personal injuries not causing the death of the party........" 46.3 The Hon'ble Supreme Court had another occasion to deal with the meaning of the words "other personal injuries not causing the death of the party" in M. Veerappa v. Evelyn Sequeira & Ors (1988 AIR 506). In the said case Hon'ble Supreme Court made a reference to the Full Bench decision of the Madras High Court in Rustomji Dorabji v. W.H. Nurse, (1921) ILR 44 Mad 357 wherein Trotter, J. speaking for himself and Ayling, J. set out the law as follows. "We are therefore driven to the conclusion that the Act must be supposed to have envisaged a logically coh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Companies Act lays down when a director has to repay the money to the investors along with the interest. The liability to repay the investors is not in results of any injury caused to the "person" of the investors. Instead the liability arises as the investors have parted their 'property' in the form of money to the Company. Therefore, the liability for repayment by the director cannot be considered as arising out of injury to the 'person' of the investor as the same is arising out of the 'property' of the investors. Therefore, I hold that the cause of action under section 73(2) of the Companies Act is not a personal cause of action which dies with the person. It is a cause of action which has impact on proprietary rights of the investors. The relief of repayment can also be enjoyed by the investors and their legal representatives. Therefore, the cause of action under section 73(2) of the Companies Act does not fall under the exception clauses mentioned in Section 306 of the Indian Succession Act and therefore, survives the demise of Shri Y N Saxena. 48. Coming to the question of whether the cause of action under section 62(1) of the Companies Act, 1956 is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bility not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it The remedy provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to cases of the second class. The form given by the statute must be adopted and adhered to.'" 49. I note as observed by the Hon'ble High court in Kisan Mehta's case the compensation for the misrepresentation in the prospectus under section 62(1) of the Companies Act,1956 "is founded plainly on the principle involved in the "tort of deceit". Since Section 62(1) the Companies Act,1956 provides for a statutory remedy of compensation and SEBI is the administering authority for the said Section by virtue of section 55A of the Companies Act,1956, the question of whether such statutory liability, founded plainly on the principle involved in the "tort of deceit", survives the death of Shri Y. N. Saxena can be considered on the application of the principles of Section 306 of the Indian Succession Act. Firstly, it may be seen, whether untrue and false statements in the prospectus is in the nature of 'personal injuries'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....behalf of the company. In a limited sense they are also trustees for the shareholders of the company. To the extent the power of the Directors is delineated in the Memorandum and Articles of Association of the company, the Directors are bound to act accordingly. As agents of the company they must act within the scope of their authority and must disclose that they are acting on behalf of the company. The fiduciary capacity within which the Directors have to act enjoins upon them a duty to act on behalf of a company with utmost good faith, utmost care and skill and due diligence and in the interest of the company they represent. They have a duty to make full and honest disclosure to the shareholders regarding all important matters relating to the company. It follows that in the matter of issue of additional shares, the directors owe a fiduciary duty to issue shares for a proper purpose. This duty is owed by them to the shareholders of the company." 51. The fiduciary duty of disclosures requires the directors not to make false or untrue statements to its shareholders/prospective shareholders. It has already been held that Shri Y. N. Saxena was responsible for false and untrue stateme....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Judgment that when there is no decree given by the Court in a Civil Suit, and the Plaintiff dies prior to that the cause of action abates. But in a case, where a decree is given and he dies, only then the suit and its resultant appeal continues. Noticee argued that this finding gets amplified when applied to quasi judicial proceedings and quoted in support of that proposition judgment rendered by Hon'ble SC in Smt. Lila Vati Bai vs. State of Bombay: 1957 AIR SC 521. 55. Based on that, Noticees contended that the proceedings of SEBI should be pending at the time of death of Sh. Y.N. Saxena. In essence, it further contented that the right of enforceable action should have materialised before the death of Sh. Y.N. Saxena i.e., there must be a decree/finding before his death; and if this right has not materialised before the death of the individual, then, notices/proceedings/ notifications against the said dead person are null and void. 56. I have perused the judgment passed by Honble Apex court in Meleurath Sankunni Ezhuthassan. The original suit was filed by the appellant for defamation. The said suit was dismissed and on appeal before the District Court the appeal was all....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he same does not apply to every case as a general rule as incorrectly argued by the Noticees. However, it may be seen even in such case of defamation which is essentially personal in nature, the Apex court observed, if the decree has been obtained by plaintiff then, in such case the action survives because the cause of action has merged in the decree and therefore, the legal representatives of plaintiff can defend the decree as the decree becomes a question of benefit or detriment to the estate of the plaintiff. In essence, the observation of the Hon'ble Apex court is that even in defamation cases the cause of action survives the death of the person if a decree has been passed in his favour. This ratio does not support, as incorrectly argued by the LRs, the position that as the proceedings should abate as no finding has been rendered while Sh. Y.N. Saxena was alive irrespective of whether the same is personal in nature or not. 59. I have also perused the judgment of Dassumal Ramrakhiomal & Ors. vs. Mahomed Bux Amir Baksh & Ors.: AIR 1937 Sind 208, cited in support of the submission that if the "right to action" had not materialized was not acted upon before the death of the No....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... initiated "against" a dead person does not hold good to support the contention that proceedings cannot be initiated "after" the death of a person. Smt. Lila Vati Bai's case deals with the situation of whether any proceedings can be initiated "against" a dead person and not on the point of whether any proceedings can be initiated "after" the death of a person. Therefore, Smt. Lila Vati Bai's case does not support the contention of the LRs that no proceedings can be initiated after the death of the person. 62. The plain reading of Section 306 of the Indian Succession Act as interpreted by Hon'ble Supreme court in Girijanandini v. Bijendra Narain [1967 SCR (1) 93], clearly states 'Demands and rights of action of or against deceased survive to the legal representatives except the excluded categories'. There is no limitation that Section 306 applies only in cases where the steps in furtherance of the exercise of the rights of action against the deceased person should have been taken while he was alive. Therefore, I hold that proceedings in furtherance of rights of action can be taken after the death of such person against the legal representatives in their capacity....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ceedings. Thus, principles of natural justice have been followed in the present case. 65.2 SICCL came out with the Offer of OFCDs. The said OFCD issue opened on July 6, 1998 and closed on June 30, 2008, and during the financial years 1998-2009, SICCL through the Offer of OFCDs, had collected an amount of at least Rs. 14,106 Crores from various allottees. The said Offer of OFCDs was in violation of Section 56, Section 62, Section 73 and section 117C of the Companies Act, 1956. (a) Late Sh. Y. N. Saxena was a Director in SICCL from December 22, 1998 to November 30, 2012. As no material is brought on record to show that any of the officers set out in clauses (a) to (c) of Section 5 of Companies Act, 1956 or any specified director of SICCL was entrusted to discharge the obligation contained in Section 73 of the Companies Act, 1956, as per Section 5(g) of the Companies Act, 1956, Late Sh. Y.N. Saxena, along with other directors of SICCL, was also an officer in default and is liable to make refund, jointly and severally, along with interest at the rate of 15 % per annum, under section 73(2) of the Companies Act, 1956, for money collected during his tenure as Director of SICCL. (b) L....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e money with interest is nothing but the recognition of their fiduciary liability to the securities holders and the consequence of their failure to comply with their fiduciary duty. The fiduciary duty of disclosures also requires the directors not to make false or untrue statements to its security holders/prospective security holders. Whenever there is a relationship based on contract, quasi-contract, some fiduciary relation or a failure to perform a duty, there is no abatement of the liability on the death of the wrong-doer. Therefore, the cause of action survives on this ground as well to the extent of inheritance. (h) The LRs of Late Sh. Y. N. Saxena are liable in their capacity as legal representatives of the deceased, to refund the money collected through the issuance of OFCDs during the tenure of Sh. Y. N. Saxena to the extent of the assets inherited by the LRs from Late Sh. Y. N. Saxena. 66. In view of the aforesaid observations and findings, I, in exercise of the powers conferred under section 19 of the Securities and Exchange Board of India Act, 1992 read with sections 11, 11(4), 11A and 11B of the SEBI Act, hereby issue the following directions, without prejudice to th....