TaxTMI 
TaxTMI 
2022 (6) TMI 522
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....#39;the company') is a company engaged in the information technology sector. The petitioners were non-executive directors of the said company between 1998 and 2005 and that in the said capacity of non-executive director, the petitioners were not involved in the day-to-day management and affairs of the said company. It is the further averment of the petitioners that their involvement is very limited pertaining only to some strategic and key decisions that were taken by the said company. In the year 2009, the said company amalgamated with the 4th respondent and is no longer in existence. It is the further case of the petitioners that over the past 14 years, they are in no way connected with the company or had any dealings with the company. In such a backdrop, it is the averment of the petitioners that after such a long passage of time, the show cause notice was issued by the respondents 1 and 2 relating to certain GDR issue that was done by the company. 3. It is the further case of the petitioner that the impugned notice proceeds on the footing that the company issued 16.2 million GDRs amounting to USD 6.48 million on 3.5.02 to one Teigh Holdings Ltd., which is a company incor....
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....ts 1 and 2 that the transfer had taken place on the explicit instruction/authorisation of the petitioners 6. It is the further averment of the petitioner that the impugned notice has been issued after a delay of more than 16 years. Though it is the stand of respondents 1 and 2 that in the meeting conducted on 29.4.2002, resolution was passed allotting 16.2 Million GDRs to Teigh Holdings, which was nearly 17 years ago and the respondents 1 and 2 decided to investigate the allotment a decade later by issuing the impugned notice after a period of 16 years, which is not governed by any limitation period and that the said notice is wholly unreasonable, arbitrary and impermissible, as it is not open to respondents 1 and 2 to conduct investigation after a decade of the occurrence and charge the petitioner for the violation under the relevant regulations. In the aforesaid backdrop, the present petitions have been filed by the petitioner to quash the impugned show cause notice issued by respondents 1 and 2. 7. Learned senior counsel appearing for the petitioners submitted that the inordinate delay in launching the prosecution renders the show cause notice unreasonable. It is the furth....
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.... Union Ltd. (2007 (11) SCC 363); viii) Government of India - Vs - Citadel Fine Pharmaceuticals, Madras & Ors. (1989 (3) SCC 483); ix) Bhavnagar Municipal Corporation - Vs - Palitana Sugar Mills (P) Ltd. & Ors. (2004 (12) SCC 670); x) Ashok Shivlal Rupani & Anr. - Vs - SEBI (Appeal No.417/2018); xi) SEBI - Vs - Ashok Shivlal Rupani & Anr. (Civil Appeal Nos.8444-8445 of 2019); xii) Chintlapati Srinivasa Raju - Vs - SEBI (2018 (7) SCC 443); xiii) N.Magesh - Vs - State of TN (2019 SCC OnLine Mad 38922); xiv) Institute of Chartered Accountants of India - Vs - L.K.Ratna & Ors. (1986 (4) SCC 537); and xv) Om Prakash Chautala - Vs - Kanwar Bhan & Ors. (2014 (5) SCC 417). 11. Per contra, learned senior counsel appearing for respondents 1 to 3 submitted that the writ petition is premature and is not maintainable as the case is at the show cause stage. Show cause notice dated 7.9.18 has been issued with regard to certain discrepancies in the issuance of GDRs by the company. The impugned show cause notice has provided the findings of the investigation in the matter and the alleged role played by various persons, includi....
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....GDRs without the proper consent and permission of SEBI came to light only at a later point of time, when investigation relating to certain other companies, which had floated similar GDRs, was being undertaken by the respondents. Immediately on obtainment of information, investigation was taken up resulting in the issuance of show cause notice along with the materials that were in possession of respondents 1 and 2. Therefore, the delay cannot be put against the respondents as immediately on knowledge of the transaction, the respondents 1 and 2 have taken swift action. 16. It is the further submission of the learned senior counsel that insofar as the contention relating to the petitioners being non-executive directors and not involved in the day to-day affairs of the company, it is the submission of the learned senior counsel that the petitioners are non-executive directors of the company is not disputed, however, reliance is placed on the annual report of the company in which it has been specifically stated that the petitioners were members of the audit committee. It is therefore the submission of the learned senior counsel that merely because the petitioners are non-executive di....
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....il Appeal No.380 of 2021); xviii) SEBI - Vs - Adesh Jain (Civil Appeal No.180 of 2021); xix) Adi Cooper - Vs - SEBI & Kishore Hedge - Vs - SEBI (Appeal No.124 & 300 of 2019); xx) Ajay Sethi - Vs - SEBI & Ors. (SAT Order); xxi) Mohandas Shenoy Adige - Vs - SEBI (SAT Order); and xxii) Jindal Cotex Ltd. & Ors. - Vs - SEBI (SAT Order). 19. This Court gave its anxious and careful consideration to the submissions advanced by the learned senior counsel appearing on either side and perused the materials available on record as also the decisions on which reliance was placed. 20. A careful perusal of the submissions advanced on behalf of the petitioners reveal that the contentions advanced stand broadly classified under three heads, viz., i) Maintainability of writ petition challenging show cause notice; ii) Vicarious liability of a non-executive director; and iii) Inordinate delay in the issuance of show cause notice which renders the same unsustainable. 21. On the first contention relating to the interference of the Courts in respect of challenge made to a show cause notice, it is trite that normally courts wo....
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.... absence of there being any violation by carefully seeing to it that the statutory functionaries specially and specifically constituted for the purpose are not denuded of powers and authority to initially decide the matter and ensure that ultimate relief which may or may not be finally granted in the writ petition is not accorded to the writ petitioner even at the threshold. 24. Coming to the issue relating to the case of the petitioners being nonexecutive directors of the company and, therefore, no vicarious liability could be fastened on them, attention of this Court was drawn to the decision of the Hon'ble Apex Court in Srinivasa Raju's case (supra), wherein, the Hon'ble Apex Court held as under :- "16. In Pooja Ravinder Devidasani v. State of Maharashtra, it is stated: "17. There is no dispute that the appellant, who was wife of the Managing Director, was appointed as a Director of the Company- M/s Elite International (P) Ltd. on 1-7- 2004 and had also executed a letter of guarantee on 19-1- 2005. The cheques in question were issued during April 2008 to September 2008. So far as the dishonour of cheques is concerned, admittedly the cheques were ....
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.... business of the company without anything more is not a sufficient or adequate fulfilment of the requirements under Section 141." Non-executive directors are, therefore, persons who are not involved in the day to day affairs of the running of the company and are not in charge of and not responsible for the conduct of the business of the company." 25. There is no controversy about the fact that the petitioners are nonexecutive directors. Non-executive directors cannot be held vicariously liable for any act committed by the company unless they have any interest in the affairs of the company or they have involved themselves in the day to-day affairs of the company. However, it is the stand of the respondents that the petitioners were the Chairman/Member of the audit team, which is one of the very crucial teams in the whole of the organisational setup and without whose knowledge and concurrence financial transactions of the nature as pointed out in the show cause notice would not have taken place. However, the said fact is disputed by the learned counsel for the petitioners. Such being the case, this being a disputed question of fact, this Court cannot adjudicate the same i....
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....ble Apex Court. However, it has also been repeatedly held by the Courts in a catena of decisions that so long as the delay has been explained properly and reasonably, the Courts are bound to consider the same while deciding the issue of delay. 28. In the case on hand, the GDRs pertain to the period 2002, whereas, action has been taken on the petitioners only in the year 2018, after a delay of 16 years. However, it is the case of respondents 1 and 2 that while the respondents were investigating certain other transactions pertaining to other companies, it came to light from the submissions made by Banco Efisa, with whom the company had the Credit Charge Agreement, that similar transaction of this nature has been done by the company in the year 2002, which fact was not within the knowledge of respondents 1 and 2 at any earlier point of time. Though it is pointed out that permission of SEBI is not required for floating GDRs, however, for finalising the process, certain procedural aspects codified by the Reserve Bank of India have to be followed of which one is information to be shared with SEBI. However, the petitioners dispute the said fact. 29. The fact remains that respondents....
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....and modes of seeking [remedy] are excluded." 9. A Bench of three learned Judges of this Court in Titaghur Paper Mills Co. Ltd. v. State of Orissa [(1983) 2 SCC 433 : 1983 SCC (Tax) 131] held: (SCC p. 440, para 11) "11. ... The Act provides for a complete machinery to challenge an order of assessment, and the impugned orders of assessment can only be challenged by the mode prescribed by the Act and not by a petition under Article 226 of the Constitution. It is now well recognised that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed...." 10. In other words, existence of an adequate alternative remedy is a factor to be considered by the writ court before exercising its writ jurisdiction (see Rashid Ahmed v. Municipal Board, Kairana [AIR 1950 SC 163 : 1950 SCR 566] ). 11. In Whirlpool Corpn. v. Registrar of Trade Marks [(1998) 8 SCC 1] this Court held: (SCC pp. 9-10, para 15) "15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petiti....
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.... judicial precedents on this issue. further, it is not the case of the petitioners that SAT is incompetent to decide the issue raised by the petitioners. In fact, SAT is fully competent to decide the issue, including appreciation of disputed facts and the petitioners can place both oral and documentary evidence before SAT, which can go in-depth into the issue to render a finding. This Court, in any way, going into the issues, as raised above, would be nothing but usurping the powers of SAT, which has been vested in it on the basis of a statute. Therefore, the submission of respondents 1 and 2 that the petitioners should ventilate their grievances first before SAT deserves acceptance. 36. However, one aspect, which lingers in the mind of this Court is the fact concerning inordinate delay in issuing the show cause notice. Though respondents 1 and 2 have placed certain reasons before this Court, which are the cause for the delay, however, this Court cannot brush aside the fact that the delay is so enormous that the reason assigned by respondents 1 and 2 could be taken merely at face value, without putting it through proper appreciation in the manner known to law. Therefore, this Co....