Liability of Company Secretary in case of authentication of documents: Securities Appellate Tribunal
The Securities Appellate Tribunal Mumbai in V. Shankar vs. Securities and Exchange Board of India Appeal No. 283 of 2022 analysed the role and liability of a Company Secretary in case of any violation of legal provisions by a Company.
Facts
SEBI investigated Deccan Chronicle Holdings Ltd., in order to ascertain whether the promoters of the company and its directors had made any fraudulent pledging of the shares of the company and whether the adequate disclosures had been made in accordance with the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“SAST Regulations” for convenience) during the period October 2011 to December 2012. The investigation revealed several irregularities committed by the company which led to the issuance of the show cause notice.
The Adjudicating Authority (“AO”) concluded that the company alongwith its directors and promoters had violated the provisions of Section 68 and 77A of the Companies Act, 1956 read with Regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (“PFUTP Regulations” for convenience) and Section 12A of the SEBI Act.
The AO held that since the appellant was responsible as the Company Secretary of the company for signing the public announcement made by the company on May 06, 2011 for the buyback of its equity shares, the appellant is equally liable for violation of Section 68 and 77A of the Companies Act, 1956 read with Regulations 3 and 4 of the PFUTP Regulations and Section 12A of the SEBI Act along with the company and its directors
Issue
Whether the appellant who was the Company Secretary had induced others knowingly or recklessly by signing the public announcement or had committed a default under Section 77A and therefore was liable for the penalty imposed by the AO.
Held
The Tribunal referred to Section 68 and 77A of the Companies Act, 1956 along with Section 215 of the Companies Act, 1956 and held that the finding of AO is perverse. The Tribunal stated that once the offer document and the balance sheet is approved by the Board of Directors the Company Secretary, as part of his duty and responsibility, is only to authenticate the contents indicated in the balance sheet or in the offer document and is not required to go into the veracity of the buyback offer document and its legal compliances before authenticating such document.
The Tribunal further held that the company is run and managed by its Board of Directors and the appellant as a Company Secretary had no role to play except to comply with the resolution made by the Board of Directors. A specific finding must be given that the Company Secretary was himself responsible for compliances under Section 77A.
While analysing the Regulation 19 of the SEBI (Buyback of Securities) Regulations, 1998, the Tribunal held that the appellant, being a Company Secretary was also a Compliance Officer and thus the role of the Compliance Officer is only limited to redress the grievance to the investors.
In view of the aforesaid, the impugned order was quashed in so far as the appellant was concerned.
This Article has been Compiled by Ayushi Misra (Senior Associate) and Arun Gupta (Partner).
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