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Securities and Exchange Board of India vs V. Shankar

Civil Appeal · 2023 INSC 719Decided 8 Feb 2023
Civil Appeal No. 527 of 2023
Dr. Dhananjaya Y. Chandrachud · Pamidighantam Sri Narasimha · J.B. Pardiwala

Background

V. Shankar was the Company Secretary of Deccan Chronicle Holdings Ltd in 2009-10 and 2010-11. During that time the company announced a Rs 270 crore buyback of its own shares, which SEBI later found was done without adequate free reserves and misled investors, in breach of the Companies Act 1956 and SEBI's fraud-prevention regulations. SEBI's Whole Time Member fined Shankar Rs 10 lakh because he had signed the public buyback announcement and, as the company's statutory compliance officer, should have checked that the offer documents were lawful. The Securities Appellate Tribunal (SAT) set the penalty aside, reasoning that under Regulation 19(3) of the Buyback Regulations a compliance officer's job was only to redress investor grievances, and the duty to comply lay with the Board of Directors.

Decision Breakdown

The Supreme Court held that SAT had misread Regulation 19(3) on its plain terms. That regulation requires a company to nominate a compliance officer for two purposes: (i) to ensure compliance with the buyback regulations, and (ii) to redress investor grievances. SAT had looked only at the second limb and ignored the first, which expressly places a compliance duty on the officer. Because SAT's entire reasoning rested on this error, the Court set aside its order and sent the matter back for a fresh decision on the facts in light of the correct interpretation, keeping all other contentions (including reliance on earlier SAT precedents) open. SAT was asked to decide the restored appeal within six months.

Lesson Learnt

A Company Secretary who is also the designated compliance officer cannot treat their signature on a public offer document as a mere formality. The law expects them to actually verify regulatory compliance, and "the Board approved it" is not automatically a complete answer.

Official source (sci.gov.in)View Judgment (PDF)

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