Md. Salim & Ors vs Securities And Exchange
2023 Latest Caselaw 3955 Cal

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20.06.2023
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              IN THE HIGH COURT AT CALCUTTA
             CONSTITUTIONAL WRIT JURISDICTION
                      APPELLATE SIDE

                      W.P.A. No. 8515 of 2023

                         Md. Salim & Ors.
                                 Vs.
                      Securities and Exchange
                          Board of India.

                   Mr. Jaydip Kar,
                   Mr. Tarique Quasiduddin,
                   Ms. Sanchita Chaudhuri
                                   ...for the petitioners

                   Mr. Syamantak Banerjee
                                  ...for the SEBI


                   The present challenge has been preferred with

             regard to two orders of recovery by way of attachment

             of personal bank accounts of the petitioners, who were

             the   erstwhile    directors     of   the    alleged    defaulting

             company. The said recovery proceeding was initiated

             under Section 28-A of the Securities and Exchange

             Board of India Act, 1992 (hereinafter referred to as

             "SEBI Act).

                   Learned      senior   counsel         appearing    for   the

             petitioners argues that in view of a decree having been

             passed in a title suit between the erstwhile directors

             and the present incumbents, whereby the liabilities, if

             any, of the erstwhile directors/present petitioners were

             assigned      to   the   other    incoming       directors,    the

             respondent-authorities have acted beyond jurisdiction

in taking out recovery proceedings with regard to the

company against the personal accounts of the

erstwhile directors, that is, the present petitioners.

It is contended, by placing reliance on a final

order passed by the Securities and Exchange Board of

India (SEBI), vide WTM/MPB/EFD-1-IV/128/2018,

that in the said order, the SEBI itself clearly observed

that the SEBI has to take necessary steps including

filing of an appropriate application (which may include

an application for modification of decree passed in the

said suit or declaration to the extent that statutory

liability of directors to repay the NCD holders as

crystallized in the order) and the same shall be in

addition to and independent of the liability of the

judgment debtors in Title Suit No. 166 of 2015 in the

appropriate court.

It was further observed in paragraph 51 of the

said order of the SEBI that on disposal of such

application, SEBI can independently initiate recovery

against the directors who are liable to repay, as

determined in the order of the SEBI, in case of their

failure to repay the investors as per the order when it

takes effect. A similar proposition was reiterated in

paragraph 70 of the said order of the SEBI.

It is argued that, instead of complying with the

directions passed in the said order, the SEBI proceeded

to attach the accounts of the present petitioners, even

without having filed any such application in the

concerned suit with regard to modification of the

decree. As such, the said action of the SEBI itself was

patently without jurisdiction and ought to have been

struck down.

It is further argued that in view of the liabilities of

the present petitioners having already been assigned

and the same having been approved by the sanction of

a competent civil court in a suit, the individual

accounts of the present petitioners, being the erstwhile

directors of the alleged defaulting company, could not

be attached at all.

Learned counsel appearing for the respondent-

authorities controverts such submission. Learned

counsel seeks to interpret paragraph nos. 51 and 70 to

have observed that on disposal of an application for

modification, if filed in respect of the decree passed in

the civil suit, the SEBI can independently initiate

recovery against the directors who are further liable to

repay, as appears in the order of the SEBI, in case of

their failure to repay the investors.

It is also argued that the order of the SEBI under

reference specifically clarified that the modification

sought by the SEBI would be that the liability of the

directors, as crystallized in the order of the SEBI, shall

be "in addition to and independent of the liability of the

judgment debtors in Title Suit 166/2015".

It is further argued that the liability of the present

writ petitioners in terms of the award passed under

section 11 of the SEBI Act, read in conjunction with

Section 73(2) of the Companies Act, 1956, is entirely

independent and irrespective of the outcome of a civil

suit between the directors themselves, which cannot,

in any event, fetter the hands of the SEBI in executing

the order passed against the defaulting company and

its directors.

A careful perusal of Section 73(2) of the

Companies Act, 1956 clearly indicates that the liability

under the said provision arises not only in respect of

the defaulting company but the directors of the said

company as well. The language specifically used in

sub-section (2) of Section 73 of the 1956 Act is "the

company and every director of the company who is an

officer in default". The same, coupled with the

provisions of Section 11 of the SEBI Act, clearly

indicates that the liability arising under Section 73(2)

of the 1956 Act is restricted to the company and all the

directors of the company, who were officers in default

at the relevant juncture, when the default took place.

It is noteworthy that in the present case, the action

taken by the SEBI was initiated in the year 2014, on

the premise of the liability of the concerned directors

(including the present petitioners) as well the

defaulting company itself, under Section 73(2) of the

1956 Act. The title suit itself was initiated in the year

2015, that is, after the accrual of such liability of the

present petitioners within the contemplation of Section

73(2) of the 1956 Act.

That apart, it is well-settled that the decree passed

in an ordinary civil suit for declaration of right, title

and interest operates in personam between the parties

thereto and not in rem. As such, the decree obtained in

the particular suit between the directors of the

defaulting company, including the present petitioners,

that too, subsequent to the accrual of liability under

Section 73(2) of the 1956 Act, cannot, in any manner,

absolve the liability of the directors vis-à-vis the

enforcement authorities/SEBI insofar as violation

within the contemplation of the SEBI Act is concerned.

Hence, it is doubtful as to whether even the SEBI

itself, even if joined as a party to the civil suit, could

relinquish its statutory right, accrued independently

under Section 73(2) of the 1956 Act, in a separate civil

suit between the parties.

Hence, in any event, the non-adherence of the

direction of the SEBI itself to file an appropriate

modification application in connection with the decree

passed in the civil suit cannot have any bearing

whatsoever on the outcome to the recovery proceeding

taken out by the SEBI.

That apart, learned counsel for the SEBI is

justified in interpreting the stipulations in paragraphs

51 and 70 of the order of the SEBI in the particular

light which has been sought to be portrayed by the

SEBI. Rightly so, it has been contended, the

modification envisaged by the SEBI, within the

contemplation of paragraphs 51 and 70 , were to be in

respect of repayment of NCD holders, with regard to

the liabilities as crystallized in the particular order of

the SEBI, "in addition to and independent of the

liability of the judgment-debtors in Title Suit No.

166/2015".

It was observed further in the SEBI order that on

disposal of such application, it independently has to

initiate recovery against the directors "who are liable to

repay" as determined in the order of the SEBI in case

of their failure to repay investors as per the order

"when it takes effect".

     It   is   clear     that     the   said     language       of   the

paragraphs-in-question             does        not     create        any

impediment in the route of the SEBI implementing the

orders passed against the defaulting company and its

directors for default within the ambit of Section 73(2) of

the 1956 Act read with the provisions of the SEBI Act.

Hence, there is nothing in the judgment and order

impugned herein passed by the SEBI within the

purview of Section 28-A of the SEBI Act, which can be

called in question in the present writ petition.

In any event, if the petitioners had any grievance

against the said proceeding, the petitioner had to

challenge the parent order, which is being sought to be

implemented now, before the appropriate authority in a

properly constituted challenge. Having not done so, it

does not lie in the mouth of the petitioners now to file a

subsequent representation, since the respondent-

authorities, in any event, do not have the charter

under any statutory provision to review or reopen their

order of attachment, as made in the present case.

In such view of the matter, any direction for

consideration of the representation of the petitioners, if

passed herein, would be a merely futile exercise and

wastage of time for all concerned.

Hence, there is no scope of interference in the

present writ petition.

Accordingly, W.P.A. No. 8565 of 2023 is dismissed

on contest without, however, any order as to costs.

There will be no order as to costs.

Urgent photostat certified copies of this order, if

applied for, be made available to the parties upon

compliance of all necessary formalities.

(Sabyasachi Bhattacharyya, J.)