The Supreme Court on Wednesday asked the Securities Appellate Tribunal’s (SAT) to reconsider its decision on the responsibilities and liabilities of a company secretary (CS) in terms of various statutory regulations related to buyback of securities.
Setting aside the SAT’s ruling that exonerated V Shankar, the CS of Deccan Chronicle Holdings (DCHL), from liability for certain misstatements and incorrect disclosures made by the company, a bench led by Chief Justice DY Chandrachud remanded the case back to the tribunal and asked it to decide the issue afresh within six months.
The appellate tribunal on November 1 had held that once the offer document and the balance sheet is approved by the board of directors, there is no requirement for the CS to check the veracity of the buyback offer document and its legal compliances before authenticating such document.
The apex court said the tribunal had “errored in interpreting” Regulations 19(3) of the Sebi (Buyback of Securities) Regulations that provide for various obligations to be carried out by the company including nomination of a compliance officer. It said nomination of a compliance officer is two fold – investors service centre for compliance with the buyback regulations and to redress grievances of investors – and the appellate tribunal needs to decide in these terms of the regulation.
Sebi investigations had found several irregularities committed by DCHL including overstating profits in their annual reports, understating the outstanding loans and interest in the annual reports from 2008 to 2011 and for undertaking a buyback of shares without having adequate free reserves which misled the investors. Besides, its promoters and directors, Sebi had also held Shankar responsible as the CS for signing the public announcement made by the company on May 6, 2011 for buyback of its equity shares. It found that Shankar had violated sections 68 and 77A of the Companies Act, accordingly, the market regulator in March imposed ₹10 lakh penalty on him.
On appeal, SAT overturned the Sebi’s order, saying merely because a company secretary falls within the definition of an ‘officer in default’ under Section 5 of the Companies Act it does not make him automatically liable for a default under Section 77A.