Director Cannot Evade Statutory Duties By Claiming Another Director Was In Charge: SAT Mumbai

The Securities Appellate Tribunal at Mumbai (SAT) on 15 June held that a company director cannot avoid statutory responsibility by claiming that another director was managing the company's affairs, while partly allowing an appeal concerning penalties imposed for failure to redress investor grievances.

Presiding Officer Justice P.S. Dinesh Kumar and Members Meera Swarup and Dr. Dheeraj Bhatnagar partly allowed the appeal filed by Sanjay Dwivedi and Deepali Dwivedi against an adjudication order passed by the Securities and Exchange Board of India. The Bench observed:

“...Section 166 of Companies Act, 2013 casts a duty upon a Director to exercise his duties with reasonable care and diligence. Section 166(6) forbears a Director from delegating his functions. Thus, Sanjay was duty bound as a Director of the Company to ensure that the SCORES complaints were addressed, which failed to do”

The dispute arose from a penalty order passed by the Securities and Exchange Board of India imposing Rs. 15 lakh each on Sanjay Dwivedi and Deepali Dwivedi, former directors of D.S. Capital Venture Pvt. Ltd., a SEBI-registered investment adviser.

Securities and Exchange Board of India initiated proceedings after multiple investor complaints were filed on the SCORES platform alleging false assurances, assured returns, cheating, and loss of funds. SEBI noted that 17 complaints remained unresolved for over six months despite repeated reminders, leading to issuance of a show cause notice in August 2021 and subsequent adjudication proceedings.

Sanjay Dwivedi contended before the Tribunal that he had served as a director only for a brief period and was not involved in the day-to-day affairs of the company. Deepali Dwivedi submitted that she had resigned from the board prior to receipt of complaints and commencement of regulatory proceedings.

SEBI opposed the appeal, submitting that Sanjay had served as a director on multiple occasions and remained under a statutory obligation to ensure compliance with securities law. It further argued that Deepali had been associated with the company since inception and could not escape liability merely on the basis of resignation.

The Tribunal rejected Sanjay Dwivedi's contention that responsibility lay with another director, holding that statutory duties under Section 166 of the Companies Act, 2013 could not be delegated.

At the same time, it held that the penalties imposed on him for failure to furnish information and alleged fraudulent practices were not sustainable. Relying on its earlier decision in a connected matter, the Bench found insufficient evidentiary basis for those findings and reduced the penalty to Rs. 8 lakh.

As regards Deepali Dwivedi, the Tribunal accepted documentary evidence showing that she had ceased to be a director on 10 October 2018, prior to the complaints dated 28 May 2019 and subsequent regulatory actions. It observed:

“It clearly indicates that Deepali had ceased to be a Director with effect from 10.10.2018. Admittedly, the complaints are from 28.5.2019. The SCN, inspection and the impugned order are all subsequent to the said date. Therefore, the penalty against appellant No.2 is not sustainable.”

Accordingly, the SAT reduced the penalty imposed on Sanjay Dwivedi to Rs. 8 lakh and set aside the penalty against Deepali Dwivedi in its entirety.

For Appellants: Advocate Hitesh A Biherani

For Respondent: Advocates Gulnar Mistry, Bhushan Shah, Akash Jain, Abhishek Nair and Divyang Salvi