Supreme Court Stays SEBI Dividend Default Prosecution Against Former Zylog Systems Executive Till Next Hearing

The Supreme Court on Wednesday stayed the Madras High Court's April 6, 2026 order refusing to quash criminal proceedings initiated by SEBI against Parthasarathy Srikanth, former Executive Director of Zylog Systems Ltd.

The proceedings are pending before the Principal Sessions Court, Chennai, over the alleged failure to disburse Rs. 16.44 crore in declared dividends to shareholders.

A Bench of Justices P.K. Mishra and N.V. Anjaria, while issuing notice, stayed further proceedings in the criminal complaint case until the next date of hearing, September 16.

“Considering that the quashing petition preferred by the co-accused has been allowed by the High Court on one of the grounds which is common to the said accused and the petitioner, we are inclined to issue notice,” the Court said.

The dispute arose from criminal proceedings initiated by SEBI against former directors of Zylog Systems over the alleged failure to pay declared dividends to shareholders. The company had declared dividends of Rs. 16,44,64,200 on September 25, 2012, but failed to disburse them within the statutory period under the Companies Act.

SEBI issued a show cause notice, following which the company admitted the default and cited financial difficulties. It also assured that payment would be made by April 30, 2013.

SEBI thereafter launched prosecution before the Principal Sessions Court, Chennai, under Section 24(1) of the SEBI Act read with Section 207 of the Companies Act, 1956 and Section 127 of the Companies Act, 2013.

The petitioner, whose role as Executive Director was stated to be confined to capital market initiatives, sought quashing of the proceedings. He contended that the complaint was barred by limitation and that he was not involved in the company's day-to-day affairs.

Rejecting the plea, the Madras High Court held that non-payment of dividends constituted a continuous offence. It therefore held that limitation would not apply.

The High Court also held that, given his role in capital market initiatives connected with shareholder matters, no grounds were made out to quash proceedings against him. The quashing petition was accordingly dismissed.