Recently, in an appeal before the Hon’ble Supreme Court, the court held that a company secretary must verify that the company complies with the rules governing share buybacks while serving as a compliance officer under the SEBI (Buyback of Shares) Rules 1998.
The respondent worked for Deccan Chronicle Holdings Ltd. as the Company Secretary for two years, 2009–2010 and 2010–2011. The respondent was held liable by the SEBI because of his role as company secretary during the year when the company made a buyback offer for Rs. 270 crores in violation of its regulatory requirements. The SEBI discovered that the respondent signed the buyback public announcement in his capacity as company secretary.
As a “statutory official” of the company, the respondent was found to have breached the provisions of the Companies Act 1956 by failing to exercise due diligence and verify the authenticity of the buyback offer documents, whereas he should have ensured their legal compliance before authenticating and signing the public announcement.
The SEBI held the respondent liable for the company’s actions related to the buyback of its equity shares without sufficient free reserves, which were determined to have deceived the investors and shareholders. The respondent was held liable for breaking the terms of Sections 68 and 77A of the Companies Act of 1956, as well as the provisions of the PFUTP Regulations and related SEBI Act provisions.
In an appeal last year, the Tribunal overturned SEBI’s order. The Tribunal ruled that the Company Secretary’s responsibility was simply to authenticate the items specified in the balance sheet and in the offer document after the Board of Directors had authorised the offer and balance sheet. The Tribunal relied upon the terms of Regulation 19(3) of the SEBI (Buyback of Securities) Rules 1998 in coming to the conclusion that the obligation to comply was largely put on the Board of Directors rather than the respondent as Company Secretary.
Section 19(3) of the SEBI (Buyback of Securities) regulations 1998 states that the company shall nominate a compliance officer and investors service centre for compliance with the buyback regulations and to redress the grievances of the investors.
Recently, an appeal was filed before the Apex Court against the above order, in which it was carefully examined that the company is required under Regulation 19(3) to designate a compliance officer and an investor service centre. According to the court, this serves two purposes: first, to ensure adherence to the buyback Rules; and second, to redress investor complaints. The court further added that since the interpretation that has been placed by the Tribunal on the interpretation of 19(3) is contrary to the plain terms of Regulation 19(3), it set aside the impugned decision and remitted the proceedings back to the Tribunal for consideration of the facts afresh in the light of the interpretation that has been placed above on the provisions of Regulation 19(3).