Liability of Company Secretary for Misstatements: SC Remits Case to SAT

In November 2022, we had discussed a somewhat curious ruling of the Securities Appellate Tribunal (SAT) in V. Shankar v. Securities and Exchange Board of India which exonerated the Company Secretary of Deccan Chronicle Holdings Limited (DHCL) from liability for certain misstatements and incorrect disclosures made by the company. We had noted that the SAT largely arrived at the ruling on first principles and did not refer to the appropriate statutory principles or engage in any jurisprudential analysis, which may have pointed in the opposite direction. Now, on appeal, the Supreme Court in Securities and Exchange Board of India v. V. Shankar[1] set aside the order of the SAT and restored the matter to the file of the SAT for further consideration.

Given that the Supreme Court decided to remit the matter, it too did not delve into the substantive issues, except for one. It relates to regulation 19(3) of the SEBI (Buyback of Securities) Regulations, 1998, which reads as follows:

The company shall nominate a compliance officer and investor service centre for compliance with the buy-back regulations and to redress the grievances of the investors.

The Court noted that the regulation placed two separate obligations on the company secretary, the first to ensure compliance with the regulations, and the second to redressing the grievances of investors. It found that the SAT had erred in confining the role of the company secretary to the second obligation, namely investor grievance redressal, and omitted to take cognizance of the first, rather broader, obligation.

Apart from the this, the Court refused to be drawn into further details of either the facts or the case law, and clarified that the rights and contentions of the parties are kept open for the further consideration by the SAT, which must endeavour to decide the case within six months.

The Supreme Court’s ruling does not at all come as a surprise. The SAT ruling was not only devoid of detailed analysis of the legal position, but it also went against the grain of conventional jurisprudence on the topic. The SAT must now take up the opportunity to clarify the liability of the company secretary under corporate and securities laws more comprehensively.

As alluded to in our previous post, the role of the company secretary has acquired greater proportions under newer legislation such as the Companies Act, 2013, which follow a compliance-based approach by pinning significant responsibility on key officers of the company and external gatekeepers such as auditors. A clear articulation of the liability principles will enable the compliance officers and gatekeepers to perform their role more optimally and also provide certainty on the extent to which various stakeholders can rely on their disclosures.


[1] Hat-tip: Gaurav Pingle, Company Secretary.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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