The judgment establishes the vicarious liability of the Managing Director for contraventions of SEBI Act and CIS Regulations, and emphasizes the continuous nature of the offence under Section 24.

V.K. Jain, J.

1. These appeals are directed against the judgment dated 25.11.2009 and the Order on Sentence dated 30.11.2009 whereby the appellants were convicted under Section 24 read with Section 27 of SEBI Act, 1999 and were sentenced to undergo rigorous imprisonment for one year each and to pay fine of Rs.1 lac each or to undergo SI for six (6) months each in default.

2. Section 12 (1B) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘the Act‘), which came to be inserted w.e.f. 25.1.1995, provides that no person shall sponsor or cause to be sponsored or carry on or cause to be carried on any venture capital funds or collective investment scheme (for short ‘CIS‘) including mutual funds, unless he obtains a certificate of registration from the Securities and Exchange Board of India (for short ‘SEBI) in accordance with the regulations. The proviso to the aforesaid sub-section, permits any person, sponsoring or causing to be sponsored, carrying or causing to be carried on any such fund or scheme operating in the security market immediately before 25.1.1995, for which no certificate of registration was required prior to the said date, to continue to operate till such time Regulations are made under clause (d) of sub-section (2) of Section 30.

3. The Securities and Exchange Board of India Regulations, 1999 (hereinafter referred to as =the Regulations‘) came to be notified on 15.10.1999

4. SEBI vide its letter dated 10.12.1999 and 29.12.1999 and also by way of a public notice dated 10.12.1999 intimated Rim Zhim Agro Forest Limited (hereinafter referred to as the Company) of its obligation to send an Information Memo to all the investors detailing the state of affairs of its Collective Investment Scheme (for short ‘the CIS‘), the amount repayable to each investor and the manner in which the said amount was determined. The information was required to be sent latest by February 28, 2000. Vide public notice dated February 22,2000, SEBI informed the company that the companies which had not applied for registration with it or were not desirous of obtaining provisional registration were required to compulsorily wind up their existing schemes as per Regulation 73(1) of its CIS Regulations framed by it. The company however neither applied for registration nor did it take steps for winding up its Scheme and repayment to the investors in terms of the Regulations.

5. Subsequently, SEBI vide public notice dated March 31, 2000 drew attention of the company to the violations of the provisions of Section 11(1B) of the SEBI Act and Regulation 5(1) read with Regulation 68(1) 68(2), 73 and 74 of its CIS Regulations. The company did not response to the said notice and to the subsequent show cause notice. On December 2000, SEBI, in exercise of its powers under Section 11B of SEBI Act directed the company to refund the money collected under the aforesaid scheme, to the investors, within a period of one month from the date of the said directions. However, no information was given to SEBI as regards compliance of its order. Pursuant to the SEBI press release and/or notice, the Company furnished information with respect to its CIS Scheme to SEBI. The Company informed SEBI that about Rs.0.29 crores were raised by it by way of its aforesaid scheme which according to SEBI are Collective Investment Schemes (CIS). The information sent to SEBI was signed by the appellant Mr. P.S. Chaudhary, the Managing Director of the Company. Since the company had raised a total sum of Rs.0.29 crore from the investors under its CIS and failed to repay the said amount, a complaint by SEBI was filed against the company as well as by its Directors namely – Mr. P.S. Chaudhary, Mr. D.S. Thakur, Mr. S.S. Thakur, Mr. Roop Lal Kaundal, Mr. K.C. Kaundal and Mr. S.C. Mahajan.

6. SEBI examined one witness CW1 – Ms. Varsha Aggarwal and also proved documents including the letter Ex.CW1/5 which had been received from the company. No witness was