ORDER :

This Criminal Original Petition has been filed to quash the proceedings in C.C.No.44 of 2021 on the file of the learned Principal Sessions Judge at Chennai having been taken cognizance for the offences under Sections 24(1) of Securities and Exchange Board of India Act, 1992, Section 207 of the Companies Act, 1956 and Section 127 of the Companies Act, 2013.

2. The case of the prosecution is that the respondent lodged a complaint for the offences under Sections 24(1) of Securities and Exchange Board of India Act, 1992, (herein after called as “SEBI Act”), Section 207 of the Companies Act, 1956 and Section 127 of the Companies Act, 2013 as against the petitioner. There are totally seven accused in which the petitioner is arrayed as A7. On 01.06.1995, the Company called “Zylog Systems Limited” was incorporated. All the accused persons were in-charge and responsible for the conduct of the business of the company. While being so, on 25.09.2012, the company declared a dividend to the tune of Rs.16,44,64,200/-. It was not paid to the shareholders within the stipulated time. On 13.02.2013, the respondent sought for information as required under Section 11(2) (i) of the SEBI Act from the company regarding non-payment of dividend. On 20.02.2013, the company admitted that it had failed to comply with the provisions of the Companies Act, 1956 and also assured that payments will be made on or before 30.04.2013. The respondent sought for the details of the company relating to failure of payments of the declared dividend from the National Stock Exchange of India. On the reply, found that the company has not responded to the enquiries. Thereafter, the Competent Authority accorded sanction to prosecute against the accused persons and lodged a complaint.

3. Heard both sides.

4. It is seen that the petitioner is a Nominee Director appointed to the Board of Directors of the Company. At no point of time, he was in-charge and responsible for the conduct of the business of the company nor was he a signatory to any bank account of the company. Further, there is no averment, much less a legal one, to show how the petitioner is in-charge and responsible for the conduct of the business of the company. The respondent failed to issue any show cause notice to the petitioner herein. He was not given any opportunity to respond to the alleged allegations.

5. The learned counsel for the petitioner mainly relied upon Section 27 of the SEBI Act. It deals with “Offences by Companies”. On reading the proviso clause of Section 27(1) of the SEBI Act, clearly states that if a person is able to prove that the offence had been committed without his knowledge, then such a person cannot be rendered liable. It is relevant to extract the proviso to Section 27(1) of the SEBI Act, which is extracted hereunder,

“Provided that nothing contained in this Sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.”

6. Thus, it is clear that it is trite law that the complainant should have addressed a Show Cause Notice separately and properly to the petitioner and should have sought for an explanation. Only after considering the explanation, the Competent Authority should have accorded sanction to prosecute the petitioner. Admittedly, the petitioner was not served with any Show Cause Notice and he was not given an opportunity to explain for controversies.

7. A perusal of the complaint revealed that the company had declared dividend and failed to pay the dividend as mandated under provisions of the Companies Act. Further, the respondent had addressed a notice to the company seeking explanation as to why the dividend had not been paid as mandated under the provisions of the Companies Act. It is only the company, which had primarily taken the role of defaulter as per the version of the respondent. However,