On 18 August 2020, the Securities Appellate Tribunal (SAT) issued a landmark order that exposes the callousness of the regulatory system and holds a big lesson for those holding corporate directorships. Associating with a dodgy company can have far-reaching personal consequences, both in terms of cost and reputational damage.
In the past two years, we have seen many directors of several infamous companies and corporate groups get away without any damage to their reputation—IL&FS, Yes Bank and DHFL are some that come to mind. In these cases, regulators have not dared to touch or question high-profile directors who deliberately turned a blind eye to brazen loot by the promoters, only to resign and escape when things got rough. And then, you have a case like Neesa Technologies Ltd, where an individual, trapped as a director by a dodgy group, failed to get the benefit of doubt and had to fight for justice for six long years. Here is this extraordinary story. A reading of the SAT order as well as two previous orders by the whole-time directors (WTMs) of the Securities and Exchange Boad of India (SEBI) would prove the adage that truth is often stranger than fiction.
The Neesa group of companies has a long record of duping depositors who invested in its fixed deposits (FDs) and bonds through a series of companies that include: Neesa Leisure Ltd, Neesa Agritech and Foods Ltd, Neesa Technologies, Neesa Infrastructure Ltd and, probably, a few others.
Sometime in 2014, when complaints from desperate depositors began to pile up, SEBI and the ministry of corporate affairs (MCA) launched their own investigations. This column is about Neesa Technologies and one Nimain Charan Biswal who was ostensibly the managing director (MD) of the companies. Mr Biswal was one of nine directors of Neesa Technologies. Here’s his story, which emanates from Justice Tarun Agarawala’s order at SAT on 18 August 2020.
In November 2013, Neesa Technologies held a recruitment interview at which it obtained a consent letter from Mr Biswal, which was misused and utilised to show him as the MD of the company. When he got to know ‘about this mischief’, he submitted his resignation and filed all compliances with the registrar of companies (RoC). For reasons unknown, the RoC failed to update its records for more than three years. He then filed a writ petition before the Gujarat High Court (GHC) for appropriate direction. Based on a court order of 5 July 2017, his tenure as director/MD was to be recorded for four months from 7 November 2013 to 6 March 2014 and RoC’s records were to be updated accordingly.
Meanwhile, following complaints about non-convertible debentures (NCDs) issued by Neesa Tech, SEBI issued an ex-parte interim order on 3 June 2015, confirmed a year later on 2 June 2016, in which WTM Prashant Saran ordered the company to repay investors, if necessary through sale of assets as well as the personal assets of directors, and barred the directors from the securities market. Mr Biswal, whose name was in RoC’s records as a director, was implicated by this order. Mr Biswal appealed to SAT, which quashed the SEBI order and asked the regulator to pass fresh orders because the previous one had exceeded the show-cause notice.
On 7 September 2016, SEBI’s WTM Rajeev Kumar Agarwal passed fresh orders which exonerated Mr Biswal of all charges in the earlier notice and specifically noted that he had not attended any board meeting in the period when he was allegedly on the board and, in any case, the allotment of NCDs was completed in August 2013, before his so-called appointment. SAT has quoted a long paragraph from the order which concluded, “…Mr. Biswal became a director of NTL after the offer, issue and allotment of NCDs by NTL was complete and, therefore, he cannot be held responsible for violations of NTL regarding offer, issue and allotment of NCDs.”
Remember, during these hearings, the RoC continued to show him as a director; but the July 2107 order of the GHC mentioned above, fixed that problem and confined his tenure to four months ending 6 March 2014.
You would think this would end Mr Biswal’s troubles; but that was not to be. The RoC, having failed to update its records, got active on ensuring compliance with its orders of October 2014 against various directors asking them to repay investors. So, in January 2017, the RoC filed 34 criminal cases against Mr Biswal, as director/MD of Neesa Technologies, before the magistrate’s court. He went back to the GHC, this time with a criminal writ petition (No. 1117 of 2017) leading to an order quashing all 34 cases against him. The Court noted that all complaints related to the periods ending 31 March 2012, 2013 and 2014, for which there was no record of Mr Biswal having attended any board meeting and his appointment seemed to be a ‘paper arrangement’ of four months.
This should have ended the matter; but it didn’t. On 13 December 2018, SEBI issued a fresh show-cause notice about non-payment of optionally convertible debentures (OCDs) which, it said, happened during his tenure as MD. Mr Biswal’s vehement submissions and records apparently fell on deaf ears of SEBI’s WTM and, on 7 April 2020, Anant Barua, issued fresh orders against most directors, including Mr Biswal, asking them to refund investors’ money with 15% interest, provide an inventory of their personal assets and barred them from accessing the capital market for four years.
In effect, it was back to square one in April 2020, despite two High Court verdicts and an appeal to SAT. Interestingly, during the hearing, SEBI said that it would not enforce the order relating to refund of money, but Mr Biswal would be barred for four years, since he was shown as MD for four months in the period when Neesa Technologies issued the OCDs.
Anant Barua wouldn't buy his argument that Mr Biswal had not attended any meetings, signed any orders or been party to decisions. All that mattered, in implicating him (as the SAT order noted) was that Mr Biswal ‘appears’ to have been issued and allotted when he was allegedly the MD. SAT stressed on the word ‘appears’ and decimated the erroneous presumption in arriving at that conclusion by narrating a series of facts on record.
These were: he did not attend any board meetings; was not paid remuneration; the allotment of debentures was done before August 13 (which was prior to his alleged tenure of four months); and the resolution to issue debentures dated back to May 2012. Moreover the GHC judgement had already found that his so-called tenure as MD, was only a ‘paper arrangement’ and he was not an officer in default.
SAT not only quashed Mr Barua’s ridiculous order but noted that Mr Biswal had been “harassed since 2015 when an ex-parte interim order was passed against him”, a fresh show-cause notice issued without ‘application of mind’ and a new order issued by ignoring facts on record. In a puny but unusual gesture, SAT also ordered SEBI to pay Mr Biswal Rs50,000 in costs, when he probably deserved exemplary damages.
This chilling case holds a lesson for all those, including regulators and central bankers, who clamber on to boards of dodgy companies and have faced varying degrees of ignominy including being ousted, or having the boards sacked. But these, too, pale in the face of Mr Biswal’s trauma. It is important to note that he fought his own case before SAT and emerged victorious.