SAT Clarifies Company Secretary Duties in Landmark V. Shankar vs SEBI Ruling

Key Takeaways for Corporate Compliance Officers and Company Secretaries

The Securities Appellate Tribunal (SAT) Mumbai has delivered a significant judgment in V. Shankar vs SEBI (Appeal No. 283 of 2022) that clarifies the scope of duties and responsibilities of Company Secretaries and Compliance Officers in corporate buyback transactions. This landmark ruling, dated May 5, 2025, provides crucial guidance for corporate professionals navigating compliance requirements under SEBI regulations and the Companies Act.

Case Background: The Deccan Chronicle Holdings Controversy

The case originated from SEBI’s investigation into Deccan Chronicle Holdings Ltd (DCHL), where V. Shankar served as Company Secretary during 2009-2011. SEBI imposed a penalty of Rs. 10 lakhs on Shankar for alleged violations of:

• Sections 68 and 77A of the Companies Act, 1956
• Section 12(a), (b), and (c) of the SEBI Act, 1992
• Regulation 3(a), (b), (c), (d) and Regulation 4(1), 4(2)(f), (k), and (r) of SEBI (PFUTP) Regulations, 2003

The Core Allegations Against the Company Secretary

SEBI alleged that DCHL had understated outstanding loans worth:

• Rs. 828.23 crore during FY 2008-09
• Rs. 2,128 crore during FY 2009-10
• Rs. 3,678.90 crore during FY 2010-11

The company allegedly used a fraudulent mechanism of transferring loans to Deccan Chronicle Marketeers (DCM) on the last day of each financial year and bringing them back on the first day of the next financial year, thereby manipulating its financial statements.

As the Company Secretary who signed the public announcement for the buyback of equity shares on May 6, 2011, Shankar was held responsible for misleading investors about the company’s financial position and free reserves.

SAT’s Analysis: Defining the Boundaries of Company Secretary Duties

The Ministerial vs. Managerial Role Distinction

The Tribunal made a crucial distinction between the ministerial duties of a Company Secretary and the managerial functions of directors. Key findings include:

1. Authentication vs. Verification: The SAT clarified that authentication of financial statements by a Company Secretary under Section 215 of the Companies Act is performed “on behalf of the Board of Directors,” not in a personal capacity.
2. Limited Scope of Responsibility: The Tribunal emphasized that Company Secretaries are not required to verify the authenticity and correctness of accounts – this responsibility lies with directors and auditors.
3. No Independent Audit Function: The judgment rejected SEBI’s contention that the Company Secretary should have “re-examined the veracity of certified accounts,” stating this expectation lacks legal foundation.

Supreme Court’s Remand and Compliance Officer Role

The case gained additional significance when the Supreme Court by its order dated February 8, 2023, remanded it back to SAT, specifically addressing Regulation 19(3) of the SEBI Buyback Regulations. The Supreme Court clarified that compliance officers have a dual role:

1. Ensuring compliance with buyback regulations
2. Redressing investor grievances

The Supreme Court noted that SAT had previously limited the compliance officer’s role only to grievance redressal, missing the crucial compliance aspect.

Key Legal Principles Established

1. Clear and Unambiguous Charges Required

The SAT emphasized that when allegations against a professional may result in penalties, charges must be clear and unambiguous. The Tribunal found SEBI’s charges against Shankar lacked specificity about which legal provisions were violated.

2. Board Responsibility for Public Announcements

The judgment highlighted that the public announcement for the buyback explicitly stated: “The Board of Directors of the Company accepts responsibility for the information contained in this Announcement.” This reinforced that ultimate responsibility lies with the board, not the Company Secretary.

3. Reliance on Professional Certifications

The SAT recognized that Company Secretaries are entitled to rely on:

• Multiple tiers of oversight (Audit Committee, Board of Directors, Auditors, CEO/CFO)
• Professional certifications by qualified Chartered Accountants
• Board approvals of financial statements

Implications for Corporate Professionals

For Company Secretaries

1. Scope of Duties: The ruling clarifies that Company Secretaries perform administrative functions and are not expected to conduct independent verification of audited accounts.
2. Compliance Framework: While maintaining compliance responsibilities, Company Secretaries can rely on established corporate governance structures.
3. Documentation: Ensure all actions are properly documented as being performed “on behalf of the Board.”

For Compliance Officers

1. Dual Responsibilities: Compliance officers must balance both regulatory compliance and investor grievance redressal.
2. Due Diligence Standards: While not required to re-audit, compliance officers should maintain awareness of material corporate transactions.
3. Risk Management: Establish clear protocols for identifying and escalating potential compliance issues.

SEBI’s Position and Regulatory Expectations

SEBI had argued that Shankar, as the Compliance Officer under Regulation 19(3), should have:

• Exercised “utmost due diligence”
• Verified the buyback offer document
• Checked legal compliances before signing

However, the SAT found these expectations went beyond the statutory role of a Company Secretary and lacked specific legal basis.

Practical Takeaways for Corporate Governance

Best Practices for Company Secretaries

1. Document Board Decisions: Ensure all signatures and authentications are clearly marked as being on behalf of the Board
2. Maintain Professional Boundaries: Understand the distinction between administrative and managerial functions
3. Establish Clear Procedures: Develop protocols for handling public announcements and regulatory filings
4. Professional Development: Stay updated on regulatory changes and compliance requirements

For Boards and Management

1. Clear Role Definition: Establish clear job descriptions distinguishing between Company Secretary and other executive roles
2. Compliance Infrastructure: Develop robust systems for financial reporting and regulatory compliance
3. Risk Assessment: Regular evaluation of compliance risks and internal controls

Conclusion: A Victory for Professional Clarity

The SAT’s ruling in V. Shankar vs SEBI represents a significant victory for professional clarity in corporate governance. By setting aside SEBI’s penalty and clarifying the boundaries of Company Secretary duties, the Tribunal has provided much-needed guidance for corporate professionals.

The judgment reinforces that while Company Secretaries and Compliance Officers have important roles in corporate governance, they cannot be held responsible for duties that legally belong to other corporate functionaries. This distinction is crucial for maintaining the integrity of corporate governance structures while ensuring fair treatment of professional executives.

For the corporate sector, this ruling provides a framework for understanding the balance between accountability and professional responsibility, ultimately strengthening the foundation of corporate governance in India.

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This analysis is based on the SAT Mumbai judgment dated May 5, 2025, in Appeal No. 283 of 2022. Corporate professionals should consult legal experts for specific compliance guidance.