SAT SAYS COMPLIANCE OFFICERS CAN'T BE BLAMED FOR PROMOTER’s OR DIRECTR’s FRAUD

 

SAT SAYS COMPLIANCE OFFICERS CAN'T BE BLAMED FOR PROMOTER’s OR DIRECTR’s FRAUD

 

V SHANKAR Vs SEBI

The case relates to a monetary penalty of ₹10 lakh imposed by Sebi on V Shankar, former company secretary of Deccan Chronicle Holdings, for allegedly misleading investors by signing a buyback announcement based on misstated financials.

CERTIFIED BY A CHARTERED ACCOUNTANT AND BOARD

The audited accounts are certified by a qualified Chartered Accountant and approved by the Board of Directors and hence a compliance officer cannot be held liable for its accuracy.

COMPLIANCE OFFICERS CANNOT BE HELD ACCOUNTABLE

 A recent ruling by the Securities Appellate Tribunal(SAT) has brought relief to compliance officers--the gatekeepers of regulatory and policy adherence in companies. The tribunal recently held that compliance officers cannot be held liable for the fraud committed by the promoters or directors of a listed company.

LIABILITY FOR FRAUDULENT ACTIVITIES

SAT has clarified the role of compliance officers in corporate governance, particularly concerning liability for fraudulent activities committed by promoters or directors. The SAT held that compliance officers cannot be held responsible for frauds perpetrated by higher-level executives over whom they do not have direct control.

INSIDER TRADING

The SAT's ruling aligns with previous decisions emphasizing the limited scope of a compliance officer's responsibilities. In past cases, the tribunal has noted that compliance officers are not required to investigate the minutiae of transactions disclosed to them by Key Managerial Personnel (KMPs) and are not liable for penalties related to insider trading if they have acted in good faith based on the information provided.

Key Takeaways from the SAT's Order:

·      Compliance officers are not scapegoats: They cannot be blamed for actions taken at a level above them, especially without any direct involvement.

 

·      Their role is ministerial, not managerial: They are implementers, not decision-makers—so expecting them to “re-audit” board-approved accounts is legally unsound.

·      Important clarification of the law: Until now, the term “officer-in-default” created a lot of confusion and compliance risk. This judgment sets clear boundaries.

·      Prevents unnecessary witch-hunts: The ruling will discourage uncalled-for regulatory action against professionals who are merely facilitators of board decisions—not originators.

·      Compliance officer’s statutory role is ministerial and not managerial.

WHAT SAT DECISION IMPLIES ?

This ruling has significant implications for corporate governance practices in India. It provides clarity on the accountability of compliance officers, ensuring they are not unjustly held liable for actions beyond their control. The decision reinforces the need for clear delineation of responsibilities within corporate structures, particularly in relation to the duties of compliance officers and the accountability of promoters and directors.

R V Seckar FCS , LLB 79047 19295